Chapter 8 Inventories

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Table of Contents

Chapter 8 Inventories

LEARNING OBJECTIVES

LEARNING OBJECTIVES (continued)

Management Issues Associated with Accounting for Inventories

Inventory Management

Inventory Issues

Accounting for Inventories

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Applying the Matching Rule to Inventories

Applying the Matching Rule

The Effect of Ending Inventory

The Impact of Inventory Decisions

Evaluating the Level of Inventory

Inventory Turnover

Inventory Turnover

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Average Daysí Inventory on Hand

Average Daysí Inventory on Hand

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Discussion

Pricing Inventory Under the Periodic Inventory System

The AICPA States . . .

Inventory Cost

Merchandise in Transit

Merchandise in Transit (continued)

Merchandise on Hand Not Included in Inventory

Inventory Pricing Issues

Methods of Pricing Inventory at Cost

Illustrative Data for the Four Methods

Discussion

Specific Identification Method

Specific Identification Method for Pricing Ending Inventory

Average-Cost Method

Average-Cost Method for Pricing Ending Inventory

First-In, First-Out (FIFO) Method

First-In, First-Out (FIFO) Method for Pricing Ending Inventory

Last-In, First-Out (LIFO) Method

Last-In, First-Out (LIFO) Method for Pricing Ending Inventory

Discussion

Pricing Inventory Under the Perpetual Inventory System

Pricing Inventory Under the Perpetual Inventory System

Illustrative Data for the Three Methods

Perpetual Inventory System: Average-Cost Method

Perpetual Inventory System: FIFO Method

Perpetual Inventory System: LIFO Method

Discussion

Comparison and Impact of Inventory Decisions and Misstatements

Effects of Inventory Systems and Methods

Effects on the Financial Statements

LIFO

FIFO

Effects on Income Taxes

Effects on Income Taxes (continued)

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Effects of Misstatements in Inventory Measurement

Summary of the Effects of Misstatements in Inventory

Discussion

A.

Valuing Inventory at the Lower-of-Cost-or-Market (LCM)

Inventory Valuation

Discussion

Valuing Inventory by Estimation

Retail Method of Inventory Estimation

Valuing Inventory by Estimation

Gross Profit Method of Inventory Estimation

Discussion

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Author: Needles & Powers