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Exam 6: Inventories and Cost of Sales

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Question 31

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On December 31 of the current year, Hewett Company reported an ending inventory balance of $215,000. The following additional information is also available: Hewett sold goods costing $38,000 to Trump Enterprises on December 28 and shipped the goods on that date with shipping terms of FOB shipping point. The goods were not included in the ending inventory amount of $215,000 because they were not in Hewett's warehouse. Hewett purchased goods costing $44,000 on December 29. The goods were shipped FOB destination and were received by Hewett on January 2 of the following year. The shipment was a rush order that was supposed to arrive by December 31. These goods were included in the ending inventory balance of $215,000. Hewett's ending inventory balance of $215,000 included $15,000 of goods being held on consignment from Rumsfeld Company. (Hewett Company is the consignee.) Hewett's ending inventory balance of $215,000 did not include goods costing $95,000 that were shipped to Hewett on December 27 with shipping terms of FOB destination and were still in transit at year-end. Based on the above information, the correct balance for ending inventory on December 31 is:

A) $194,000
B) $209,000
C) $200,000
D) $171,000
E) $156,000

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

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Question 32

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

A) True
B) False

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Question 33

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The understatement of the beginning inventory balance causes:

Tops had cost of goods sold of $9,421 million, ending inventory of $2,089 million, and average inventory of $1,965 million. Its inventory turnover equals:

The LIFO method of inventory valuation can result in a company's ending inventory being valued at less than the inventory's replacement cost because LIFO inventory leaves the oldest costs in inventory.

Tops had cost of goods sold of $8,321 million and its ending inventory was $2,027 million. Therefore its days' sales in inventory equals 89 days. 2,027/8,321*365 = 89

The matching principle is used by some companies to avoid allocating incidental inventory costs to cost of goods sold.

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

A company's cost of goods sold was $15,500 and its average merchandise inventory was $4,500. Its inventory turnover equals 3.4. 15,500/4,500 = 3.4

The FIFO inventory method assumes that costs for the earliest units purchased are the first to be charged to the cost of goods sold.

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

Fun Land Toy Stores has taken a physical count of its inventory at January 31, its fiscal year-end. After reviewing the accounting records and documentation, the following items have been discovered: (a) An invoice from Fleck Co. indicates that $30,000 of toys were shipped to Fun Land on January 27, terms FOB shipping point. The toys and invoice did not arrive at Fun Land until February 2 and were not included in the physical count. (b) An invoice from Grande indicates that $8,000 of toys were shipped to Fun Land on January 29, terms FOB destination. The toys and invoice did not arrive at Fun Land until February 2 and were not included in the physical count. The physical count and cost assignment on January 31 prior to these two items is $440,000. The cost of goods sold for Fun Land is $2,100,000. 1. Calculate the amount that should be reported as ending inventory for Fun Land. 2. Calculate the days' sales in inventory before and after the appropriate adjustments for inventory.

When purchase costs regularly rise, the ___________________ method of inventory valuation yields the lowest gross profit and net income, providing a tax advantage.

Days' sales in inventory is calculated as:

Management decisions in accounting for inventory cost include all of the following except:

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.

Few companies take a physical count of inventory each year, and rely on inventory records alone to determine the inventory value.

A company made the following merchandise purchases and sales during the month of May: There was no beginning inventory. If the company uses the FIFO periodic inventory method, what would be the cost of the ending 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.

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