Hull Company reported the following income statement information for the current year: 35 $\begin{array}{|l|l|} \hline & \\ \hline \text { Sales } & \$ 410,000 \\ \hline \text { Cost of goods sold: } & \\ \hline \text { Beginning inventory } & \$ 132,000 \\ \hline \end{array}$ $\begin{array}{|l|r|} \hline \text { Beginning inventory } & \$ 132,000 \\ \hline \text { Cost of goods purchased } & \underline{273,000} \\ \hline \begin{array}{l} \text { Cost of goods available } \\ \text { for sale } \end{array} & 405,000 \\ \hline \text { Ending inventory } & \underline{144,000} \\ \hline \text { Cost of goods sold } & \underline{261,000} \\ \hline \text { Gross profit } & \$ 149,000 \\ \hline \end{array}$ The beginning inventory balance is correct. However, the ending inventory figure was overstated by $20,000. Given this information, the correct gross profit would be:

A) $149,000. B) $142,000. C) $129,000. D) $112,000. E) $169,000. A) $149,000. B) $142,000. C) $129,000. D) $112,000. E) $169,000.

Use the following information for Davis Company to compute inventory turnover for Year 2. \[\begin{array} { | l | r | r | } \hline & \text { Y ear 2 } & \text { Y ear 1 } \\ \hline \text { Cost of goods sold } & 279,500 & 291,800 \\ \hline \text { Ending inventory } & 47,700 & 49,350 \\ \hline \end{array}\]

A) 5.89 B) 5.86 C) 5.76 D) 11.77 E) 5.67 A) 5.89 B) 5.86 C) 5.76 D) 11.77 E) 5.67

Salmone Company reported the following purchases and sales of its only product. Salmone uses a periodic inventory system. Determine the cost assigned to the ending inventory using FIFO. \[\begin{array} { | r | l | l | l | } \hline \text { Date } & \text { Activities } & \text { Units Acquired at Cost } & \text { Units Sold at Retail } \\ \hline \text { May 1 } & \text { Beginning Inventory } & 150 \text { units } @ \$ 10.00 & \\ \hline 5 & \text { Purchase } & 220 \text { units } @ \$ 12.00 & \\ \hline 10 & \text { Sales } & & 140 \text { units } @ \$ 20.00 \\ \hline 15 & \text { Purchase } & 100 \text { units } @ \$ 13.00 & \\ \hline 24 & \text { Sales } & & 90 \text { units } @ \$ 21.00 \\ \hline \end{array}\]

A) $5,440 B) $2,850 C) $2,980 D) $2,590 E) $2,460 A) $5,440 B) $2,850 C) $2,980 D) $2,590 E) $2,460

A company had the following purchases and sales during its first year of operations: \[\begin{array} { | l | l | l | } \hline & \text { Purchases } & \text { Sales } \\ \hline \text { January: } & 10 \text { units at } \$ 120 & 6 \text { units } \\ \hline \text { February: } & 20 \text { units at } \$ 125 & 5 \text { units } \\ \hline \text { May: } & 15 \text { units at } \$ 130 & 9 \text { units } \\ \hline \text { September: } & 12 \text { units at } \$ 135 & 8 \text { units } \\ \hline \text { November: } & 10 \text { units at } \$ 140 & 13 \text { units } \\ \hline \end{array}\] On December 31, there were 26 units remaining in ending inventory. Using the Periodic LIFO inventory valuation method, what is the cost of the ending inventory? (Assume all sales were made on the last day of the month.)

A) $3,364. B) $3,405. C) $3,200. D) $5,400. E) $3,270. A) $3,364. B) $3,405. C) $3,200. D) $5,400. E) $3,270.

Raleigh Co. has the following products in its ending inventory. Compute the lower of cost or market total for inventory applied separately to each product. \[\begin{array} { | l | l | l | l | } \hline \text { Product } & \text { Quantity } & \text { Cost per unit } & \text { Market per unit } \\ \hline \text { Jelly } & 150 & \$ 2.00 & 2.15 \\ \hline \text { Jam } & 370 & \$ 2.65 & 2.50 \\ \hline \text { Marmalade } & 260 & \$ 3.10 & 3.05 \\ \hline \end{array}\]

A) $2,086.50. B) $2,053.50. C) $2,040.50. D) $2,018.00. E) $2,109.00. A) $2,086.50. B) $2,053.50. C) $2,040.50. D) $2,018.00. E) $2,109.00.

Exam 6: Inventories and Cost of Sales

Hull Company reported the following income statement information for the current year: 35 Sales \ 410,000 Cost of goods sold: Beginning inventory \ 132,000 Beginning inventory \ 132,000 Cost of goods purchased Cost of goods available for sale 405,000 Ending inventory Cost of goods sold Gross profit \ 149,000 The beginning inventory balance is correct. However, the ending inventory figure was overstated by $20,000. Given this information, the correct gross profit would be:

(Multiple Choice)

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Question 141

A company's warehouse contents were destroyed by a flood on September 12. The following information was the only information that was salvaged: 1. Inventory, beginning: $28,000 2. Purchases for the period: $17,000 3. Sales for the period: $55,000 4. Sales returns for the period: $700 The company's average gross profit ratio is 35%. What is the estimated cost of the lost inventory?

(Multiple Choice)

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Question 142

The conservatism constraint prescribes that:

(Multiple Choice)

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Question 143

One application of internal control when taking a physical count of inventory is the use of pre-numbered inventory tickets.

