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Exam 5: Reporting and Analyzing Inventories

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Question 101

Multiple Choice

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The understatement of the ending inventory balance causes:

A) Cost of goods sold to be overstated and net income to be understated.
B) Cost of goods sold to be overstated and net income to be overstated.
C) Cost of goods sold to be understated and net income to be understated.
D) Cost of goods sold to be understated and net income to be overstated.
E) Cost of goods sold to be overstated and net income to be correct.

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

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Question 102

Multiple Choice

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Direct Sales, Inc. had cost of goods sold of $420,000, beginning inventory of $67,000, and ending inventory of $81,000. The days' sales in inventory equals:

A) 5.16
B) 58.2 days
C) 6.27
D) 70.4 days
E) 5.68

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

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Question 103

Multiple Choice

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A company had 8 units at a cost of $12 each in inventory on November 1. On November 2, the company purchased 13 units at $13 each. On November 6, the company purchased 9 units at $14 each. On November 8, the company sold 24 units for $57 each. Given this information, determine the cost of the 6 units remaining in inventory after the November 8 sale using the LIFO periodic inventory method.

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

Given the following information, determine the cost of ending inventory at November 30 using the LIFO 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.

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

Explain the effects of the four inventory valuation methods of specific identification, FIFO, LIFO and weighted-average on ending inventory, net income, and income taxes.

Toys "R" Us had cost of goods sold of $8,321 million and ending inventory of $2,027 million. Based on this, its days' sales in inventory is equal to 89 days. (2,027/8,321) × 365 = 89 days

The inventory turnover ratio:

On September 30 a company needed to estimate its ending inventory to prepare its third quarter financial statements. The following information is available: Beginning inventory, July 1: $4,000 Net sales: $40,000 Net purchases: $41,000 The company's gross margin ratio is 15%. Using the gross profit method, the cost of goods sold would be:

Merchandise inventory includes:

A company reported the following data related to its ending inventory: Calculate the lower of cost or-market on both the: (a) Inventory as a whole. (b) Inventory applied separately to each product.

The cost of an inventory item includes the _____________ of an inventory minus any _____________ plus ______________ costs necessary to put it in a place and condition for sale.

A company reported the following data related to its ending inventory: Calculate the lower of cost or-market the inventory applied separately to each product.

A company made the following merchandise purchases and sales during the month of May. There was no beginning inventory. If the company uses the FIFO periodic inventory method, what would be the cost of goods sold for May?

The City Store reported the following amounts on their financial statements for 2015, 2016, and 2017: It was discovered early in 2015 that the ending inventory on December 31, 2015, was overstated by $6,000 and the ending inventory on December 31, 2016, was understated by $2,500. The ending inventory on December 31, 2017, was correct. Ignoring income taxes, determine the correct amounts of cost of goods sold, net income, total current assets, and equity for each of the years 2015, 2016, and 2017.

Physical inventory counts:

The inventory turnover ratio is calculated as:

Given the following information, determine the cost of ending inventory at 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.

When taking a physical count of inventory, the use of prenumbered inventory tickets assists in the control process.