*** adult truths *** - an email forward 1.part of a best friend's job should be to immediately...
TRANSCRIPT
*** Adult Truths *** - An Email Forward
1. Part of a best friend's job should be to immediately clear your computer history if you die.
2. Nothing is worse than that moment during an argument when you realize you're wrong.
3. I totally take back all those times I didn't want to nap when I was younger.
4. There is great need for a sarcasm font.
5. How in the world are you supposed to fold a fitted sheet?
6. Was learning cursive really necessary?
7. Map Quest really needs to start their directions on # 5. I'm pretty sure I know how to get out of my neighborhood.
8. Obituaries would be a lot more interesting if they told you how the person died.
9. I can't remember the last time I wasn't at least kind of tired.
10.Bad decisions make good stories.
CHAPTER 8
VALUATION OF INVENTORIES: A COST-BASIS APPROACH
Sommers – ACCT 3311
Discussion Question
Q8-6
(a) Goods out on approval to customers
(b) Goods in transit that were recently purchased f.o.b. destination
(c) Land held by a realty firm for sale
(d) Raw Materials
(e) Goods received on consignment
(f) Manufacturing supplies
Inventory
Not Shown
Inventory
Inventory (disclosed as raw materials)
Not Shown
Inventory
A company should record purchases when it obtains legal
title to the goods.
Transfer of ownership
Discussion Question
Q8-3 What is the difference between a perpetual inventory and a
physical inventory? If a company maintains a perpetual inventory,
should its physical inventory at any date be equal to the amount
indicated by the perpetual inventory records? Why?
In a perpetual inventory system, data are available at any time on the
quantity and dollar amount of each item of material or type of
merchandise on hand. A physical inventory means that inventory is
periodically counted (at least once a year) but that up-to-date records
are not necessarily maintained. Discrepancies often occur between the
physical count and the perpetual records because of clerical errors,
theft, waste, misplacement of goods, etc.
Comparison of Inventory Systems
Transaction or Event
Periodic Inventory Perpetual Inventory
Routine purchases of various inventory items
Costs debited to purchases account
Costs debited to inventory account
Sale of inventoryNo accounting entries
made to inventory
Debit Cost of goods sold and credit
inventory
End-of-period accounting entries and
related activities
Physical count to determine ending
inventory and cost of goods sold
No separate determination of cost of goods sold necessary
Periodic Inventory System
Beginning inventory 120,000$ Plus: Purchases 600,000 Cost of goods available for sale 720,000 Less: Ending inventory (180,000) Cost of goods sold 540,000$
Calculation of Cost of Goods Sold
We need the following adjusting entry to record cost of good sold.December 31, 2011Cost of goods sold 540,000Inventory (ending) 180,000
Inventory (beginning) 120,000Purchases 600,000
To adjust inventory, close purchases, and record cost of goods sold.
Inventory Notation
BeginningBalance
Cost of Goods Available for Sale
Cost of Goods Sold
EndingBalance
Purchases
? ?
Method adopted should be one that most clearly reflects periodic income.
Cost Flow Assumption Adopted
does not need to equal
Physical Movement of Goods
Cost Flow Assumption Adopted
does not need to equal
Physical Movement of Goods
Specific Identification --- Average Cost
LIFO --- FIFO
Choosing a Cost Flow Assumption
Example 1: FIFO Periodic
Ferris Company began 2011 with 6,000 units of its principal product. The cost of each unit is $8. Merchandise transactions for the month of January 2011 are as follows:
8,000 units were on hand at the end of the month.
Calculate January’s ending inventory and cost of goods sold for the month using FIFO, periodic system.
Purchases
Date Units Unit Cost Total Cost
Jan 10 5,000 $9 $45,000
Jan 18 6,000 10 60,000
Totals 11,000 $105,000
Sales
Date Units
Jan 5 3,000
Jan 12 2,000
Jan 20 4,000
Total 9,000
Example 1: FIFO Periodic
Units
6,000 11,000
17,000
8,000 9,000
Dollars
48,000 105,000
153,000
New Stuff Old Stuff
Cost of Goods Sold:6,000 units @ $8 = $48,0003,000 units @ $9 = 27,0009,000 units = $75,000
Ending Inventory:6,000 units @ $10 = $60,0002,000 units @ $9 = 18,0008,000 units = $78,000
Example 1: LIFO Periodic
Ferris Company began 2011 with 6,000 units of its principal product. The cost of each unit is $8. Merchandise transactions for the month of January 2011 are as follows:
8,000 units were on hand at the end of the month.
