[會計] Ch8 : Inventory

1. Definition of Inventory

Inventory is the name given to goods that are either purchased or manufactured for resale in the normal course of business.

resale 會拿來賣的！

Merchandiser 買賣業 Manufacturer 製造業

Merchandise Inventory 商品存貨

2. Who Owns the Inventory

legal title 法定所有權

(1)

Ownerships transfers when Transportation costs goods passed to paid by

FOB shipping point 起運點交貨 Carrier Buyer

FOB destination 目的地交貨 Buyer Seller

(2)

Goods on consignment(寄銷存貨) ： consignor(寄銷人) and consignee(承銷人)

Inventory is owned by consignor.

3. Ending Inventory and Cost of Goods Sold (Inventory Formula)

Inventory Formula:

期初存貨 ＋ 本期進貨 ＝ 期末存貨 ＋ 銷貨成本

4.

a. Maintain

(1) detailed records

running total 帳的餘額隨時變動

(2) "Inventory"

(3) 隨時去看就知道有多少貨

(4) 儘管很仔細記帳，不免還是會有錯，至少一年一次盤點

(5)

b. Periodic System 定期盤存制

(1)

(2)

(3)

(4)

5. Accounting for Merchandise Purchases

Perpetual System Periodic System

(a) Purchase merchandise for resale

Inventory XXX Purchases XXX

A/P XXX A/P XXX

(b)

6. Closing Entries for Merchandisers 結帳分錄

永續盤存制 定期盤存制

No Entry Inventory (End.) XXX

Cost of Goods Sold XXX

Purchase Discounts XXX

Purchase Returns and Allowances XXX

Purchases XXX

Freight-In XXX

Inventory (Beg.) XXX

結帳的目的：Inventory停在期初，COGS出不來

7. Adjusting Entries for Merchandisers (Inventory Shrinkage or Inventory Overage)

Inventory shrinkage寫COGS也行

8. Inventory Costing (Cost-Flow Assumptions 成本流程假設)

a. Four methods of assigning costs to ending inventory and cost of goods sold are:

(1) FIFO (先進先出法) assumes costs flow in the order incurred.

(2) LIFO (後進先出法) assumes costs flow in the reverse order incurred.

(3) Weighted average (加權平均法) assumes costs flow at an average of the costs available. Under the perpetual system, it is required to compute the weighted average cost per unit of inventory at the time of each sale. We charge this weighted average cost per unit times units sold to cost of goods sold.

(4) Specific identification (個別認定法) is actually not an inventory cost flow assumption. It is used when each item can be identified with a specific purchase and invoice.

b. IFRS does not allow the use of LIFO.

c. The four methods of assigning costs are used in both perpetual and periodic system. However, the results may differ due to timing of cost assignment. Under the perpetual system, costs are assigned at the point of sale; under the periodic system, costs are assigned at the end of the accounting period when physical count is taken.

9. Financial Statement Effects of Costing Methods

a. When purchase costs regularly rise: (存貨價格處在上漲階段)

(1) FIFO assigns the lowest amount to cost of goods sold, yielding the highest gross profit and net income.

(2) LIFO assigns the highest amount to cost of goods sold, yielding the lowest gross profit and net income, which also yield a temporary tax advantage by postponing payment of some income tax.

(3) Weighted average yields results between FIFO and LIFO.

(4) Specific identification always yield results that depend on which units are sold.

b. When purchase costs regularly decline: (存貨價格處在下跌階段)

(1) FIFO assigns the highest amount to cost of goods sold, yielding the lowest gross profit and net income.

(2) LIFO assigns the lowest amount to cost of goods sold, yielding the highest gross profit and net income.

(3) Weighted average yields results between FIFO and LIFO.

(4) Specific identification always yield results that depend on which units are sold.

c. Each method offers certain advantages:

(1) FIFO assigns an amount to inventory on the balance sheet that approximates its current cost; it also mimics the actual flow of goods for most business.

(2) LIFO assigns an amount to cost of goods sold on the income statement that approximates its current costs; it also better matches current costs with revenues in computing gross profit.

