2301kemp ch 5 inventory

8/19/2019 2301Kemp Ch 5 Inventory

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Chapter 5: Inventory

1 Describe the four inventory costi

2 Compare inventory using rst inrst out (#IFO! average inv

$ Compare the e%ect of the di%ere

on the nancia" statements

& 'a"ue inventory using the "oer

5 I""ustrate the reporting of invent

* Determine the e%ect of inventory

+ ,se the gross prot method to es

- Compute inventory turnover and


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Page 208

ng methods

rst out (FIFO! "ast inntory methods

nt costing methods

f cost or mar)et

ry on the nancia" statements

errors on the nancia" statements

timate ending inventory

ays sa"e in inventory


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Ob. 1: Describe the four inventory

Finished Goods …………

Inventory of goods ready to s

Raw Materials ………………..

Inventory of items used in th

Work in process ………….

Inventory of partia""y comp"e

/he four inventory costing methods

10 pecic identication

20 Firstin3 rst out (FIFO

$0 #astin3 rst out (#IFO

&0 4verage Cost


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/he four inventory costing methods

Specifc identifcation ………………Inventory costing method0

in hich a business uses

First-in frst-o!t "F#F$%……………

Inventory costing method0

in hich the rst cost incFIFO "eaves ending inventory

&ast-in frst-o!t "F$%……………

Inventory costing method0


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in hich the "ast cost inc

#IFO "eaves ending inventory

'(erage )ost …………..Inventory costing method0

here after each invento

is computed and used to

#n(entor* la*er ………….

4 record of 0 the 7uantity of

00 and the cost of

inventory items made in


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osting methods

e""

production of goods

ed goods


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he specic cost of each inventory unit

rred are the rst cost assign to CO6the "ast3 most recent3 cost incurred


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rred are the rst cost assign to CO6

the rst3 the o"dest3 cost incurred

y purchase3 a ne eighted average

a"ue ending inventory and CO6

sing"e purchase


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Page 20+

Page 20+


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Page 20+-2,0


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Page 2,,


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Ob. 2: Compare inventory using rst in rst o

rst out (#IFO! av

)ost o goods a(ailale or sale ……………….

/he cost of inventory

0 on hand a the beginning of the peri

00 p"us the net cost of inventory purc

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6iven:

ep 1one unit costing units purchased at


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?eginning inventory

@ ;urchases AB5

@ ;urchases AB2*

Cost of 6oods 4vai"ab"e for a"e

894;#8 FIFO

;urchases Cost

,nit /ota"

D4/8 uanity Cost Cost uanity

ep 1

ep 5 * < &5 < 2+=

ep 15 1

$

ep 2* + < 5= < $5=

ep $= $

5


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ep $= 1$ < *2= 12

894;#8 #ifo

;urchases Cost

,nit /ota"


ep 1

ep 5 * < &5 < 2+=

ep 15 &

ep 2* + < 5= < $5=

0

ep $= +

1

ep $= 1$ < *2= 12


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894;#8 Eeighted 4verage

;urchases Cost

,nit /ota"


ep 1

ep 5 * < &5 < 2+=

ep 15 &

ep 2* + < 5= < $5=

ep $= -

ep $= 1$ < *2= 12

b

FIFO

?I' &=

;urchases *2=Cost of 6oods 4vaiab"e **=

CO6 5*=

8I' 1==

**=


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t (FIFO! "ast in Page 2,2

rage inventory methods

od

ased during the period

Page 2,2


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(1 G


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Page 2,1

of 6oods o"d Inventory on Hand

,nit /ota" ,nit /ota"

Cost Cost uanity Cost Cost

1 < &=0== < &=

+ < &&02A < $1=

< &&02A < 1++ $ < &&02A < 1$$

1= < &-0$= < &-$

< &-0$= < $-* 2 $ 48.30 $ 97

< 5*$ 2 < A+

4verage

#IFO Cost

&= &=

*2= *2=**= **=

5+5 5*$

-5 A+

**= **=


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&=

*2=660

-560

100


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&=

*2=

660

-575

85


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Ob. $: Compare the e%ect of the

on the

8>hibit 5A


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Inventory Costing ethod

First in First Out (FIFO

#ast in #ast Out (#IFO

4verage Cost

8>hibit 51= ummary resu"ts of t


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FIFO0 #oest CO6 and h

#IFO 0 Highest CO6 and "

4verage cost generate

that fa"" beteen #IFO and


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i%erent costing methods

nancia" statements


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Descriptions

CO6 has o"der3 "oer cost0

8I' has neer3 higher costs0

CO6 has neer3 higher costs0

8I' has o"der3 "oer cost0

4verage costs in 8I' and

CO6

e three inventory methods


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a"es evenue J(& @ - 9


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Page 2,8


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?enet

ost c"ose"y matches the actua" Lo

of goods in most cases0 a>imiMes ne

income0 ,se method to attract

investors or borro money0

inimiMes net income and income

ta>es and minimiMes 8I'0 ,se metho

to reduce income ta>es and cash needto pay ta>es0

4 Nmidd"e ground so"utionN for

reporting net income and 8I' and

paying income ta>es0


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4verage

FIFO #IFO Cost

< A*= < A*= < A*=

5*= 5+5 5*$

< &== < $-5 < $A+1== -5 A+

creasing0

>es amounts


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Page 2,8


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t

ed

Page 2,+


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O? &: 'a"ue inventory using the "oer of cos

)onser(atis

4ccounting princip"e that states that a

statements at amounts that "ead to th

&ower-o-cost-or-arket ………….


