Jesse Company has the following data for January: \[\begin{array} { | l | r | } \hline \text { Beginning inventory } & \$ 211,000 \\ \hline \text { Net purchases } & \$ 614,000 \\ \hline \text { Net sales } & \$ 444,000 \\ \hline \text { Gross profit percentage } & 60 \% \\ \hline \end{array}\] What is the company's estimated cost of goods sold for January using the gross profit method?

A) $161,200 B) $266,400 C) $368,400 D) $177,600 A) $161,200 B) $266,400 C) $368,400 D) $177,600 D

Potter Company has the following data available: \[\begin{array} { | l | c | c | c | } \hline \text { Transaction } & \text { Units Purchased } & \text { Unit Cost } & \text { Units Sold } \\ \hline \text { Beginning Inventory } & 500 & \$ 10 & \\ \hline \text { March 1 Purchase } & 200 & \$ 12 & \\ \hline \text { April 25 Sale } & & & 350 \\ \hline \text { June 10 Purchase } & 300 & \$ 14 & \\ \hline \text { July 20 Sale } & & & 250 \\ \hline \text { October 30 Purchase } & 300 & \$ 15 & \\ \hline \text { December 15 Sale } & & & 400 \\ \hline \end{array}\] If Potter Company uses a perpetual moving-average inventory system, the cost of goods sold for the year is ________. (Round average cost per unit to four decimal places and all other numbers to two decimal places.)

A) $4,718.70 B) $12,087.88 C) $16,100.00 D) $11,381.30 A) $4,718.70 B) $12,087.88 C) $16,100.00 D) $11,381.30

The Petrowski Company uses the perpetual inventory system. The Petrowski Company has the following data available for the month of January: \[\begin{array} { | l | l | l | l | } \hline \text { Date } & \text { Transaction } & \text { Units } & \text { Unit Cost } \\ \hline \text { Jan. 1 } & \text { Beginning inventory } & 100 & \$ 100 \\ \hline \text { Jan. } 9 & \text { Purchase } & 300 & \$ 120 \\ \hline \text { Jan. } 10 & \text { Sale } & 200 & \\ \hline \text { Jan. } 15 & \text { Purchase } & 400 & \$ 140 \\ \hline \text { Jan. } 18 & \text { Sale } & 300 & \\ \hline \text { Jan. } 24 & \text { Purchase } & 100 & \$ 160 \\ \hline \text { Jan. 30 } & \text { Sale } & 10 & \\ \hline \end{array}\] Determine the Cost of Goods Sold for January using the following methods: a. FIFO b. LIFO c. Moving-average (Round per unit costs and all other dollar amounts to two decimal places.)

a. FIFO FIFO periodic is the same as FIF

A fire destroyed the warehouse of Reed Enterprises, on August 31, 2017. The books and records of Reed showed the following information on that date. \[\begin{array} { | l | r | } \hline \text { Merchandise Inventory. Jan. 1, 2017 } & \$ 540,000 \\ \hline \text { Purchases to date } & 950,000 \\ \hline \text { Freight - In } & 40,000 \\ \hline \text { Sales to date } & \$ 2,300,000 \\ \hline \end{array}\] The gross profit ratio has averaged 60 % of sales for the past six years. Required: Use the gross profit method to estimate the cost of inventory destroyed by fire.

A) $610,000 B) $1,530,000 C) $920,000 D) $1,490,000 A) $610,000 B) $1,530,000 C) $920,000 D) $1,490,000

Exam 10: Short-Term Operating Assets: Inventory

Jesse Company has the following data for January: Beginning inventory \ 211,000 Net purchases \ 614,000 Net sales \ 444,000 Gross profit percentage 60\% What is the company's estimated cost of goods sold for January using the gross profit method?

