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Exam 17: Merchandise Inventory

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Question 31

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The use of the LIFO method of inventory valuation

A) assigns the cost of the most recent purchases to the ending inventory.
B) results in the same valuation as the specific identification method in a time of rising prices.
C) results in the lowest reported net income in a time of rising prices.
D) results in the highest reported net income in a time of rising prices.

E) A) and B)
F) B) and C)

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Question 32

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A firm that sells a single product had a beginning inventory of 4,000 units with a total cost of $28,000. Early in the year, 10,000 units were purchased at $9 each. Using FIFO, what is the value of the ending inventory of 3,000 units?

A) $27,000
B) $24,000
C) $21,000
D) $36,000 27000 = 3000 x 9.

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

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Question 33

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Information about the Maxwell Company's inventory of one item during 2013 is given below. $\begin{array} { l c c } & \text { Units } & \text { Unit Cost } \\\text { Beginning Inventory, Jan. 1, 2013 } & 80 & \$ 24 \\\text { Purchases: } & & \\\text { March, 2013 } & 45 & 24 \\\text { July, 2013 } & 75 & 22 \\\text { November, 2013 } & 100 & 21 \\\text { Ending Inventory, Dec. 31, 2013 } & 55 &\end{array}$ Compute the cost of the ending inventory and cost of goods sold under each of the following methods. 1. Average cost method 2. First in, first out (FIFO) method 3. Last in, first out (LIFO) method

The ________________ method of inventory costing must be used for financial accounting purposes if it is chosen for federal income tax purposes.

The ____________________ method of estimating inventory requires the use of data about both cost and selling prices.

The firm had a beginning inventory of 50 units with a unit cost of $10. Purchases during the year were as follows: March-50 units with a unit cost of $12; July-60 units with a unit cost of $15. If the average cost method is used, the value of the ending inventory of 45 units is

The price the business would have to pay to buy an item of inventory through usual channels in usual quantities is either market price or __________________ cost.

Adams Company uses the specific identification method. At the end of the year, it had 24 units of its giant floating tricycles that were sold for use by tourists in the ocean or on large lakes. Explain how the physical count of inventory and the cost of ending inventory will be calculated.

A firm that sells a single product had a beginning inventory of 4,000 units with a total cost of $16,000. Early in the year, 8,000 units were purchased at $6 each. Using LIFO, what is the value of the ending inventory of 2,000 units?

Inventory valuation is very important in computing federal income tax because the value placed on the inventory determines the net income reported.

The lower the ending inventory valuation, the ____________________ the cost of goods sold.

The following information concerns several of the inventory items at DC's. $\begin{array} { | c | c | c | c | } \hline \text { Description } & \text { Quantity } & \text { Unit Cost } & \text { Market Value } \\\hline \text { Department A: } & & & \\\hline \text { Model XP 235 } & 50 & \$ 22.90 & \$ 21.50 \\\hline \text { Model XP 376 } & 75 & 26.75 & 25.00 \\\hline \text { Model XP 522 } & 60 & 20.00 & 21.00 \\\hline \text { Department B: } & & & \\\hline \text { Model ZY 114 } & 15 & 75.00 & 75.00 \\\hline \text { Model ZY 232 } & 24 & 100.00 & 92.00 \\\hline \text { Model ZY 183 } & 12 & 145.00 & 142.50 \\\hline\end{array}$ Determine the amount of inventory to be reported on the financial statements using the lower of cost or market method of valuation under each of the following options. 1. Lower of cost or market for each item separately 2. Lower of total cost or total market 3. Lower of total cost or total market by department

The weighted average cost of an inventory item is calculated by

On July 1, 2013, a fire destroyed the entire inventory of Stewart Clothes, a retail store. The accounting records that were saved showed that the firm's gross profit rate was 40 percent of net sales. During the period of January 1 to July 1, 2013, the store had net sales of $345,000 and net purchases of $325,000. On December 31, 2013, the inventory was $50,000. 1. What is the estimated cost of goods sold for the period? 2. What is the estimated ending (destroyed) inventory? 3. What is the estimated gross profit for the period?

In a period of rising prices, the LIFO method of inventory valuation results in a lower reported net income than the FIFO method.

The October 1^st inventory of the David Charles Company had a recorded cost of $19,500. Its retail value was $39,000. During the month of October, purchases in the amount of $30,320 (including freight of $320) were made and priced at retail for $67,000. Sales for the month of October amounted to $74,000. What is the October cost of goods sold and the ending inventory at cost and at retail?

The lower the ending inventory valuation, the ____________________ the reported net income.

The use of the FIFO method of inventory valuation

The Lower of Cost or Market rule is based on which accounting principle?

On June 29, Hurricane Moriah destroyed the warehouse where The Adams Bicycle Sales Company stored their inventory. The inventory was, for the most part, carried away by the force of the storm. The usual gross profit rate for the company was 45%. The beginning inventory of $120,000 was recorded on the prior year's financial reports. The net sales to date are known to be $474,500, and net purchases (including freight-in charges and purchases returns) were $325,000. Using the gross profit method of inventory valuation, determine the value of the inventory that was destroyed.