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Materialit*…………….

4ccounting princip"e that states that a

for items that are signicant for the b

ignicant items ou"d cause someon


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are mar)et

business must report a"" items in the

most cautious immediate resu"ts


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ventory in the nancia" statements at

va"ue3 of each inventory item0

/O/4#

,nit

4R8/ CO/ 4R8/

< 52 < 23=== < 23=-=

< +5 *3=== 53*25

< 1=1 *3-== *3-*-


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< 1&3-== < 1&35+$

company must perform strict"y proper

sinessQs nancia" statements0

to change a decision0


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page 220

nancia"s

page 22,


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hichever is

page 22,

#OE8 OF

CO/ O 4R8/

< 23===

53*25

*3-==


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< 1&3&25

page 22,

accounting on"y


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Ob. 5: I""ustrate the reporting of inventory

F!ll - disclos!re principle……………

4ccounting princip"e that states tha

enough information for users to ma

Footnotes……………..

Disc"osures that accompany the na

#n(entor* shrinkage…………….


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/he "oss of inventory

/he perpetua" inventory method )e

4ctua" amounts of inventory on hand maNinventory shrin)ageN0

Causes of inventory shrin)age

emp"oyee theft

customer theft

damage

spi""agesspoi"age


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on the nancia" statements Page 2

a companyQs nancia"s statements shou"d

e )no"edgeab"e decisions about the comp

ncia" statements


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ps a continuous record of the inventory on

di%er from the accounting records due to error


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eport

ny0

Page 222


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and at a"" times0

or due to


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Ob. *: Determine the e%ect of inventory err

easons for errors in the counting of invento

10 inaccurate"y counting inventory

20 doub"e counting inventory

$0 not counting one section of the store

shipped FO? shipping point

&0 fai"ure to recogniMe obso"ete or damfai"ure to rite don their va"ue

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;ane" 4 Inventory correct"y stated

a"es evenue


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Cost of 6oods o"d:

?eginning Inventory

;urchases

Cost of 6oods o"d 4vai"ab"e for a"es

8nding InventoryCost of 6oods so"d

6ross ;rot

Operating 8>penses

et Income

;ane" ? Inventory overstated by


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Cost of 6oods so"d

6ross ;rot

Operating 8>penses

et Income

89HI?I/ 51$

I'8/OS 8O

;eriod 1 8nding Inventory Overstated

;eriod 1 8nding Inventory ,nderstated


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ors on the nancia" statements

y

room are e>c"uding income goods

ged goodsccording"y

Sear 1

< 1*=3===


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< 2=3===

+53===

A53===

2=3===+53===

-53===

&=3===

< &53===

Sear 1

< 1*=3===

< 2=3===

+53===

A53===

253===


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+=3===

A=3===

&=3===

< 5=3===

;eriod 1

Cost of 6ross ;rot

6oods o"d T et Income

,nderstated Overstated

Overstated ,nderstated


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Sear 2

UUU


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< 2=3===

+53===

A53===

2=3===+53===

-53===

UUU

< &53===

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Sear 2

UUU

< 253===

+53===

1==3===

2=3===


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-=3===

-=3===

UUU

< &=3===

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;eriod 2

Cost of 6ross ;rot

6oods o"d T et Income

Overstated ,nderstated

,nderstated Overstated


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Ob. +: ,se the gross prot method to es

6ross ;rot ethod estimates ending inv

@

earanging ending inventory and cost of


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@

/he Historic gross prot V can b

?eginning Inventory

@;urchases6oods 4vai"ab"e for a"e

8stimated Cost of 6oods o"d:

et a"es

8stimated 6ross ;rot (


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8stimated 8nding Inventory


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imate ending inventory

ntory by using the format for Cost of 6oods

?eginning Inventory

;urchases

6oods 4vai"ab"e for a"e

8nding Inventory

Cost of 6oods o"d

oods so"d he"ps estimate ending inventory

?eginning Inventory


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;urchases

6oods 4vai"ab"e for a"e

4stiated )ost o Goods Sold

8nding Inventory

used to estimate Cost of 6oods o"d

et a"es

8stimated 6ross ;rot ( et a"es 9 6ross ;ro

4stiated )ost o Goods Sold

$ 14,000

66,00080,000

$ 100,000

9 &=V (40,000)

(60,000)


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$ 20,000


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"d:

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t V

Page 22


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Ob. -: Compute inventory turnover and

Inventory /urnover Cost of 6o

4verage In

Inventory /urnover Cost of 6o

(?I' @ 8I

Days in inventory 4verage In

CO6 B$*5


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ays sa"e in inventory Page 225

ds o"d

entory

ds o"d

'B2

2301kemp ch 5 inventory

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