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A review of the balance sheet of a retailer, such as Wal-Mart, will disclose that in current assets the majority investment is in inventory. With manufacturers, such as Ford, the inventory is spread between three different categories. Let’s start our discussion with some basic inventory questions. How is inventory valued? Which inventory valuation method is most popular and why? What impact on the financial reports can the selection of an inventory valuation method have?

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What exactly is inventory and how might it be valued? What are some of the valuation techniques

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What accounting principles relate to inventory management? What is the purpose for the lower-of -cost-or-market rule? How is it computed?

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E3-26AThe adjusted trial balance for Honeyglazed Hams, Inc., follows:Honeyglazed Hams, Inc.Adjusted Trial BalanceDecember 31, 2012AccountDebitCreditCash $3,700Accounts receivable           1,700Inventories           1,600Prepaid expenses           1,600Property, plant and equipment           6,800Accumulated depreciation $2,800Other assets           9,500Accounts payable           7,900Income tax payable               500Other liabilities           2,400Common stock           4,600Retained earnings (beginning, December 31, 2011)           4,700Dividends           1,500Sales revenue         40,900Cost of goods sold         25,000Selling, administrative, and general expenses         10,300Income tax expense           2,100Total $63,800 $63,800Prepare Honeyglazed Hams, Inc.’s income statement and statement ofretained earnings for the year ended December 31, 2012, and its balancesheet on that date.

An accountant made the following adjustments at December 31, the end of the accounting period:

• a. Prepaid insurance, beginning, $400. Payments for insurance during the period, $1,200. Prepaid insurance, ending, $700.
• b. Interest revenue accrued, $1,600.
• c. Unearned service revenue, beginning, $1,100. Unearned service revenue, ending, $500.
• d. Depreciation, $4,800.
• e. Employees’ salaries owed for three days of a five-day work week; weekly payroll, $18,000.
• f. Income before income tax, $21,000. Income tax rate is 25%.
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