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# Ch.6 Inventory - Chapter 6 Reporting and Analyzing...

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Chapter 6 Reporting and Analyzing Inventory

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In Chapter 6 We will learn: How to calculate Cost of Goods Sold and Ending Inventory using the four Inventory Cost Flow Assumptions: o Specific Identification o Weighted Average Cost o FIFO o LIFO
Remember the very first question of our class (Session 01)? What inventory is sold?

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Accounting choices for a simple (or a complex?) business Mike had \$25. He bought two T-shirts from a wholesaler, one for \$10 and the other for \$15. Any loss/profit? He sold one for \$30. How much did he make? How much does he have left? 20? 15? 17.5? 5? He learned that similar T-shirts are imported and sold for \$5 at X-Mart. Any loss?
Specific Identification Method Each Unit Sold must be identified as coming from a specific purchase of inventory, at a specific cost. I know the VIN (Vehicle Identification number) of each car

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Specific Identification Method If the Blue Car is sold, Cost of Goods Sold is \$22,000. I paid \$22,000 for the Blue Car. Assets = Liabilities + Shareholders Equity Inventory Retained Earnings -22,000 -22,000
Specific Identification Method Is appropriate for firms with a small number of items that are generally large, luxury items such as custom jewelry, yachts or luxury cars.

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Specific Identification Method Would not be appropriate for firms with many identical items with relatively low costs such as sneakers, soup or candy bars.
Weighted Average Cost Method Put all of the dollars in the numerator. 2 @ \$50 = \$100 1 @ \$60 = \$ 60 1 @ \$68 = \$ 68 \$228 \$228

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Put all of the Units in the denominator. 2 @ \$50 = \$100 1 @ \$60 = \$ 60 1 @ \$68 = \$ 68 \$228 Weighted Average Cost Method \$228 4 = \$57 average cost per unit
This average cost is applied to all units sold, and all units held in inventory \$228 4 = \$57 average cost per unit If 3 units are sold, cost of goods sold would be: 3 @ \$57 = \$181 Ending Inventory would be: 1 @ \$57 = \$57

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All units and all dollars are accounted for: 4 units @ \$57 3 units @ \$57 1 unit @ \$57
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