Calculate January’s ending inventory and cost of goods sold for the month using LIFO, periodic system.
Purchases
Date Units Unit Cost Total Cost
Jan 10 5,000 $9 $45,000
Jan 18 6,000 10 60,000
Totals 11,000 $105,000
Sales
Date Units
Jan 5 3,000
Jan 12 2,000
Jan 20 4,000
Total 9,000
Example 1: LIFO Periodic
Units
6,000 11,000
17,000
8,000 9,000
Dollars
48,000 105,000
153,000
Old Stuff New Stuff
Cost of Goods Sold:6,000 units @ $10 = $60,0003,000 units @ $9 = 27,0009,000 units = $87,000
Ending Inventory:6,000 units @ $8 = $48,0002,000 units @ $9 = 18,0008,000 units = $66,000
Example 1: LIFO Perpetual
Ferris Company began 2011 with 6,000 units of its principal product. The cost of each unit is $8. Merchandise transactions for the month of January 2011 are as follows:
8,000 units were on hand at the end of the month.
Calculate January’s ending inventory and cost of goods sold for the month using LIFO, perpetual system.
Purchases
Date Units Unit Cost Total Cost
Jan 10 5,000 $9 $45,000
Jan 18 6,000 10 60,000
Totals 11,000 $105,000
Sales
Date Units
Jan 5 3,000
Jan 12 2,000
Jan 20 4,000
Total 9,000
Ex 1: LIFO Perpetual (January 5th Sale)
Units
6,000 0
6,000
3,000 3,000
Dollars
48,000 0
48,000
Old Stuff New Stuff
Available:Beg 6,000 units @ $8 = $48,000
Ending Inventory:Beg 3,000 units @ $8 = $24,000
Cost of Goods Sold:Beg 3,000 units @ $8 = $24,000
Ex 1: LIFO Perpetual (January 12th Sale)
Units
3,000 5,000
8,000
6,000 2,000
Dollars
24,000 45,000
69,000
Old Stuff New Stuff
Available:Beg 3,000 units @ $8 = $24,000Jan 10 5,000 units @ $9 = 45,000
8,000 units $69,000
Ending Inventory:Beg 3,000 units @ $8 = $24,000Jan 10 3,000 units @ $9 = 27,000
6,000 units $51,000
Cost of Goods Sold:Jan 10 2,000 units @ $9 = $18,000
Ex 1: LIFO Perpetual (January 20th Sale)
Units
6,000 6,000
12,000
8,000 4,000
Dollars
51,000 60,000
111,000
Old Stuff New Stuff
Available:Beg 3,000 units @ $ 8 = $ 24,000Jan 10 3,000 units @ $ 9 = 27,000Jan 18 6,000 units @ $10 = 60,000
12,000 units $111,000
Ending Inventory:Beg 3,000 units @ $ 8 = $ 24,000Jan 10 3,000 units @ $ 9 = 27,000Jan 18 2,000 units @ $10 = 20,000
8,000 units $ 71,000
Cost of Goods Sold:Jan 18 4,000 units @ $10 = $ 40,000
Example 1: LIFO Perpetual (Summary)
Ending Inventory:Beg 3,000 units @ $ 8 = $24,000Jan 10 3,000 units @ $ 9 = 27,000Jan 18 2,000 units @ $10 = 20,000
8,000 units $71,000
Cost of Goods Sold:Jan 5 3,000 units = $24,000Jan 12 2,000 units = 18,000Jan 20 4,000 units = 40,000Total 9,000 units = $82,000
Example 1: Average Cost, Periodic
Ferris Company began 2011 with 6,000 units of its principal product. The cost of each unit is $8. Merchandise transactions for the month of January 2011 are as follows:
8,000 units were on hand at the end of the month.
Calculate January’s ending inventory and cost of goods sold for the month using Average Cost, Periodic.
Purchases
Date Units Unit Cost Total Cost
Jan 10 5,000 $9 $45,000
Jan 18 6,000 10 60,000
Totals 11,000 $105,000
Sales
Date Units
Jan 5 3,000
Jan 12 2,000
Jan 20 4,000
Total 9,000
Example 1: Average Cost Periodic
Units
6,000 11,000
17,000
8,000 9,000
Dollars
48,000 105,000
153,000
? ?
