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Exam 5: Reporting and Analyzing Inventories

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Question 91

Multiple Choice

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

F) A) and D)
G) B) and E)

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Question 92

Multiple Choice

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A company's current inventory consists of 5,000 units purchased at $6 per unit.Replacement cost has now fallen to $5 per unit.What is the entry the company must record to adjust inventory to market?

A) Debit Merchandise Inventory $25,000; credit Cost of Goods Sold $25,000.
B) Debit Cost of Goods Sold $30,000; credit Merchandise Inventory $30,000.
C) Debit Cost of Goods Sold $5,000; credit Merchandise Inventory $5,000.
D) Debit Loss on Inventory $5,000; credit Cost of Goods Sold $5,000.
E) Debit Merchandise Inventory $30,000; credit Cost of Goods Sold $25,000.

F) All of the above
G) B) and D)

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Question 93

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The understatement of the ending inventory balance causes:

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?

________ is the estimated sales price of damaged goods minus the cost of making the sale.

The Inventory account is a controlling account for the inventory subsidiary ledger that contains a separate record for each separate product.

Eastview Company uses a perpetual LIFO inventory system,and has the following purchases and sales: What is the value of cost of goods sold?

On March 31 a company needed to estimate its ending inventory to prepare its first quarter financial statements.The following information is available: Beginning inventory,January 1: $4,000 Net sales: $80,000 Net purchases: $78,000 The company's gross margin ratio is 25%.Using the gross profit method,the estimated ending inventory value would be:

Hull Company reported the following income statement information for the current year: The beginning inventory balance is correct.However,the ending inventory figure was overstated by $20,000.Given this information,the correct gross profit would be:

Sarbanes Oxley (SOX)demands that companies safeguard inventory and properly report it.List methods that companies should use to safeguard inventory and accounting procedures that should be used to properly report inventory.

Acceptable methods of assigning specific costs to inventory and cost of goods sold include all of the following except:

A company had the following purchases and sales during its first month of operations: Using the Periodic weighted average method,what is the value of cost of goods sold? (Round weighted average cost per unit to 2 decimal places.)

A company had the following purchases and sales during its first year of operations: On December 31,there were 26 units remaining in ending inventory.Using the Perpetual LIFO inventory valuation method,what is the cost of the ending inventory? (Assume all sales were made on the last day of the month.)

Eastview Company uses a periodic LIFO inventory system,and has the following purchases and sales: What is the value of cost of goods sold?

A company had the following purchases and sales during its first year of operations: 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.)

Most companies do not take a physical count of inventory each year,but rather rely on inventory records to determine the inventory value.

An understatement of the ending inventory balance will overstate cost of goods sold and understate net income.

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:

Under FIFO,the most recent costs are assigned to ending inventory.

A company uses the periodic inventory system,and the following information is available.All purchases and sales are on credit.The selling price for the merchandise is $11 per unit. $\begin{array} { | l | l | l | l | l | } \hline & & \text { Units } & \text { Unit Cost } & \text { Total Cost } \\\hline 6 / 01 & \text { Inventory Balance } & 30 & \$ 3 & \$ 90 \\\hline 6 / 06 & \text { Purchase } & 70 & 4 & 280 \\\hline 6 / 11 & \text { Purchase } & 45 & 5 & 225 \\\hline 6 / 16 & \text { Purchase } & 50 & 6 & 300 \\\hline & \text { Goods available } & 195 & & \$ 895 \\\hline 6 / 12 & \text { Sale } & 100 & & \\\hline 6 / 20 & \text { Sale } & 60 & & \\\hline & \text { Goods sold } & 160 & & \\\hline 6 / 31 & \text { Inventory Balance } & 35 & & \\\hline\end{array}$ Required: Determine the cost of the ending inventory and the cost of goods sold for June using the LIFO method.