Exam 7: Inventories: Cost Measurement and Flow Assumptions

The basic criterion for including items in inventory is

The following data has been provided by Lee Company regarding its inventory purchases and sales throughout the year. Required: Compute the cost of goods sold and ending inventory using the perpetual inventory system for the FIFO cost flow assumption.

Below is a list of key terms. ______ 1) Bill and hold sale ______ 6) Periodic Inventory ______ 2) Consigned Goods _____ 7) Perpetual Inventory ______ 3) Finished Goods Inventory ______ 8) Purchase obligation ______ 4) FOB Destination ______ 9) Raw Materials Inventory ______ 5) FOB Shipping Point ______ 10) Work-in-Process Inventory Required: Match each key term with its appropriate definition. a) Includes direct labor, raw materials, and manufacturing overhead. b) Buyer recognizes purchase of inventory at shipment. c) The requested goods will be delivered to the buyer at a later date. d) Not recognized in inventory until delivered. e) A temporary account is used to record purchases. f) Goods ready for sale. g) Buyer recognizes purchase of inventory at destination. h) Purchases are recorded in an inventory account. i) A third party acts as a sales agent for another company's goods. j) Tangible goods used in production.

Trip Corp. began business in 2015. On December 31, 2015, Trip's single pool of inventory was valued at $300,000, using the dollar-value LIFO inventory method. On December 31, 2016, the value of Trip's inventory at current costs was $450,000. The 2016 year-end cost index was 120. What was the value of Trip's inventory at the end of 2016, using the dollar-value LIFO method?

A manufacturing company uses three inventory accounts. What are the accounts? Provide a brief description of the costs that accumulate in each account.

Exhibit 7-1 Edwards Co. purchased raw materials with a cost of $95,000 on March 2, 2015. Credit terms of 3/20, n/60 applied. Edwards paid for the purchase on March 18, 2015. Calculate the amount at which Edwards would record the inventory on March 2, 2015, the date of purchase, using the method given. -Refer to Exhibit 7-1. Edwards uses a perpetual inventory system and the net price method.

Stansbury Company determined its December 31, 2015 inventory to be $1,000,000 based on a physical count priced at cost. Additional information for the company is as follows: Merchandise costing $90,000 was shipped FOB shipping point from a vendor on December 30, 2015. This merchandise was received and recorded on January 5, 2016. Goods costing $120,000 were staged on the shipping dock and excluded from inventory although shipment was not Made until January 4, 2016. The goods were billed to the customer FOB shipping point on December 30, 2015. What is Stansbury's ending inventory for its December 31, 2015 balance sheet?

Even though the LIFO cost flow assumption will reduce taxable income and the related cash outflow for income taxes, there are certain difficulties encountered with its implementation. Dollar-value LIFO is often used to help overcome these difficulties. Required: Discuss three different ways that the dollar-value LIFO method overcomes some of the difficulties in the application of the LIFO approach.

A company uses a LIFO reserve because internal reporting

In a period of rising prices what are the differences between LIFO and FIFO?

Exhibit 7-4 RJ, Inc. had the following activity for an inventory item during June: -Refer to Exhibit 7-4. Assuming RJ, Inc. uses a periodic weighted average cost flow assumption, ending inventory for June would be

What is the LIFO conformity rule?

Which one of the following cost flow assumptions provides the lowest inventory value in periods of rising prices?

Which one of the following is not an advantage of LIFO?

On August 1, Micro Encoders, Inc. had 120 units of a certain software package that cost $6 per unit. During August, the following purchases were made: August 7 60 units @ $9.00 per unit 15 80 units @ $12.00 per unit 21 140 units @ $10.50 per unit During August, 300 units were sold. If Micro Encoders uses the weighted average method, the cost of ending inventory would be

What is the difference between FOB shipping point and FOB destination? Why is this important?

Which one of the following types of costs is excluded from the cost of inventory that is routinely manufactured?

There are many differences between inventory cost flow assumptions. Listed below is a series of descriptive statements. Required: For each statement, indicate if it applies to LIFO or FIFO or both by placing an "X" in the appropriate columns).

On October 17, Conrad Beauty Supplies bought $42,000 of goods with terms of 1/10, n/30. One half of the bill was paid on October 24, and the rest of the bill was paid on October 31. Assume that the seller has agreed to grant discounts on partial payments. Required: Prepare journal entries for October 24 using the: 1) gross price method 2) net price method

Silver Quick adopted LIFO in January 1, 2015, when the inventory had a FIFO cost of $180,000 $10 per unit). At the end of 2015, inventory consisted of 18,750 units at $12 per unit, and the ending inventory for 2016 consisted of 20,000 units at $15 per unit. Required: a. Calculate the cost index to be used for 2015 and 2016 using the link-chain method. b. Compute the ending inventory for 2015 and 2016 using dollar-value LIFO.