211c8m5 - Introduction to Financial Accounting Chapter 8 Module 5 Slide 1 CHAPTER 1 MODULE Chapter 8 Module1 5 Chapter 8 Module 5 AMIS 211

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Introduction to Financial Accounting AMIS 211 – Professor Marc Smith 1 Chapter 8, Module 5 Chapter 8, Module 5 Slide 1 AMIS 211 Introduction to Financial Accounting Professor Marc Smith Chapter 8 Module 5 Chapter 8 Module 5 Hi everyone. Welcome back. Now we know what LIFO, FIFO, and Weighted Average are all about and we can go about doing some calculations with each of those methods. Now, if you would please just jump right into this Module and go to the next slide with me.
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Introduction to Financial Accounting AMIS 211 – Professor Marc Smith 2 Chapter 8, Module 5 Slide 2 $67.00 $95.00 $124.50 Ending Inventory $180.00 $152.00 $122.50 Cost of Goods Sold LIFO Weighted Average FIFO Chapter 8 Module 5: Comparison of Methods Here on this slide (Slide 2) I have just reproduced the numbers that we calculated in the previous Module. We have gone through a problem from the Web site and we have calculated Cost of Goods Sold and Ending Inventory under each of the three (3) Cost Flow methods. And, the numbers we came up with are right here on this slide (Slide 2). That is going to be important. That is definitely something you will have to be able to do for the Exam. But what is perhaps more important—what you also will have to be able to answer for Exams and Quizzes—is an analysis of these three methods. What are the advantages and disadvantages of choosing FIFO over LIFO or Weighted Average over FIFO? What incentives might a company have to pick one of the methods over the others?
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Introduction to Financial Accounting AMIS 211 – Professor Marc Smith 3 Chapter 8, Module 5 So, we definitely want to be able to analyze the effects of the choice of inventory method on the company’s financial statements. So, let’s go ahead and let’s do this. And, let’s go to the next slide with me. Slide 3 ASSUME - Inventory costs are increasing over time (period of inflation) Answer the following questions: 1) Which method will show the highest net income 2) Which method will show the highest total assets 3) Which method will give an income tax advantage 4) Which method shows ending inventory at its most current acquisition costs Chapter 8 Module 5: Comparison of Methods And, in order to do this—in order to analyze the choice of inventory methods—we need to make an assumption. And, let’s assume that we have a period of Inflation—meaning: inventory costs are going up over time. And, if you will look at the example that we just worked from the Web site problem, you will see that company was in a period of Inflation. At the beginning of May, inventory cost $2.00 a unit. It then went up to $3.00 a unit, then $4.50 a unit. And by the end of May, the cost of inventory was $5.10 a unit.
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Introduction to Financial Accounting AMIS 211 – Professor Marc Smith 4 Chapter 8, Module 5 So, we have a period of rising inventory costs known as: Inflation.
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This note was uploaded on 04/21/2008 for the course ACCT 211m taught by Professor Zeigler/smith during the Winter '07 term at Ohio State.

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211c8m5 - Introduction to Financial Accounting Chapter 8 Module 5 Slide 1 CHAPTER 1 MODULE Chapter 8 Module1 5 Chapter 8 Module 5 AMIS 211

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