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Question 1

Correct Answer:

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D

Carbondale Company had the following data available for the last six months: Beg, inventory 10 units \ 55 per unit Purchase, 3/1 30 units \ 60 per unit Sale, 4/1 25 units \ 100 per unit Purchase, 5/1 25 units \ 65 per unit Sale, 6/1 20 units \ 100 per unit Operating expenses are $2,000 per month. The income tax rate is 30%. Required: 1. Compute Cost of Goods Sold for the six months ending June 30 using: a. FIFO perpetual b. LIFO perpetual 2. How much will the company save in income taxes if they use LIFO instead of FIFO?

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Question 2

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1. a. FIFO Cost of Goods Sold:
10 × $55 $550
30 × $60 1,800
5 × $65 325
Total Cost of Goods Sold $2,675
b. LIFO Cost of Goods Sold:
25 × $60 $1,500
20 × $65 $1,300
Total Cost of Goods Sold $2,800
2. Difference in Cost of Goods Sold × 30% = Tax Savings
($2,800 - $2,675) × 30% = $37.50

Flynn Company uses LIFO for tax purposes and external reporting purposes. For internal reporting purposes, Flynn Company uses FIFO. Required: List a few reasons why a company uses different inventory costing methods for different purposes.

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Question 3

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a. The LIFO conformity rule requires a company to use LIFO for external reporting if they use LIFO for tax purposes.
b. A company may not think LIFO provides a faithful representation of inventory cost flows. As a result, they want to use FIFO for internal reporting.
c. A company's inventory flows may not follow the LIFO assumption of last goods in are the first out. A company's inventory flows may more closely follow FIFO.
d. A company may want to reduce the amount taxes paid so they use LIFO for tax purposes. LIFO offers tax advantages over other methods when costs are increasing and inventory levels are stable.
e. A company may want to conserve cash so they use LIFO for tax purposes because less cash is paid for taxes.
f. A company may be following a historical pattern of using FIFO internally. Management may be more comfortable using FIFO for decision making.
g. Record keeping using LIFO may be difficult because the latest purchase cost may not be available if purchased goods are in transit at the end of a period.
h. A company may have different goals and objectives. A company may want to minimize the taxes paid so it uses LIFO for tax purposes. At the same time, the company may want to approximate the actual flow of costs to more accurately understand operations, and as a result, uses FIFO for internal reports.

When following U.S. GAAP, the market value of inventory is always equal to the net realizable value.

(True/False)

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Question 4

A company begins the year with a zero balance in the LIFO Reserve account. Based on an analysis of LIFO and FIFO, the company determines the LIFO Reserve should be $20,000 at the end of the year? Which journal entry is needed?

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Question 5

Richard Company's financial records report beginning inventory of $535,000; ending inventory of $697,000; and cost of goods sold of $1,396,000. What is the amount of purchases?

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Question 6

At December 31, the Postotnik Company has ending inventory with a historical cost of $630,000. Assume the company uses the perpetual inventory system. The current replacement cost of the inventory is $608,000. The net realizable value is $650,000. The normal profit on this inventory is $50,000. Before any adjustments at the end of the period, the cost of goods sold has a balance of $900,000. Following IFRS, which journal entry is required on December 31 to adjust the ending balance of inventory if the direct method is used?

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Question 7

On August 10, Charles Company purchased 75 refrigerators for $650 each from Appliances Wholesalers. The purchase was on account with terms of 3/10, n/30. Charles Company paid for 50 of the refrigerators on August 18 and the remaining refrigerators on August 30. Charles Company uses the gross method for purchase discounts and the perpetual inventory system to record the transactions. On August 30, Charles Company recorded ________.

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Question 8

A periodic inventory system is used by most companies today due to the proliferation of computers.

(True/False)

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Question 9

When comparing the FIFO and LIFO inventory methods, ________.

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Question 10

Potter Company has the following data available: Transaction Units Purchased Unit Cost Units Sold Beginning Inventory 500 \ 10 March 1 Purchase 200 \ 12 April 25 Sale 350 June 10 Purchase 300 \ 14 July 20 Sale 250 October 30 Purchase 300 \ 15 December 15 Sale 400 If Potter Company uses a perpetual moving-average inventory system, the cost of goods sold for the year is ________. (Round average cost per unit to four decimal places and all other numbers to two decimal places.)

