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Exam 6: Inventories and Cost of Sales

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Question 51

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

A) True
B) False

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Question 52

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The assignment of costs to cost of goods sold and inventory using weighted average usually yields different results depending on whether a perpetual or periodic system is used.

A) True
B) False

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Question 53

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The ________ method of assigning costs to inventory and cost of goods sold exactly matches the costs of particular items with the revenues they generate and would be used when items can be easily traced to the purchase invoice cost.

Jefferson Company has sales of $300,000 and cost of goods available for sale of $270,000. If the gross profit ratio is typically 30%, the estimated cost of the ending inventory under the gross profit method would be:

Costs included in the Merchandise Inventory account can include all of the following except:

Goods that are in transit and were shipped FOB shipping point should be included in the inventory records of the ________.

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

In a period of rising purchase costs, LIFO usually gives a lower taxable income and therefore, yields a tax advantage.

Goods that are in transit and were shipped FOB destination should be included in the inventory records of the ________.

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

LIFO assumes that inventory costs flow in the order incurred.

Salmone Company reported the following purchases and sales for its only product. Salmone uses a perpetual inventory system. Determine the cost assigned to cost of goods sold using LIFO. $\begin{array} { | r | l | l | l | } \hline \text { Date } & \text { Activities } & \text { Units Acquired at Cast } & \text { Units Sold at Ret ail } \\\hline \text { May 1 } & \text { Beginning Inventory } & 150 \text { units @ \$10.00 } & \\\hline 5 & \text { Purchase } & 220 \text { units @ @ } \$ 12.00 & \\\hline 10 & \text { Sales } & & 140 \text { units @ \$20.00 } \\\hline 15 & \text { Pur chase } & 100 \text { units @ \$13.00 } & \\\hline 24 & \text { Sales } & & 90 \text { units @ \$21.00 } \\\hline\end{array}$

On April 24 of the current year, The Memphis Pecan Company experienced a tornado that destroyed the company's entire inventory. At the beginning of April, the company reported beginning inventory of $226,750. Inventory purchased during April (until the date of the tornado) was $197,800. Sales for the month of April through April 24 were $642,500. Assuming the company's typical gross profit ratio is 50%, estimate the amount of inventory destroyed in the tornado.

One application of internal control when taking a physical count of inventory is the use of pre-numbered inventory tickets.

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

Use the information below to determine the sales revenue, cost of goods sold and gross profit that would be reported for the company related to the March 16 sale assuming the company uses LIFO inventory valuation and a perpetual inventory system. $\begin{array} { | l | l | } \hline \text { January 1: } & \text { Purchased } 100 \text { units at \$10 per unit. } \\\hline \text { February 5: } & \text { Purchased } 60 \text { units at \$12 per unit. } \\\hline \text { March 16: } & \text { Sold } 40 \text { units for \$16 per unit. } \\\hline\end{array}$

A company reports the following information regarding its inventory. Beginning inventory: cost is $80,000; retail is $130,000 Net purchases: cost is $65,000; retail is $120,000 Sales at retail: $145,000 The year-end inventory shows $135,000 worth of merchandise available at retail prices. What is the cost of the ending inventory calculated using the retail inventory method?

An understatement of ending inventory will cause

Beckenworth had cost of goods sold of $9,421 million, ending inventory of $2,089 million, and average inventory of $1,965 million. Its days' sales in inventory equals: (Use 365 days a year.)

Companies can and often do use different costing methods for financial reporting and tax reporting. An exception to this is the: