Exam 8: Reporting and Interpreting Property, Plant, and Equipment; Intangibles; and Natural Resources

Inventory that originally cost $100 had been written down to its net realizable value (NRV) of $75. Subsequently, the NRV of the inventory recovered to equal its cost of $100. In this situation, the amount of the $25 ($100 - $75) prior write-down in value should be reversed.

The Wilburn Company's income statement for 20B reported the following: Cost of goods sold, $75,000; beginning inventory, $12,000; and ending inventory, $15,000. The amount of purchases during 20B was what amount? $ (Show computations).

The following statement of earnings is complete except for a few captions with solid lines on the left and amounts with dotted lines on the right. You are to fill in the most likely captions and amounts:

Inventory turnover is computed as cost of goods sold divided by average inventory.

An overstatement of the ending inventory causes an overstatement of current assets and profit, as well as an overstatement of cost of goods sold for the same year.

In periods of falling prices, FIFO will result in a higher ending inventory valuation than the average cost formula.

Analysts and creditors watch the inventory turnover ratio because a sudden decline in this ratio may mean that a company is facing an unexpected decline in demand for its products or is becoming sloppy in its production management.

The FIFO inventory cost formula agrees closely to the actual physical movement of goods in most businesses.

The consistent application of an inventory cost formula is essential for

The 20B records of Tom Company showed beginning inventory, $6,000; cost of goods sold, $14,000; and ending inventory, $8,000. What was the purchases amount for 20B?

Under the lower of cost and net realizable value basis, the adjusting entry to record a decline in net realizable value below cost includes a

Wibber Company prepared income statements that reflected pretax profit of $21,000 for 20A and $30,000 for 20B. An audit has determined that there were two errors in the inventory amounts as follows The correct pretax profit amount for each year is (show computations assuming the errors were not corrected): 20A: $________ 20B: $________

Davis Company uses the perpetual inventory system and the FIFO inventory costing method. All purchases and sales were cash transactions. The records reflected the following for January, 20B Determine the following

Inventory that originally cost $10,000 was written down to its net realizable value of $8,500 at the end of 2012. At the end of 2013, the net realizable value is determined to be $10,500. At what amount should the inventory be reported on the December 31, 2013 statement of financial position?

An error in the measurement of ending inventory affects the cost of sales on the current period's statement of earnings and ending inventory on the statement of financial position.

A low inventory turnover ratio indicates that minimal funds are tied up in inventory.

If net realizable value of the inventory is lower than its cost, the total assets on the statement of financial position and net earnings on the statement of earnings will be reduced.

An error that overstates the ending inventory will cause profit for the period to be understated.

Will Company's independent accountant discovered that the ending inventory for 20B had been overstated by the company by $2,000. Before the correction, what was the effect in the 20B statement of earnings because of the overstatement of the ending inventory?

Miller Corporation uses the periodic inventory method and had the following inventory information available: A physical count of inventory on December 31 revealed that there were 350 units on hand. Requirements: Answer the following independent questions and show calculations supporting your answers. 1. Assume that the company uses FIFO. The value of the ending inventory at December 31 is $________. 2. Assume that the company uses average cost. The value of the ending inventory on December 31 is $________. 3. Determine the difference in the amount of profit that the company would have reported if it had used FIFO instead of average cost. Would profit have been greater or less?