CH POFA

Results in cost of goods sold being closest to current product costs – (LIFO)
• Results in highest income during periods of inflation – (FIFO)
• Results in highest ending inventory during periods of inflation – (FIFO)
• Smooths out (or evens out) costs during periods of inflation – (Weighted Average)
• Is not practical for many businesses – (Specific Identification)
• Puts more emphasis or significance on the unit cost of the larger number of units purchased –
(Weighted Average)
Whose Stuff Is It? (Which company has ownership of the inventory on December 31?)
• Jayhawk Company shipped merchandise to Wildcat Corporation on December 28, 2022, terms FOB
destination. The merchandise arrives at Wildcat on January 4, 2023. -- (Jayhawk)
• Sooner, Inc. shipped merchandise to Cowboy Company on December 26, 2022, FOB destination.
Cowboy received the merchandise on December 31, 2022. -- (Cowboy)
• Tiger Corporation shipped merchandise to Razorback, Inc. on December 27, 2022, FOB shipping
point. Razorback received the merchandise on January 3, 2023. -- (Razorback)
What’s the Impact?
Identify the impact (understated or overstated) of certain financial statement elements based on an
error in ending inventory.
• From the buyer’s perspective: Goods in transit at year end to be received are not included in the
physical count: they were shipped FOB shipping point.
• Inventory – Understated; Cost of Goods Sold – Overstated; Net Income – Understated;
Stockholders’ Equity – Understated
• One section of a warehouse is counted twice during the year-end count of inventory.
• Inventory – Overstated; Cost of Goods Sold – Understated; Net Income – Overstated;
Stockholders’ Equity – Overstated
• From the seller’s perspective: Goods in transit at year end are included in the physical count: they
were shipped FOB shipping point.
• Inventory – Overstated; Cost of Goods Sold – Understated; Net Income – Overstated;
Stockholders’ Equity – Overstated
• During the count at year-end, the inventory sheets for one of the stores of a retailer are lost.
• Inventory – Understated; Cost of Goods Sold – Overstated; Net Income – Understated;
Stockholders’ Equity – Understated