FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 5: Inventories and Cost of Sales

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 21

Multiple Choice

Review LaterAdd Note

Review Later

When costs to purchase inventory regularly decline,which method of inventory costing will yield the lowest gross profit and income?

A) FIFO.
B) LIFO.
C) Weighted average.
D) Specific identification.
E) Gross margin.

F) All of the above
G) C) and E)

Correct Answer

verified

Show Answer

Question 22

Multiple Choice

Review LaterAdd Note

Review Later

Match each of the following terms with the appropriate definition. -An inventory valuation method where each item in inventory is identified with a specific purchase and invoice.

A) Conservatism constraint
B) Inventory turnover
C) Net realizable value
D) Retail inventory method
E) Days' sales in inventory
F) Weighted average inventory method
G) Interim statements
H) LIFO method
I) FIFO method
J) Specific identification method

K) A) and J)
L) C) and J)

Correct Answer

verified

Show Answer

Question 23

True/False

Review LaterAdd Note

According to IRS guidelines,companies may use FIFO for financial reporting and LIFO for tax reporting.

A company had the following purchases and sales during its first year of operations: $\begin{array} { | l | l | l | } \hline & \text { Purchases } & \text { Sales } \\\hline \text { January: } & 10 \text { units at } \$ 120 & 6 \text { units } \\\hline \text { February: } & 20 \text { units at } \$ 125 & 5 \text { units } \\\hline \text { May: } & 15 \text { units at } \$ 130 & 9 \text { units } \\\hline \text { September: } & 12 \text { units at } \$ 135 & 8 \text { units } \\\hline \text { November: } & 10 \text { units at } \$ 140 & 13 \text { units } \\\hline\end{array}$ On December 31,there were 26 units remaining in ending inventory. -Using the Perpetual LIFO inventory valuation method,what is the value of cost of goods sold? (Assume all sales were made on the last day of the month.)

Salmone Company reported the following purchases and sales of its only product.Salmone uses a perpetual inventory system.Determine the cost assigned to cost of goods sold using FIFO. $\begin{array} { | c | l | l | l | } \hline \text { Date } & { \text { Activities } } & \text { Units Acquired at Cost } & \text { Units Sold at Retail } \\\hline \text { May 1 }&\text {Beginning Inventory } & 150 \text { units @ } \$ 10.00 & \\\hline 5& \text { Purchase } & 220 \text { units @ } \$ 12.00 & \\\hline 10& \text { Sales } & & 140 \text { units @ \$20.00 } \\\hline 15 &\text { Purchase } & 100 \text { units @ } \$ 13.00 & \\\hline 24& \text { Sales } & & 90 \text { units @ \$21.00 } \\\hline\end{array}$

The understatement of the ending inventory balance causes:

Consignment goods are:

Regardless of what inventory method or system is used,cost of goods available for sale must be allocated between ________ and ________.

Whether purchase costs are rising or falling,FIFO always will yield the highest gross profit and net income.

The Community Store reported the following amounts on their financial statements for Year 1,Year 2,and Year 3: $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\begin{array} { c } \text { For the year ended } \\\text { December 31 }\end{array}$ $\begin{array} { | l | r | r | r | } \hline & \text { Year 1 } & \text { Year 2 } & \text { Year 3 } \\\hline \text { Cost of goods sold } & \$ 75,000 & \$ 87,000 & \$ 77,000 \\\hline \text { Net income } & 22,000 & 25,000 & 21,000 \\\hline \text { Total current assets } & 155,000 & 165,000 & 110,000 \\\hline \text { Equity } & 287,000 & 295,000 & 304,000 \\\hline\end{array}$ It was discovered early in Year 4 that the ending inventory on December 31,Year 1 was overstated by $6,000,and the ending inventory on December 31,Year 2 was understated by $2,500.The ending inventory on December 31,Year 3 was correct.Ignoring income taxes determine the correct amounts of cost of goods sold,net income,total current assets,and equity for each of the years Year 1,Year 2,and Year 3.

If obsolete or damaged goods can be sold,they will be included in inventory at their original cost.

Days' sales in inventory is calculated as:

Regardless of the inventory costing system used,cost of goods available for sale must be allocated at the end of the period between

Goods in transit are automatically included in inventory regardless of whether title has passed to the buyer.

The FIFO inventory method assumes that costs for the latest units purchased are the first to be charged to the cost of goods sold.

The ________ method of assigning costs to inventory and cost of goods sold exactly matches the costs of particular items with the revenues they generate and would be used when items can be easily traced to the purchase invoice cost.

Patrick Randall of Sports Supplies finds that maintaining appropriate levels of inventories while controlling costs is a major challenge.What are the challenges Patrick refers to?

A company's inventory records indicate the following data for the month of April: $\begin{array} { | l | l | l | } \hline \text { April 1 } & \text { Beginning } & 350 \text { units at \$18 each } \\\hline \text { April 5 } & \text { Purchase } & 290 \text { units at \$20 each } \\\hline \text { April 9 } & \text { Sale } & 500 \text { units at \$55each } \\\hline \text { April 14 } & \text { Purchase } & 250 \text { units at \$22 each } \\\hline \text { April 20 } & \text { Sale } & 200 \text { units at \$55 each } \\\hline \text { April 30 } & \text { Purchase } & 240 \text { units at \$25each } \\\hline\end{array}$ If the company uses the first-in,first-out (FIFO)method and the perpetual inventory system,what would be the cost of the ending inventory?

A company reported the following data: $\begin{array} { | l | r | r | } \hline & \text { Year 1 } & \text { Year 2 } \\\hline \text { Cost of goods sold } & \$ 425,000 & \$ 486,000 \\\hline \text { Ending inventory } & 140,000 & 175,000 \\\hline\end{array}$ Required: 1.Calculate the days' sales in inventory for each year. 2.Comment on the trend in inventory management.

Salmone Company reported the following purchases and sales for its only product.Salmone uses a perpetual inventory system.Determine the cost assigned to cost of goods sold using LIFO. $\begin{array} { | c | l | l | l | } \hline \text { Date } & { \text { Activities } } & \text { Units Acquired at Cost } & \text { Units Sold at Retail } \\\hline \text { May 1 } & \text { Beginning Inventory } & 150 \text { units @ } \$ 10.00 & \\\hline5& \text { Purchase } & 220 \text { units @ } \$ 12.00 & \\\hline 10& \text { Sales } & & 140 \text { units @ } \$ 20.00 \\\hline 15 &\text { Purchase } & 100 \text { units @ } \$ 13.00 & \\\hline 24&\text {Sales } & & 90 \text { units @ } \$ 21.00 \\\hline\end{array}$