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Exam 5: Reporting and Analyzing Inventories

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Question 71

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Generally accepted accounting principles require that the inventory of a company be reported at:

A) Market value.
B) Historical cost.
C) Lower of cost or market.
D) Replacement cost.
E) Retail value.

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

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Question 72

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The simple rule for inventory turnover is that a low ratio is preferable.

A) True
B) False

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Question 73

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Explain the effects of inventory valuation methods on the cost of ending inventory,income,and income taxes.

A company's inventory records report the following in November of the current year: On November 8,it sold 12 units for $54 each.Using the perpetual LIFO inventory method,what was the amount recorded in the cost of goods sold account for the 12 units sold?

The retail inventory method estimates the cost of ending inventory by applying the gross profit ratio to net sales.

An error in the period-end inventory balance will cause an error in the calculation of cost of goods sold.

Use the following information for Ephron Company to compute days' sales in inventory for Year 2.(Use 365 days in a year.)

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

According to IRS guidelines,companies may use FIFO for financial reporting and LIFO for tax reporting.

A company has beginning inventory of 10 units at a cost of $10 each on February 1.On February 3,it purchases 20 units at $12 each.12 units are sold on February 5.Using the periodic FIFO inventory method,what is the cost of the 12 units that are sold?

The conservatism constraint prescribes that:

When applying the lower of cost or market method of inventory valuation,market is defined as the ________.

In a period of rising purchase costs,FIFO usually gives a higher cost of goods sold,lower taxable income and therefore,yields a tax advantage.

Under LIFO,the most recent costs are assigned to ending inventory.

The inventory turnover ratio:

Some companies use the ________ constraint to avoid assigning incidental costs of acquiring merchandise to inventory.

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 FIFO. $\begin{array}{|l|l|l|l|}\hline \text { Date } & \text { Activities } & \text { Units Acquired at Cost } & \text { Units Sold at Retail } \\\hline \text { Apri11 } & \text { Beginning Inventory } & 175 \text { units@\$15.00 } & \\\hline 4 & \text { Purchase } & 150 \text { units@\$16.00 } & \\\hline 7 & \text { Sales } & & 160 \text { units @\$30.00 } \\\hline 10 & \text { Purchase } & 200 \text { units@\$17.00 } & \\\hline 16 & \text { Sales } & &250 \text { units@\$30.00 } \\\hline 25 & \text { Purchase } &160 \text { units@\$18.00 } & \\\hline 128 & \text { Sales } &&150 \text { units@ } \$ 32.00\\\hline \end{array}$

Days' sales in inventory is calculated as:

A company has beginning inventory of 15 units at a cost of $12 each on October 1.On October 5,it purchases 10 units at $13 per unit.On October 12 it purchases 20 units at $14 per unit.On October 15,it sells 30 units.Using the periodic FIFO inventory method,what is the value of the inventory at October 15 after the sale?

A company had the following ending inventory costs: Required: Calculate the lower of cost or market (LCM)value for each individual item.