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Exam 6: Inventories

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Question 71

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The inventory method that assigns the most recent costs to cost of goods sold is

A) FIFO
B) LIFO
C) average
D) specific identification

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

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Question 72

Multiple Choice

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All of the following are reasons to use an estimated method of costing inventory except:

A) Perpetual inventory records are not maintained.
B) Purchase records are not maintained.
C) A disaster has destroyed the inventory records and the inventory.
D) Interim financial statements are required but physical inventory is only taken at the end of the financial accounting period.

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

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Question 73

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The following lots of a particular commodity were available for sale during the year: $\begin{array}{ll}\text { Beginning inventory } & 10 \text { units at } \$ 60 \\\text { First purchase } & 25 \text { units at } \$ 65 \\\text { Second purchase } & 30 \text { units at } \$ 68 \\\text { Third purchase } & 15 \text { units at } \$ 75\end{array}$ The firm uses the periodic system and there are 25 units of the commodity on hand at the end of the year. What is the amount of the inventory at the end of the year using the average cost method?

List three different security measures taken by stores to safeguard inventory.

While taking a physical inventory, a company counts their inventory as less than the actual amount on hand. How will this error affect the income statement?

For the year ended December 31, 2014 Depot Max's cost of merchandise sold was $56,900. Inventory at the beginning of the year was $6,540. Ending inventory was $7,250. Compute Depot Max's inventory turnover for the year.

A physical inventory should be taken at the end of every month.

One of the two internal control procedures over inventory is to properly report inventory on the financial statements.

Determine the total value of the merchandise using Net Realizable Value: $\begin{array} { | l | l | l | l | } \hline \text { Item } & \text { Quantity } & \text { Selling Price } & \text { Commission } \\ \hline \text { Doll } & 10 & \$ 7 & \$ 2 \\\hline \text { Horse } & 5 & 9 & 3 \\\hline\end{array}$

In valuing damaged merchandise for inventory purposes, net realizable value is the estimated selling price less any direct costs of disposal.

Based on the following data, calculate the estimated cost of the merchandise inventory on March 31 using the retail method.

A perpetual inventory system is an effective means of control over inventory.

On the basis of the following data, determine the value of the inventory at the lower of cost or market. Apply lower of cost or market to each inventory item. Show your work.

The three identical units of Product Basic H are purchased during July, as shown below. $\begin{array} { | l | l | l | l | } \hline \text { Date } & \text { Product Basic H } & \text { Cost } \\\hline \text { July } 3 & \text { Purchase } & 1 & \$ 35 \\\hline \text { July } 10 & \text { Purchase } & 1 & \$ 36 \\\hline \text { July } 24 & \text { Purchase } & 1 & \$ 37 \\\hline & \text { Total } & 3 & \$ 108 \\\hline & & & \\\hline & \text { Average cost per unit } & \$ 36 & \\\hline\end{array}$ Assume one unit sells on July 28 for $45. Determine the gross profit, cost of merchandise sold, and ending inventory on July 31 using (a) first in first out, (b) last in last out, (c) average cost flow methods.

On the basis of the following data for Barker Industries as of December 31, 2011, determine the value of the inventory at the lower of cost or market. Also, show how the merchandise inventory would appear on the balance sheet (assume that the cost was determined by the FIFO method). Apply lower of cost or market to each inventory item. $\begin{array} { | l | l | l | l | } \hline \text { Commodity } & \text { Inventory Quantity } & \text { Unit Cost Price } & \text { Unit Market Price } \\\hline \text { Size 4 } & 9 & \$ 7 & \$ 19 \\\hline \text { Size 5 } & 10 & 17 & 14 \\\hline \text { Size 6 } & 14 & 23 & 20 \\\hline \text { Size 7 } & 12 & 13 & 15 \\\hline\end{array}$

If merchandise inventory is being valued at cost and the price level is steadily rising, the method of costing that will yield the highest net income is

If a company values inventory at the lower of cost or market, which of the following is the value of merchandise inventory on the balance sheet? Apply the lower-of-cost-or-market method to inventory as a whole. $\begin{array} { | l | l | l | l | } \hline \text { Item } & \text { Inventory Quantity } & \text { Unit Cost Price } & \text { Unit Market Price } \\\hline \text { Product C } & 420 & \$ 6 & \$ 5 \\\hline \text { Product D } & 370 & 12 & 14 \\\hline\end{array}$

If the cost of an item of inventory is $60 and the current replacement cost is $75, the amount included in inventory according to the lower of cost or market is

If Beginning Inventory (BI) + Purchases (P) - Ending Inventory (EI) = Cost of Goods Sold (COGS) , an equivalent equation can be written as?

The lower-of-cost-or-market method of determining the value of ending inventory can be applied on an item by item, by major classification of inventory, or by the total inventory.