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Exam 8: Inventories: Measurement

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Question 61

Multiple Choice

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Using the gross method, purchase discounts lost are:

A) Included in purchases.
B) Added to accounts payable.
C) Included in interest expense.
D) Deducted from discount income.

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

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Question 62

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When reported in financial statements, a LIFO allowance account usually:

A) Is shown in the firm's income statement.
B) Is added to LIFO cost to indicate what the inventory would cost on a FIFO basis.
C) Indicates the effect on income if LIFO were not used.
D) Shows the current rate of inflation for that asset.

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

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Question 63

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Listed below are 5 terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the correct term. -Consignment

The largest expense on a retailer's income statement is typically:

Northwest Fur Co. started 2018 with $94,000 of merchandise inventory on hand. During 2018, $400,000 in merchandise was purchased on account with credit terms of 1/15, n/45. All discounts were taken. Purchases were all made f.o.b. shipping point. Northwest paid freight charges of $7,500. Merchandise with an invoice amount of $5,000 was returned for credit. Cost of goods sold for the year was $380,000. Northwest uses a perpetual inventory system. -What is ending inventory assuming Northwest uses the gross method to record purchases?

-Required: Compute the January 31 ending inventory and cost of goods sold for January, assuming Random Creations uses LIFO and perpetual inventory system.

The following information is taken from the accounting records of Rapid Runner Inc. for the year 2018. Missing information has been left blank. Required: Compute the missing amounts. -

Listed below are 10 terms, followed by a list of phrases that describe or characterize the terms. Match each phrase with the correct term. -Periodic inventory system

The Tucson Corporation's fiscal year ends on December 31. Tucson determines inventory quantity by a physical count of inventory on hand at the close of business on December 31. The company's controller has asked for your help in deciding if the following items should be included in the year-end inventory count. 1. Goods purchased from a vendor shipped f.o.b. shipping point on December 24 that arrived on January 4. 2. Goods shipped f.o.b. shipping point on December 27 arrived at the customer's location on January 4. 3. Goods purchased from a vendor shipped f.o.b. destination on December 27 that arrived on January 5. 4. Freight charges on goods purchased in 1. 5. Merchandise held on consignment for Masterwear, Inc. 6. Goods shipped f.o.b. destination on December 29 that arrived at the customer's location on January 2. Required: Determine if each of the six items above should be included or excluded from the company's year-end inventory.

Anthony Thomas Candies (ATC) reported the following financial data for 2018 and 2017: -ATC's gross profit ratio (rounded) in 2018 is:

-Required: Compute the January 31 ending inventory and cost of goods sold for January, assuming Denver uses LIFO and a perpetual inventory system.

Listed below are 5 terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the correct term. -Work-in-process

The inventory method that will always produce the same amount for cost of goods sold in a periodic inventory system as in a perpetual inventory system would be:

The inventories disclosure note in the 2014 financial statements for SUPERVALU Inc., one of the largest grocery chains in the United States, included the following ($ in millions): "Inventories are valued at the lower of cost or market. Substantially all of the Company's inventory consists of finished goods. As of February 22, 2014 and February 23, 2013, approximately 57 percent and 60 percent, respectively, of the Company's inventories were valued under the LIFO method. If the FIFO method had been used to determine cost of inventories for which the LIFO method is used, the Company's inventories would have been higher by approximately $202 and $211 as of February 22, 2014 and February 23, 2013, respectively." Cost of goods sold for the fiscal year ended February 22, 2014 was $14,623 million. Required: If SUPERVALU had used FIFO for all of its LIFO inventories, what would its cost of goods sold have been for 2014?

Physical counts of inventory are never made with perpetual inventory systems.

Inventory does not include:

The primary reason for the popularity of LIFO is that it:

Listed below are 5 terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the correct term. -F.o.b. shipping point

Cinnamon Buns Co. (CBC) started 2018 with $52,000 of merchandise on hand. During 2018, $280,000 in merchandise was purchased on account with credit terms of 2/10, n/30. All discounts were taken. Purchases were all made f.o.b. shipping point. CBC paid freight charges of $9,000. Merchandise with an invoice amount of $4,000 was returned for credit. Cost of goods sold for the year was $316,000. CBC uses a perpetual inventory system. Assume instead that (a) freight costs were paid by the vendor, (b) no discounts were taken, and (c) the merchandise on hand at the beginning of 2018 was determined by a physical count that failed to realize that $10,000 of merchandise was being held on consignment for Frosting R Us Inc. -What is cost of goods available for sale, assuming CBC uses the gross method to record purchase discounts?

Tiger Inc. adopted dollar-value LIFO on January 1, 2018, when the inventory value was $360,000 and the cost index was 1.25. On December 31, 2018, the inventory was valued at year-end cost of $395,000 and the cost index was 1.30. Tiger would report a LIFO inventory of: