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Exam 5: Inventories and Cost of Sales

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Question 31

True/False

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The assignment of costs to the cost of goods sold and to ending inventory using FIFO is the same for both the perpetual and periodic inventory systems.

A) True
B) False

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Question 32

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Some companies choose to avoid assigning incidental costs of acquiring merchandise to inventory by recording them as cost of goods sold when incurred. The principle that supports this is called:

A) The matching principle.
B) The materiality constraint.
C) The cost principle.
D) The conservation constraint principle.
E) The lower of cost or market principle.

F) None of the above
G) A) and B)

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Question 33

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Sandoval needs to determine its year-end inventory. The warehouse contains 20,000 units, of which 3,000 were damaged by flood and are not sellable. Another 2,000 units were purchased from Markor Company, FOB shipping point, and are currently in transit. The company also consigns goods and has 4,000 units at a consignee's location. How many units should Sandoval include in its year-end inventory?

Errors in the period-end inventory balance only affect the current period's records and financial statements.

The inventory turnover ratio:

All of the following statements related to goods on consignment are true except:

What advantages does a perpetual inventory system have over periodic inventory system?

Costs included in the Merchandise Inventory account can include all of the following except:

What specific costs and deductions are used to determine the final cost of merchandise inventory? Identify all costs including the incidental costs.

Using the retail inventory method, if the cost to retail ratio is 70% and ending inventory at retail is $145,000, then estimated ending inventory at cost is $207,143. $145,000 * 0.70 = $101,500

Buffalo Company reported a December 31 ending inventory balance of $412,000. The following additional information is also available: • The ending inventory balance of $412,000 did not include goods costing $48,000 that were purchased by Buffalo on December 28 and shipped FOB destination on that date. Buffalo did not receive the goods until January 2 of the following year. • The ending inventory balance of $412,000 included damaged goods at their original cost of $38,000. The net realizable value of the damaged goods was $10,000. Based on this information, the correct balance for ending inventory on December 31 is:

A company has the following per unit original costs and replacement costs for its inventory. LCM is applied to individual items. Part A: 50 units with a cost of $5, and replacement cost of $4.50 Part B: 75 units with a cost of $6, and replacement cost of $6.50 Part C: 160 units with a cost of $3, and replacement cost of $2.50 Under the lower of cost or market method, the total value of this company's ending inventory is:

In a period of rising purchase costs, LIFO usually gives a lower taxable income and therefore, yields a tax advantage.

On September 1 of the current year, Scots Company experienced a flood that destroyed the company's entire inventory. Because the company had not completed its month end reporting for August, it must estimate the amount of inventory lost using the gross profit method. At the beginning of August, the company reported beginning inventory of $215,450. Inventory purchased during August was $192,530. Sales for the month of August were $542,500. Assuming the company's typical gross profit ratio is 40%, estimate the amount of inventory destroyed in the flood.

A merchandiser's ability to pay its short-term obligations depends on many factors including how quickly it sells its merchandise inventory.

All of the following statements regarding U.S. GAAP and IFRS are true except:

The conservatism constraint requires that when more than one estimate of the amounts to be received or paid in the future exists and these estimates are about equally likely, then the most optimistic amount is used.

An understatement of ending inventory will cause

Discuss the important accounting features of a periodic inventory system including accounts and procedures used.

A company's total cost of inventory was $329,000 and its current replacement cost is $307,000. Under the lower cost or market, the amount reported should be $329,000.