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Exam 6: Inventories and Cost of Sales

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Question 91

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Salmone Company reported the following purchases and sales of its only product. Salmone uses a periodic inventory system. Determine the cost assigned to ending inventory using LIFO. $\begin{array} { | r | l | l | l | } \hline \text { Date } & \text { Activities } & \text { Units Acquired at Cost } & \text { Units Sold at Retail } \\\hline \text { May 1 } & \text { Beginning Inventory } & 150 \text { units @ \$10.00 } & \\\hline 5 & \text { Purchase } & 220 \text { units @\$12.00 } & \\\hline 10 & \text { Sales } & & 140 \text { units @ \$20.00 } \\\hline 15 & \text { Purchase } & 100 \text { units @ \$13.00 } & \\\hline 24 & \text { Sales } & & 90 \text { units @ \$21.00 }\\\hline \end{array}$

A) $2,100
B) $2,260
C) $2,580
D) $3,580
E) $3,180

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

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Question 92

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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?

A) Retail inventory method.
B) Weighted average.
C) Specific identification.
D) FIFO.
E) LIFO.

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

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Question 93

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Errors in the period-end inventory balance only affect the current period's records and financial statements.

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

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

A company's normal selling price for its product is $20 per unit. However, due to market competition, 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 fallen to $13 per unit. Calculate the value of this company's inventory at the lower of cost or market.

Given the following information, determine the cost of the inventory at June 30 using the LIFO perpetual inventory method. $\begin{array} { | l | l | l | } \hline \text { June 1 } & \text { Beginging inventory } & 15 \text { units at \$20 each } \\\hline \text { June 15 } & \text { Sale of 6 units for \$50 each } & \\\hline \text { June 29 } & \text { Purchase } & \text { 8 units at \$25 each } \\\hline\end{array}$ The cost of the ending inventory is:

A company had inventory on November 1 of 5 units at a cost of $20 each. On November 2, they purchased 10 units at $22 each. On November 6 they purchased 6 units at $25 each. On November 8, 8 units were sold for $55 each. Using the LIFO perpetual inventory method, what was the value of the inventory on November 8 after the sale?

The consistency concept:

During a period of steadily rising costs, the inventory valuation method that yields the highest reported net income is:

The Community Store reported the following amounts on their financial statements for Year 1, Year 2, and Year 3: $\begin{array} {r} { \text { Far the year ended } } \\ { \text { December 31 } } \\\begin{array}{ | l | r | r | r | } \hline & \text { Year 1 } & \text { Year 2 } & \text { Year 3 } \\\hline \text { Cost of goods sold } & \$ 75,000 & \$ 87,000 & \$ 77,000 \\\hline \text { Net income } & 22,000 & 25,000 & 21,000 \\\hline \text { Total current assets } & 155,000 & 165,000 & 110,000 \\\hline \text { Equity } & 287,000 & 295,000 & 304,000 \\\hline\end{array}\end{array}$ It was discovered early in Year 4 that the ending inventory on December 31, Year 1 was overstated by $6,000, and the ending inventory on December 31, Year 2 was understated by $2,500. The ending inventory on December 31, Year 3 was correct. Ignoring income taxes determine the correct amounts of cost of goods sold, net income, total current assets, and equity for each of the years Year 1, Year 2, and Year 3.

How do the consistency concept and the full disclosure principle affect inventory valuation?

A company's inventory records indicate the following data for the month of July: $\begin{array} { | l | l | l | } \hline \text { July 1 } & \text { Begining } & 380 \text { units at \$15 each } \\\hline \text { July 5 } & \text { Purchased } & 270 \text { units at \$17 each } \\\hline \text { July 10 } & \text { Sold } & 400 \text { units at \$50 each } \\\hline \text { July 20 } & \text { Purchased } & 300 \text { units at \$22 each } \\\hline \text { July 25 } & \text { Sold } & 400 \text { units at \$50 each } \\\hline\end{array}$ If the company uses the weighted average inventory valuation method and the perpetual inventory system, what would be the cost of its ending inventory? (Round average cost per unit to 2 decimals, and final answer to the nearest dollar.)

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.

If a period-end inventory amount is reported in error, it can cause a misstatement in all of the following except:

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

A company's store was destroyed by an earthquake on February 10 of the current year. The only information for the current period that could be salvaged included the following: $\begin{array} { | l | r | } \hline \text { Beginning inventory. January 1: } & \$ 44,000 \\\hline \text { Purchases to date: } & \$ 198,000 \\\hline \text { Sales to date: } & \$ 310,000 \\\hline\end{array}$ Historically, the company's gross profit ratio has been 30%. Estimate the value of the destroyed inventory using the gross profit method.

Oxford Packing Company reported net sales in November of the current year of $1,000,000. At the beginning of November, the company reported beginning inventory of $368,000. Cost of goods purchased during November amounted to $217,500. The company reported ending inventory at the end of November of $226,750. The company's gross profit rate for November of the current year was:

A company's warehouse contents were destroyed by a flood on September 12. The following information was the only information that was salvaged: 1. Inventory, beginning: $28,000 2) Purchases for the period: $17,000 3) Sales for the period: $55,000 4) Sales returns for the period: $700 The company's average gross profit ratio is 35%. What is the estimated cost of the lost inventory?

An overstatement of ending inventory will cause an overstatement of assets and an understatement of equity on the balance sheet.