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Exam 5: Inventories and Cost of Sales

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Question 31

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A company sells garden hoses and uses the perpetual inventory system to account for its merchandise.The beginning balance of the inventory and its transactions during September were as follows: September 1: Beginning balance of 18 units at $13 each September 12: Purchased 30 units at $14 each September 19: Sold 24 units at $30 selling price each September 20: Purchased 24 units at $17 each September 27: Sold 27 units at $30 selling price each If the ending inventory is reported at $276,what inventory method was used?

A) LIFO method.
B) FIFO method.
C) Weighted average method.
D) Specific identification method.
E) Retail inventory method.

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

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Question 32

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Eastview Company uses a perpetual LIFO inventory system,and has the following purchases and sales: $\begin{array} { | l | l | } \hline \text { January 1 } & 150 \text { units were purchased at \$9 per unit. } \\\hline \text { January } 17 & 120 \text { units were sold. } \\\hline \text { January 20 } & 160 \text { units were purchased at \$11 per unit. } \\\hline \text { January 29 } & 150 \text { units were sold. } \\\hline\end{array}$ - What is the value of cost of goods sold?

A) $2,730.
B) $2,750.
C) $2,670.
D) $440.
E) $380.

F) B) and E)
G) None of the above

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Question 33

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Incidental costs for acquiring merchandise inventory,such as import duties,freight,storage,and insurance,should not be added to the cost of inventory.

Match the following terms with the appropriate definition. -An owner of goods who ships them to another party who will then sell the goods for the owner.

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

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

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

The simple rule for inventory turnover is that a low ratio is preferable.

A company had the following ending inventory costs: $\begin{array} { | c | c | r | r | } \hline \text { Product } & \text { Units of Hand } & \text { Unit Cost } & \text { Market Value } \\\hline \text { A } & 10 & \$ 5 & \$6 \\\hline \text { B } & 50 & 8 &7 \\\hline \text { C } & 35 & 10 & 11 \\\hline\end{array}$ Required: Calculate the lower of cost or market (LCM)value for each individual item.

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.)

What advantages does a perpetual inventory system have over periodic inventory system?

Match the inventory valuation method from the list below that is being described in each situation in letters a-e.In all cases,assume a period of rising prices.

Avanti purchases inventory from overseas and incurs the following costs: the merchandise cost is $50,000,credit terms 2/10,n/30 that apply only to the $50,000; FOB shipping point freight charges are $1,500; insurance during transit is $500; and import duties are $1,000.Avanti paid within the discount period and incurred additional costs of $1,200 for advertising and $5,000 for sales commissions.Compute the cost that should be assigned to the inventory.

A company's warehouse contents were destroyed by a flood on September 12.The following information was the only information that was salvaged: 1.Inventory,beginning: $28,000 2.Purchases for the period: $17,000 3.Sales for the period: $55,000 4.Sales returns for the period: $700 The company's average gross profit ratio is 35%.What is the estimated cost of the lost inventory?

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.)

Underwood had cost of goods sold of $8 million and its ending inventory was $2 million.Therefore,its days' sales in inventory equals 25 days.

A company uses the retail inventory method and has the following information available concerning its most recent accounting period: $\begin{array} { | l | l | r | } \hline& { \text { At Cost } } & \text { At Retail } \\\hline \text { January 1 beginning inventory } & \$ 167,340 & \$ 304,240 \\\hline \text { Cost of goods purchased } & 561,850 & 1,021,560 \\\hline \text { Sales } & & 940,400 \\\hline \text { Sales returns } & & 40,200 \\\hline\end{array}$ 1.Use the retail inventory method to estimate the company's year-end inventory at cost. 2.A year-end physical count at retail prices yields a total inventory of $404,800.Prepare a calculation showing the company's loss from shrinkage at cost and at retail.

The cost of an inventory item includes the ________,plus ________ costs necessary to put it in a place and condition for sale.

Hull Company reported the following income statement information for the current year: $\begin{array} { | l | r | } \hline & \\\hline \text { Sales } & \$ 410,000 \\\hline \text { Cost of goods sold: } & \\\hline \text { Beginning inventory } & \$ 132,000 \\\hline \text { Cost of goods purchased } & \underline { 273,000 } \\\hline \text { Cost of goods available for sale } & 405,000 \\\hline \text { Ending inventory } & 144,000 \\\hline \text { Cost of goods sold } & \underline { 261,000 } \\\hline \text { Gross profit } & \$ 149,000 \\\hline\end{array}$ 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:

An understatement of ending inventory will cause