Exam 8: Cost-Based Inventories and Cost of Sales

Which of the following would not be included in the merchandise inventory amount reported on X Company's balance sheet?

Which of the following would cause an increase in the cost ratio as used in the retail inventory method?

The gross margin method of estimating inventory is inappropriate when:

In 2013,a company's records contained the following information about inventory.The company uses a periodic inventory system and records purchases using the net method. \begin{array} { l } \text { Beginning inventory (at net)}&\$160\\ \text { Purchases (at invoice price).}&200\\ \text { Purchase terms, 5 / 10, \mathrm{n} / 30 Purchase returns (at invoice price).}&20\\ \text {Discounts lost. }&10\\ \text {Ending inventory (at net). }&66\\\end{array} What was the amount of 2013 cost of goods sold?

Explain how ethical issues may arise in the application of Lower of Cost & NRV rules.

On January 1,2014,XY retail store sold a TV set to customer AB on credit for $450; AB will make monthly payments.Because of non-payment,XY repossessed the TV set when AB still owed $250.XY estimates reliably that the repossessed set can be resold for $150 cash after spending $40 to repair it and after incurring a selling cost of $10 cash. (a) Give the entry by XY to record the repossession (assume a perpetual inventory system). (b) Give the entry to record the actual repair cost of $45. (c) Give the entry to record the resale of the repossessed set at a cash price of $150 and cash payment of the selling cost of $10.

A valuation allowance account will be used when a company can apply the Lower of Cost & NRV rules on an item-by-item basis.

Complete the following schedule based on the data given below: Unit Unit Transaction Order Cost 1. Beginning inventory \ldots\ldots\ldots\ldots\ldots 8,000 \ 2.00 2. Purchase............. 12,000 1.10 3. Sale (@\ 4.00)\ldots\ldots\ldots\ldots\ldots\ldots 14,000 4. Purchase............. 4,000 1.30 Ending Cost of Inventory Goods Sold a. FIFO \ldots\ldots\ldots\ldots\ldots\ldots\ldots\ldots \_ \_ b. Annual weighted average \ldots\ldots\ldots\ldots \_ \_

When the moving-average inventory costing method is used,how long does the unit cost of any individual item of inventory remain in the average? Explain in terms of how the method calculates each moving average M1,M2 and so forth.

The gross profit method may be used to estimate inventory during interim periods when a full physical count cannot be performed,or to test the reasonableness of a physical count.

A company uses a periodic inventory system and records purchases using the net method.The following information applies to 2013,which was the first year of operations: Purchases, at invoice price \ 135,000 Purchases returns, at invoice price............ 9,000 Ending inventory physical count, at net... 39,750 Inventory shortage, at net. 1,800 Purchase terms were: 3/10/60. All discounts were taken except for those on the first $22,500 shipped.Cost of goods sold for 2013 was:

Salvage Sales Ltd.suffered a loss of some inventory by fire on May 7.Cost of inventory on hand on January 1 was $100,000 and purchases between January 1 and May 7 amounted to $70,000 while freight-in and purchase returns,respectively,amounted to $6,000 and $4,000.Between January 1 and May 7 sales totalled $84,000.Goods which cost $24,500 were undamaged by the fire while the remainder of the inventory was destroyed.What was the approximate cost of the goods destroyed if: (a) Mark-up is 25 percent on cost? $\quad\$------$ $\text { (b) Mark-up is } 25 \text { percent on selling price?\quad \$-----}$

FIFO will produce the same ending inventory result regardless of whether a periodic or perpetual inventory system is used.

If Company A were to ship goods to Company B under the terms f.o.b.shipping point and if the goods were destroyed in transit,the loss incurred on these goods ordinarily would not accrue to Company A.

If one were applying the FIFO retail method in a period of rising prices to estimate the ending inventory the dollar amount would be:

Use a "+" to denote an item is too high as a result of an error,a "-" to denote too low,and a 0 to indicate no effect.What is the effect of each of the following errors on the financial statements of a company which uses the period inventory system?

To compute inventory on a lower-of-cost or market basis using the retail inventory method:

A manufacturing company recorded the following data pertaining to raw material X: Units Received Cost 1/1/2001 Inventory \ldots\ldots\ldots\ldots\ldots\ldots 400 \1 .00 1/8/2001 Purchase \ldots\ldots\ldots\ldots\ldots\ldots 600 \ 1.10 1/12/2001 Issue \ldots\ldots\ldots\ldots\ldots\ldots\ldots 800 \ 2.00 The weighted average unit cost of raw material X at January 12,2001 for use in costing is:

The same inventory costing method must be used on the income tax return,on the income statement,and in the ledger accounts of the company.

The allowance method and the direct reduction method of reporting the holding losses on lower-of-cost or NRV inventory valuation will produce the same cost of goods sold amount.