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Exam 6: Inventories and Cost of Sales

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Question 31

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Identify the items that are included in merchandise inventory. (In your answer address the special situations of goods in transit, consigned goods, and damaged goods.)

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Merchandise inventory consists of goods ...

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Question 32

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A company had the following purchases and sales during its first year of operations: $\begin{array} { | l | l | l | } \hline & \text { Purchases } & \text { Sal es } \\\hline \text { January. } & 10 \text { units at } \$ 120 & 6 \text { units } \\\hline \text { February. } & 20 \text { units at } \$ 125 & 5 \text { units } \\\hline \text { May. } & 15 \text { units at \$130 } & 9 \text { units } \\\hline \text { September: } & 12 \text { units at \$135 } & 8 \text { units } \\\hline \text { November: } & 10 \text { units at } \$ 140 & 13 \text { units } \\\hline\end{array}$ On December 31, there were 26 units remaining in ending inventory. - Using the Perpetual LIFO inventory valuation method, what is the value of cost of goods sold? (Assume all sales were made on the last day of the month.)

A) $5,470.
B) $8,670.
C) $5,305.
D) $5,130.
E) $5,400.

F) A) and B)
G) A) and C)

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Question 33

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A company had the following purchases and sales during its first year of operations: $\begin{array} { | l | l | l | } \hline & \text { Purchases } & \text { Sales } \\\hline \text { January. } & 10 \text { units at } \$ 120 & 6 \text { units } \\\hline \text { February. } & 20 \text { units at } \$ 125 & 5 \text { units } \\\hline \text { May. } & 15 \text { units at \$130 } & 9 \text { units } \\\hline \text { September: } & 12 \text { units at \$135 } & 8 \text { units } \\\hline \text { November: } & 10 \text { units at } \$ 140 & 13 \text { units } \\\hline\end{array}$ On December 31, there were 26 units remaining in ending inventory. -Using the Perpetual FIFO inventory valuation method, what is the cost of the ending inventory? (Assume all sales were made on the last day of the month.)

Forever Young Game Stores (FYG) has taken a physical count of its inventory at March 31, its fiscal year-end. After reviewing the accounting records and documentation, the following items have been discovered: (a) An invoice from Shreck Co. indicates that $30,000 of games were shipped to FYG on March 27, terms FOB shipping point. The games and invoice did not arrive at FYG until February 2 and were not included in the physical count. (b) An invoice from Gamers, Inc. indicates that $8,000 of games were shipped to FYG on March 29, terms FOB destination. The games and invoice did not arrive at FYG until February 2 and were not included in the physical count. The physical count and cost assignment on March 31 prior to these two items is $440,000. The cost of goods sold for FYG is $2,100,000. 1. Calculate the amount that should be reported as ending inventory for FYG. 2. Calculate the days' sales in inventory before and after the appropriate adjustments for inventory.

Use the following information for Shafer Company to compute inventory turnover for year 2. $\begin{array} { | l | r | r | } \hline & \text { Year 2 } & \text { Year 1 } \\\hline \text { Net sales } & \$ 647,500 & \$ 582,000 \\\hline \text { Cost of goods sold } & 389,500 & 360,840 \\\hline \text { Ending inventory } & 76,700 & 79,380 \\\hline\end{array}$

The inventory valuation method that results in the lowest taxable income in a period of inflation is:

All of the following statements related to goods on consignment are true except:

Explain the reason a company might use gross profit inventory method for valuing inventory.

Marquis Company uses a weighted-average perpetual inventory system and has the following purchases and sales: $\begin{array} { | l l | l | } \hline \text { August } & 2 & 10 \text { units were purchased at \$12 per unit. } \\\hline \text { August } & 18 & 15 \text { units were purchased at \$14 per unit. } \\\hline \text { August } & 29 & 12 \text { units were sold. } \\\hline\end{array}$ What is the amount of the cost of goods sold for this sale? (Round average cost per unit to 2 decimal places.)

Days' sales in inventory:

The inventory turnover ratio is computed by dividing cost of goods sold by average merchandise inventory.

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

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

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?

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

The costs of goods purchased will vary under the different inventory methods of specific identification, FIFO, LIFO, and weighted average.

An overstated beginning inventory will ________ cost of goods sold and ________ net income.

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

Match each of the following terms with the appropriate definition. 1. The number of times a company's average inventory is sold during a period. 2. An inventory valuation method where each item in inventory is identified with a specific purchase and invoice. 3. The expected sales price of an item minus the cost of making the sale. 4. An inventory pricing method that assumes the unit prices of the beginning inventory and of each purchase are weighted by the number of units of each in inventory; the calculation occurs at the time of each sale. 5. A method for estimating an ending inventory based on the ratio of the amount of goods for sale at cost to the amount of goods for sale at retail price. 6. An estimate of days needed to convert the inventory at the end of the period into receivables or cash. 7. An inventory valuation method that assumes that inventory items are sold in the order acquired. 8. Financial statements prepared for periods of less than one year. 9. The accounting constraint that aims to select the less optimistic estimate when two or more estimates are about equally likely. 10. An inventory valuation method that assumes costs for the most recent items purchased are sold first and charged to cost of goods sold.

Explain why the lower of cost or market rule is used to value inventory.