Inventory Valuation and Cost of Goods Sold

Assume that you are the chief financial officer for your organization and that you are preparing the organization’s financial statement footnotes. As you prepare and gather corporate information supporting the financial practices, policies, and procedures in your company, you consider the importance of the following six questions. Choose three of the following six questions, and describe what type of information would be included in the footnotes to the financial statements, how that information would be stated, and the significance of that information to the user of the financial statement: What are the acceptable inventory valuation methods under U.S. GAAP? How does each affect the valuation of inventory and cost of goods sold? Explain the accounting principle of lower of cost or market and how it relates to the income statement. What do the ratios inventory turnover and days to sell inventory indicate to the financial statement users? Can an organization change its selected inventory method, and, if so, is there an effect on current net income or retained earnings? Why or why not? Compare and contrast depreciation, amortization, and depletion, giving an example of each. How does net book value on fixed assets differ from fair market value of fixed assets, and how do they relate to liquidation?

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