(3) Weighted average tends to smooth out erratic changes in costs.

(4) Specific identification exactly matches the costs of items with the revenues they generate.

10. Valuing Inventory at the Lower of Cost and Net Realizable Value (LCNRV 成本與淨變現價值孰低法)

(1) IFRS requires that inventory be reported on the balance sheet at NRV when NRV is lower than cost. NRV is lower than cost when the future value of the inventory is in doubt. (2) NRV is the amount the inventory can be sold for, minus any selling cost.

(3) When recorded cost is higher than NRV, inventory is adjusted downward:

Applying LCNRV

Loss on Write-Down of Inventory (寫COGS就行) XXX

Allowance for Inventory Write-Down XXX

保守原則 跌的時候認，漲的時候不認

11. Financial Statement Effect of Inventory Errors

In the previous section, we have learned that

期初存貨＋本期進貨＝期末存貨＋銷貨成本

Inventory errors cause misstatements in cost of goods sold, gross profit, net income, current assets, and equity.

Balance sheet effects:

Ending Inventory Assets Equity

Understated Understated Understated

Overstated Overstated Overstated

Income statement effects:

Year 1 Year 2

Ending Inventory Cost of Goods Sold Net Income Cost of Goods Sold Net Income Understated Overstated Understated Understated Overstated Overstated Understated Overstated Overstated Understated

12. Assessing How Well Companies Manage Their Inventory

(1) Inventory turnover (存貨週轉率)

＝Cost of Goods Sold/Average Inventory

(2) Number of days’ sales in inventory (存貨週轉平均天數)

(3) Accounts payable turnover (應付帳款週轉率)

(4) Number of days’ purchases in accounts payable (應付帳款付現平均天數)

13. Inventory Estimation Methods (applied when a physical count is either impossible or impractical) 不能盤點的時候

(1) Gross profit method 毛利率法

Step1 : Net sales at retail X (1- gross profit percentage) = Estimated Cost of goods sold

Step2: Goods available for sale - Estimated cost of goods sold = Estimated ending inventory

(2) Retail method 零售價法

Step 1: Goods available for sale at cost / Goods available for sale at retail = Cost-to-retail ratio

Step 2: Goods available for sale at retail - Net sales at retail = Ending inventory at retail

Step 3: Ending inventory at retail X Cost-to-retail ratio = Estimated ending inventory at cost

Exercise:

1. Belmont Software engaged in the following transactions during May:

May 7 Purchased inventory on credit terms of 3/10, n/60, $3,200, FOB shipping point. The appropriate party paid the freight charges of $160.

8 Returned half of the inventory purchased on May 7.

10 Sold goods for cash, $450. The cost was $250.

13 Sold inventory on credit terms of 2/15, n/45, $3,900. The cost was $1,800.

16 Paid the amount owed on account from the purchase of May 7, less the return and the discount.

17 Grant an allowance $900 to the customer for the damaged goods in May 13 sales. 28 Received cash in full settlement of the account from the customer who purchased inventory on May 13, less the return and the discount.

Required: Journalize the preceding transactions of Belmont Software under (1) the perpetual inventory system and (2) the periodic inventory system.

2. Minot Company’s inventory balance on December 31, 2012, was $775,000 before considering the following transactions:

• Goods were in transit from a vendor to Minot on December 31, 2012. The invoice price was $62,500, and the goods were shipped FOB shipping point on December 27, 2012. The goods were received on January 2, 2013.

• Goods were purchased from a vendor on December 31, 2012. The invoice price was $83,000, with terms FOB shipping point. The goods were shipped the same day as purchase and received on January 7, 2013.

• Goods were shipped to Minot Company FOB destination on December 23, 2012, from a vendor. The invoice price was $31,250. The goods were received on January 2, 2013.

• Minot had goods consisting of $15,000 on consignment with a customer that were not included in the ending inventory balance.

• Minot had goods on consignment from a vendor of $25,000 that were included in the ending inventory balance.

Required: Given the above information, compute Minot Company’s inventory balance on December 31, 2012.

