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Exam 5: Inventories and Cost of Sales

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Question 111

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The ________ ratio reflects how much inventory is available in terms of days' sales.

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Question 112

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On September 1 of the current year,Scots Company experienced a flood that destroyed the company's entire inventory.Because the company had not completed its month end reporting for August,it must estimate the amount of inventory lost using the gross profit method.At the beginning of August,the company reported beginning inventory of $215,450.Inventory purchased during August was $192,530.Sales for the month of August were $542,500.Assuming the company's typical gross profit ratio is 40%,estimate the amount of inventory destroyed in the flood.

A) $87,480
B) $134,520
C) $109,980
D) $82,480
E) $81,480

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

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Question 113

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Apply the retail method to the following company information to calculate the cost of the ending inventory for the current period. $\begin{array} { | l | r | r | } \hline & { \text { Cost } } & { \text { Retail } } \\\hline \text { Beginning inventory } & \$ 20,224 & \$ 31,600 \\\hline \text { Net purchases } & 59,508 & 97,000 \\\hline \text { Sales } & & 89,000 \\\hline\end{array}$

Damaged and obsolete goods that can be sold:

What is the effect of an error in the ending inventory balance on the accounts reported in the income statement?

Accounting principles require that inventory be reported at the market value (cost)of replacing inventory when cost is lower than market value.

Days' sales in inventory:

Carolina Company uses the LIFO method for valuing its ending inventory.The following financial statement information is available for its first year of operation: $\begin{array} {c}\text { Carolina Company } \\\text { Income Statement } \\\text { For the year ended December 31 }\\\begin{array} { | l | r | } \hline \text { Sales } & \$ 60,000 \\\hline \text { Cost of goods sold } & 23,000 \\\hline \text { Gross profit } & \$ 37,000 \\\hline \text { Expenses } & 13,000 \\\hline \text { Income before taxes } & \$ 24,000 \\\hline\end{array}\end{array}$ Carolina's ending inventory using the LIFO method was $8,700.Carolina's accountant determined that had the company used FIFO,the ending inventory would have been $9,100. a.Determine what the income before taxes would have been,had Carolina used the FIFO method of inventory valuation instead of LIFO. b.What would be the difference in income taxes between LIFO and FIFO,assuming a 30% tax rate? c.If Carolina wanted to lower the amount of income taxes to be paid,which method would it choose?

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.

When costs to purchase inventory regularly decline,which method of inventory costing will yield the lowest cost of goods sold?

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 Perpetual LIFO inventory valuation method,what is the cost of the ending inventory? (Assume all sales were made on the last day of the month.)

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.

A company reported the current month purchase and sales data for its only product and uses the perpetual inventory system.Determine the cost assigned to ending inventory and cost of goods sold using LIFO. $\begin{array} { | r | r | r | r | } \hline \text { Date } & { \text { Activities } } & \text { Units Acquired at Cost } & \text { Units Sold at Retail } \\\hline \text { April } 1 & \text { Beginning Inventory } & 175 \text { units @ } \$ 15.00 & \\\hline 4 & \text { Purchase } & 150 \text { units @ } \$ 16.00 & \\\hline 7 & \text { Sales } & & 160 \text { units @ } \$ 30.00 \\\hline 10 & \text { Purchase } & 200 \text { units @ } \$ 17.00 & \\\hline 16 & \text { Sales } & & 250 \text { units @ } \$ 30.00 \\\hline 25 & \text { Purchase } & 160 \text { units @ } \$ 18.00 & \\\hline 28 & \text { Sales } & & 150 \text { units @ } \$ 32.00 \\\hline\end{array}$

Interim financial statements:

The understatement of the beginning inventory balance causes:

Health Defense sells first aid kits and uses the periodic inventory system to account for its merchandise.The beginning balance of the inventory and its transactions during January were as follows: January 1: Beginning balance of 18 units at $13 each January 12: Purchased 30 units at $14 each January 19: Sold 24 units at a selling price of $30 each January 20: Purchased 24 units at $17 each January 27: Sold 27 units at a selling price of $30 each If the ending inventory is reported at $357,what inventory method was used?

Big Box Store has operated with a 30% average gross profit ratio for a number of years.It had $100,000 in sales during the second 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:

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 amount will be reported in cost of goods sold for the 11 units that were sold?

Match the following terms with the appropriate definition. -The number of times a company's average inventory is sold during an accounting period.

The Inventory account is a controlling account for the inventory subsidiary ledger that contains a separate record for each separate product.