Expert answer:Tools For Business Decision Making, Ch. 6, ACCT 29
Answer & Explanation:1. What are the three different inventory cost flowassumptions commonly used in commerce today and allowed by generally acceptedaccounting principles? Pick one and describe in detail how it works. How doesyour company, or a company you are familiar with, determine what cost flowassumption it should use?2. How do the three inventorycost flow assumptions compare when reporting profit in the income statement andinventory on the balance sheet in a period of rising prices?3. Companies will normallypick an inventory cost flow assumption based on the balance sheet effects, theincome statement effects or the tax effects. What are some of theconsiderations to think about if management is focused on the income statementeffects? Which method would provide the most favorable income statement?4. Describe the lower of cost or market inventory valuation method and why it is used. Howdoes this follow the convention in conservatism in accounting?5. What are some of the pros and cons of having a high inventory turnover vs low inventory turnover? Do youthink it depends on the type of business? Which types of businesses would havelow inventory turnover rates and still be considered acceptable? How would youdetermine the appropriate inventory ratio if you owned a merchandising company?6. In your own words describe the inventory turnover ratio and days in inventory calculation.Why are these calculations important to merchandising companies?7. Learning about the various financial statement ratios can seem overwhelming. The goodnews is, you do not need to memorize the ratios. Starting on page 712 of theeBook is a discussion of the most common financial statement ratios and how tocalculate them. If you were a manager, which ratio do you think would be mosthelpful?
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