ACCT 2220 Lecture Notes - Lecture 6: Perpetual Inventory, Same Same, Income Statement

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champagnebeaver609

29 Mar 2016

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Whether companies use a periodic or perpetual system, physical inventory must still be counted at the end of the period. This is to check the accuracy of the perpetual inventory records, and to determine the amount of inventory lost to shrinkage or theft. To ensure inventory is properly counted, companies must have a good system of internal control: Employees who perform the count should not have responsibility for custody or record-keeping. Counter establishes validity of item: item exists, quantity of each item, condition of each item. Second count by another employee or auditor. Businesses need to consider ownership of goods when taking inventory. Applying freight/shipping concepts; fob shipping point versus fob destination. The ownership of consigned goods remains with the owner (the consignor), not the holder of the goods (the consignee). Goods that are taken home on approval by a customer are still owned by the company.

Related Questions

During July 2014, Micanopy, sold 500 units of its productsEmpire for $8,000. The following units were available.

Units Cost

BeginningInventory 200 $2

Purchase1 80 $4

Purchase2 120 $6

Purchase3 300 $9

Purchase4 180 $12

A sale of 500 units was made after purchase 3. Of the unitssold, 200 came from beginning inventory and 300 came from purchase3.

Determine the costs of goods available for sale and endinginventory in units. Then determine the costs that should beassigned to cost of goods sold and ending inventory under ach ofthe following assumptions. (For each alternative, show the grossmargin. Round unit costs to cents and totals to dollars.)

Costs are assigned under the periodic inventory system using a.)the specific identification method, b) the average-cost method, c.)FIFO method and d.) LIFO method

Costs are assigned under the perpetual inventory system usinga.) the average-cost method, b.) the FIFO method, and c) the LIFOmethod

E7A. Periodic and PerpetualSystems and Inventory Costing Methods

Cost of goods available forsale and ending inventory in units

Units

Cost

Total

Beginninginventory

200

$ 2

$ 400

Purchase 1

320

Purchase 2

120

720

Purchase 3

300

2,700

Purchase 4

180

2,160

Cost of goods available forsale

880

$6,300

Sale in units

500

Ending inventory inunits

380

Periodic inventorysystem

Specific identificationmethod:

Sales

$8,000

Cost of goods available forsale

Less endinginventory*

Cost of goodssold

Gross margin

$4,900

Purchase 1

units

lilackangaroo550

PA7-1 Analyzing the Effects of Four Alternative Inventory Methods in a Periodic Inventory System [LO 7-3]

Gladstone Company tracks the number of units purchased and sold throughout each accounting period but applies its inventory costing method at the end of each period, as if it uses a periodic inventory system. Assume its accounting records provided the following information at the end of the annual accounting period, December 31.

Transactions		Units			Unit Cost
Beginning inventory, January 1			1,600		$	45
Transactions during the year:
a.	Purchase, January 30		2,300			49
b.	Sale, March 14 ($100 each)		(1,250	)
c.	Purchase, May 1		1,000			75
d.	Sale, August 31 ($100 each)		(1,500	)

Assuming that for Specific identification method (item 1d) the March 14 sale was selected two-fifths from the beginning inventory and three-fifths from the purchase of January 30. Assume that the sale of August 31 was selected from the remainder of the beginning inventory, with the balance from the purchase of May 1.

Required:
1.	Compute the amount of goods available for sale, ending inventory, and cost of goods sold at December 31 under each of the following inventory costing methods: (Round intermediate calculations to 2 decimal places and final answers to the nearest whole dollar amount.)

2-a.

Of the four methods, which will result in the highest gross profit?

	Last-in, first-out
	Weighted average cost
	First-in, first-out
	Specific identification

2-b.

Of the four methods, which will result in the lowest income taxes?

	Last-in, first-out
	Weighted average cost
	First-in, first-out
	Specific identification

coffeeduck922

E7-6 Analyzing and Interpreting the Financial Statement Effects of Periodic FIFO, LIFO, and Weighted Average Cost [LO 7-3]

Orion Iron Corp. tracks the number of units purchased and sold throughout each year but applies its inventory costing method at the end of the year, as if it uses a periodic inventory system. Assume its accounting records provided the following information at the end of the annual accounting period, December 31.

Transactions	Units		Unit Cost
a. Inventory, Beginning		350	$	14
For the year:
b. Purchase, April 11		950		12
c. Purchase, June 1		700		15
d. Sale, May 1 (sold for $42 per unit)		350
e. Sale, July 3 (sold for $42 per unit)		610
f. Operating expenses (excluding income tax expense), $18,000

Required:

1.	Calculate the number and cost of goods available for sale.

2.	Calculate the number of units in ending inventory.

3.	Compute the cost of ending inventory and cost of goods sold under (a) FIFO, (b) LIFO, and (c) weighted average cost. (Do not round intermediate calculations. Round your final answers to the nearest dollar amount.)

4.	Prepare an Income Statement that shows the FIFO method, LIFO method and weighted average method.

Which inventory costing method minimizes income taxes?

A.	FIFO
b.	LIFO
C.	Weighted Average Cost

chocolateelephant868

ACCT 2220 Lecture Notes - Lecture 6: Perpetual Inventory, Same Same, Income Statement

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