Exam 5: Accounting for Inventories

Landis Company is preparing its financial statements. Gross margin is normally 40% of sales. Information taken from the company's records revealed sales of $75,000; beginning inventory of $7,500 and purchases of $52,500. What is the estimated amount of ending inventory at the end of the period?

In an inflationary environment, which inventory cost flow method, FIFO or LIFO, results in the largest balance in ending inventory?

When maintaining perpetual inventory records, what difficulties arise when the LIFO cost flow method is used, and sales and purchases occur intermittently? How can accountants deal with these difficulties?

Assuming that longer inventory holding periods act to increase expenses, which of the three companies would be expected to have the lowest inventory holding costs? (Use 365 days in a year.)

Misty Mountain Outfitters is a merchandiser of specialized fly fishing gear. Its cost of goods sold for Year 2 was $295,000, and sales were $690,000. The amount of merchandise on hand was $50,000, and total assets amounted to $585,000. What is the average number of days to sell inventory? (Use 365 days in a year. Round to the nearest day.)

List the specific steps used in computing the estimated inventory balance using the gross margin method.

Assume a company paid $1,000 for a television that it plans to sell to its customers. Suppose that because of new technology the company could buy the same television today for $800. How would the lower-of-cost-or-market rule affect the financial statements?

What is the average number of days to sell inventory for Company Y? (Do not round your intermediate calculations. Use 365 days in a year.)

What accounting steps would a firm normally take when it discovers a material difference between a physical inventory count and the book inventory figure? Assume that the company uses a perpetual inventory system.

Byrne Company had its entire inventory destroyed when a fire swept through the company's warehouse on April 30, Year 2. Fortunately, the accounting records were locked in a fireproof safe and were not damaged. The following information for the period up to the date of the fire was taken from the accounting records: Required:Assuming that the gross margin has averaged 35%, what is the estimated value of the inventory destroyed in the fire?

Singleton Company's perpetual inventory records included the following information:

The LIFO cost flow method assigns the cost of the items purchased first to ending inventory.

Singleton Company's perpetual inventory records included the following information:

Melbourne Company uses the perpetual inventory system and LIFO cost flow method. Melbourne purchased 600 units of inventory that cost $2.75 each. At a later date, the company purchased an additional 700 units of inventory that cost $3.25 each. If the company sells 900 units of inventory, what amount of ending inventory will appear on a balance sheet prepared immediately after the sale?

Anton Company uses the perpetual inventory system and FIFO cost flow method. During the year, Anton purchased 400 units of inventory that cost $12.00 each and then purchased an additional 600 units of inventory that cost $16.00 each. If Anton sells 700 units of inventory, what is the amount of cost of goods sold?

Explain the effects of an understatement of ending inventory on both the present year's net income and the following year's net income. What is the effect of this error on the inventory balance at the end of the following year?

How does an error that results in an overstatement of ending inventory affect the elements of the company's financial statements in the current year?

The inventory records for Radford Company reflected the following: What is the amount of gross margin assuming the FIFO cost flow method?

For which of the following cost flow methods does generally accepted accounting principles require application of the lower-of-cost-or-market rule?

Hoover Company purchased two identical inventory items. The item purchased first cost $33.00. The item purchased second cost $35.00. Then Hoover sold one of the inventory items for $62.00. Based on this information, which of the following statements is true?