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Exam 5: Reporting and Analyzing Inventories

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Question 1

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

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Question 2

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A company has inventory of 10 units at a cost of $10 each on June 1.On June 3,they purchased 20 units at $12 each.12 units are sold on June 5.Using the FIFO perpetual inventory method,what is the cost of the 12 units that were sold?

A) $120
B) $124
C) $128
D) $130
E) $140

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

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Question 3

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

A company that has operated with a 30% average gross profit ratio for a number of years had $100,000 in sales during the first quarter of this year.If it began the quarter with $18,000 of inventory at cost and purchased $72,000 of inventory during the quarter,its estimated ending inventory using the gross profit method is:

A company reported the following data: $\begin{array} { | l | r | r | r | } \hline &{ \text { Year 1 } } & { \text { Year 2 } } &\text { Year 3 } \\\hline \text { Cost of goods sold } & \$ 238,000 & \$ 375,000 & \$ 495,000 \\\hline \text { Ending inventory } & 120,000 & 150,000 & 180,000 \\\hline\end{array}$ Required: 1.Calculate the days' sales in inventory for each year. 2.Comment on the trend in inventory management.

The _____________________ method of assigning costs to inventory and cost of goods sold assumes that the inventory items are sold in the order acquired.

The ______________________ method of inventory valuation better matches current costs with revenues in computing gross profit.

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

On June 30 a company needed to estimate its ending inventory to prepare its second quarter financial statements.The following information is available: Beginning inventory,April 1: $6,000 Net sales: $70,000 Net purchases: $36,000 The company's gross margin ratio is 12%.Using the gross profit method,the cost of goods sold would be:

Match each definition to its term

Toys "R" Us had cost of goods sold of $8,321 million and its ending inventory was $2,027 million.Based on this,its days' sales in inventory is equal to 89 days.

Net realizable value for damaged or obsolete goods is equal to the sales price plus the cost of making the sale.

The Inventory account is a controlling account for the inventory subsidiary ledger that contains a separate record for each individual product.

Managers are able to make important decisions correctly using erroneous inventory balances because inventory errors are self-correcting and as a result,are less serious.

All incidental costs of inventory acquisition and handling whether necessary or not,are assigned to inventory.

Acme-Jones Corporation uses a LIFO perpetual inventory system. August 2,25 units were purchased at $12 per unit. August 5,10 units were purchased at $13 per unit August 15,12 units were sold at $25 per unit. August 18,15 units were purchased at $14 per unit. What was the amount of the Cost of Goods Sold?

GAAP and IFRS differ on the rules regarding LIFO as GAAP allows LIFO to assign costs to inventory and IFRS does not.

A company has the following per unit original costs and replacement costs for its inventory: Part A: 10 units with a cost of $3 and replacement cost of $2.50 Part B: 40 units with a cost of $9 and replacement cost of $9.50 Part C: 75 units with a cost of $8 and replacement cost of $7.50 Under the lower of cost or market method,the total value of this company's ending inventory is:

A company's ability to pay its short-term obligations depends on many factors including how quickly it is able to sell its merchandise inventory.

A company normally sells its product for $20 per unit.However,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 now fallen to $13 per unit.Calculate the value of this company's inventory at the lower of cost or market.