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Exam 6: Inventories and Cost of Sales

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Question 81

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Goods on consignment:

A) Are goods shipped by the owner to the consignee who sells the goods for the owner.
B) Are reported in the consignee's books as inventory.
C) Are goods shipped to the consignor who sells the goods for the owner.
D) Are not reported in the consignor's inventory since they do not have possession of the inventory.
E) Are always paid for by the consignee when they take possession.

F) All of the above
G) B) and D)

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Question 82

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Apply the retail method to the following company information to calculate the cost of the ending inventory for the current period.

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Question 83

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Regardless of the inventory costing system used, cost of goods available for sale must be allocated between

In the retail inventory method of inventory valuation, the retail amount of inventory refers to its dollar amount measured using selling prices of inventory items.

A company's cost of goods sold was $15,500 and its average merchandise inventory was $4,500. Its inventory turnover equals 3.4.

The LIFO method of inventory valuation can result in a company's ending inventory being valued at less than the inventory's net realizable value because LIFO inventory leaves the oldest costs in inventory.

Identify the inventory valuation method that is being described for each situation below. In all cases, assume a period of rising prices. Use the following to identify the inventory valuation method: a. The method that can only be used if each inventory item can be matched with a specific purchase and its invoice. b. The method that will cause the company to have the lowest income taxes. c. The method that will cause the company to have the lowest cost of goods sold. d. The method that will assign a value to inventory that approximates its current cost. e. The method that will tend to smooth out erratic changes in costs.

What is the effect of an error in the ending inventory balance on the income statement?

A company had inventory on November 1 of 5 units at a cost of $20 each. On November 2, they purchased 10 units at $22 each. On November 6 they purchased 6 units at $25 each. On November 8, 8 units were sold for $55 each. Using the LIFO perpetual inventory method, what was the value of the inventory on November 8 after the sale?

If a period-end inventory amount is reported in error, it can cause a misstatement in all of the following except:

An understatement of ending inventory will cause an understatement of assets and equity on the balance sheet.

Using the information given below for a company that uses a perpetual inventory system, calculate the ending inventory using LIFO.

A company has inventory of 15 units at a cost of $12 each on August 1. On August 5, it purchased 10 units at $13 per unit. On August 12 it purchased 20 units at $14 per unit. On August 15, it sold 30 units. Using the FIFO periodic inventory method, what is the value of the inventory at August 15 after the sale?

Damaged and obsolete goods that can be sold:

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

An error in the period-end inventory balance will cause an error in the calculation of cost of goods sold.

Match the following terms a through j with the appropriate definition.

A company reported the current month purchase and sales data for its only product and uses the perpetual inventory system. Determine the cost assigned to ending inventory and cost of goods sold using LIFO.

LIFO assumes that inventory costs flow in the order incurred.

When purchase costs regularly rise, the ___________________ method of inventory valuation yields the highest gross profit and net income.