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Exam 5: Reporting and Analyzing Inventories

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Question 41

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Physical inventory counts:

A) Are not necessary under the perpetual system
B) Are necessary to measure and adjust for inventory shrinkage
C) Must be taken at least once a month
D) Require the use of hand-held portable computers
E) Are not necessary under the cost-to benefit constraint

F) C) and E)
G) B) and D)

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Question 42

Multiple Choice

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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 ending inventory for the month of August?

A) $496.00
B) $486.00
C) $492.57
D) $300.00
E) $510.00

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

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Question 43

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An understatement of the ending inventory balance will understate cost of goods sold and overstate net income.

A company that uses a perpetual inventory system made the following cash purchases and sales.There was no beginning inventory. $\begin{array} { | l | l | } \hline \text { January 1: } & \text { Purchased } 100 \text { units at \$10per unit } \\\hline \text { February 5: } & \text { Purchased 60 units at \$12per unit } \\\hline \text { March 16: } & \text { Sold40 Units for \$16per unit } \\\hline\end{array}$ Prepare the general journal entry to record the March 16 sale,assuming the weighted average method is used.

The inventory turnover ratio is computed by dividing average merchandise inventory by cost of goods sold.

Whether prices are rising or falling,FIFO always will yield the highest gross profit and net income.

The reasoning behind the retail inventory method is that if an accurate estimate of the cost-to-retail ratio is made,it can be multiplied by the ending inventory at retail to estimate ending inventory at cost.

The consistency principle:

LIFO is the preferred inventory costing method when costs are rising and managers have incentives to report higher income.The reasons for doing this is for a bonus plan,job security and reputation.

Apply the retail method to the following company information to calculate the cost of the ending inventory for the current period. $\begin{array}{|l|r|r|}\hline &\text { Cost } & \text { Retail } \\\hline \text { Beginning inventory } & \$ 20,224 & \$ 31,600 \\\hline \text { Net purchases } & 59,508 & 97,000 \\\hline \text { Sales } & & 89,000 \\\hline\end{array}$

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:

Not many companies take a physical count of inventory each year as they rely primarily on inventory records alone to determine the inventory value.

On September 30 a company needed to estimate its ending inventory to prepare its third quarter financial statements.The following information is available: Beginning inventory,July 1: $4,000 Net sales: $40,000 Net purchases: $41,000 The company's gross margin ratio is 15%.Using the gross profit method,the cost of goods sold would be:

The days' sales in inventory ratio is computed by dividing ending inventory by cost of goods sold and multiplying the result by 365.

If damaged and obsolete goods cannot be sold they are not included in inventory.

A company uses the periodic inventory system and had the following activity during the Current monthly period. $\begin{array} { | l | l | r | } \hline \text { November 1: } & \text { Begnning inventory } & 100 \text { units } @ \$ 20 \\\hline \text { November 5: } & \text { Purchased } & 100 \text { units } @ \$ 22 \\\hline \text { November 8: } & \text { Purchased } & 50 \text { units } @ \$ 23 \\\hline \text { November 16: } & \text { Sold } & 200 \text { units } @\$ 45 \\\hline \text { November 19: } & \text { Purchased } & 50 \text { units } @ \$ 25\\\hline\end{array}$ Using the weighted-average inventory method,the company's ending inventory would be reported at:

The consistency principle requires a company to use the same accounting methods period after period,so that financial statements are comparable across periods.

Given the following information,determine the cost of goods sold for December 31 using the FIFO perpetual inventory method. December 2: 5 units were purchased at $7 per unit. December 9: 10 units were purchased at $9.40 per unit. December 11: 12 units were sold at $35 per unit December 15: 20 units were purchased at $10.15 per unit December 22: 18 units were sold at $35 per unit

Given the following information,determine the cost of goods sold at December 31 using the LIFO perpetual inventory method. December 2: 5 units were purchased at $7 per unit. December 9: 10 units were purchased at $9.40 per unit. December 11: 12 units were sold at $35 per unit December 15: 20 units were purchased at $10.15 per unit December 22: 18 units were sold at $35 per unit

Given the following information,determine the cost of ending inventory at November 30 using the Weighted Average perpetual inventory method. November 3: 15 units were purchased at $8 per unit. November 11: 18 units were purchased at $9.50 per unit. November 15: 15 units were sold at $45 per unit November 18: 30 units were purchased at $10.75 per unit November 30: 20 units were sold at $55 per unit