Why is it necessary for companies to manage their inventory? Businesses that can manage and account for their inventory have accurate data to make informed decisions. For example, inventory management lets you know when it's time to replenish stock, how much product is on-hand for sales, whether theft has occurred, etc. Additionally, you must accurately report inventory so that financial statements reflect the most current and accurate numbers. These tasks are critical for a business to be successful. Companies can use either a periodic or perpetual inventory system. You will find that most companies use a perpetual system because it updates inventory in real time. Think about a retail store. As the product moves through the company or warehouse, it is being tracked by the accounting system under a perpetual inventory. When the item is purchased at the point of sale, the system will update the inventory. Small business owners that typically deal with small amounts of inventory use a periodic system. Most seasonal businesses also use a periodic system. There are four different inventory costing methods used to help businesses value inventory and assign the cost of goods available for sale. . First-in, First-out (FIFO) in this method the cost of the items purchased first (i.e. the oldest items) are used in computing the Cost of Goods Sold. This leaves the most recently purchased items in inventory. Last-in, First-out (LIFO)- in this method the cost of the items purchased last (ie. the newest items) are used in computing the Cost of Goods Sold. This leaves the oldest purchased items in inventory Weighted Average Cost in this method the average cost of all the items in inventory is used to compute the Cost of Goods Sold. Specific Identification Cost - in this method the cost of each individual item is charged to the Cost of Goods Sold. It is important to note that the actual flow of the inventory sold does NOT have to match the method used to value it. C Before you begin your original post, please review the posts of your classmates to see what types of inventory have already been discussed. Try to choose one of the following types of inventory that your classmates have not discussed yet. When you select the type of inventory that you want to discuss, consider only one product in that line. For example, if you select automobiles as the inventory category, describe how you would implement the inventory valuing method for only one make and model of the car in your post. In other words, choose one of the products in parentheses after the inventory category. . Medical equipment (10 wheelchairs, 10 x-ray machines, 10 prosthetic devices) . . . . Electronic devices (10 Dell computers, 10 iPhones) Wine (10 bottles of super-premium wine, 10 boxes of table wine) Petroleum products (10 barrels of crude oil, 10 gallons of regular gasoline, 10 gallons of premium gasoline) Automobiles (10 of one specific make and model) Bridal dresses (10 of one specific style) Clothing (10 handmade sweaters, 10 off-the-rack sweaters, 10 seasonal Ugly Christmas sweaters) . Furniture (10 custom made cabinets, 10 mass-produced sofas) . . Jewelry (10 unique diamond necklaces, 10 inexpensive costume necklaces) Real Estate (10 acres of land, 10 single-story houses, 10 commercial office spaces) Food (10 gallons of milk, 10 cans of soup) In your original post, respond to the following prompts: . Identify one of the (inventory) items from the list above. Do you think businesses that deal with these items use a Perpetual or Periodic Inventory System? Explain your answer. Suggest one of the four types of cost flow assumptions for this type of inventory. Explain why you think this is the best match for the inventory items you have chosen. Remember, the actual flow of sales of these items does not have to match the method you have chosen to value it! How would using these methods impact the balance sheet and the income statement? (Example: The cost of goods sold, ending inventory, profit, and asset values.) Imagine you are a business owner and you want to sell this type of inventory overseas. Would you use the same cost flow method you have chosen to value it! How would using these methods impact the balance sheet and the income statement? (Example: The cost of goods sold, ending inventory, profit, and asset values.) Imagine you are a business owner and you want to sell this type of inventory overseas. Would you use the same cost flow assumption? Why or why not? 1 Required On the next tab - The Financial Statement Template, complete the income statement, the statement