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Exam 5: Reporting and Analyzing Inventories

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Question 1

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Explain why the lower of cost or market rule is used to value inventory.

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The concept of conservatism requires tha...

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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) C) and E)

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Question 3

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

If damaged goods can be sold at a reduced price,they are included in inventory at their ________________________.

On December 31,a company needed to estimate its ending inventory to prepare its fourth quarter financial statements.The following information is currently available: Inventory as of October 1: $12,500 Net sales for fourth quarter: $40,000 Net purchases for fourth quarter: $27,500 The company typically achieves a gross profit ratio of 15%.Ending Inventory under the gross profit method would be:

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 _________________ method is commonly used to estimate the value of inventory that has been destroyed,lost or stolen.

A company made the following purchases during the year: On December 31,there were 28 units in ending inventory.These 28 units consisted of 1 from the January 10 purchase,2 from the March 15 purchase,5 from the April 25 purchase,15 from the July 30 purchase,and 5 from the October 10 purchase.Using specific identification,calculate the cost of the ending inventory.

In the retail inventory method of inventory valuation,the retail amount of inventory refers to the dollar amount measured by looking at the selling prices of inventory items.

The inventory valuation method that tends to smooth out erratic changes in costs is:

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

A company's store was destroyed by a fire on February 10 of this year.The only information for the current period that could be salvaged included the following: Beginning inventory,January 1: $34,000 Purchases to date: $118,000 Sales to date: $140,000 Historically,the company's gross profit ratio has been 30%.Estimate the value of the destroyed inventory using the gross profit method.

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

A company uses the retail inventory method and has the following information available concerning its most recent accounting period: (a) What is the cost-to-retail ratio using the retail method? (b) What is the estimated cost of the ending inventory?

A company had 14 units of inventory at a cost of $18 each on November 1.On November 2,the company purchased 19 units at $19 each.On November 6,the company purchased 15 units at $20 each.On November 8,the company sold 36 units for $63 each.Given this information,determine the cost of the 36 units sold using the LIFO periodic inventory method.

Interim statements:

A company sells a climbing kit 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: If the ending inventory is reported at $357,what inventory method was used?

The cost of an inventory item includes the _____________,plus ______________ costs necessary to put it in a place and condition for sale.

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

The understatement of the beginning inventory balance causes: