1. You use a perpetual inventory system and value the inventory using FIFO. Prior to making adjusting year-end entries you valued the inventory at the lower-of-cost or-market. Justify why you valued the inventory at lower-of-cost or-market.
FASB ASC CITATION:
Adjustments to Lower of Cost or Market
330-10-35-1 A departure from the cost basis of pricing the inventory is required when the utility of the goods is no longer as great as their cost. Where there is evidence that the utility of goods, in their disposal in the ordinary course of business, will be less than cost, whether due to physical deterioration, obsolescence, changes in price levels, or other causes, the difference shall be recognized as a loss of the current period. This is
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The interest cost capitalized on those expenses is a cost of acquiring the asset that results from those activities. If the asset were a structure, such as a factory, interest capitalized on the land expenditures is part of the acquisition cost of the structure. If the resulting asset is developed land, such as land that is to be sold as developed lots, interest capitalized on the land expenditures is part of the acquisition cost of the developed land. If our company chose to start to work on the land for the intended purpose for which the land was purchased, then they would be able to capitalize interest on the land. Furthermore, FASB has outlined three conditions that must be met in order to capitalize interest on an asset. They are as follows; (1) Activities necessary to get the asset ready for its intended use is in progress. (2) Expenditures for the asset are being made. (3) Interest cost is being incurred. Interest capitalization on an asset can continue as long as those three conditions are present. In our example, because no work is being done on the land, it is not a qualifying asset and therefore cannot have interest costs capitalized. (Resources: SFAS No.34)
3. You are to allocate an asset retirement cost (initiated by an asset retirement obligation). What guidance is given over the manner in which the asset retirement cost should be allocated to expense?
FASB ASC CITATION:
Allocation of Asset Retirement Cost
410-20-35-2 An entity shall subsequently