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CHAPTER 8

CHAPTER 8. 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. Purchases. 0 925. Sales. Cost Goods Sold. 0 1,300. 0. Retained Earn. 320.

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CHAPTER 8

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  1. CHAPTER 8 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

  2. Purchases 0 925 Sales Cost Goods Sold 0 1,300 0 Retained Earn 320 Inventory A/P 55 932 42 925 35 Periodic Inventory Year-end adjusting entry: Inventory 80 Cost of Goods Sold 900 Purchases 925 Inventory 55

  3. Purchases 0 925 Sales Cost Goods Sold 0 1,300 0 Retained Earn 320 80 Inventory A/P 55 932 42 925 35 900 1,300 925 900 80 55 900 1,300 What Impact? Purchases recorded properly but the count of ending inventory overstated it by $10.

  4. Purchases 0 925 Sales Cost Goods Sold 0 1,300 0 Retained Earn 320 80 Inventory A/P 55 932 42 925 35 900 1,300 925 900 80 55 900 1,300 What Impact? Ending inventory is correct but $8 of next year’s purchases were recorded in the current year.

  5. Purchases 0 925 Sales Cost Goods Sold 0 1,300 0 Retained Earn 320 80 Inventory A/P 55 932 42 925 35 900 1,300 925 900 80 55 900 1,300 What Impact? $5 of inventory was improperly recorded as a purchase in the current year and improperly included in ending inventory.

  6. 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 =

  7. Average Cost - Perpetual PurchasesSold Balance 150 x $39=$5,850 450 x $43 = $19,350 400 x $44 = $17,600 CGS = End Inv =

  8. FIFO - Periodic 150 x $39=$5,850 CGS = 450 x $43 = $19,350 400 x $44 = $17,600 End Inv =

  9. FIFO – Perpetual Inventory PurchasesSold Balance 150 x $39=$5,850 450 x $43 = $19,350 400 x $44 = $17,600 CGS = End Inv =

  10. LIFO - Periodic 150 x $39=$5,850 CGS = 450 x $43 = $19,350 400 x $44 = $17,600 End Inv =

  11. LIFO – Perpetual Inventory PurchasesSold Balance 150 x $39=$5,850 450 x $43 = $19,350 200 400 x $44 = $17,600 500 CGS = End Inv =

  12. Dollar-Value LIFO • calculate base-year value of total inventory • use base-year values to identify LIFO layers Cur Value B-Y Value LIFO layers $100,000 12/31/00 Index=100 $123,200 12/31/01 Index=110 $134,560 12/31/02 Index=116 $123,900 12/31/03 Index=118

  13. Whose inventory? W Z • 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.

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