(True/False)

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Question 144

An advantage of FIFO is that it assigns the most recent costs to cost of goods sold, and does a better job of matching current costs with revenues on the income statement.

(True/False)

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Question 145

The assignment of costs to the cost of goods sold and to ending inventory using FIFO is the same for both the perpetual and periodic inventory systems.

(True/False)

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Question 146

Goods in transit are included in a purchaser's inventory:

(Multiple Choice)

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Question 147

Use the following information for Davis Company to compute inventory turnover for Year 2. Y ear 2 Y ear 1 Cost of goods sold 279,500 291,800 Ending inventory 47,700 49,350

(Multiple Choice)

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Question 148

Sandoval needs to determine its year-end inventory. The warehouse contains 20,000 units, of which 3,000 were damaged by flood and are not sellable. Another 2,000 units were purchased from Markor Company, FOB shipping point, and are currently in transit. The company also consigns goods and has 4,000 units at a consignee's location. How many units should Sandoval include in its year-end inventory?

(Multiple Choice)

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Question 149

Identify and describe the four inventory valuation methods.

(Essay)

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Question 150

The expense recognition (matching)principle is used to determine how much of the cost of goods available for sale is deducted from sales and how much is carried forward as inventory.

(True/False)

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Question 151

Salmone Company reported the following purchases and sales of its only product. Salmone uses a periodic inventory system. Determine the cost assigned to the ending inventory using FIFO. Date Activities Units Acquired at Cost Units Sold at Retail May 1 Beginning Inventory 150 units @\ 10.00 5 Purchase 220 units @\ 12.00 10 Sales 140 units @\ 20.00 15 Purchase 100 units @\ 13.00 24 Sales 90 units @\ 21.00

(Multiple Choice)

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Question 152

A company had the following purchases and sales during its first year of operations: Purchases Sales January: 10 units at \ 120 6 units February: 20 units at \ 125 5 units May: 15 units at \ 130 9 units September: 12 units at \ 135 8 units November: 10 units at \ 140 13 units On December 31, there were 26 units remaining in ending inventory. Using the Periodic LIFO inventory valuation method, what is the cost of the ending inventory? (Assume all sales were made on the last day of the month.)

(Multiple Choice)

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Question 153

Raleigh Co. has the following products in its ending inventory. Compute the lower of cost or market total for inventory applied separately to each product. Product Quantity Cost per unit Market per unit Jelly 150 \ 2.00 2.15 Jam 370 \ 2.65 2.50 Marmalade 260 \ 3.10 3.05

(Multiple Choice)

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Question 154

The inventory turnover ratio is computed by dividing cost of goods sold by average merchandise inventory.

(True/False)

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Question 155

The inventory valuation method that has the advantages of assigning an amount to inventory on the balance sheet that approximates its current cost, and also mimics the actual flow of goods for most businesses is:

(Multiple Choice)

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Question 156

Whether purchase costs are rising or falling, FIFO always will yield the highest gross profit and net income.

(True/False)

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Question 157

On January 31, a company needed to estimate its ending inventory to prepare its monthly financial statements. The following information is currently available: Inventory as of January 1: $120,500 Net sales for January: $400,000 Net purchases for January: $270,500 This company typically achieves a gross profit ratio of 15%. Ending Inventory under the gross profit method would be:

(Multiple Choice)

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Question 158

In applying the lower of cost or market method to inventory valuation, market is defined as the current replacement cost.

(True/False)

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Question 159

Buffalo Company reported a December 31 ending inventory balance of $412,000. The following additional information is also available: -The ending inventory balance of $412,000 did not include goods costing $48,000 that were purchased by Buffalo on December 28 and shipped FOB destination on that date. Buffalo did not receive the goods until January 2 of the following year. -The ending inventory balance of $412,000 included damaged goods at their original cost of $38,000. The net realizable value of the damaged goods was $10,000. Based on this information, the correct balance for ending inventory on December 31 is:

(Multiple Choice)

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Question 160

The conservatism constraint prescribes that:

One application of internal control when taking a physical count of inventory is the use of pre-numbered inventory tickets.

An advantage of FIFO is that it assigns the most recent costs to cost of goods sold, and does a better job of matching current costs with revenues on the income statement.

The assignment of costs to the cost of goods sold and to ending inventory using FIFO is the same for both the perpetual and periodic inventory systems.

Goods in transit are included in a purchaser's inventory:

Use the following information for Davis Company to compute inventory turnover for Year 2. Y ear 2 Y ear 1 Cost of goods sold 279,500 291,800 Ending inventory 47,700 49,350

Identify and describe the four inventory valuation methods.

The expense recognition (matching)principle is used to determine how much of the cost of goods available for sale is deducted from sales and how much is carried forward as inventory.

Raleigh Co. has the following products in its ending inventory. Compute the lower of cost or market total for inventory applied separately to each product. Product Quantity Cost per unit Market per unit Jelly 150 \ 2.00 2.15 Jam 370 \ 2.65 2.50 Marmalade 260 \ 3.10 3.05

The inventory turnover ratio is computed by dividing cost of goods sold by average merchandise inventory.

The inventory valuation method that has the advantages of assigning an amount to inventory on the balance sheet that approximates its current cost, and also mimics the actual flow of goods for most businesses is:

Whether purchase costs are rising or falling, FIFO always will yield the highest gross profit and net income.

In applying the lower of cost or market method to inventory valuation, market is defined as the current replacement cost.

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