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Exam 6: Inventory Costing

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Question 81

Multiple Choice

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In periods of rising prices, the ending inventory using the FIFO cost formula will be

A) higher than using the average cost method.
B) can not be determined.
C) lower than average cost.
D) the same as average cost.

E) A) and B)
F) A) and C)

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Question 82

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To use the retail inventory method, a company's records must show both the cost and the retail value of the goods available for sale.

A) True
B) False

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Question 83

Multiple Choice

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"Goods on Approval"

When there is clear evidence of an increase in net realizable value because of changed economic circumstances, the amount of a previously recorded writedown is reversed.

After the physical inventory is completed

Which of the following statements is correct?

If ending inventory is overstated in 2014, then profit will be

The first-in, first-out (FIFO) cost formula assumes that the earliest (oldest) goods purchased are the last ones to be sold.

Hamil Company prepares monthly financial statements and uses the gross profit method to estimate ending inventories. Historically, the company has had a 40% gross profit margin. During June, net sales amounted to $50,000; the beginning inventory on June 1 was $15,000; and the cost of goods purchased during June amounted to $25,000. The estimated cost of Hamil Company's inventory on June 30 is

Use the following information for question 102-103. During its December 31, 2014 year-end inventory count, Jefferson Company failed to count items in transit to which it had legal title. As a result of this error, ending inventory was understated by $30,000. -As a result of this error, 2014 cost of goods sold will be

Deerfield Company developed the following information about its inventories in applying the lower of cost and net realizable value in valuing inventories: After Deerfield Company values its inventory at the lower of cost or net realizable value, the value of the inventory reported on the balance sheet would be

Determining ownership of goods is one of the steps in taking inventory.

If the physical inventory is less than the amount calculated using the retail method, then there may be a theft problem.

The managers of Tong Company receive performance bonuses based on the profit of the firm. Which cost formula are they likely to favour in periods of declining prices?

Passarant Company reports goods available for sale at cost, $156,000. Beginning inventory at retail is $60,000 and goods purchased during the period at retail were $180,000. Sales for the period amounted to $90,000. Instructions Determine the estimated cost of the ending inventory using the retail inventory method.

The controller of Lawn-Man Company is applying the lower of cost and net realizable value of valuing ending inventory. The following information is available: Instructions a. Prepare a schedule which shows the value of the inventory by applying the lower of cost and net realizable value to each item in inventory. b. Prepare the journal entry to record any inventory write down required.

A company had sales of $150,000 and cost of goods available for sale of $300,000 during January. If its gross profit margin is estimated to be 40%, the ending inventory value at January 31 is estimated to be

Errors in the cost of goods sold will affect the income statement.

The FIFO and average cost formula can be used in both the perpetual and periodic inventory systems.

For a merchandising company, the net realizable value of its inventory is the