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Exam 5: Inventories and Cost of Sales

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Question 131

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The reliability of the gross profit method depends on a good estimate of the gross profit ratio.

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B) False

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Question 132

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An advantage of the ________ method of inventory valuation is that it tends to smooth out the effect of erratic changes in costs.

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Question 133

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The inventory turnover ratio:

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.

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

The inventory turnover ratio is calculated as:

Evaluate each inventory error separately and determine whether it overstates or understates cost of goods sold and net income. $\begin{array} { | l | l | l | } \hline \text { Inventory error: } & \text { Cost of goods sold is: } & \text { Net income is: } \\\hline \text { Understatement of beginning inventory } & & \\\hline \text { Understatement of ending inventory } & & \\\hline \text { Overstatement of beginning inventory } & & \\\hline \text { Overstatement of ending inventory } & & \\\hline\end{array}$

When LIFO is used with the periodic inventory system,cost of goods sold is assigned costs from the most recent purchases at the point of each sale,rather than from the most recent purchases for the period.

The inventory valuation method that has the advantages of assigning an amount to inventory on the balance sheet that approximates its current cost,and also mimics the actual flow of goods for most businesses is:

Using the information given below for a company that uses a perpetual inventory system,calculate the ending inventory using weighted average. $\begin{array} { | l | c | r | } \hline & \text { Units } & { \text { Unit Cost } } \\\hline \text { Beginning inventory } & 100 & \$10 \\\hline \text { Jan. 5 purchased } & 40 &12 \\\hline \text { Jan. 10 sold } & 60 &- \\\hline \text { Jan. 15 purchased } & 70 &13 \\\hline \text {Jan. 25 sold } & 50 &- \\\hline\end{array}$

McCarthy 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 FIFO perpetual inventory method,what amount will be reported as cost of goods sold for the 11 units that were sold?

When applying the lower of cost or market method of inventory valuation,market is defined as the ________.

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

When purchase costs regularly rise,the ________ method of inventory valuation yields the highest gross profit and net income.

A company's inventory records report the following: $\begin{array} { | l | l | l | } \hline \text { August 1 } & \text { Beginning balance } & 15 \text { units @ \$12 } \\\hline \text { August 5 } & \text { Purchase } & 10 \text { units @ \$13 } \\\hline \text { August 12 } & \text { Purchase } & 20 \text { units @ \$14 } \\\hline\end{array}$ On August 15,it sold 30 units.Using the FIFO perpetual inventory method,what is the value of the inventory at August 15 after the sale?

Match each of the following terms with the appropriate definition. -The expected sales price of an item minus the cost of making the sale.

Grays Company has inventory of 10 units at a cost of $10 each on August 1.On August 3,it purchased 20 units at $12 each.12 units are sold on August 6.Using the FIFO perpetual inventory method,what amount will be reported as cost of goods sold for the 12 units that were sold?

Goods that are in transit and were shipped FOB destination should be included in the inventory records of the ________.