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Exam 5: Inventories and Cost of Sales

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Question 91

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Whether prices are rising or falling, FIFO always will yield the highest gross profit and net income.

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B) False

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Question 92

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Some companies use the _________________ principle or the __________________ constraint to avoid assigning incidental costs of acquiring merchandise to inventory.

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Question 93

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The consistency principle requires a company to use the same accounting methods period after period, so that financial statements are comparable across periods.

Given the following information, determine the cost of goods sold for November 30 using the FIFO perpetual inventory method. November 3: 15 units were purchased at $8 per unit. November 11: 18 units were purchased at $9.50 per unit. November 15: 15 units were sold at $45 per unit November 18: 30 units were purchased at $10.75 per unit November 30: 20 units were sold at $55 per unit

A company has the following per unit original costs and replacement costs for its inventory: Part A: 10 units with a cost of $3 and replacement cost of $2.50 Part B: 40 units with a cost of $9 and replacement cost of $9.50 Part C: 75 units with a cost of $8 and replacement cost of $7.50 Under the lower of cost or market method, the total value of this company's ending inventory is:

An understatement of the ending inventory balance will understate cost of goods sold and overstate net income.

If the _______________ is responsible for paying the freight, ownership of merchandise inventory passes when goods are loaded on the transport vehicle.

Given the following information, determine the cost of goods sold at November 30 using the Weighted Average perpetual inventory method. November 3: 15 units were purchased at $8 per unit. November 11: 18 units were purchased at $9.50 per unit. November 15: 15 units were sold at $45 per unit November 18: 30 units were purchased at $10.75 per unit November 30: 20 units were sold at $55 per

A company made the following merchandise purchases and sales during the current month: $\begin{array}{|l|l|l|l|}\hline \text { July 1 purchased } & 380 & \text { units at } & \$ 15 \text { each } \\\hline \text { July 5 purchased } & 270 & \text { units at } & \$ 20 \text { each } \\\hline \text { July 9 sold } & 500 & \text { units at } & \$ 55 \text { each } \\\hline \text { July 14 purchased } & 300 & \text { units at } & \$ 24 \text { each } \\\hline \text { July 20 sold } & 250 & \text { units at } & \$ 55 \text { each } \\\hline \text { July 30 purchased } & 250 & \text { units at } & \$ 30 \text { each } \\\hline\end{array}$ There was no beginning inventory. If the company uses the last-in, first-out perpetual inventory system, what would be the cost of the ending inventory?

The ____________________ ratio reflects how much inventory is available in terms of days' sales.

The retail inventory method estimates the cost of ending inventory by applying the gross profit ratio to net sales.

If the seller is responsible for paying freight charges, then ownership of inventory passes when goods arrive at their destination.

Given the following information, determine the cost of goods sold for December 31 using the FIFO perpetual inventory method. December 2: 5 units were purchased at $7 per unit. December 9: 10 units were purchased at $9.40 per unit. December 11: 12 units were sold at $35 per unit December 15: 20 units were purchased at $10.15 per unit December 22: 18 units were sold at $35 per unit

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

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

When applying the lower of cost or market method of inventory valuation, market is defined as the ______________________.

A company's warehouse was destroyed by a tornado on March 15. The following information was the only information that was salvaged: Inventory, beginning: $28,000 Purchases for the period: $17,000 Sales for the period: $55,000 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 made the following merchandise purchases and sales during the month of May: $\begin{array} { | l | l | l | l | } \hline \text { May 1 purchased } & 380 & \text { units at } & \$ 15 \text { each } \\\hline \text { May 5 purchased } & 270 & \text { units at } & \$ 17 \text { each } \\\hline \text { May 10 sold } & 400 & \text { units at } & \$ 50 \text { each } \\\hline \text { May 20 purchased } & 300 & \text { units at } & \$ 22 \text { each } \\\hline \text { May 25 sold } & 400 & \text { units at } & \$ 50 \text { each } \\\hline\end{array}$ There was no beginning inventory. If the company uses the LIFO periodic inventory method, what would be the cost of the ending inventory?

Given the following information, determine the cost of goods sold at December 31 using the Weighted Average perpetual inventory method. December 2: 5 units were purchased at $7 per unit. December 9: 10 units were purchased at $9.40 per unit. December 11: 12 units were sold at $35 per unit December 15: 20 units were purchased at $10.15 per unit December 22: 18 units were sold at $35 per unit

Explain the effects of inventory valuation methods on the cost of ending inventory, income and income taxes.