Inventory includes raw materials, work-in-process goods and finished products which are held with the purpose of sale. Given: Accounting, Analysis, and Principles E Company sells two types of pumps. One is large and is for commercial use. The other is smaller and is used in residential swimming pools. The inventory data is available for the month of March and is provided in the question. Accounting (a) The cost of inventory on hand on March 31 and the cost of goods sold for March under first-in first-out (FIFO), assuming that E uses a periodic inventory system.

Question

Consolidation Working Paper One Year after Acquisition, Bargain Purchase On January 1, 2022, Paxon Corporation acquired 90 percent of the outstanding common stock of Saxon Company for $1.8 billion cash. The fair value of the 10 percent noncontrolling interest in Saxon was estimated to be $150 million at the date of acquisition. Paxon uses the complete equity method to report its investment. The trial balances of Paxon and Saxon (in millions) Cash and receivables Inventory Equity method investments Investment in Saxon Dr(Cr) Paxon Saxon $3,225 $855 2,260 530 December 31, 2022, appear below: 2,441.5 Land 650 300 Buildings and equipment, net 3,600 1,150 Current liabilities (2,020) (1,200) Long-term debt (5,000) (450) (500) (50) Common stock, par value Additional paid-in capital Retained earnings, January 1 Dividends Sales revenue (1,200) (200) (2,410) (600) 500 250 (30,000) (12,000) Equity in net income of Saxon (616.5) Gain on acquisition (250) Gain on sale of securities (150) Cost of…

Answer 1

Question

Chapter 8, Problem 2UJ

To determine

Introduction: Inventory includes raw materials, work-in-process goods and finished products which are held with the purpose of sale.

Given:

Accounting, Analysis, and Principles E Company sells two types of pumps. One is large and is for commercial use. The other is smaller and is used in residential swimming pools. The inventory data is available for the month of March and is provided in the question.

Accounting

(a)

The cost of inventory on hand on March 31 and the cost of goods sold for March under first-in first-out (FIFO), assuming that E uses a periodic inventory system.

To determine

(b)

The cost of inventory on hand on March 31 and the cost of goods sold for March. Assume E’s initial adoption of LIFO is on March 1 and E uses dollar-value LIFO and one pool, consisting of the combination of residential and commercial pumps. Use the double-extension method to determine the appropriate price indices. (Hint: The price index for February 28/March 1 should be 1.00.) (Round the index to three decimal places.)

To determine

Analysis

(c)

To explain: Assume you need to compute a current ratio for E. Which inventory method (FIFO or dollar-value LIFO) do you think would give you a more meaningful current ratio?

To determine

(d)

To explain: Some of E’s competitors use LIFO inventory costing and some use FIFO. How can an analyst compare the results of companies in an industry, when some use LIFO and others use FIFO?

To determine

Principles

To explain: Can companies change from one inventory accounting method to another? If a company changes to an inventory accounting method used by most of its competitors, what are the trade-offs in terms of the conceptual framework discussed in Chapter 2 of the textbook?

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Consolidation Working Paper One Year after Acquisition, Bargain Purchase On January 1, 2022, Paxon Corporation acquired 90 percent of the outstanding common stock of Saxon Company for $1.8 billion cash. The fair value of the 10 percent noncontrolling interest in Saxon was estimated to be $150 million at the date of acquisition. Paxon uses the complete equity method to report its investment. The trial balances of Paxon and Saxon (in millions) Cash and receivables Inventory Equity method investments Investment in Saxon Dr(Cr) Paxon Saxon $3,225 $855 2,260 530 December 31, 2022, appear below: 2,441.5 Land 650 300 Buildings and equipment, net 3,600 1,150 Current liabilities (2,020) (1,200) Long-term debt (5,000) (450) (500) (50) Common stock, par value Additional paid-in capital Retained earnings, January 1 Dividends Sales revenue (1,200) (200) (2,410) (600) 500 250 (30,000) (12,000) Equity in net income of Saxon (616.5) Gain on acquisition (250) Gain on sale of securities (150) Cost of…

