Fundamental-Accounting-Principles-(6)

InventoriesandCostofSalesChapter6PowerPointEditor:BethKane,MBA,[e-mail]tionwithoutthepriorwrittenconsentofMcGraw-HillEducation.06-C1:DeterminingInventoryItems26-3DeterminingInventoryItemsMerchandiseinventoryincludesallgoodsthatacompanyownsandholdsforsale,regardlessofwherethegoodsarelocatedwheninventoryiscounted.GoodsinTransitGoodsDamagedorObsoleteGoodsonConsignmentC1Itemsrequiringspecialattentioninclude:36-4FOBDestinationPointPublicCarrierSellerBuyerGoodsinTransitPublicCarrierSellerBuyerFOBShippingPointOwnershippassestothebuyerhere.C146-5GoodsonConsignmentMerchandiseisincludedintheinventoryoftheconsignor,theowneroftheinventory.C156-6GoodsDamagedorObsoleteDamagedorobsoletegoodsarenotcountedininventoryiftheycannotbesold.Costshouldbereducedtonetrealizablevalueiftheycanbesold.C1606-C2:DeterminingInventoryCosts76-8DeterminingInventoryCostsInvoiceCostIncludeallexpendituresnecessarytobringanitemtoasalableconditionandlocation.MinusDiscountsandAllowancesPlusImportDutiesPlusFreightPlusStoragePlusInsuranceC286-9Mostcompaniestakeaphysicalcountofinventoryatleastonceeachyear.InternalControlsandTakingaPhysicalCountWhenthephysicalcountdoesnotmatchtheMerchandiseInventoryaccount,anadjustmentmustbemade.Goodinternalcontrolsovercountinclude:1.Pre-numberedinventorytickets.2.Countershavenoinventoryresponsibility.3.Countsconfirmexistence,amount,andqualityofinventoryitem.4.Secondcountistaken.5.Managerconfirmsallitemscounted.C296-10InventoryCostingunderaPerpetualSystemInventoryaffects...Thematchingprinciplerequiresmatchingcostswithsales.BalanceSheetIncomeStatementC2106-11InventoryCostFlowAssumptionsC2Managementdecisionsinaccountingforinventoryinvolvethefollowing:1.Itemsincludedininventoryandtheircosts.2.Costingmethod(specificidentification,FIFO,LIFO,orweightedaverage).3.Inventorysystem(perpetualorperiodic).4.Useofmarketvaluesorotherestimates.11Copyright©2015McGraw-HillEducationAmastercarverofwoodenbirdsoperatesherbusinessoutofagarage.Attheendofthecurrentperiod,thecarverhas17units(carvings)inhergarage,threeofwhichweredamagedbywaterandcannotbesold.Thedistributoralsohasanotherfiveunitsinhertruck,readytodeliverperacustomerorder,termsFOBdestination,andanother11unitsoutonconsignmentatseveralsmallretailstores.Howmanyunitsdoesthecarverincludeinthebusiness’speriod-endinventory?UnitsinendinginventoryUnitsinstorage17Lessdamaged(unsalable)units(3)Plusunitsintransit(FOBDestination)5Plusunitsonconsignment11Totalunitsinendinginventory30Adistributorofartisticiron-basedfixturesacquiresapiecefor$1,000,termsFOBshippingpoint.Additionalcostsinobtainingitandofferingitforsaleinclude$150fortransportation-in,$300forimportduties,$100forinsuranceduringshipment,$200foradvertising,a$50voluntarygratuitytothedeliveryperson,$75forenhancedstorelighting,and$250forsalesstaffsalaries.Forcomputinginventory,whatcostisassignedtothisartisticpiece?CostofinventoryCost$1,000Transportation-in(FOBshippingpoint)150Importduties300Insurancecost100Inventorycost$1,550Keypoint–Howmanyunitsdoessheownatyear-end?Keypoint–Whatarethenecessarycoststogettheassetreadyforitsintendedpurpose?NEED-TO-KNOW06-P1:InventoryCosting136-14InventoryCostFlowAssumptionsFirst-In,First-Out(FIFO)Assumescostsflowintheorderincurred.Last-In,First-Out(LIFO)Assumescostsflowinthereverseorderincurred.WeightedAverageAssumescostsflowatanaverageofthecostsavailable.P1146-15InventoryCostingIllustrationHereisinformationaboutthemountainbikeinventoryofTrekkingforthemonthofAugust.P1156-16SpecificIdentificationP1166-17First-In,First-Out(FIFO)CostofGoodsSoldEndingInventoryOldestCostsRecentCostsP1176-18First-In,First-Out(FIFO)P1186-19Last-In,First-Out(LIFO)CostofGoodsSoldEndingInventoryRecentCostsOldestCostsP1196-20Last-In,First-Out(LIFO)P1206-21WeightedAverageWhenaunitissold,theaveragecostofeachunitininventoryisassignedtocostofgoodssold.CostofGoodsAvailableforSaleUnitsonhandonthedateofsale÷P1216-22WeightedAverageP122NEED-TO-KNOWAcompanyreportedthefollowingDecemberpurchasesandsalesdataforitsonlyproduct.DateActivitiesUnitsAcquiredatCostUnitsSoldatRetailDec.01Beginninginventory5units@$3.00=$15.00Dec.08Purchase10units@$4.50=$45.00Dec.09Sales8units@$7.00Dec.19Purchase13units@$5.00=$65.00Dec.24Sales18units@$8.00Dec.30Purchase8units@$5.30=$42.4036units$167.4026unitsThecompanyusesaperpetualinventorysystem.Determinethecostassignedtoendinginventoryandtocostofgoodssoldusing(a)specificidentification,(b)FIFO,(c)LIFO,and(d)weightedaverage.(Roundperunitcostsandinventoryamountstocents.)Forspecificidentification,endinginventoryconsistsof10units,whereeightarefromtheDecember30purchaseandtwoarefromtheDecember8purchase.P123NEED-TO-KNOWAcompanyreportedthefollowingDecemberpurchasesandsalesdataforitsonlyproduct.DateActivitiesUnitsAcquiredatCostUnitsSoldatRetailDec.01Beginninginventory5units@$3.00=$15.00Dec.08Purchase10units@$4.50=$45.00Dec.09Sales8units@$7.00Dec.19Purchase13units@$5.00=$65.00Dec.24Sales18units@$8.00Dec.30Purchase8units@$5.30=$42.4036units$167.4026unitsThecompa