Chapter 07 Reporting and Interpreting Cost of Goods Sold and Inventory CHAPTER 7 REPORTING AND INTERPRETING COST OF GOODS SOLD AND INVENTORY HANDOUT 7 1 INVENTORY COSTING METHODS Quickie Grocery acquired the following five bottles of Corporate Cola soft drink Date Cost Jan 2 1 00 Jan 10 2 00 Jan 12 3 00 Jan 16 4 00 Jan 25 5 00 A January 31 inventory count revealed that two bottles remained on the shelf How many bottles were sold in January The Quickie Grocery keeps track of each individual bottle Suppose the Grocery knows that it sold the bottles acquired on Jan 2 12 and 16 Jan 2 1 00 Jan 10 2 00 Jan 12 3 00 Jan 16 4 00 Jan 25 5 00 Total 15 00 Specific Identification Date Cost COGS Inventory What was the value of inventory on January 31 7 1 McGraw Hill LLC All rights reserved No reproduction or distribution without the prior written consent of McGraw Hill LLC Chapter 07 Reporting and Interpreting Cost of Goods Sold and Inventory What was the cost of goods sold for January First in First out FIFO Date Cost COGS Inventory What was the value of inventory on January 31 What was the cost of goods sold for January Jan 2 1 00 Jan 10 2 00 Jan 12 3 00 Jan 16 4 00 Jan 25 5 00 Total 15 00 McGraw Hill LLC All rights reserved No reproduction or distribution without the prior written consent of McGraw Hill LLC 7 2 Jan 2 1 00 Jan 10 2 00 Jan 12 3 00 Jan 16 4 00 Jan 25 5 00 Total 15 00 Chapter 07 Reporting and Interpreting Cost of Goods Sold and Inventory HANDOUT 7 1 CONTINUED Last in First out LIFO Date Cost COGS Inventory What was the value of inventory on January 31 What was the cost of goods sold for January Average Cost Date Cost Jan 2 1 00 Jan 10 2 00 Jan 12 3 00 Jan 16 4 00 Jan 25 5 00 15 00 What was the value of inventory on January 31 7 3 McGraw Hill LLC All rights reserved No reproduction or distribution without the prior written consent of McGraw Hill LLC Chapter 07 Reporting and Interpreting Cost of Goods Sold and Inventory What was the cost of goods sold for January Complete the following table Cost of Goods Sold Inventory Specific Identification FIFO LIFO Average Cost McGraw Hill LLC All rights reserved No reproduction or distribution without the prior written consent of McGraw Hill LLC 7 4 Chapter 07 Reporting and Interpreting Cost of Goods Sold and Inventory HANDOUT 7 2 LOWER OF COST OR NET REALIZABLE VALUE Amanda Corporation is preparing its financial statements for the current year ending December 31 Ending inventory information about the three major items stocked for regular sale follows Item Quantity Cost per Item Net Realizable Value per Item AA BB CC 100 150 200 30 80 100 26 80 104 Compute the valuation that should be used for the ending inventory using the lower of cost or NRV rule applied on an item by item basis Then prepare the journal entry to record the write down if any Accounts Debit Credit Date Dec 31 McGraw Hill LLC All rights reserved No reproduction or distribution without the prior written consent of McGraw Hill LLC 7 5 Chapter 07 Reporting and Interpreting Cost of Goods Sold and Inventory HANDOUT 7 3 PURCHASE TRANSACTIONS On February 2 Hamm Manufacturing Corp purchased 40 000 worth of inventory on credit terms 3 10 n 30 On February 10 Hamm paid for the inventory taking advantage of all available discounts Prepare the required journal entries Debit and credit the accounts affected Ensure the equation still balances and debits credits Assets Liabilities Stockholders Equity Debit and credit the accounts affected Ensure the equation still balances and debits credits Assets Liabilities Stockholders Equity McGraw Hill LLC All rights reserved No reproduction or distribution without the prior written consent of McGraw Hill LLC 7 6 Chapter 07 Reporting and Interpreting Cost of Goods Sold and Inventory McGraw Hill LLC All rights reserved No reproduction or distribution without the prior written consent of McGraw Hill LLC 7 7
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