KIARA LIMITED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER: ASSETS Property, plant and equipment (cost) Accumulated depreciation Long-term investments Inventory Accounts receivable Company tax paid in advance Bank EQUITY AND LIABILITIES 2024 2023 R R 2 490 000 1 620 000 (630 000) 660 000 1 050 000 1 230 000 30 000 (480 000) 450 000 1 290 000 900 000 0 750 000 660 000 5 580 000 4 440 000 Ordinary share capital 2 700 000 2 000 000 Retained income 1 500 000 1 158 000 Long-term loan from Kip Bank (15%) 900 000 1 000 000 Accounts payable 480 000 228 000 Company tax payable 0 54 000 5 580 000 4 440 000 ADDITIONAL INFORMATION All purchases and sales are on credit. Interim dividends paid during the year amounted to R150 750. Credit terms of 3/10 net 60 days are granted by creditors.

Accounting Question

Answer 2

Question

Chapter 8, Problem 2UJ

To determine

Introduction: Inventory includes raw materials, work-in-process goods and finished products which are held with the purpose of sale.

Given:

Accounting, Analysis, and Principles E Company sells two types of pumps. One is large and is for commercial use. The other is smaller and is used in residential swimming pools. The inventory data is available for the month of March and is provided in the question.

Accounting

(a)

The cost of inventory on hand on March 31 and the cost of goods sold for March under first-in first-out (FIFO), assuming that E uses a periodic inventory system.

To determine

(b)

The cost of inventory on hand on March 31 and the cost of goods sold for March. Assume E’s initial adoption of LIFO is on March 1 and E uses dollar-value LIFO and one pool, consisting of the combination of residential and commercial pumps. Use the double-extension method to determine the appropriate price indices. (Hint: The price index for February 28/March 1 should be 1.00.) (Round the index to three decimal places.)

To determine

Analysis

(c)

To explain: Assume you need to compute a current ratio for E. Which inventory method (FIFO or dollar-value LIFO) do you think would give you a more meaningful current ratio?

To determine

(d)

To explain: Some of E’s competitors use LIFO inventory costing and some use FIFO. How can an analyst compare the results of companies in an industry, when some use LIFO and others use FIFO?

To determine

Principles

To explain: Can companies change from one inventory accounting method to another? If a company changes to an inventory accounting method used by most of its competitors, what are the trade-offs in terms of the conceptual framework discussed in Chapter 2 of the textbook?

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Answer 3

Question

Chapter 8, Problem 2UJ

To determine

Introduction: Inventory includes raw materials, work-in-process goods and finished products which are held with the purpose of sale.

Given:

Accounting, Analysis, and Principles E Company sells two types of pumps. One is large and is for commercial use. The other is smaller and is used in residential swimming pools. The inventory data is available for the month of March and is provided in the question.

Accounting

(a)

The cost of inventory on hand on March 31 and the cost of goods sold for March under first-in first-out (FIFO), assuming that E uses a periodic inventory system.

To determine

(b)

The cost of inventory on hand on March 31 and the cost of goods sold for March. Assume E’s initial adoption of LIFO is on March 1 and E uses dollar-value LIFO and one pool, consisting of the combination of residential and commercial pumps. Use the double-extension method to determine the appropriate price indices. (Hint: The price index for February 28/March 1 should be 1.00.) (Round the index to three decimal places.)

To determine

Analysis

(c)

To explain: Assume you need to compute a current ratio for E. Which inventory method (FIFO or dollar-value LIFO) do you think would give you a more meaningful current ratio?

To determine

(d)

To explain: Some of E’s competitors use LIFO inventory costing and some use FIFO. How can an analyst compare the results of companies in an industry, when some use LIFO and others use FIFO?

To determine

Principles

To explain: Can companies change from one inventory accounting method to another? If a company changes to an inventory accounting method used by most of its competitors, what are the trade-offs in terms of the conceptual framework discussed in Chapter 2 of the textbook?

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Answer 4

Question

Chapter 8, Problem 2UJ

To determine

Introduction: Inventory includes raw materials, work-in-process goods and finished products which are held with the purpose of sale.

