Professional Documents
Culture Documents
Intermediete Accounting Kieso ch08
Intermediete Accounting Kieso ch08
PREVIEW OF CHAPTER
Intermediate Accounting
IFRS 2nd Edition
Kieso, Weygandt, and Warfield
8-2
Valuation of Inventories:
A Cost-Basis Approach
LEARNING OBJECTIVES
After studying this chapter, you should be able to:
8-3
INVENTORY ISSUES
Classification
Inventories are assets:
8-4
or
Manufacturing
Company
LO 1
INVENTORY ISSUES
Classification
8-5
One inventory
account.
Purchase
merchandise in
a form ready
for sale.
ILLUSTRATION 8-1
LO 1
INVENTORY ISSUES
Classification
ILLUSTRATION 8-1
Three accounts
8-6
Raw Materials
Work in Process
Finished Goods
LO 1
INVENTORY ISSUES
Classification
8-7
ILLUSTRATION 8-2
Flow of Costs through
Manufacturing and
Merchandising
Companies
LO 1
Valuation of Inventories:
A Cost-Basis Approach
LEARNING OBJECTIVES
After studying this chapter, you should be able to:
1. Identify major classifications of
inventory.
8-8
INVENTORY ISSUES
Inventory Cost Flow
ILLUSTRATION 8-3
LO 2
LO 2
- 125,000
8-11
LO 2
8-12
LO 2
8-13
ILLUSTRATION 8-4
Comparative Entries
Perpetual vs. Periodic
LO 2
200
8-14
LO 2
INVENTORY ISSUES
Inventory Control
All companies need periodic verification of the inventory records
8-15
LO 2
INVENTORY ISSUES
Basic Issues in Inventory Valuation
Companies must allocate the cost of all the goods available for
sale (or use) between the goods that were sold or used and
those that are still on hand.
ILLUSTRATION 8-5
Computation of Cost
of Goods Sold
8-16
LO 2
8-17
LO 2
Valuation of Inventories:
A Cost-Basis Approach
LEARNING OBJECTIVES
After studying this chapter, you should be able to:
1. Identify major classifications of
inventory.
8-18
ILLUSTRATION 8-6
Guidelines for Determining Ownership
8-19
LO 3
LO 3
LO 3
8-22
Hill should report the inventory and related liability on its books.
LO 3
LO 3
NO PARKING!
WHATS
YOUR PRINCIPLE
In one of the more elaborate
accounting frauds, employees at
Kurzweil Applied Intelligence Inc.
(USA) booked millions of dollars in
phony inventory sales during a twoyear period that straddled two audits
and an initial public offering. They
dummied
up
phony
shipping
documents and logbooks to support
bogus sales transactions. Then, they
shipped high-tech equipment, not to
customers, but to a public warehouse
for temporary storage, where some
of it sat for 17 months. (Kurzweil still
had ownership.)
8-24
LO 3
ILLUSTRATION 8-7
Financial Statement
Effects of Misstated
Ending Inventory
The effect of an error on net income in one year will be counterbalanced in the next,
however the income statement will be misstated for both years.
8-25
LO 3
8-26
LO 3
ILLUSTRATION 8-9
Financial Statement
Effects of Misstated
Purchases and Inventory
The understatement does not affect cost of goods sold and net income because the
errors offset one another.
8-27
LO 3
Valuation of Inventories:
A Cost-Basis Approach
LEARNING OBJECTIVES
After studying this chapter, you should be able to:
1. Identify major classifications of
inventory.
8-28
8-29
LO 4
8-30
LO 4
8-31
LO 4
**
ILLUSTRATION 8-11
Entries under Gross and
Net Methods
8-32
* $4,000 x 2% = $80
LO 4
Valuation of Inventories:
A Cost-Basis Approach
LEARNING OBJECTIVES
After studying this chapter, you should be able to:
1. Identify major classifications of
inventory.
8-33
Specific Identification
or
8-34
Average Cost
LO 5
8,000
Purchases:
6,000 x 4.40
26,400
2,000 x 4.75
9,500
43,900
LO 5
8-36
Specific Identification
Illustration: Call-Mart Inc.s 6,000 units of inventory consists of 1,000
units from the March 2 purchase, 3,000 from the March 15 purchase, and
2,000 from the March 30 purchase. Compute the amount of ending
inventory and cost of goods sold.
ILLUSTRATION 8-12
8-37
LO 5
8-38
LO 5
Average-Cost
Weighted-Average Method
8-39
ILLUSTRATION 8-13
Weighted-Average
MethodPeriodic Inventory
LO 5
Average-Cost
Moving-Average Method
ILLUSTRATION 8-14
Moving-Average Method
Perpetual Inventory
8-40
LO 5
8-41
LO 5
ILLUSTRATION 8-15
FIFO MethodPeriodic
Inventory
LO 5
ILLUSTRATION 8-16
FIFO Method
Perpetual Inventory
In all cases where FIFO is used, the inventory and cost of goods
sold would be the same at the end of the month whether a perpetual
or periodic system is used.
8-43
LO 5
8-44
LO 5
ILLUSTRATION 8-17
Comparative Results of
Average-Cost and FIFO
Methods
8-45
LO 5
ILLUSTRATION 8-18
Balances of Selected
Items under Alternative
Inventory Valuation
Methods
8-46
LO 5
Valuation of Inventories:
A Cost-Basis Approach
LEARNING OBJECTIVES
After studying this chapter, you should be able to:
8-47
APPENDIX 8A
6. Describe the LIFO cost flow
assumption.
8-48
LO 6
ILLUSTRATION 8A-1
LIFO MethodPeriodic
Inventory
The cost of the total quantity sold or issued during the month comes
from the most recent purchases.
8-49
LO 6
ILLUSTRATION 8A-2
LIFO MethodPerpetual
Inventory
8-50
LO 6
8-51
LO 6
ILLUSTRATION 8A-3
Comparative Results of
Average-Cost and FIFO
and LIFO Methods
8-52
ILLUSTRATION 8A-4
Balances of Selected
Items under Alternative
Inventory Valuation
Methods
8-53
COPYRIGHT
Copyright 2014 John Wiley & Sons, Inc. All rights reserved.
Reproduction or translation of this work beyond that permitted in
Section 117 of the 1976 United States Copyright Act without the
express written permission of the copyright owner is unlawful.
Request for further information should be addressed to the
Permissions Department, John Wiley & Sons, Inc. The purchaser
may make back-up copies for his/her own use only and not for
distribution or resale. The Publisher assumes no responsibility for
errors, omissions, or damages, caused by the use of these
programs or from the use of the information contained herein.
8-54