Chapter07 - CHAPTER 7 Cost of Goods Sold Inventory 1 Key...

This preview shows page 1 - 9 out of 18 pages.

1CHAPTER 7Cost of Goods Sold & Inventory
2Key TermsInventory (beginning, ending)Cost of goods sold (COGS)Inventory cost flow assumptionsLower of cost or market (LCM)
3InventoryTangible property that is held for resale or will be used in producing goods or servicesReported on the Balance Sheet as a current assetInventory is recorded at costInventory cost includes invoice price, freight charges, inspection & preparation costsPeriodic vs. perpetual inventory systemWe assume periodic inventory system in all exercise
4Example: purchase of inventoryOn March 17, Anthony Company received merchandise from its normal supplier. The invoice price was $3,600 with terms of 2/10, n/30 for 100 units of Part #345. The invoice was paid on March 17. Freight costs were $120 and the company paid $108 of interest on a loan to pay for the inventory. Prepare the journal entry to record the purchase of inventory.
6Exercise: Compute cost of goods soldMagic Tunes Company sells iPods and iPod accessories in its retail store. Assume the following facts related to sales of one iPod model during 2008:Beginning ipod inventory = 300 units at a unit cost of $150Ending ipod inventory = 200 units at a unit cost of $150Purchases of ipods during the year = 450 units at a unit cost of $150Using the cost of goods sold equation, compute the number of units and the cost of goods sold related to this model.
7The Mustang Sweatshirt Company had 100 units of beginning inventory. During the period, two purchases of inventory were made. Ending inventory consists of 200 units. Thus, 400 units were sold.Beginning inventory 100Purchases:#1 (250 units)250#2 (250 units)250Total purchases500Number of units available for sale 600Ending inventory200Number of units sold400Beginning inventory 100Purchases:#1 (250 units)250#2 (250 units)250Total purchases500Number of units available for sale 600Ending inventory200Number of units sold400Illustration: Inventory Methods
8Using these same facts about inventory, price per unit values have been added to the illustration.Beginning inventory (100 units @ $10 per unit)$1,000

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture