Exam 5: Inventories and Cost of Goods Sold

Carrington Inc. manufactures digital cameras and has experienced noticeable declines in the purchase price of many of the components it uses, including memory components. Which inventory costing method should Carrington use if it wants to maximize net income? Explain your answer.

Herndon Corp. purchased merchandise on account from Likert Corp. on November 18, 2014. On November 21, 2014, Herndon returned damaged merchandise to Likert and was granted an adjustment on its account. Herndon uses the periodic inventory system. What effect does the merchandise return have on Herndon's accounting equation?

When inventories are written down due to the application of the lower of cost or market LCM rule, the account that is usually increased is

Which of the following terms best describes "Cost of goods available for sale"?

Items should be reported as part of the company's "inventory" at year end, if they are

Under the perpetual inventory system, each time goods are purchased, the inventory account is transferred to sales revenue.

Ending inventory valued under the FIFO method will be the same regardless of whether the periodic system or the perpetual system is used.

The amount recognized on the Income Statement as the cost of inventory will be recognized as an _________________________.

All of the following statements regarding the gross profit ratio are true except:

Refer to the data for Learning Tree, Inc. If the LIFO method is used, what is the amount assigned to the ending inventory on May 30?

Park, Inc. purchased merchandise from Jay Zee Music Company on June 5, 2015. The goods were shipped the same day. The merchandise's selling price was $15,000. The credit terms were 1/10, n/30. The shipping terms were FOB shipping point. Park received the merchandise on June 10, 2015. Park paid the amount due on June 13, 2015. Park uses a perpetual inventory system. When will the cost of merchandise sold be recorded as an expense?

Cost of goods sold represents

If an entity overstates its ending inventory for the current year, what are the effects on assets, cost of goods sold, income before taxes, and retained earnings for the current year?

Explain the relationship between the valuation of inventory and income measurement as it relates to the balance sheet and the income statement.

Match the costs that might be included as part of the cost of inventory to the listed accounting treatment. -Sales taxes paid on goods acquired

Adam Inc. uses a perpetual inventory system. If Adam uses the FIFO method, how much is ending inventory on January 31?

Assume that a company is experiencing increasing inventory prices and prepares its financial statements in accordance with IFRS. Which costing method should it use to pay the least amount of taxes? Explain your answer.

If ending inventory is understated, then cost of goods sold is overstated.

Match the terms with the descriptions related to merchandise sales and purchases. -The seller is responsible for the cost of delivering the merchandise to the buyer

A company using the periodic inventory system has the following account balances: Merchandise Inventory at the beginning of the year, $3,600; Freight-In, $650; Purchases, $10,700; Purchases Returns and Allowances, $1,950; Purchases Discounts, $330. The cost of merchandise purchased is equal to