FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 6: Inventories and Cost of Sales

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 61

Essay

Review LaterAdd Note

Review Later

Explain how the inventory turnover ratio and the days' sales in inventory ratio are used to evaluate inventory management.

Correct Answer

verified

A merchandiser's ability to pay its shor...

View Answer

Show Answer

Question 62

Multiple Choice

Review LaterAdd Note

Review Later

On January 31, a company needed to estimate its ending inventory to prepare its monthly financial statements. The following information is currently available: Inventory as of January 1: $120,500 Net sales for January: $400,000 Net purchases for January: $270,500 This company typically achieves a gross profit ratio of 15%. Ending Inventory under the gross profit method would be:

A) $9,000.
B) $51,000.
C) $10,425.
D) $102,425.
E) $51,425.

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

Correct Answer

verified

Show Answer

Question 63

True/False

Review LaterAdd Note

The full disclosure principle requires that the notes to the financial statements report any change in the method of accounting for inventory.

Internal controls that should be applied when a business takes a physical count of inventory should include all of the following except:

A company's total cost of inventory was $329,000 and its current replacement cost is $307,000. Under the lower cost or market, the amount reported should be $329,000.

Starlight Company has inventory of 8 units at a cost of $200 each on October 1. On October 2, it purchased 20 units at $205 each. 11 units are sold on October 4. - Using the LIFO perpetual inventory method, what is the value of inventory after the October 4 sale?

A company made the following purchases during the year: $\begin{array} { | l | l | } \hline \text { Jan. 10 } & 15 \text { units @ \$360 each } \\\hline \text { Mar. 15 } & 25 \text { units @ \$390 each } \\\hline \text { Apr. 25 } & 10 \text { units @ \$420 each } \\\hline \text { July 30 } & 20 \text { units @ 450 each } \\\hline \text { Oct. 10 } & 15 \text { units @ \$480 each } \\\hline\end{array}$ On December 31, there were 28 units in ending inventory. These 28 units consisted of 2 from the January 10 purchase, 3 from the March 15 purchase, 4 from the April 25 purchase, 11 from the July 30 purchase, and 8 from the October 10 purchase. Using specific identification, calculate the cost of the ending inventory.

A company has the following per unit original costs and replacement costs for its inventory. LCM is applied to individual items. Part A: 50 units with a cost of $5, and replacement cost of $4.50 Part B: 75 units with a cost of $6, and replacement cost of $6.50 Part C: 160 units with a cost of $3, and replacement cost of $2.50 Under the lower of cost or market method, the total value of this company's ending inventory is:

The days' sales in inventory ratio is computed by dividing ending inventory by cost of goods sold and multiplying the result by 365.

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

The assignment of costs to the cost of goods sold and to ending inventory using FIFO is the same for both the perpetual and periodic inventory systems.

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

A company normally sells its product for $20 per unit. However, the selling price has fallen to $15 per unit. This company's current inventory consists of 200 units purchased at $16 per unit. Replacement cost has now fallen to $13 per unit. What is the amount of the lower cost of market adjustment the company must make as a result of this decline in value?

Net realizable value for damaged or obsolete goods is sales price less the cost of making the sale.

Monarch Company uses a weighted-average perpetual inventory system and has the following purchases and sales: $\begin{array} { | l | l | } \hline \text { January 1 } & 20 \text { units were purchased at \$10 per unit. } \\\hline \text { January } 12 & 12 \text { units were sold. } \\\hline \text { January } 20 & 18 \text { units were purchased at \$11 per unit. } \\\hline\end{array}$ - What is the value of cost of goods sold?

What advantages does a perpetual inventory system have over periodic inventory system?

Some companies choose to avoid assigning incidental costs of acquiring merchandise to inventory by recording them as cost of goods sold when incurred. The principle that supports this is called:

When LIFO is used with the periodic inventory system, cost of goods sold is assigned costs from the most recent purchases at the point of each sale, rather than from the most recent purchases for the period.

A company has inventory with a selling price of $451,000, a market value of $223,000 and a cost of $241,000. According to the lower of cost or market, the inventory should be written down to $223,000.

The expense recognition (matching) principle is used to determine how much of the cost of goods available for sale is deducted from sales and how much is carried forward as inventory.