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Exam 5: Inventories and Cost of Sales

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Question 41

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A company had the following purchases during the current year: $\begin{array}{|l|l|}\hline\text { January: } & 10 \text { units at } \$ 120 \\\hline \text { February: } & 20 \text { units at } \$ 130 \\\hline \text { May: } & 15 \text { units at } \$ 140 \\\hline \text { September: } & 12 \text { units at } \$ 150 \\\hline \text { November: } & 10 \text { units at } \$ 160\\\hline\end{array}$ On December 31,there were 26 units remaining in ending inventory.These 26 units consisted of 2 from January,4 from February,6 from May,4 from September and 10 from November.Using the specific identification method,what is the cost of the ending inventory?

A) $3,500
B) $3,800
C) $3,960
D) $3,280
E) $3,640

F) A) and C)
G) C) and D)

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Question 42

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The lower of cost or market rule for inventory valuation must be applied to each individual unit separately and not to major categories of inventory or to the entire inventory.

A) True
B) False

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Question 43

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Given the following information,determine the cost of goods sold at November 30 using the LIFO perpetual inventory method. November 3: 15 units were purchased at $8 per unit. November 11: 18 units were purchased at $9.50 per unit. November 15: 15 units were sold at $45 per unit. November 18: 30 units were purchased at $10.75 per unit. November 30: 20 units were sold at $55 per unit.

When taking a physical count of inventory,the use of prenumbered inventory tickets assists in the control process.

An overstated beginning inventory will ______________ cost of goods sold and _____________ net income.

The inventory turnover ratio is computed by dividing average merchandise inventory by cost of goods sold.

The inventory valuation method that results in the lowest taxable income in a period of inflation is:

When purchase costs regularly rise,the ___________________ method of inventory valuation yields the highest gross profit and net income.

When LIFO is used with the periodic inventory system,cost of goods sold is assigned costs from the most recent purchases at the point of each sale,rather than from the most recent purchases for the period.

A company reported the following data: $\begin{array} { | l | r | r | r | } \hline & { \text { Year 1 } } & { \text { Year 2 } } & { \text { Year 3 } } \\\hline \text { Cost of goods sold } & \$ 347,600 & \$ 79,650 & \$ 443,900 \\\hline \text { Average inventory } & 85,000 & 91,050 & 98,350 \\\hline\end{array}$ Required: 1.Calculate the company's merchandise inventory turnover for each year. 2.Comment on the company's efficiency in managing its inventory.

When applying the lower of cost or market method of inventory valuation,market is defined as the ______________________.

Given the following information,determine the cost of ending inventory at June 30 using the LIFO perpetual inventory method.Assume this is the first month of the company's operations. June 1: 15 units were purchased at $20 per unit. June 15: 12 units were sold. June 29: 8 units were purchased for $25 per unit.

A company reported the following data: $\begin{array} { | l | r | r | r | } \hline & { \text { Year 1 } } & { \text { Year 2 } } &{ \text { Year 3 } } \\\hline \text { Cost of goods sold } & \$ 238,000 & \$ 375,000 & \$ 495,000 \\\hline \text { Ending inventory } & 120,000 & 150,000 & 180,000 \\\hline\end{array}$ Required: 1.Calculate the days' sales in inventory for each year. 2.Comment on the trend in inventory management.

If obsolete or damaged goods can be sold,they will be included in inventory at their net realizable value.

The full disclosure principle requires that the notes to the financial statements report a change in accounting method for inventory costing.

According to IRS requirements,companies are allowed to use FIFO for financial reporting and LIFO for tax reporting.

The inventory turnover ratio:

Given the following items and costs as of the balance sheet date,determine the value of Faltron Company's merchandise inventory. - $1,000 goods sold by Faltron to another company.The goods are in transit and shipping terms are FOB destination. - $2,000 goods sold by another company to Faltron.The goods are in transit and shipping terms are FOB destination. - $3,000 owned by Faltron but in the possession of another company,the consignee. - Damaged goods owned by Faltron that originally cost $4,000 but now have a $500 net realizable value.

The choice of an inventory valuation method can have a major impact on gross profit and cost of sales.

A company uses the retail inventory method and has the following information available concerning its most recent accounting period: $\begin{array}{|l|r|r|}\hline & \text { At Cost } & { \text { At Retail } } \\\hline \text { Beginning-of-period inventory } & \$ 148,600 & \$ 245,200 \\\hline \text { Net purchases } & 677,400 & 1,229,800 \\\hline \text { Sales } & & 1,200,000\\\hline \end{array}$ (a) What is the cost-to-retail ratio using the retail method? (b) What is the estimated cost of the ending inventory?