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Exam 5: Reporting and Analyzing Inventories

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Question 111

True/False

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Overstating beginning inventory will understate cost of goods sold and net income.

A) True
B) False

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Question 112

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A company uses the periodic inventory system and had the following activity during the current monthly period. Using the weighted-average inventory method,the company's ending inventory would be:

A) $2,000
B) $2,200
C) $2,250
D) $2,400
E) $4,400

F) None of the above
G) C) and D)

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Question 113

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On April 24 of the current year,The Memphis Pecan Company experienced a tornado that destroyed the company's entire inventory.At the beginning of April,the company reported beginning inventory of $226,750.Inventory purchased during April (until the date of the tornado) was $197,800.Sales for the month of April through April 24 were $642,500.Assuming the company's typical gross profit ratio is 50%,estimate the amount of inventory destroyed in the tornado.

Hasham purchases inventory from overseas and incurs the following costs: the merchandise cost is $80,000,credit terms 1/10,n/30,applicable only to the $80,000; FOB shipping point freight charges are $2,500; insurance during transit is $300; and import duties are $1,500.Hasham paid within the discount period.Compute the cost that should be assigned to the inventory.

Merchandise inventory includes:

Physical counts of inventory:

Calculate the ending inventory using FIFO for a company that uses a perpetual inventory system,using the information given below.

LIFO assumes that inventory costs flow in the order incurred.

A company had beginning inventory of 10 units at a cost of $20 each on March 1.On March 2,it purchased 10 units at $22 each.On March 6 it purchased 6 units at $25 each.On March 8,it sold 22 units for $54 each.Using the perpetual FIFO inventory method,what was the cost of the 22 units sold?

What is the effect of an error in the ending inventory balance on the accounts reported in the income statement?

Goods on consignment are goods shipped by their owner,called the consignor,to another party called the consignee.The consignee sells goods for the owner.

A company normally sells its product for $20 per unit.However,the selling price has fallen to $15 per unit.This company's current inventory consists of 200 units purchased at $16 per unit.Replacement cost has now fallen to $13 per unit.What is the amount of the lower cost of market adjustment the company must make as a result of this decline in value?

Strods Company reported the following purchases and sales of its only product.Strods uses a perpetual inventory system.Determine the cost assigned to ending inventory using LIFO.

The ________ is a measure of how quickly a merchandiser sells its merchandise inventory.

The inventory valuation method that tends to smooth out erratic changes in costs is:

Accounting principles require that inventory be reported at the market value (cost)of replacing inventory when market value is lower than cost.

Use the following information for Shafer Company to compute inventory turnover for year 2.

Starlight Company has inventory of 8 units at a cost of $200 each on October 1.On October 2,it purchased 20 units at $205 each.11 units are sold on October 4.Using the perpetual LIFO inventory method,what is the value of inventory after the October 4 sale?

Avanti purchases inventory from overseas and incurs the following costs: the merchandise cost is $50,000,credit terms 2/10,n/30 that apply only to the $50,000; FOB shipping point freight charges are $1,500; insurance during transit is $500; and import duties are $1,000.Avanti paid within the discount period and incurred additional costs of $1,200 for advertising and $5,000 for sales commissions.Compute the cost that should be assigned to the inventory.

An overstatement of ending inventory will cause an overstatement of assets and an understatement of equity on the balance sheet.