describe how a firm determines which costs to include in its inventory account. What accounting principle did Moo Metal follow when it recorded the $19.4 million pretax charge? Briefly describe the rationale for this principl
describe how a firm determines which costs to include in its inventory account. What accounting principle did Moo Metal follow when it recorded the $19.4 million pretax charge? Briefly describe the rationale for this principl
describe how a firm determines which costs to include in its inventory account. What accounting principle did Moo Metal follow when it recorded the $19.4 million pretax charge? Briefly describe the rationale for this principl
In an annual report, Dozer International, Inc., describes its inventory accounting policies as follows:
Inventories are stated at the lower-of-cost-or-net-realizable value, with inventory cost determined using the first-in, first-out (FIFO) method. The cost of inventory includes freight-in and duties on imported goods.
Also in an annual report, Moo Metal Corporation made the following statement in discussing its inventories:
The company recorded pretax charges of approximately $19.4 million because of a reduction in the carrying values of its inventories caused principally by prevailing lower prices for alumina, primary aluminum, and fabricated products.
What accounting principle did Dozer International follow when it included the costs of freight-in and duties on imported goods in its Inventory account? Briefly describe how a firm determines which costs to include in its inventory account. What accounting principle did Moo Metal follow when it recorded the $19.4 million pretax charge? Briefly describe the rationale for this principle.
Transcribed Image Text:**Inventory Accounting Practices of Corporations**
**Example 1: Craftmade International, Inc.**
Craftmade International, Inc. outlines its inventory accounting policies as follows:
- Inventories are assessed at the lower of cost or net realizable value.
- The inventory cost is determined using the first-in, first-out (FIFO) method.
- The inventory cost incorporates freight-in and duties on imported goods.
**Example 2: Kaiser Aluminum Corporation**
Kaiser Aluminum Corporation discusses its inventory valuation with the following statement:
- The company accounted for pretax charges of about $19.4 million due to a decrease in the carrying values of its inventories, primarily caused by lower market prices for alumina, primary aluminum, and fabricated products.
**Discussion Points**
1. **Accounting Principles for Inventory Costs**
- **Craftmade International**: What accounting principles justify including freight-in and duties in the Inventory account?
- A firm determines inventory costs by considering all expenses necessary to bring inventory to its present condition and location, including purchase price, import duties, transport, and handling costs.
2. **Accounting Principles for Recording Charges**
- **Kaiser Aluminum**: What principle was applied when recording the $19.4 million pretax charge?
- The principle involves recognizing losses when the market value of inventory falls below its cost, aligning with the conservatism principle which requires anticipating potential losses but not gains.
These examples illustrate how corporations adhere to specific accounting principles to manage and report inventory, ensuring transparency and consistency in financial statements.
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