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Exam 6: Inventories and Cost of Sales

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Question 41

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A company's normal selling price for its product is $20 per unit. However, due to market competition, 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 fallen to $13 per unit. Calculate the value of this company's inventory at the lower of cost or market.

A) $3,200.
B) $2,700.
C) $2,550.
D) $2,600.
E) $3,000.

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

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Question 42

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During a period of steadily rising costs, the inventory valuation method that yields the highest reported net income is:

A) FIFO method.
B) LIFO method.
C) Weighted-average method.
D) Average cost method.
E) Specific identification method.

F) A) and B)
G) A) and C)

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Question 43

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A company has beginning inventory of 10 units at a cost of $10 each on February 1. On February 3, it purchases 20 units at $12 each. 12 units are sold on February 5. Using the FIFO periodic inventory method, what is the cost of the 12 units that are 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 Periodic weighted average method, what is the value of cost of goods sold? (Round weighted average cost per unit to 2 decimal places.)

In applying the lower of cost or market method to inventory valuation, market is defined as the current selling price.

Net realizable value for damaged or obsolete goods is sales price less the cost of making the sale.

Use the following information for Shafer Company to compute inventory turnover for year 2. $\begin{array} { | l | r | r | } \hline & \text { Y ear } 2 & \text { Y ear } 1 \\\hline \text { Net sales } & \$ 647,500 & \$ 582,000 \\\hline \text { Cost of goods sold } & 389,500 & 360,840 \\\hline \text { Ending inventory } & 76,700 & 79,380 \\\hline\end{array}$

The company's inventory manager receives compensation that includes a bonus based on gross profit. You discover that the inventory manager has knowingly overstated ending inventory by $2 million. What effect does this error have on the financial statements of the company and specifically gross profit? Why would the manager knowingly overstate ending inventory? Would this be considered an ethics violation?

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 value of cost of goods sold? (Assume all sales were made on the last day of the month.)

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?

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

A company's cost of goods sold was $15,500 and its average merchandise inventory was $4,500. Its inventory turnover equals 3.4.

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.

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

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

The understatement of the beginning inventory balance causes:

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

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.

Marquis Company uses a weighted-average perpetual inventory system and has the following purchases and sales: $\begin{array} { | l | l | } \hline \text { August 2 } & 10 \text { units were purchased at } \$ 12 \text { per unit. } \\\hline \text { August 18 } & 15 \text { units were purchased at } \$ 14 \text { per unit. } \\\hline \text { August } 29 & 12 \text { units were sold. } \\\hline\end{array}$ What is the amount of the cost of goods sold for this sale? (Round average cost per unit to 2 decimal places.)

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.