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Exam 6: Merchandise Inventory and Cost of Sales

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Question 41

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Trekking Company had the following purchases during the year: On December 31,there were 26 units in ending inventory.These 26 units consisted of 2 from January,4 from February,6 from May,4 from September,and 10 from November.Using the specific identification method,what is the cost of the ending inventory?

A) $3,500.
B) $3,800.
C) $3,960.
D) $3,280.
E) $3,640.

F) A) and B)
G) None of the above

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Question 42

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The full disclosure principle:

A) Requires that when a change in inventory cost flow assumption is made,the notes to the statements report the type of change.
B) Requires that when a change in inventory cost flow assumption is made,the notes to the statements report the justification for the change.
C) Requires that any change in net income due to changes in the inventory cost assumption be disclosed.
D) Does not require a company to use one cost flow assumption exclusively.
E) All of these answers are correct.

F) B) and D)
G) A) and D)

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Question 43

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Merchandise inventory includes:

Toys "R" Us had cost of goods sold of $6,000 million,ending inventory of $2,500 million,and average inventory of $2,000 million.The merchandise turnover is:

An advantage of the moving weighted-average method is that it tends to smooth out price changes.

Trekking Company markets a climbing kit and uses a perpetual inventory system to account for its merchandise.The beginning balance of the inventory and transactions during January were as follows: If the ending inventory is valued at $357,what inventory cost flow assumption was used?

The advantage of FIFO is that it assigns the most recent costs to cost of goods sold,and better matches current costs with revenues on the income statement.

Trekking Company reported the following data: Instructions: (1)Calculate Trekking Company's merchandise turnover for each year to two decimal places. (2)Comment on the company's efficiency in managing its inventory.

Interim statements:

Goods on consignment are goods shipped by their owner,called the _______________,to another party called the _______________.

When preparing the financial statements,management can choose the inventory cost flow assumption it will use for a particular year in order to impact the reported net income.

Acceptable inventory cost flow assumptions in Canada include:

Goods on consignment are goods shipped by their owner,called the consignee,to another party called the consignor.

What are the effects of inventory methods on financial and tax reporting?

Normandy Company has collected the following inventory data prior to preparing financial statements for the month of October.All purchases and sales are on credit. Assuming the periodic inventory system is used,determine the cost of the ending inventory and cost of goods sold using FIFO. Prepare the appropriate journal entries to record: (A)The October 6 purchase. (B)The October 12 sale. (C)The entries to close the October income statement items to Income Summary.(Assume that sales revenue and the elements of cost of goods sold are the only income statement items.)

The consistency principle means that one costing method,such as FIFO or moving weighted average,has to be used exclusively.

When purchase prices do not change,the choice of an inventory costing method is unimportant.

The merchandise turnover ratio is used to measure profitability.

The retail inventory method of estimating inventory uses the ratio of goods available for sale at cost to goods available for sale at retail.

The inventory cost flow assumption that assigns the highest cost to ending inventory in a period of rising prices is moving weighted average.