C-6_Class_Notes_Updated

C-6_Class_Notes_Updated - ACCT 100 Chapter 6: Inventory...

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Chapter 6: Inventory Class Notes Spring 2009 Cost of Inventory: Invoice Price Freight Inspection Preparation Costs Methods for Computing Cost of Goods Sold: 1. Perpetual: As inventory is used (sold), we immediately increase cost of goods sold. 2. Periodic: If we have a high volume of inventory it may be cost-prohibitive to track its usage during every transaction. To determine cost of good sold, companies perform end- of-period inventory counts. Then they use the following formula: Cost of Goods Sold = Beginning Inventory + Purchases – Ending Inventory Adjustments to Inventory Value (Lower of Cost or Market): Market values of inventory fluctuate over the accounting period. To ensure that the inventory reported on the balance sheet is conservative , we make companies must “write-down” inventory values when the book value of the inventory exceeds the market value. The resulting journal entries reduce inventory and increase cost of good sold by an amount equal to the difference between book values and market values. The Rebina Company produces vacuum cleaners. In the process of preparing the annual financial statements, the company’s accountants have compiled the following information: Item # of Units Acquisition Cost per Unit Replacement Cost per Unit A128 50 $100 $90 L15C 150 76 82 P27X 200 60 55 W08S 400 10 9 Required: (1) Apply the lower of cost or market method separately to each item in the inventory and determine the value at which the inventory should be carried on December 31, 2003. 1
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C-6_Class_Notes_Updated - ACCT 100 Chapter 6: Inventory...

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