Chapter7 handout Class18

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2001

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Apr 3, 2024

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ACCT 2001 Class 18 Chapter 7, Inventory and Cost of Goods Sold Sandals Company is preparing the annual financial statements dated December 31. Ending inventory Information about the four major items stocked for regular sale follows: Item Quantity on Hand Unit Cost When Acquired (FIFO) Market Value at Year-end LCM per item Total LCM Recorded Total Cost Air Flow 20 $ 12 $ 14 $ 240 Blister Buster 75 40 38 3,000 Coolonite 35 55 50 1,925 Dudesly 10 30 35 300 Totals 1. Complete the two columns of the table and then compute the amount that should be reported for the ending inventory using the LCM rule applied to each item. 2. Prepare the journal entry that Sandals Company would record on December 31 to write-down its inventory to LCM. Nike is the 1st largest and highly recognized brand in the sports industry. It’s also the oldest, first debuting shoes in 1964. Under Armour is the newest brand in the sports/running industry (1996), offering a modern trend design approach. Nike offers innovative technology with a better comfort approach. Interesting fact, they are the only brands in the world making “smart shoes” currently. These companies reported the following amounts in their financial statements (in millions): Nike (Year-end 5/31) Under Armour (Year-end 12/31) 2021 2020 2019 2021 2020 2019 Net Sales Revenue $ 44,538 $ 37,403 $ 39,117 $5,683 $ 4,475 $ 5,267 Cost of Goods Sold 24,576 21,162 21,643 2,822 2,315 2,797 Year-end Inventory 6,854 7,367 5,622 811 896 892 Average Inventory Inventory Turnover Average days to sell 1. Calculate to one decimal place the inventory turnover ratio and average days to sell inventory for 2021 and 2020 for each company. 2. Discuss any trends, and compare the effectiveness of inventory managers at Nike to those at Under Armour. Both companies use the same inventory costing method. Which company, in which year, appears to have managed their inventory most successfully? A. Nike, 2021 B. Under Armour, 2021 C. Nike, 2020 D. Under Amour, 2020

ACCT 2001 Class 18 Page 2 of 2 Orion Iron Corp tracks the number of units purchased and sold throughout each year. Assume its accounting records provided the following information at the end of the annual accounting period, December 31. Transactions Units Unit Cost Beginning inventory 300 $ 12 Purchase, April 11 900 10 Sale, May 1 ($40 per unit) 300 Purchase, June 1 800 13 Sale, July 3 ($40 per unit) 600 Periodic Perpetual LIFO Cost of goods sold Ending inventory FIFO Cost of goods sold Ending inventory At the end of Year 1, Walnut Company made an error in pricing its inventory under the periodic inventory system. As a result, ending inventory was overstated by $4,000. Assuming that the error was never discovered and corrected, what effect would the error have on each of the following financial statement amounts for Year 1 and Year 2? Year 1 Year 2 Beginning inventory Purchases Ending Inventory CGS Gross margin Owner’s equity (year-end)

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