Accounting- Chapter 6

Perpetual System

1. Check ____ of inventory records.
2. Determine amount of ____ ____ (wasted raw materials, shoplifting, or employee theft).
3. Determines ______ after every purchase

Periodic System

1. Determine the inventory _______
2. Determine the _______ for the period.

Taking a Physical Inventory:

Involves _____,_____, or ______ each kind of inventory on hand.

Taken when:
the business is _____ or ____.
at the ____ of the accounting period.

Determining Ownership of Goods:

Inventory Count- should include all items in which the company has legal title.

1. Items in the Warehouse

2. Goods in Transit
- Purchased goods not yet ____
- Sold goods not yet _____
- Legal title is determined by the ___ __ ____.

3. Consigned Goods
- Goods held for sale by one party although ____ of the goods is retained by another party/

There is no requirement that the cost flow method match the ____ flow of goods.

Specific Identification:
- Can be used when a company can positively identify which particular units it sold and which are still in _____ ____.
- Not practical for most companies.
- Typically only used for ___-volume, ___-unit-cost items.
- Disadvantage-management may be able to manipulate _______.

Assume that Crivitz TV Company purchases three identical 50-inch TVs on different dates at costs of $700, $750, and $800. During the year Crivitz sold two sets at $1,200 each.

Purchases
Feb 3     1 TV     at $700
Mar 5     1 TV     at $750
May 22   1 TV     at $800

Sales
June 1    2 TVs     for $2,400 ($1,200x2)

What is COGs and ending inventory?

First-In-First-Out (FIFO)

_____ goods purchased are first to be sold.
Often parallels actual ____ flow of merchandise.
Generally good business practice to sell ___ units first.

Last-In-First-Out (LIFO)

____ goods purchased are first to be sold.
Seldom coincides with actual ____ flow of merchandise.
Exceptions include goods stored in ____, such as coal or hay.

Average Cost

1. Allocates cost of goods available for sale on the basis of ____ unit cost incurred.
2. Assumes goods are similar in nature.
3. Applies weighted-average unit cost to the units on hand to determine cost of the _____ _____.

Financial Statement Effects:

1. In periods of rising prices, FIFO reports lowest _____
2. In periods of rising prices, FIFO reports highest _______.
3. In periods of rising prices, LIFO reports lowest _______.
4. In periods of rising prices, LIFO reports highest _____.

Using Cost Flow Methods Consistently:

Method should be used consistently, enhances ______.
Although consistency is preferred, a company may change it's _______ _______.
Changed must be disclosed in _____ ______.

Lower-of-Cost-or-Net Realizable Value:

When the value of inventory is lower than its cost:
Companies can ___ ___ the inventory to its net realizable value in the period in which the price decline occurs.
Net Realizable Value is amount a company expects to realize (collect) from the sale of the _____.
Example of _____.

Inventory Management is a double-edged sword.

1. High Inventory Levels- may incur high ____ ____.
2. Low Inventory Levels- may lead to stockouts and lost ____.

Inventory Ratios:

Inventory turnover= ___ / Avg Inv.
*Avg inv= (Beg. Inv. + End. Inv) /2

Measures the number of times, on average, the inventory is sold in _____.
A measure of _____.

Days in Inventory =

Inventory Turnover =

LIFO Reserve:

Use of different inv. methods complicate analysts' attempts to compare companies.
Companies using LIFO are required to report the ____ between inv. using LIFO and inv. using FIFO.
This amounts is referred to as the ____ ____

Nyguen Inc. had the following inventory situations to consider at January 31, its year-end.

Identify which of the preceding items should be included in inventory. If the item should not be included in inventory, state in what account.

1) Goods held on consignment for UPS Stores since December 12.
2) Goods shipped on consignment to Wheeling Inc. on January 5.
3) Goods shipped to a customer, FOB destination, on January 29 that are still in transit.
4) Goods shipped to a customer, FOB shipping point, on January 29 that are still in transit.
5) Goods purchased FOB destination from a supplier on January 25, that are still in transit.
6) Goods purchased FOB shipping point from a supplier on January 25, that are still in transit.
7) Office supplies on hand at January 31.

Creve Couer Camera Inc. uses the lower-of-cost-or-net realizable basis for its inventory. The following data are available at December 31.

What amount should be reported on Creve Couer Camera’s financial statements, assuming the lower-of-cost-or-net realizable value rule is applied?

             Units    Cost/Unit    NRV
Minolta   5            $160       $156
Canon    7            $145       $153

Vivitar   12           $120       $114
Kodak    10          $130       $142

Montel sells a snowboard, Spurt, that is popular with snowboard enthusiasts. Below is information relating to Montel purchases of Spurt snowboards during September. During the same month, 120 Spurt snowboards were sold. Montel uses a periodic inventory system.

Compute the ending inventory and cost of goods sold  at September 30 using the FIFO, LIFO, and Average Cost methods.

Date    Explanation     Units    Unit Cost  Total Cost
Sept. 1     Inventory        20         $100   $2,000
Sept. 12   Purchases        45           103     4,635
Sept. 19   Purchases        20           104     2,080
Sept. 26   Purchases        50           105     5,250
                Totals             135                  $13,965

Smythe Company Inc. had a beginning inventory of 200 units of Product ERV at a cost of $6 per unit. During the year, purchases were:

Jan. 24    800 units at $7
Apr. 12    400 units $8
Aug. 19   600 units $9
Nov. 30   350 units at $10

Smythe Company uses a periodic inventory system. Sales totaled 1,900 units.

Determine the cost of goods available for sale.

When is a physical inventory usually taken?

A) When the company has its greatest amount of inventory
B) When a limited number of goods are being sold or received
C) At the end of the company's fiscal year
D) Both when a limited number of goods are being sold or received, and at the end of the company's fiscal year

Which of the following should not be included in the physical inventory of a company?

A) Goods held on consignment from another company
B) Goods in transit from another company shipped FOB shipping point
C) Goods shipped on consignment to another company
D) None are correct

Kam Company has the following units and costs

Inv, Jan 1.  Units: 8,000 Unit Cost: $11
Purch. Jan 19  Units: 13,000  Cost: $12
Purch. Nov. 8  Units: 5,000  Cost: $13

If 9,000 units are on hand at December 31, what is the cost of the ending inventory under LIFO? 

A) 100,000
B) 108,000
C) 99,000
D) 113,000

In periods of rising prices...

FIFO method has highest _____ and lowest ____

LIFO method as highest _____ and lowest _____