(Multiple Choice)

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Question 11

The Petrowski Company uses the perpetual inventory system. The Petrowski Company has the following data available for the month of January: Date Transaction Units Unit Cost Jan. 1 Beginning inventory 100 \ 100 Jan. 9 Purchase 300 \ 120 Jan. 10 Sale 200 Jan. 15 Purchase 400 \ 140 Jan. 18 Sale 300 Jan. 24 Purchase 100 \ 160 Jan. 30 Sale 10 Determine the Cost of Goods Sold for January using the following methods: a. FIFO b. LIFO c. Moving-average (Round per unit costs and all other dollar amounts to two decimal places.)

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Question 12

When following U.S. GAAP, which of the following statements is not correct regarding the LCM rule for inventory?

(Multiple Choice)

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Question 13

Firms using the periodic inventory system record purchases of inventory with a ________.

(Multiple Choice)

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Question 14

Purchase returns and purchase discounts are subtracted from purchases to calculate net purchases.

(True/False)

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Question 15

Dollar-value LIFO computes inventory on a pool of inventory on the basis of units.

(True/False)

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Question 16

A company uses FIFO. The inventory is reported at the lower of cost or the net realizable value.

(True/False)

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Question 17

When following U.S. GAAP, the lower-of-cost-or-market rule for inventory requires a firm to report ________.

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Question 18

A fire destroyed the warehouse of Reed Enterprises, on August 31, 2017. The books and records of Reed showed the following information on that date. Merchandise Inventory. Jan. 1, 2017 \ 540,000 Purchases to date 950,000 Freight - In 40,000 Sales to date \ 2,300,000 The gross profit ratio has averaged 60 % of sales for the past six years. Required: Use the gross profit method to estimate the cost of inventory destroyed by fire.

(Multiple Choice)

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Question 19

The following information is available for the month of June for a retail store: Sales \ 79,000 Sales Returns \1 ,000 Markups \ 10,000 Markup cancellations \ 1,000 Markdowns \9 ,300 Purchases (at cost) \ 40,000 Purchases (at retail) \ 107,000 Purchase returns (at cost) \ 1,200 Purchase returns (at retail) \ 2,000 Beginning inventory (at cost) \ 30,000 Beginning inventory (at retail) \ 46,000 Required: Calculate the ending inventory at cost using the conventional retail method. Round ratios to four decimal places. (For example, 0.40127 = 0.4013)

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Question 20

Jesse Company has the following data for January: Beginning inventory \ 211,000 Net purchases \ 614,000 Net sales \ 444,000 Gross profit percentage 60\% What is the company's estimated cost of goods sold for January using the gross profit method?

Flynn Company uses LIFO for tax purposes and external reporting purposes. For internal reporting purposes, Flynn Company uses FIFO. Required: List a few reasons why a company uses different inventory costing methods for different purposes.

When following U.S. GAAP, the market value of inventory is always equal to the net realizable value.

A company begins the year with a zero balance in the LIFO Reserve account. Based on an analysis of LIFO and FIFO, the company determines the LIFO Reserve should be $20,000 at the end of the year? Which journal entry is needed?

Richard Company's financial records report beginning inventory of $535,000; ending inventory of $697,000; and cost of goods sold of $1,396,000. What is the amount of purchases?

A periodic inventory system is used by most companies today due to the proliferation of computers.

When comparing the FIFO and LIFO inventory methods, ________.

When following U.S. GAAP, which of the following statements is not correct regarding the LCM rule for inventory?

Firms using the periodic inventory system record purchases of inventory with a ________.

Purchase returns and purchase discounts are subtracted from purchases to calculate net purchases.

Dollar-value LIFO computes inventory on a pool of inventory on the basis of units.

A company uses FIFO. The inventory is reported at the lower of cost or the net realizable value.

When following U.S. GAAP, the lower-of-cost-or-market rule for inventory requires a firm to report ________.

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