Question

Financial accounting Chapter 6 Question 19 - p. 301

19) In an annual report, Craftmade 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, Kaiser Aluminum 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 Craftmade 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 Kaiser Aluminum follow when it recorded the $19.4 million pretax charge? Briefly describe the rationale for this principle.

Answer 1