Given:

Accounting, Analysis, and Principles E Company sells two types of pumps. One is large and is for commercial use. The other is smaller and is used in residential swimming pools. The inventory data is available for the month of March and is provided in the question.

Accounting

(a)

The cost of inventory on hand on March 31 and the cost of goods sold for March under first-in first-out (FIFO), assuming that E uses a periodic inventory system.

To determine

(b)

The cost of inventory on hand on March 31 and the cost of goods sold for March. Assume E’s initial adoption of LIFO is on March 1 and E uses dollar-value LIFO and one pool, consisting of the combination of residential and commercial pumps. Use the double-extension method to determine the appropriate price indices. (Hint: The price index for February 28/March 1 should be 1.00.) (Round the index to three decimal places.)

To determine

Analysis

(c)

To explain: Assume you need to compute a current ratio for E. Which inventory method (FIFO or dollar-value LIFO) do you think would give you a more meaningful current ratio?

To determine

(d)

To explain: Some of E’s competitors use LIFO inventory costing and some use FIFO. How can an analyst compare the results of companies in an industry, when some use LIFO and others use FIFO?

To determine

Principles

To explain: Can companies change from one inventory accounting method to another? If a company changes to an inventory accounting method used by most of its competitors, what are the trade-offs in terms of the conceptual framework discussed in Chapter 2 of the textbook?

Expert Solution & Answer

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Answer 5

Chapter 8, Problem 2UJ

To determine

Introduction: Inventory includes raw materials, work-in-process goods and finished products which are held with the purpose of sale.

Given:

Accounting, Analysis, and Principles E Company sells two types of pumps. One is large and is for commercial use. The other is smaller and is used in residential swimming pools. The inventory data is available for the month of March and is provided in the question.

Accounting

(a)

The cost of inventory on hand on March 31 and the cost of goods sold for March under first-in first-out (FIFO), assuming that E uses a periodic inventory system.

To determine

(b)

The cost of inventory on hand on March 31 and the cost of goods sold for March. Assume E’s initial adoption of LIFO is on March 1 and E uses dollar-value LIFO and one pool, consisting of the combination of residential and commercial pumps. Use the double-extension method to determine the appropriate price indices. (Hint: The price index for February 28/March 1 should be 1.00.) (Round the index to three decimal places.)

To determine

Analysis

(c)

To explain: Assume you need to compute a current ratio for E. Which inventory method (FIFO or dollar-value LIFO) do you think would give you a more meaningful current ratio?

To determine

(d)

To explain: Some of E’s competitors use LIFO inventory costing and some use FIFO. How can an analyst compare the results of companies in an industry, when some use LIFO and others use FIFO?

To determine

Principles

To explain: Can companies change from one inventory accounting method to another? If a company changes to an inventory accounting method used by most of its competitors, what are the trade-offs in terms of the conceptual framework discussed in Chapter 2 of the textbook?

Answer 6

Chapter 8, Problem 2UJ

To determine

Introduction: Inventory includes raw materials, work-in-process goods and finished products which are held with the purpose of sale.

Given:

Accounting, Analysis, and Principles E Company sells two types of pumps. One is large and is for commercial use. The other is smaller and is used in residential swimming pools. The inventory data is available for the month of March and is provided in the question.

Accounting

(a)

The cost of inventory on hand on March 31 and the cost of goods sold for March under first-in first-out (FIFO), assuming that E uses a periodic inventory system.

Answer 7

Chapter 8, Problem 2UJ

To determine

Introduction: Inventory includes raw materials, work-in-process goods and finished products which are held with the purpose of sale.

Given:

Accounting, Analysis, and Principles E Company sells two types of pumps. One is large and is for commercial use. The other is smaller and is used in residential swimming pools. The inventory data is available for the month of March and is provided in the question.

Accounting

(a)

The cost of inventory on hand on March 31 and the cost of goods sold for March under first-in first-out (FIFO), assuming that E uses a periodic inventory system.

Answer 8

To determine

(b)

The cost of inventory on hand on March 31 and the cost of goods sold for March. Assume E’s initial adoption of LIFO is on March 1 and E uses dollar-value LIFO and one pool, consisting of the combination of residential and commercial pumps. Use the double-extension method to determine the appropriate price indices. (Hint: The price index for February 28/March 1 should be 1.00.) (Round the index to three decimal places.)

