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Exam 5: Reporting and Analyzing Inventories

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Question 1

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Decisions management must make in accounting for inventory cost include all of the following except:

A) Costing method.
B) Perpetual or periodic inventory system.
C) Customer demand for inventory.
D) Use of market values or other estimates.
E) Items included in inventory and their costs.

F) A) and E)
G) B) and E)

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C

Question 2

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Explain how the inventory turnover ratio and the days' sales in inventory ratio are used to evaluate inventory management.

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A merchandiser's ability to pay its shor...

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Question 3

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Giorgio had cost of goods sold of $9,421 million,ending inventory of $2,089 million,and average inventory of $1,965 million.Its inventory turnover equals:

In applying the lower of cost or market method to inventory valuation,market is defined as:

The ________ method is commonly used to estimate the value of inventory that has been destroyed,lost,or stolen.

The overstatement of the beginning inventory balance causes:

A company had the following purchases during its first year of operations: On December 31,there were 26 units remaining in ending inventory.These 26 units consisted of 2 from January,4 from February,6 from May,4 from September,and 10 from November.Using the specific identification method,what is the cost of the ending inventory?

Internal controls that should be applied when a business takes a physical count of inventory should include all of the following except:

Lucia Company reported cost of goods sold for Year 1 and Year 2 as follows: Lucia Company made two errors: 1) ending inventory at the end of Year 1 was understated by $15,000 and 2) ending inventory at the end of Year 2 was overstated by $6,000.Given this information,the correct cost of goods sold figure for Year 2 would be:

Errors in the period-end inventory balance only affect the current period's records and financial statements.

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?

FIFO assumes that inventory costs flow in the order incurred.

Mary's Antiques does not have its own retail location,instead maintains inventory in its warehouse and sells merchandise through Oldtime Antique Mall.Oldtime does not assume responsibility for goods until they are sold to customers at which time it takes a commission for items sold and sends the sale proceeds to Mary's.Identify which company has the role of the consignor and the consignee.Which company should include any unsold goods as part of its inventory?

Discuss the important accounting features of a periodic inventory system including accounts and procedures used.

Health Defense sells first aid kits and uses the periodic inventory system to account for its merchandise.The beginning balance of the inventory and its transactions during January were as follows: January 1: Beginning balance of 18 units at $13 each January 12: Purchased 30 units at $14 each January 19: Sold 24 units at a selling price of $30 each January 20: Purchased 24 units at $17 each January 27: Sold 27 units at a selling price of $30 each If the ending inventory is reported at $357,what inventory method was used?

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

If obsolete or damaged goods can be sold,they will be included in inventory at their original cost.

A company made the following merchandise purchases and sales during the month of May: $\begin{array} { | l | l | l | l | } \hline \text { May 1 } & \text { Purchased } & 380 \text { units at } & \$ 15 \text { each } \\\hline \text { May 5 } & \text { Purchased } & 270 \text { units at } & \$ 17 \text { each } \\\hline \text { May 10 } & \text { Sold } & 400 \text { units at } & \$ 50 \text { each } \\\hline \text { May 20 } & \text { Purchased } & 300 \text { units at } & \$ 22 \text { each } \\\hline \text { May 25 } & \text { Sold } & 400 \text { units at } & \$ 50 \text { each } \\\hline\end{array}$ There was no beginning inventory.If the company uses the periodic LIFO inventory method,what would be the cost of the ending inventory?

Buffalo Company reported a December 31 ending inventory balance of $412,000.The following additional information is also available: -The ending inventory balance of $412,000 did not include goods costing $48,000 that were purchased by Buffalo on December 28 and shipped FOB destination on that date.Buffalo did not receive the goods until January 2 of the following year. -The ending inventory balance of $412,000 included damaged goods at their original cost of $38,000.The net realizable value of the damaged goods was $10,000. Based on this information,the correct balance for ending inventory on December 31 is:

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