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Exam 5: Inventories and Cost of Sales

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Question 91

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

A) True
B) False

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Question 92

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Marquis Company uses a weighted-average perpetual inventory system and has the following purchases and sales: $\begin{array} { | l | l | } \hline \text { August 2 } & 10 \text { units were purchased at } \$ 12 \text { per unit. } \\\hline \text { August 18 } & 15 \text { units were purchased at } \$ 14 \text { per unit. } \\\hline \text { August 29 } & 12 \text { units were sold. } \\\hline\end{array}$ What is the amount of the cost of goods sold for this sale? (Round average cost per unit to 2 decimal places.)

A) $148.00
B) $150.50
C) $158.40
D) $210.00
E) $330.00

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

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Question 93

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Determining the unit costs assigned to inventory items is one of the most important decisions in accounting for inventory.

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

Lucia Company reported cost of goods sold for Year 1 and Year 2 as follows: $\begin{array} { | l | r | r | } \hline & { \text { Year 1 } } & { \text { Year 2 } } \\\hline \text { Beginning inventory } & \$ 120,000 & \$ 130,000 \\\hline \text { Cost of goods purchased } & 250,000 & 275,000 \\\hline \text { Cost of goods available for sale } & 370,000 & 405,000 \\\hline \text { Ending inventory } & 130,000 & 135,000 \\\hline \text { Cost of goods sold } & \$ 240,000 & \$ 270,000 \\\hline\end{array}$ Lucia Company made two errors: 1) ending inventory at the end of Year 1 was understated by $15,000 and 2) ending inventory at the end of Year 2 was overstated by $6,000.Given this information,the correct cost of goods sold figure for Year 2 would be:

Buffalo Company reported a December 31 ending inventory balance of $412,000.The following additional information is also available: ? The ending inventory balance of $412,000 did not include goods costing $48,000 that were purchased by Buffalo on December 28 and shipped FOB destination on that date. Buffalo did not receive the goods until January 2 of the following year. ? The ending inventory balance of $412,000 included damaged goods at their original cost of $38,000. The net realizable value of the damaged goods was $10,000. Based on this information,the correct balance for ending inventory on December 31 is:

A company's inventory records indicate the following data for the month of April: $\begin{array} { | l | l | l | } \hline \text { April 1 } & \text { Beginning } & 350 \text { units at } \$ 18 \text { each } \\\hline \text { April 5 } & \text { Purchase } & 290 \text { units at } \$ 20 \text { each } \\\hline \text { April 9 } & \text { Sale } & 500 \text { units at } \$ 55 \text { each } \\\hline \text { April 14 } & \text { Purchase } & \text { 250 units at \$22 each } \\\hline \text { April 20 } & \text { Sale } & \text { 200units at \$55 each } \\\hline \text { April 30 } & \text { Purchase } & \text { 240units at } \$ 25 \text { each } \\\hline\end{array}$ If the company uses the first-in,first-out (FIFO)method and the perpetual inventory system,what is the amount of cost of goods sold for April?

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.

Match each of the following terms with the appropriate definition. -An inventory valuation method that assumes costs for the most recent items purchased are sold first and charged to cost of goods sold.

Use the information below to determine the sales revenue,cost of goods sold and gross profit that would be reported for the company related to the March 16 sale assuming the company uses weighted average inventory valuation and a perpetual inventory system. $\begin{array} { | l | l | } \hline \text { January 1: } & \text { Purchased } 100 \text { units at } \$ 10 \text { per unit. } \\\hline \text { February 5: } & \text { Purchased } 60 \text { units at } \$ 12 \text { per unit. } \\\hline \text { March 16: } & \text { Sold } 40 \text { units for } \$ 16 \text { per unit. } \\\hline\end{array}$

A company's total cost of inventory was $329,000 and its current replacement cost is $307,000.Under the lower cost or market,the amount reported should be $329,000.

The company's inventory manager receives compensation that includes a bonus based on gross profit.You discover that the inventory manager has knowingly overstated ending inventory by $2 million.What effect does this error have on the financial statements of the company and specifically gross profit? Why would the manager knowingly overstate ending inventory? Would this be considered an ethics violation?

The choice of an inventory valuation method has little to no impact on gross profit and cost of sales.

Ulrich had cost of goods sold of $6.7 million,ending inventory of $2.2 million,and average inventory of $1.9 million.Its days' sales in inventory equals:

Which of the following inventory costing methods will always result in the same values for ending inventory and cost of goods sold regardless of whether a perpetual or periodic inventory system is used?

Internal controls that should be applied when a business takes a physical count of inventory should include all of the following except:

Match each of the following terms with the appropriate definition. -An estimate of days needed to convert the inventory at the end of the period into receivables or cash.

A company made the following merchandise purchases and sales during the month of May: $\begin{array} {| l | l | l | l | } \hline \text { May 1 } & \text { Purchased } & 380 \text { units at } & \$ 15 \text { each } \\\hline \text { May 5 } & \text { Purchased } & 270 \text { units at } & \$ 17 \text { each } \\\hline \text { May 10 } & \text { Sold } & 400 \text { units at } & \$ 50 \text { each } \\\hline \text { May 20 } & \text { Purchased } & 300 \text { units at } & \$ 22 \text { each } \\\hline \text { May 25 } & \text { Sold } & 400 \text { units at } & \$ 50 \text { each } \\\hline\end{array}$ There was no beginning inventory.If the company uses the weighted average periodic method,what would be the cost of the ending inventory?

The cost of an inventory item includes its invoice cost minus any discount,plus any added or incidental costs necessary to put it in a place and condition for sale.

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