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Exam 6: Inventories and Cost of Sales

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Question 41

True/False

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When units are purchased at different costs over time, determining the cost per unit assigned to inventory items is simple.

A) True
B) False

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Question 42

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The understatement of the beginning inventory balance causes:

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

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

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Question 43

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The _________________ method is commonly used to estimate the value of inventory that has been destroyed, lost, or stolen.

Using the information given below, prepare general journal entries to record the March 16 sale assuming a cash sale and the FIFO method is used.

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.

If the _______________ is responsible for paying the freight, ownership of merchandise inventory passes when goods are loaded on the transport vehicle.

A company that has operated with a 30% average gross profit ratio for a number of years had $100,000 in sales during the first quarter of this year. If it began the quarter with $18,000 of inventory at cost and purchased $72,000 of inventory during the quarter, its estimated ending inventory by the gross profit method is:

The City Store reported the following amounts on their financial statements for Year 1, Year 2, and Year 3: It was discovered early in Year 4 that the ending inventory on December 31, Year 1 was overstated by $6,000, and the ending inventory on December 31, Year 2 was understated by $2,500. The ending inventory on December 31, Year 3 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 Year 1, Year 2, and Year 3.

Some companies use the _________________ principle or the __________________ constraint to avoid assigning incidental costs of acquiring merchandise to inventory.

The reasoning behind the retail inventory method is that if we can get a good estimate of the cost-to-retail ratio, we can multiply ending inventory at retail by this ratio to estimate ending inventory at cost.

Perch Company reported the following purchases and sales for its only product. Perch uses a perpetual inventory system. Determine the cost assigned to cost of goods sold using LIFO.

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

It can be expected that companies selling perishable goods have a higher inventory turnover than companies selling nonperishable goods.

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

Given the following information, determine the cost of the inventory at June 30 using the LIFO perpetual inventory method. The cost of the ending inventory is

A company made the following merchandise purchases and sales during the month of July: There was no beginning inventory. If the company uses the first-in, first-out method and the perpetual system, what would be the cost of the ending inventory?

Use the following information for Razor Company to compute days' sales in inventory for 2011.

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

Goods in transit are included in a purchaser's inventory:

A company uses the retail inventory method and has the following information available concerning its most recent accounting period: 1. What is the cost-to-retail ratio using the retail method? 2. What is the estimated cost of the ending inventory?