3. Souy Company sells many products. PS4 is one of its popular items. Below is an analysis of the inventory purchases and sales of PS4 for the month of March. Souy Company uses the periodic inventory system.

Purchases Sales

Units Unit Cost Units Selling Price per Unit

3/1 Beginning inventory 100 $40

3/3 Purchase 60 $50

3/4 Sales 70 $80

3/10 Purchase 200 $55

3/16 Sales 80 $90

3/19 Sales 60 $90

3/25 Sales 40 $90

3/30 Purchase 40 $60

Required:

a. Using the FIFO assumption, calculate the amount charged to cost of goods sold for March.

b. Using the weighted average method, calculate the amount assigned to the ending inventory for March.

c. Using the LIFO assumption, calculate the amount assigned to the ending inventory for March.

4. The controller(財務長) of Lawn-Pro Company is applying the LCNRV basis of valuing its ending inventory. The following information is available.

Cost NRV

Lawnmowers:

Self-propelled $15,000 $17,000

Push type 19,000 18,000

Total 34,000 35,000

Snowblowers:

Manual 30,000 31,000

Self-start 19,000 21,000

Total 49,000 52,000

Total inventory $83,000 $87,000

Required: Compute the value of the ending inventory by applying the LCNRV assuming LCNRV is applied on an item-by-item basis.

5. A physical inventory of SoundLand Company taken on December 31 reveals the following.

Per Unit

Item Units Cost NRV

Audio equipment Receivers 343 $ 88 $ 96

CD players 255 109 98

MP3 players 323 84 93

Speakers 198 50 39

Video equipment

Handheld LCDs 481 148 123

VCRs 288 91 82

Camcorders 206 308 320

Car audio equipment

Satellite radios 179 68 82

CD radios 164 95 103

Required:

a. If LCNRV is applied on an item-by-item basis, calculate the lower of cost and net realizable value for each item and the total inventory to appear on SoundLand’s balance sheet.

b. Continue with a., if the NRV amount is less than the recorded cost of inventory, use only one journal entry to record the lower of cost and net realizable value adjustment.

c. If LCNRV is applied to inventory as a whole, determine the total inventory to appear on SoundLand’s balance sheet.

6. For each of the independent events listed below, analyze the impact on the indicated items at the end of the current year by placing the appropriate code letter in the box under each item.

Code: O = item is overstated; U = item is understated; NA = item is not affected

a. A physical count of goods on hand at the end of the current year resulted in some goods being counted twice.

b. The ending inventory in the previous period was overstated.

c. Goods purchased on account in December of the current year and shipped FOB shipping point were recorded as purchases, but were not included in the count of goods on hand on December 31 because they had not arrived by December 31.

d. Goods purchased on account in December of the current year and shipped FOB destination were recorded as purchases, but were not included in the count of goods on hand on December 31 because they had not arrived by December 31.

e. The internal auditors discovered that the ending inventory in the previous period was understated $15,000 and that the ending inventory in the current period was overstated $25,000.

7. The City Store reported the following amounts on their financial statements for Year 1, Year 2, and Year 3:

For the year ended December 31

Year 1 Year 2 Year 3

Cost of goods sold $ 75,000 $ 87,000 $ 77,000

Net income 22,000 25,000 31,000

Total current assets 155,000 165,000 110,000

Equity 287,000 295,000 304,000

It was discovered early in Year 4 that the ending inventory on December 31, Year 1 was overstated by $6,000, and the ending inventory on December 31, Year 2, was understated by $2,500. The ending inventory on December 31, Year 3, was correct.

Required: Ignore income taxes, determine the correct amounts of cost of goods sold, net income, total current assets, and equity for each of the years Year 1, Year 2, and Year 3.

8. The inventory of Snider Company was destroyed by fire on April 1. From an examination of the accounting records, the following data for the first three months of the year are obtained.

Sales $185,000

Sales returns and allowances 5,000

Purchases 90,000

Freight-in 3,500

Purchase returns and allowances 4,000

Required: Determine the merchandise lost by fire, assuming a beginning inventory of $60,000 and a gross profit percentage of 40%.

