1. Prepared by Johnny Howard © 2015 South-Western, a part of Cengage Learning

2. 17–2 © 2015 South-Western, a part of Cengage Learning

3. 17–3 © 2015 South-Western, a part of Cengage Learning Accounting for Inventory Physical inventory—an actual counting of the merchandise on hand Perpetual inventory—a running count of all inventory items, based on tracking each item as it comes into and goes out of inventory. T E R M S 1

4. 17–4 © 2015 South-Western, a part of Cengage Learning Figure 17.1Inventory Sheet

5. 17–5 © 2015 South-Western, a part of Cengage Learning Figure 17.2Inventory Sheet

6. 17–6 © 2015 South-Western, a part of Cengage Learning Computing Inventory Using the Average Cost Method Ending inventory (EI) is the cost of the inventory on hand at the end of the period. The average cost method is based on the assumption that the cost for each item on hand is the average cost for items from the opening inventory and items purchased during the period. T E R M S 2

7. 17–7 © 2015 South-Western, a part of Cengage Learning The Average Cost Method E X A M P L E 2

8. 17–8 © 2015 South-Western, a part of Cengage Learning Computing Inventory Using the FIFO and LIFO Methods The first-in, first-out (FIFO) costing method assumes that the cost for units sold is determined in the order in which the units were purchased. Thus, the cost of the inventory remaining is assumed to be based on the price of the units received most recently. The last-in, first-out (LIFO) costing method is based on the assumption that the cost of the inventory remaining is determined by the cost of the units purchased the earliest. T E R M S 2

9. 17–9 © 2015 South-Western, a part of Cengage Learning The FIFO and LIFO Methods E X A M P L E S 2

10. 17–10 © 2015 South-Western, a part of Cengage Learning to Determine the Lower of Cost or Market (LCM) Inventory Value 1.Compute the unit or total cost for each type of inventory item using the average, FIFO, or LIFO costing method. 2.Determine the market value for each inventory item. 3.Compare the cost value from Step 1 with the market value from Step 2 and choose the lower of the two. 4.Compute the extension amount for each item based on the lower amount. 5.Sum the amounts in Step 4 to determine the total inventory value under LCM. 3

11. 17–11 © 2012 South-Western, a part of Cengage Learning Computing Inventory at the Lower of Cost or Market Value—Average Cost Method E X A M P L E 3

12. 17–12 © 2015 South-Western, a part of Cengage Learning Computing Inventory at the Lower of Cost or Market Value—FIFO Method E X A M P L E 3

13. 17–13 © 2015 South-Western, a part of Cengage Learning Estimating Inventory Value Using Cost of Goods Sold E X A M P L E 4

14. 17–14 © 2015 South-Western, a part of Cengage Learning Calculating Average Inventory BI = Beginning Inventory EI = Ending Inventory

15. 17–15 © 2015 South-Western, a part of Cengage Learning to Compute Inventory Turnover at Retail 1.Determine net sales. 2.Compute average inventory using retail price. 3.Compute inventory turnover at retail: Net sales ÷ Average inventory at retail. to Compute Inventory Turnover at Cost 1.Compute the cost of goods sold using the formula BI + P – EI = CGS. 2.Compute the average inventory at cost. 3.Compute inventory turnover at cost: Cost of goods sold ÷ Average inventory at cost 5

16. 17–16 © 2015 South-Western, a part of Cengage Learning

17. 17–17 © 2015 South-Western, a part of Cengage Learning

18. 17–18 © 2015 South-Western, a part of Cengage Learning Chapter Terms for Review average cost method average inventory beginning inventory (BI) cost of goods sold (CGS) ending inventory (EI) extension first-in, first-out (FIFO) costing method gross profit method inventory sheet inventory turnover inventory turnover at cost inventory turnover at retail last-in, first-out (LIFO) costing method lower of cost or market value (LCM) market value net sales perpetual inventory physical inventory purchases (P)

19. 17–19 © 2015 South-Western, a part of Cengage Learning Assignment 17.1: Inventory Cost A Compute the extensions and totals.

20. 17–20 © 2015 South-Western, a part of Cengage Learning Assignment 17.1: Inventory Cost A Compute the extensions and totals.

21. 17–21 © 2015 South-Western, a part of Cengage Learning Assignment 17.1: Inventory Cost B Compute the value of ending inventory.

22. 17–22 © 2015 South-Western, a part of Cengage Learning Assignment 17.1: Inventory Cost B Compute the value of ending inventory.

23. 17–23 © 2015 South-Western, a part of Cengage Learning Assignment 17.1: Inventory Cost B Compute the value of ending inventory (cont’d).

24. 17–24 © 2015 South-Western, a part of Cengage Learning Assignment 17.2: Inventory Estimating and Turnover A Solve the following problems.

25. 17–25 © 2015 South-Western, a part of Cengage Learning Assignment 17.2: Inventory Estimating and Turnover A Solve the following problems.

26. 17–26 © 2015 South-Western, a part of Cengage Learning Assignment 17.2: Inventory Estimating and Turnover A Solve the following problems.

27. 17–27 © 2015 South-Western, a part of Cengage Learning Assignment 17.2: Inventory Estimating and Turnover B Solve the following problems.

28. 17–28 © 2015 South-Western, a part of Cengage Learning Assignment 17.2: Inventory Estimating and Turnover B Solve the following problems.

29. 17–29 © 2015 South-Western, a part of Cengage Learning Assignment 17.2: Inventory Estimating and Turnover B Solve the following problems.

30. 17–30 © 2015 South-Western, a part of Cengage Learning Assignment 17.2: Inventory Estimating and Turnover B Solve the following problems.

31. 17–31 © 2015 South-Western, a part of Cengage Learning Assignment 17.2: Inventory Estimating and Turnover B Solve the following problems.

32. 17–32 © 2015 South-Western, a part of Cengage Learning Assignment 17.2: Inventory Estimating and Turnover B Solve the following problems.

33. 17–33 © 2015 South-Western, a part of Cengage Learning Assignment 17.2: Inventory Estimating and Turnover B Solve the following problems.