Determining inventory quantities 253 e t h i c s n o

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Determining Inventory Quantities 253 E T H I C S N O T E Employees of Craig Con- sumer Electronics allegedly over- stated the company’s inventory figures by improperly classifying defective goods as either new or refurbished. They also were accused of stating that the com- pany owned goods from suppli- ers when in fact the company did not own the shipments, or the shipments did not even exist. DO IT! Hasbeen Company completed its inventory count. It arrived at a total inventory value of $200,000. As a new member of Hasbeen’s accounting department, you have been given the information listed below. Discuss how this information affects the reported cost of inventory. 1. Hasbeen included in the inventory goods held on consignment for Falls Co., costing $15,000. 2. The company did not include in the count purchased goods of $10,000 which were in transit (terms: FOB shipping point). 3. The company did not include in the count sold inventory with a cost of $12,000 which was in transit (terms: FOB shipping point). RULES OF OWNERSHIP action plan a20 Apply the rules of owner- ship to goods held on consignment. a20 Apply the rules of owner- ship to goods in transit FOB shipping point. Solution The goods of $15,000 held on consignment should be deducted from the inventory count.The goods of $10,000 purchased FOB shipping point should be added to the inventory count. Sold goods of $12,000 which were in transit FOB shipping point should not be included in the ending inventory. Thus, inventory should be carried at $195,000 ($200,000 H11002 $15,000 H11001 $10,000). Related exercise material: BE6-1, E6-1, E6-2, and DO IT! 6-1. The Navigator a19 PDF Watermark Remover DEMO : Purchase from to remove the watermark
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After a company has determined the quantity of units of inventory, it applies unit costs to the quantities to compute the total cost of the inventory and the cost of goods sold. This process can be complicated if a company has purchased inventory items at different times and at different prices. For example, assume that Crivitz TV Company purchases three identical 46- inch TVs on different dates at costs of $700, $750, and $800. During the year Crivitz sold two sets at $1,200 each.These facts are summarized in Illustration 6-2. 254 Chapter 6 Inventories INVENTORY COSTING Explain the accounting for inventories and apply the inventory cost flow methods. S T U D Y O B J E C T I V E 2 Purchases February 3 1 TV at $700 March 5 1 TV at $750 May 22 1 TV at $800 Sales June 1 2 TVs for $2,400 ($1,200 H11003 2) Illustration 6-2 Data for inventory costing example Cost of goods sold will differ depending on which two TVs the company sold. For example, it might be $1,450 ($700 H11001 $750), or $1,500 ($700 H11001 $800), or $1,550 ($750 H11001 $800). In this section we discuss alternative costing methods available to Crivitz. Specific Identification If Crivitz sold the TVs it purchased on February 3 and May 22, then its cost of goods sold is $1,500 ($700 H11001 $800), and its ending inventory is $750. If Crivitz can positively identify which particular units it sold and which are still in ending inven- tory, it can use the specific identification method of inventory costing (see Illustration 6-3). Using this method, companies can accurately determine ending
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