Sol:

永續盤存制

May 7 Inventory 3,200

A/P 3,200

Inventory 160

Cash 160

May 8 A/P 1,600

Inventory 1,600

May 10

May 13 A/R 1,800

Sales Revenue 1,800

May 16 A/P

Inventory

Cash

May 17 Sales Returns and Allowances 900

A/R 900

May 28 Cash 2,940

Sales Discounts 60

A/R 3,000

定期盤存制

2.

775,000

+ 62,500

+ 83,000

+ 15,000

- 25,000

= 910,500

3.

a. Under FIFO, cost of goods sold = 100 × $40 + 60 × $50 + 90 × $55 = $11,950

b. Weighted average unit cost = ($4,000 + $3,000 + $11,000 + $2,400) ÷ 400 = $51 per unit Cost of goods sold = 250 × $51 = $12,750 Ending inventory = 150 × $51 = $7,650

c. Under LIFO, ending inventory = 100 × $40 + 50 × $50 = $6,500

4.

LCNRV

Lawnmowers:

Self-propelled $15,000

Push type 18,000

Total 33,000

Snowblowers:

Manual 30,000

Self-start 19,000

Total 49,000

Total inventory $82,000

5.

a.

Item Units Cost Before Adjustment LCNRV After Adjustment Audio equipment Receivers 343 $ 88 $ 30,184 $88 $ 30,184 CD players 255 109 27,795 98 24,990 MP3 players 323 84 27,132 84 27,132 Speakers 198 50 9,900 39 7,722 Video equipment Handheld LCDs 481 148 71,188 123 59,163 VCRs 288 91 26,208 82 23,616 Camcorders 206 308 63,448 308 63,448 Car audio equipment Satellite radios 179 68 12,172 68 12,172 CD radios 164 95 15,580 95 15,580 Total inventory $283,607 $264,007

b. Cost of Goods Sold ·························································19,600

Allowance for Inventory Write-Down·····················19,600

c. Total inventory = $275,948

6.

Assets Equity Cost of Goods Sold Net Income

a. O O U O 期末存貨高估

b. NA NA O U

c. U U O U 期末存貨低估

d. NA U O U 進貨高估 ＝>銷貨成本高估 A=L+E L高估

e. O25000 O25000 U40000 O40000 internal auditor內部稽核 銷貨成本低估40,000

Income statement效果累積 balance sheet跟當年有關

7.

For the year ended December 31

Year 1 Year 2 Year 3

Cost of goods sold $ 81,000 $ 78,500 $ 79,500

Net income 16,000 33,500 28,500

Total current assets 149,000 167,500 110,000

Equity 281,000 297,500 304,000

8.

Net sales = $180,000

Estimated cost of goods sold = $180,000 × 60% = $108,000

Cost of goods available for sale = $60,000 + ($90,000 + $3,500 − $4,000) = $149,500 Estimated ending inventory = $149,500 − $108,000 = $41,500

課本習題E8-3

On June 24, 2017, Reed Company sold merchandise to Emily Clark for $75,000 with terms 2/10, n/30. On June 30, Clark paid $39,200, receiving the cash discount on her payment, and returned $10,000 of merchandise, claiming that it did not meet contract terms. Assuming that Reed uses perpetual inventory system, record the necessary journal entries on June 24 and June 30. The cost of merchandise to Reed Company is 60% of its selling price.

sol:

E 8–3 (LO2) Recording Sales Transactions—Perpetual Inventory System

June 24 Accounts Receivable 75,000

Sales Revenue 75,000

Cost of Goods Sold 45,000

Inventory 45,000

Sold merchandise to Emily Clark, terms 2/10,

n/30 (cost is ￡75,000 ◊ 0.60 = ￡45,000).

June 30 Cash 39,200

Sales Discounts 800

Accounts Receivable 40,000

Received partial payment from Emily Clark

(discount is ￡40,000 ◊ 0.02 = ￡800).

June 30 Sales Returns 10,000

Accounts Receivable 10,000

Inventory 6,000

Cost of Goods Sold 6,000

Accepted return of merchandise that

originally sold for $10,000

(cost is ￡10,000 ◊ 0.60 = ￡6,000).