of owner's equity and the classified balance sheet by filling in the empty blue squares. The information needed to complete the financial statements is in the Adjusted Trial Balance below. Be sure to note the Additional Transactions to the right of the Adjusted Trial Balance. Tybalt Construction Adjusted Trial Balance 2 3 No. December 31, 2017 Account Title Debit Credit 4 101 Cash $ 5,000.00 5 104 Short-term investments 23,000 6 126 Supplies 8,100 7 128 Prepaid insurance 7,000 8 167 Equipment 40,000 9 168 Accumulated depreciation-Equipment $ 20,000.00 10 173 Building 150,000 11 174 Accumulated depreciation-Building 50,000 12 183 Land 55,000 13 201 Accounts payable 16,500 Problem Financial Statement Template 13 14 15 16 17 18 19 20 201 Accounts payable 203 Interest payable 208 Rent payable 210 Wages payable 213 Property taxes payable 233 Unearned professional fees 251 Long-term notes payable 301 O. Tybalt, Capital 16,500 2,500 3,500 2,500 900 7,500 67,000 126,400 21 302 O. Tybalt, Withdrawals 13,000 22 401 Professional fees earned 97,000 23 406 Rent earned 14,000 24 407 Dividends earned 2,000 25 409 Interest earned 2,100 26 606 Depreciation expense-Building 11,000 27 612 Depreciation expense-Equipment 6,000 28 623 Wages expense 32,000 29 633 Interest expense 5.100 30 31 32 33 637 Insurance expense 640 Rent expense 652 Supplies expense 682 Postage expense 10,000 13.400 7.400 4.200 34 683 Property taxes expense 5.000 Problem Financial Statement Template Dendy Accarribilitis Inactiant Additional transactions Tybalt invested $5,000 cash in the business during year 2017 (the December 31, 2016, credit balance of the O. Tybalt, Capital account was $121,400). Tybalt Construction is required to make a $7,000 payment on its long-term notes payable during 2018. 4 5 6 Income Statement For Year Ended December 31, 2017 7 8 Revenues Professional Fees Earned 9 10 Rent Earned 11 Dividends Earned 12 Interest Earned 13 Total Revenue 14 15 Expenses 16 17 Depreciation Expense Building Depreciation Expense - Equipment 18 Wages Expense 19 Interest Expense 20 Insurance Expense 21 Rent Expense 22 Supplies Expense 23 Postage Expense 24 Property Taxes Expense 35 Donsive Cunonen Problem Financial Statement Template Check Figure $ 115,100 16 Depreciation Expense - Building 17 Depreciation Expense - Equipment 18 Wages Expense 19 Interest Expense 20 Insurance Expense 21 Rent Expense 22 Supplies Expense 23 Postage Expense 24 Property Taxes Expense 25 Repairs Expense 26 Telephone Expense 27 Utilities Expense 28 Total Expenses 29 Net Income Check Figure $ 110,800 $ 4,300 Tybalt Construction Statement of Owner's Equity For Year Ended December 31, 2017 Beginning O. Tybalt, Capital, January 1, 2017* ADD: Investment by Owner ADD: Net Income Sub-Total of Beginning Balance and Additions LESS: O. Tybalt, Withdrawls Ending O. Tybalt, Capital, December 31, 2017 Beginning Capital on January 1, 2017 is the same as the Ending Capital on Dec 31, 2016 as found in the Additional Information Box on the Problem Tab of this Excel Workbook. S Check Figure 117,700 Assets Current Assets Cash Tybalt Construction Balance Sheet December 31, 2017 Short-term Investments Supplies Prepaid Insurance Total Current Assets Plant assets Equipment Accumulated Depreciation - Equip Net Equipment Building Accumulated Depreciation. - Building Net Building Land Total Dlant Accote (Not Fauinmant Not Ruilding land). Check Figure 43,100 Check Figure 175.000 L Net Equipment Building Accumulated Depreciation. - Building Net Building Land Total Plant Assets (Net Equipment, Net Building, Land) Total Assets Liabilities Current Liabilities Accounts Payable Interest Payabkle Rent Payable Wages Payable Property Taxes Payable Unearned Professional Fees P M N Check Figure 175,000 218,100 Current Portion of Long-Term Notes Payable (*see below) Check Figure Total Current Liabilities Long-Term Notes Payable Total Liabilities 40,400 60,000 Totarrant cquipment, recounung, Laniu Total Assets Liabilities Current Liabilities Accounts Payable Interest Payabkle Rent Payable Wages Payable Property Taxes Payable Unearned Professional Fees Current Portion of Long-Term Notes Payable (*see below) Total Current Liabilities Long-Term Notes Payable Total Liabilities. Equity Ending O. Tybalt, Capital - December 31, 2017 Total Liabilities and Equity Hint: Column M contains the subtotals and column N contains the grandtotals. Hint: Refer to the Guided Practice videos and chapter 4 in your ebook. For Current Portion of Note Payable - See the Additional Transactions box 218,100 Check Figure 40,400 60,000 Check Figure $ 218,100