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Exam 5: Accounting for Inventories

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Question 21

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Explain the meaning of "cost" and "market" as used in the application of the lower-of-cost-or-market rule.

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Cost refers to the amount comp...

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Question 22

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A company uses a cost flow method (such as LIFO or FIFO)to allocate product costs between cost of goods sold and beginning inventory.

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Question 23

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The Atkins Company had the following beginning inventory,purchases,and sales of inventory during the first quarter of 2016: Required: Determine the value of the company's cost of goods sold and ending inventory at the end of March,assuming a perpetual inventory method and FIFO cost flow.Show all calculations.

Anton Co.uses the perpetual inventory method.Anton purchased 400 units of inventory that cost $12.00 each.At a later date the company purchased an additional 600 units of inventory that cost $16.00 each.If Anton uses the FIFO cost flow method and sells 700 units of inventory,the amount of cost of goods sold will be:

If a company uses the LIFO cost flow method,it is not required by generally accepted accounting principles to apply the lower-of-cost-or-market rule.

A loss resulting from application of the lower-of-cost-or-market rule is included in Cost of Goods Sold if the loss is material in amount.

Singh Company sold 75 units @ $350 each on October 31,2016.The following information is also available: Required: a)Determine the amount of cost of goods sold using: FIFO LIFO Weighted Average b)Determine the amount of ending inventory using: FIFO LIFO Weighted Average

Use the following information for questions Glasgow Enterprises started the period with 80 units in beginning inventory that cost $7.50 each.During the period,the company purchased inventory items as follows Glasgow sold 220 units after purchase 3 for $17.00 each. -Glasgow's ending inventory under weighted average would be approximately:

Which of the following businesses is most likely to use a specific identification cost flow method?

When using the gross margin method to estimate inventory,which of the following is a step in the computation?

The accountant for the Bay Company made an error,which understated the ending inventory for 2015 by $7,000.Bay Company uses the periodic inventory system.Assuming that this error is not caught and corrected,indicate the effect of the error on each of the following items.Write U (understated),O (overstated)or N (not affected)next to each item. a.2016 Beginning Inventory: _________ b.2016 Purchases: __________ c.2015 Goods Available for Sale: ________ d.2015 Net Income: ________ e.2015 Retained Earnings ending balance: __________ f.2015 Total Assets at end of year: ___________ g.2016 Net Income: _________ h.2016 Retained Earnings ending balance: _________ i.2015 Cost of Goods Sold: ___________ j.2015 Gross Margin: _________

Nelson Corporation is required to record an inventory write-down of $2,500 as a result of using the lower-of-cost-or-market rule.Which of the following answers correctly shows how this entry would affect the financial statements?

Define the terms FIFO and LIFO.

Vargas Company uses the perpetual inventory method.Vargas purchased 400 units of inventory that cost $15.00 each.At a later date the company purchased an additional 800 units of inventory that cost $18.00 each.Vargas sold 500 units of inventory for $27.00.If Vargas uses a FIFO cost flow method,the amount of cost of goods sold appearing on the income statement will be:

Bell Company has provided the following figures as of December 31,2016: Sales,$600,000;cost of goods sold,$320,000;net income,$120,000;inventory,$64,000.Indicate whether each of the above statements pertaining to the Bell Company is true or false. _____ a)Bell's inventory turnover is 5.0. _____ b)Bell's average number of days to sell inventory ratio is 39.5. _____ c)Bell could increase its inventory turnover by increasing prices. _____ d)Bell's gross margin as a percentage of sales was 46.7%. _____ e)A local competitor in the same line of business has an inventory turnover of 3.5.Assuming each firm has approximately the same gross margin rate,Bell Company is likely to be more profitable than the competitor.

Use the following information for questions Chase Co.uses the perpetual inventory method.The inventory records for Chase reflected the following -Assuming Chase uses a FIFO cost flow method,the cost of goods sold for the sales transaction on January 31 is:

The following information is for Choi Company for 2016: Beginning inventory 120 units @$100 Units purchased 180 units @ $112 Choi sold 250 units for $190 each. Required: a)Calculate gross margin assuming Choi uses FIFO,LIFO,Weighted average. b)Disregarding the effect of income taxes,what would be the dollar amount of difference in net income between FIFO and LIFO? c)Calculate the 2016 cash flow from operating activities assuming that Choi uses LIFO,FIFO.Again,disregard the effect of income taxes.

Use the following information for questions -Given that longer inventory holding periods act to increase expenses,which of the three companies would be expected to have the lowest inventory holding cost?

Max Company's first year in operation was 2016.The following inventory purchase information comes from Max's accounting records for the year. In December 2016,Max sold 350 units for $480 each.Operating expenses for the year were $30,000,and the tax rate was 30%. Required: a)Calculate the cost of goods sold by LIFO and by FIFO. b)What amount of income tax would Max have to pay if it uses LIFO? If it uses FIFO? c)Assuming that the results for 2016 are representative of what Max can generally expect,would you recommend that the company use LIFO or FIFO? Explain.

The gross margin method requires all but which of the following elements of information?