【正文】 ies ? Purchasing/Receiving dept. costs d) Direct Material (DM) ? Raw materials would be transferred into Workinprocess (WIP) should include: While freight out is selling EXP 16 A Determining Inventory amp。 COGS 2. Goods and Materials to be included in inventory g) Public Warehouses ? Goods stored in a public warehouse and evidenced by a warehouse receipt ? Goods should be included in the pany holding the warehouse receipt even though the owner does not have possession. Belongs to an entity who is holding the warehouse receipt 12 A Determining Inventory amp。 COGS 2. Goods and Materials to be included in inventory c) Goods in Transit ? If there is explicitly agreement: title passes in terms of the agreement ? If there is no such agreement: title passes when seller’s performance regarding delivery of goods is plete ? . (free on board): requires the seller to deliver the goods to the location indicated as . the seller’s expense. shipping point ① Title passes to buyer when seller delivers goods to a mon carrier ② Goods shipped should be included in the buyer’s inventory upon shipment destination ① Title passes to buyer when buyer receives goods from mon carrier ② Goods shipped should be included in the seller’s inventory until received by buyer buyer’s inventory upon shipment seller’s inventory until received by buyer 8 A Determining Inventory amp。 COGS 4 A Determining Inventory amp。 COGS (P184185) B: Inventory Valuation (P185190) C: CostFlow Method (P185190) M8 D: Ratios (P191) E: LongTerm Construction Contracts (P191194) Measurement issue (how much) classification issue What to be included 3 A. Determining INV amp。 COGS 2. Goods and Materials to be included in inventory a) . b) Exceptions and Special Applications ? Goods in transit ? Shipment of nonconforming goods ? Sales with a right to return ? Consigned goods ? Public warehouses ? Sales with a mandatory buyback ? Installment sales Goods and materials in which the pany has legal title should be included in inventory, and legal title typically follows possession of goods ? 7 A Determining Inventory amp。 COGS 2. Goods and Materials to be included in inventory f) Consigned Goods ? The seller (consignor) delivers goods to an agent (consignee) to hold and sell on the consignor’s behalf ? The seller should include the consigned goods in its inventory because title and risk of loss is retained by the seller even though the buyer possesses the goods ? Revenue will be recognized when goods are sold to a 3rd party. Title passes directly to the 3rd party (seller 3rd party) Seller’s inventory until goods sold to a 3rd party 11 A Determining Inventory amp。 COGS 3. Cost Components of Production Inventory a) Costs include in inventory are the sum of all expenditures in bringing the goods to the condition and location so that they are ready for sale. ? Direct Materials (DM) ? Direct Labor (DL), and ? Manufacturing Overhead (MOH) c) There are 3 types of product costs: b) Under GAAP, only product costs are included in inventory while period costs (. not a necessary part of the manufacturing process ) are not included as production inventory 15 A Determining Inventory amp。 COGS 4. Periodic System vs. Perpetual System a) Periodic System ? The quantity of INV END is determined only by physical count, usually at least annually ? COGS for the period is determined by squeezing ? Does not keep a running total of the inventory balances INV BEG √ Purchases COGAFS (COGS) squeeze INV END physical count √ Key difference 19 A Determining Inventory amp。 COGS 4. Periodic System vs. Perpetual System c) Comparison of periodic and perpetual inventory methods ? Endofperiod adjustment ① periodic system: Dr. COGS $120,000 Dr. INV END 180,000 Cr. Purchases $300,000 ② perpetual system: No entry needed adjusts inventory to the physical count, closes out any purchase accounts, and runs any difference through cost of goods sold. Example: A pany purchased 50,000 units of merchandise for $6/unit. 20,000 units was sold $7/unit during the 1st operating year 23 Question Time… 1. The following info applied to Fenn, Inc. for 2020: a) $400,000 b) 404,000 c) 408,000 d) 413,000 Merchandise purchased for resale $400,000 Freightin 10,000 Freightout 5,000 Purchase returns 2,000 Fenn’s inventoriable cost was: Answer: c) 24 Question Time… 2. On 06/01/08, Pitt Corp. sold merchandise with a list price of $5,000 to Burr on account. Pitt allowed trade discounts of 30% and 20%. Credit terms were 2/15, n/40 and the sale was made FOB shipping point. Pitt prepared $200 of delivery costs for Burr for acmodation. On 06/12/08, Pitt received from Burr a remittance in full payment amount to: a) $2,744 b) 2,940 c) 2,944 d) 3,140 Answer: c) 25 Question Time… 2. Answer: Answer: c) Cash paid of trade discount = $5,000 X (1 – 30%) X (1 – 20%) = $3,500 Cash paid within 15 days = $3,500 X (1 – 98%) = $2,744 Add: Delivery cost for Burr 200 Cash received from Burr $2,944 26 Question Time… 3. How should the fo