Cost of Goods Sold:9,000 units @ $9.00 = $81,000
Ending Inventory:8,000 units @ $9.00 = $72,000
153,000 / 17,000 = $9.00 Cost per unit
Example 1: Average Cost, Perpetual
Ferris Company began 2011 with 6,000 units of its principal product. The cost of each unit is $8. Merchandise transactions for the month of January 2011 are as follows:
8,000 units were on hand at the end of the month.
Calculate January’s ending inventory and cost of goods sold for the month using Average Cost, Perpetual.
Purchases
Date Units Unit Cost Total Cost
Jan 10 5,000 $9 $45,000
Jan 18 6,000 10 60,000
Totals 11,000 $105,000
Sales
Date Units
Jan 5 3,000
Jan 12 2,000
Jan 20 4,000
Total 9,000
Ex 1: Average Cost Perpetual (Jan 5th Sale)
Units
6,000 0
6,000
3,000 3,000
Dollars
48,000 0
48,000
? ?
Cost of Goods Sold:3,000 units @ $8.00 = $24,000
Ending Inventory:3,000 units @ $8.00 = $24,000
48,000 / 6,000 = $8.00 Cost per unit
Ex 1: Average Cost Perpetual (Jan 12th Sale)
Units
3,000 5,000
8,000
6,000 2,000
Dollars
24,000 45,000
69,000
? ?
Cost of Goods Sold:2,000 units @ $8.625 = $17,250
Ending Inventory:6,000 units @ $8.625 = $51,750
69,000 / 8,000 = $8.625 Cost per unit
Ex 1: Average Cost Perpetual (Jan 20th Sale)
Units
6,000 6,000
12,000
8,000 4,000
Dollars
51,750 60,000
111,750
? ?
Cost of Goods Sold:4,000 units @ $9.3125 = $37,250
Ending Inventory:8,000 units @ $9.3125 = $74,500
111,750 / 12,000 = $9.3125 Cost per unit
Ex 1: Average Cost Perpetual (Summary)
Ending Inventory:8,000 units @ $9.3125 = $74,500
Cost of Goods Sold:Jan 5 3,000 units = $24,000Jan 12 2,000 units = 17,250Jan 20 4,000 units = 37,250Total 9,000 units = $78,500
Example 1: Summary of Results
Cost ofGoods Sold
EndingInventory
FIFO, Periodic $75,000 $78,000
LIFO, Periodic 87,000 66,000
LIFO, Perpetual 82,000 71,000
Avg Cost, Periodic 81,000 72,000
Avg Cost, Perpetual 78,500 74,500
Supplemental LIFO Disclosures
Tootsie Roll 2008
Balance Sheet 2008 2007
Finished goods and work-in-process 34,862 37,031
Raw materials and supplies 20,722 20,371
Income Statement
Product cost of goods sold 333,314 327,695
Footnote:
Inventories are stated at cost, not to exceed market. The cost of substantially all of the Company’s inventories ($53,557 and $54,367 at December 31, 2008 and 2007, respectively) has been determined by the last-in, first-out (LIFO) method. The excess of current cost over LIFO cost of inventories approximates $12,432 and $11,284 at December 31, 2008 and 2007, respectively. The cost of certain foreign inventories ($2,027 and $3,036 at December 31, 2008 and 2007, respectively) has been determined by the first-in, first-out (FIFO) method. Rebates, discounts and other cash consideration received from a vendor related to inventory purchases is reflected as a reduction in the cost of the related inventory item, and is therefore reflected in cost of sales when the related inventory item is sold.
Supplemental LIFO Disclosures
Tootsie Roll 2008
Balance Sheet 2008 2007
Finished goods and work-in-process 34,862 37,031
Raw materials and supplies 20,722 20,371
Total LIFO inventory 55,584 57,402
LIFO reserve 12,432 11,284
Total FIFO inventory 68,016 68,686
Income Statement
Product cost of goods sold – LIFO 333,314327,695
Product cost of goods sold – FIFO ? ?
LIFO to FIFO Conversion – Tootsie Roll
57,402
388,898
331,496
333,31455,584
LIFO
68,686
400,182
331,496
332,16668,016
FIFO
Inventory Turnover: LIFO: 333,314 / avg(57,402 + 55,584) = 5.90 FIFO: 332,166 / avg(68,686 + 68,016) = 4.86