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Exam 6: Inventories and Cost of Sales

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Question 1

True/False

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To avoid the time-consuming process of taking an inventory each year, most companies use the gross profit method to estimate ending inventory.

A) True
B) False

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Question 2

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

A) $2,100
B) $2,260
C) $2,580
D) $3,580
E) $3,180

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

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Question 3

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Given the following information, determine the cost of the inventory at June 30 using the LIFO perpetual inventory method. $\begin{array} { | l | l | l | } \hline \text { June 1 } & \text { Beginning inventory } & 15 \text { units at } \$ 20 \text { each } \\\hline \text { June } 15 & \text { Sale of } 6 \text { units for } \$ 50 \text { each } & \\\hline \text { June 29 } & \text { Purchase } & 8 \text { units at } \$ 25 \text { each } \\\hline\end{array}$ The cost of the ending inventory is:

The full disclosure principle:

The cost of an inventory item includes its invoice cost minus any discount, plus any added or incidental costs necessary to put it in a place and condition for sale.

Monarch Company uses a weighted-average perpetual inventory system and has the following purchases and sales: $\begin{array}{|l|l|}\hline \text { January 1 } & 20 \text { units were purchased at } \$ 10 \text { per unit. } \\\hline \text { January 12 } & 12 \text { units were sold. } \\\hline \text { January 20 } & 18 \text { units were purchased at } \$ 11 \text { per unit. } \\\hline\end{array}$ What is the value of cost of goods sold?

A company had the following purchases and sales during its first month of operations: $\begin{array}{|l|l|}\hline \text { January 1 } & \text { Purchased } 10 \text { units at } \$ 4.00 \text { per unit } \\\hline \text { January } 9 & \text { Sold } 6 \text { units at } \$ 12.00 \text { per unit } \\\hline \text { January 17 } & \text { Purchased } 8 \text { units at } \$ 5.50 \text { per unit } \\\hline \text { January 27 } & \text { Sold } 7 \text { units at } \$ 12.00 \text { per unit } \\\hline\end{array}$ Using the Perpetual weighted average method, what is the value of cost of goods sold? (Round weighted average costs per unit to 2 decimal places.)

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

Monarch Company uses a weighted-average perpetual inventory system, and has the following purchases and sales: $\begin{array} { | l | l | } \hline \text { January 1 } & 20 \text { units were purchased at } \$ 10 \text { per unit. } \\\hline \text { January } 12 & 12 \text { units were sold. } \\\hline \text { January 20 } & 18 \text { units were purchased at } \$ 11 \text { per unit. } \\\hline\end{array}$ What is the value of ending inventory? (Round average cost per unit to 2 decimal places, and final answer to the nearest dollar.)

It can be expected that companies selling perishable goods have a higher inventory turnover than companies selling nonperishable goods.

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. $\begin{array} { | r | l | l | l | } \hline \text { Date } & \text { Activities } & \text { Units Ac quired at Cost } & \text { Units Sold at Retail } \\\hline \text { May 1 } & \text { Beginning Inventory } & 150 \text { units } @ \$ 10.00 & \\\hline 5 & \text { Purchase } & 220 \text { units } @ \$ 12.00 & \\\hline 10 & \text { Sales } & & 140 \text { units } @ \$ 20.00 \\\hline 15 & \text { Purchase } & 100 \text { units } @ \$ 13.00 & \\\hline 24 & \text { Sales } & & 90 \text { units } @ \$ 21.00 \\\hline\end{array}$

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

Use the following information for Ephron Company to compute days' sales in inventory for Year 2. $\begin{array} { | l | r | r | } \hline & \text { Year } 2 & \text { Y ear 1 } \\\hline \text { Net sales } & \$ 547,500 & \$ 572,000 \\\hline \text { Cost of goods sold } & 348,500 & 370,840 \\\hline \text { Ending inventory } & 75,700 & 81,400 \\\hline\end{array}$

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

Consignment goods are:

Merchandise inventory includes:

Bedrock 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 included $72,000 of consigned inventory for which Bedrock was the consignor. -The ending inventory balance of $412,000 included $22,000 of office supplies that were stored in the warehouse and were to be used by the company's supervisors and managers during the coming year. Based on this information, the correct balance for ending inventory on December 31 is:

The assignment of costs to cost of goods sold and inventory using weighted average usually yields different results depending on whether a perpetual or periodic system is used.

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

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 Periodic FIFO inventory valuation method, what is the cost of the ending inventory? (Assume all sales were made on the last day of the month.)