Financial & Managerial Accounting 17th Edition by Jan Williams ,Susan Haka,Mark Bettner,Joseph Carcello

تمرين 45

Accrual Accounting, Cash Flow, and Fair Value
Thompson Plumbing Inc. is a wholesaler of plumbing accessories. Thompson Plumbing began operations in September of the current year and engaged in the following transactions during September and October of this year. Thompson Plumbing uses a perpetual inventory system.

Instructions
a. Compute the gross profit on Thompson Plumbing's transactions during September and October.
b. Compute the gross profit on Thompson Plumbing's transactions during September and October if a cash-basis accounting system was used.
c. Explain the difference between the results in a and b.
d. Assume that the fair value of Thompson Plumbing's inventory at October 31 is $750,000. A potential lender asks Thompson Plumbing to prepare a fair-value-based balance sheet. Prepare the journal entry to reflect inventory at fair value. Comment on how a wholesaler might determine fair value for inventory items. [Hint: Increase the Inventory account by the difference between fair value and book value with the offset to an account titled Revaluation of Inventory to Market Value.]