Transcript Chapter 8

CHAPTER
Valuation of Inventories:
A
Cost
Basis
Approach
……..…………………………………………………………...
Issues
 types of inventory
 perpetual vs periodic systems
 goods to be included in inventory
 costs to be included
8
Periodic Inventory
Sales
0
1,300
Inventory
55
Purchases
0
925
Cost Goods Sold
0
A/P
932
42
925
Retained Earn
320
35
Year-end adjusting entry:
Inventory
Cost of Goods Sold
Purchases
Inventory
80
900
925
55
Sales
1,300
0
1,300
Inventory
55
80
55
80
Purchases
0
925
925
A/P
932
42
925
Cost Goods Sold
0
900
900
Retained Earn
320
900
1,300
35
What Impact?
Purchases recorded properly but the count of ending
inventory overstated it by $10.
Sales
1,300
0
1,300
Inventory
55
80
55
80
Purchases
0
925
925
A/P
932
42
925
Cost Goods Sold
0
900
900
Retained Earn
320
900
1,300
35
What Impact?
Ending inventory is correct but $8 of next year’s purchases
were recorded in the current year.
Sales
1,300
0
1,300
Inventory
55
80
55
80
Purchases
0
925
925
A/P
932
42
925
Cost Goods Sold
0
900
900
Retained Earn
320
900
1,300
35
What Impact?
$5 of inventory was improperly recorded as a purchase in the
current year and improperly included in ending inventory.
Average Cost - Periodic
150 x $39=$5,850
CGS =
450 x $43 = $19,350
400 x $44 = $17,600
1,000 x $42.80 = $42,800
End Inv =
Average Cost - Perpetual
Purchases
Sold
Balance
150 x $39=$5,850
450 x $43 = $19,350
400 x $44 = $17,600
CGS =
End Inv =
FIFO - Periodic
150 x $39=$5,850
CGS =
450 x $43 = $19,350
400 x $44 = $17,600
End Inv =
FIFO – Perpetual Inventory
Purchases
Sold
Balance
150 x $39=$5,850
450 x $43 = $19,350
400 x $44 = $17,600
CGS =
End Inv =
LIFO - Periodic
150 x $39=$5,850
CGS =
450 x $43 = $19,350
400 x $44 = $17,600
End Inv =
LIFO – Perpetual Inventory
Purchases
Sold
Balance
150 x $39=$5,850
450 x $43 = $19,350
200
400 x $44 = $17,600
500
CGS =
End Inv =
Dollar-Value LIFO
 calculate base-year value of total inventory
 use base-year values to identify LIFO layers
Cur Value
12/31/00
Index=100
$100,000
12/31/01
Index=110
$123,200
12/31/02
Index=116
$134,560
12/31/03
Index=118
$123,900
B-Y Value
LIFO layers
Whose inventory?
W
• Goods in transit (W shipped to Z f.o.b.
destination).
• Z takes goods from W on consignment.
• W sells goods to Z with an agreement
to repurchase at a set price.
• W sells goods to Z, estimating that 35%
of them will be returned.
• W completes special-order goods for Z
but has not yet delivered them.
Z