Answer 9

To determine

(b)

The cost of inventory on hand on March 31 and the cost of goods sold for March. Assume E’s initial adoption of LIFO is on March 1 and E uses dollar-value LIFO and one pool, consisting of the combination of residential and commercial pumps. Use the double-extension method to determine the appropriate price indices. (Hint: The price index for February 28/March 1 should be 1.00.) (Round the index to three decimal places.)

Answer 10

To determine

Analysis

(c)

To explain: Assume you need to compute a current ratio for E. Which inventory method (FIFO or dollar-value LIFO) do you think would give you a more meaningful current ratio?

Answer 11

To determine

Analysis

(c)

To explain: Assume you need to compute a current ratio for E. Which inventory method (FIFO or dollar-value LIFO) do you think would give you a more meaningful current ratio?

Answer 12

To determine

(d)

To explain: Some of E’s competitors use LIFO inventory costing and some use FIFO. How can an analyst compare the results of companies in an industry, when some use LIFO and others use FIFO?

Answer 13

To determine

(d)

To explain: Some of E’s competitors use LIFO inventory costing and some use FIFO. How can an analyst compare the results of companies in an industry, when some use LIFO and others use FIFO?

Answer 14

To determine

Principles

To explain: Can companies change from one inventory accounting method to another? If a company changes to an inventory accounting method used by most of its competitors, what are the trade-offs in terms of the conceptual framework discussed in Chapter 2 of the textbook?

Answer 15

To determine

Principles

To explain: Can companies change from one inventory accounting method to another? If a company changes to an inventory accounting method used by most of its competitors, what are the trade-offs in terms of the conceptual framework discussed in Chapter 2 of the textbook?

Answer 16

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Answer 17

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Answer 22

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Ch. 8 - Prob. 1Q Ch. 8 - 2. Why should inventories be included in (a) a...Ch. 8 - 3. What is the difference between a perpetual...Ch. 8 - Prob. 4Q Ch. 8 - Prob. 5Q Ch. 8 - Prob. 6Q Ch. 8 - Prob. 7Q Ch. 8 - Prob. 8Q Ch. 8 - Prob. 9Q Ch. 8 - Prob. 10Q

Concept explainers

Videos

Analysis

(c)

To explain: Assume you need to compute a current ratio for E. Which inventory method (FIFO or dollar-value LIFO) do you think would give you a more meaningful current ratio?

(d)

To explain: Some of E’s competitors use LIFO inventory costing and some use FIFO. How can an analyst compare the results of companies in an industry, when some use LIFO and others use FIFO?

Principles

To explain: Can companies change from one inventory accounting method to another? If a company changes to an inventory accounting method used by most of its competitors, what are the trade-offs in terms of the conceptual framework discussed in Chapter 2 of the textbook?

Chapter 8 Solutions

Concept explainers

Videos

Analysis (c) To explain: Assume you need to compute a current ratio for E. Which inventory method (FIFO or dollar-value LIFO) do you think would give you a more meaningful current ratio?

(d) To explain: Some of E’s competitors use LIFO inventory costing and some use FIFO. How can an analyst compare the results of companies in an industry, when some use LIFO and others use FIFO?

Principles To explain: Can companies change from one inventory accounting method to another? If a company changes to an inventory accounting method used by most of its competitors, what are the trade-offs in terms of the conceptual framework discussed in Chapter 2 of the textbook?

Chapter 8 Solutions

Analysis

(c)

To explain: Assume you need to compute a current ratio for E. Which inventory method (FIFO or dollar-value LIFO) do you think would give you a more meaningful current ratio?

(d)

To explain: Some of E’s competitors use LIFO inventory costing and some use FIFO. How can an analyst compare the results of companies in an industry, when some use LIFO and others use FIFO?

Principles

To explain: Can companies change from one inventory accounting method to another? If a company changes to an inventory accounting method used by most of its competitors, what are the trade-offs in terms of the conceptual framework discussed in Chapter 2 of the textbook?