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Exam 5: Inventories and Cost of Sales

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Question 101

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Eastview Company uses a perpetual LIFO inventory system,and has the following purchases and sales: $\begin{array} { | l | l | } \hline \text { January 1 } & 150 \text { units were purchased at \$9 per unit. } \\\hline \text { January } 17 & 120 \text { units were sold. } \\\hline \text { January 20 } & 160 \text { units were purchased at \$11 per unit. } \\\hline \text { January 29 } & 150 \text { units were sold. } \\\hline\end{array}$ - What is the value of ending inventory?

A) $2,730.
B) $2,750.
C) $2,670.
D) $440.
E) $380.

F) B) and D)
G) All of the above

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Question 102

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Jammer Company uses a weighted average perpetual inventory system and reports the following: $\begin{array} { | l | l | l | } \hline \text { August 2 } & \text { Purchase } & 10 \text { units at } \$ 12 \text { per unit. } \\\hline \text { August 18 } & \text { Purchase } & 15 \text { units at } \$ 15 \text { per unit. } \\\hline \text { August 29 } & \text { Sale } & 20 \text { units. } \\\hline \text { August 31 } & \text { Purchase } & 14 \text { units at } \$ 16 \text { per unit. } \\\hline\end{array}$ What is the per-unit value of ending inventory on August 31?

A) $12.00
B) $13.80
C) $15.42
D) $16.00
E) $17.74

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

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Question 103

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Acceptable methods of assigning specific costs to inventory and cost of goods sold include all of the following except:

Match the following terms with the appropriate definition. -The required method of reporting inventory at market when market is lower than cost.

A company uses the periodic inventory system,and the following information is available.All purchases and sales are on credit.The selling price for the merchandise is $11 per unit. $\begin{array} { | l | l | r | r | } \hline && \text { Units } &{ \text { Unit Cost } } & { \text { Total Cost } } \\\hline 6 / 01& \text { Inventory Balance } & 30 & \$ 3 & \$ 90 \\\hline 6 / 06& \text { Purchase } & 70 & 4 & 280\\\hline 6 / 11& \text { Purchase } & 45 & 5 & 225 \\\hline 6 / 16 &\text { Purchase } & \underline { 50 } & 6 &300 \\\hline &\text { Goods available } & \underline { 195 } && \\\hline 6 / 12 &\text { Sale } & 100 & & \\\hline 6 / 2& \text { Sale } & \underline { 60 } & & \\\hline &\text { Goods sold } & \underline { 160 } & & \\\hline 6 / 31 &\text { Inventory Balance } &\underline { 35 } & \\\hline\end{array}$ Required: Determine the cost of the ending inventory and the cost of goods sold for June using the LIFO method.

FIFO is preferred when purchase costs are rising and managers have incentives to report higher income for reasons such as bonus plans,job security,and reputation.

To avoid the time-consuming process of taking an inventory each year,most companies use the gross profit method to estimate ending inventory.

Match each of the following terms with the appropriate definition. -An inventory valuation method that assumes that inventory items are sold in the order acquired.

Use the following information for Davis Company to compute inventory turnover for Year 2. $\begin{array} { | l | r | r | } \hline & \text { Year 2 } & \text { Year 1 } \\\hline \text { Cost of goods sold } & 279,500 & 291,800 \\\hline \text { Ending inventory } & 47,700 & 49,350 \\\hline\end{array}$

Eastview Company uses a periodic LIFO inventory system,and has the following purchases and sales: $\begin{array} { | l | l | } \hline \text { January 1 } & 150 \text { units were purchased at \$9 per unit. } \\\hline \text { January } 17 & 120 \text { units were sold. } \\\hline \text { January 20 } & 160 \text { units were purchased at \$11 per unit. } \\\hline \text { January 29 } & 150 \text { units were sold. } \\\hline\end{array}$ - What is the value of cost of goods sold?

Identify the items that are included in merchandise inventory.(In your answer address the special situations of goods in transit,consigned goods,and damaged goods.)

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

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?

Most companies do not take a physical count of inventory each year,but rather rely on inventory records to determine the inventory value.

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

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

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

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

A company had the following purchases and sales during its first year of operations: $\begin{array} { | l | l | l | } \hline & \text { Purchases } & \text { Sales } \\\hline \text { January: } & 10 \text { units at } \$ 120 & 6 \text { units } \\\hline \text { February: } & 20 \text { units at } \$ 125 & 5 \text { units } \\\hline \text { May: } & 15 \text { units at } \$ 130 & 9 \text { units } \\\hline \text { September: } & 12 \text { units at } \$ 135 & 8 \text { units } \\\hline \text { November: } & 10 \text { units at } \$ 140 & 13 \text { units } \\\hline\end{array}$ On December 31,there were 26 units remaining in ending inventory. -Using the Periodic LIFO inventory valuation method,what is the cost of the ending inventory? (Assume all sales were made on the last day of the month.)

A merchandiser's ability to pay its short-term obligations depends on many factors including how quickly it sells its merchandise inventory.