Guided Readings for Financial Accounting, Lesson 8.3 – Expert Level

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SUGGESTION: Chapter Eight is the first of two chapters that examines the reporting of inventory and cost of goods sold. A number of topics were covered here from periodic and perpetual inventory systems to estimating the amount of inventory on hand. Decide what you think are the five most important topics in this chapter. Then, watch the video at the end of the chapter (“The Most Important Elements of Chapter Eight”) and learn what the textbook authors thought.

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SUGGESTION: At the end of Chapter Eight, you will find two video problems. The first concerns your roommate whose parents own a chain of ice cream shops in Florida. A hurricane causes a power outage and a lot of ice cream is ruined. A dispute arises with the insurance company about the amount of the loss. The roommate wants to know how it is possible for a reasonable estimate to be determined. How would you answer?

Click on the video and see our answer. Does this approach make sense?

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SUGGESTION: Go to the end of Chapter Eight and work Multiple-Choice Question Number 15 (number 3 in the second edition of the textbook). It gives several inventory figures and asks you to compute cost of goods sold. Use this problem to practice on making proper use of the numbers that are available. After you arrive at an answer, check your approach by watching the following video:

https://www.youtube.com/watch?v=N3J0VZPlJGc

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SUGGESTION: Go to the end of Chapter Eight and work Multiple-Choice Question Number 13 (number 8 in the second edition). This problem examines the importance of the FOB point at the end of the year. The company has one inventory purchase in-transit at the end of the year and a sale that is also in-transit. How should these goods affect the reporting of inventory? Watch the video and see if you agree with this approach.

https://www.youtube.com/watch?v=PPd2bgE9R5s

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“I was always a kid trying to make a buck. I borrowed a dollar from my dad, went to the penny candy store, bought a dollar's worth of candy, set up my booth, and sold candy for five cents apiece. Ate half my inventory, made $2.50, gave my dad back his dollar.”
Guy Fieri, television personality

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