Exam 8: Cost-Based Inventories and Cost of Sales

During 2014,XYZ Furniture Villa sold an inventory item for $200 that cost $130.At date of sale,$60 was collected and the balance was to be paid in seven equal instalments.After making two payments,the customer defaulted (in the year following the sale).The item was repossessed in damaged condition; estimates at that date were: Cost to repair,$22; resale costs,$12,and resale value after repair,$80.Give the entry to record the repossession,assuming a perpetual inventory system is used.

A company has been using the retail inventory method,average basis,for inventory measurement.Starting in 2013,the company changed to the FIFO retail method. At the end of 2013,the company prepared the following retail method,"pure" FIFO basis,computation which you are to complete: $\begin{array}{|l|l|} \hline&\text { Cost } & \text { Retail } \\ \hline \text {Inventory (base) at January 1,2002 .}&\$ 4,840 & \$ 8,400 \\\hline \text {Purchases.}&25,803 & 41,600 \\ \hline \text {Net additional mark-ups.}&700 & \\ \hline \text {Cost ratio.}&\$ 25,803 /& \$ 42,300=.61 \\ \hline \text {Total.}&30,643 & 50,700 \\ \hline \text {Sales.}&\$ 40,400 & \\ \hline \text {Inventory at December 31, 2002 (FIFO).}&\$ & \$\\ \hline\end{array}$

At year end,after preparing the financial statements,four errors were found.The first line in the tabulation below gives the uncorrected amounts.You are to develop the correct amount on the bottom line by entering the corrections for each error; indicate subtractions with parentheses.Assume a periodic inventory system. CORRECTED AMOUNTS

Purchase discounts should be reported as a(n):

When the retail inventory method is used,markdowns are commonly ignored in the computation of the cost to retail ratio because:

Based on the following data,determine the approximate valuation of ending inventory in each case given below: Cost of goods available for sale. \4 00 Net sales. 600\ Case A-Gross margin rate on sales = 40 percent: Inventory valuation is $________________________ Case B-Gross margin rate on cost = 100 percent: Inventory valuation is $________________________

A company's 2013 income statement reported the following for the year ended December 31,2013: Sales revenue. \4 53 Sales returns. 6 Cost of goods sold. 270 Expenses. 126 Net income. \5 1 === Based only on the above data,the (a) average markup on cost,and (b) the average markup on selling price were: (a) Mark-up on a cost (b) Mark-up on selling price 1 13.60\% 7.40\% 2 59.60\% 39.70\% 3 60.00\% 40.00\% 4 65.56\% 39.60

Data summarizing the inventory activity during 2013 for a merchandising company are (000's): Cost Retail Beginning inventory. \1 10 \2 16 Net purchases.. 618 880 Net mark-ups. 24 Net markdowns. (80) Goods available for sale. \7 28 \1 ,040 Net sales. (880) Ending inventory at retail. \1 60 The company uses the retail method of valuing inventory,at average,lower-of-cost-or-market.The 2013 inventory valuation is:

When a perpetual inventory system is used:

Sales taxes are subject to input tax credits while value-added (VAT) taxes are not.

Drafting Supplies Ltd.sells its merchandise at a mark-up of 40 percent on cost.Near the end of 2012,it recorded a credit sale amounting to $7,000.Although this merchandise was not shipped,it was excluded from the December 31,2012,periodic inventory.The auditor later determined that the sale was incorrectly recorded in 2012; it should have been recorded in 2013.The company uses 1 percent of credit sales as the amount to record for bad debt expense.Ignoring income taxes,the effect of this error was to (answer only one): Overstate 2012 income by $__________________________ or Understate 2012 income by $________________________.

The balance in a company's accounts payable at December 31,2012 was $900,000 before any necessary year-end adjustment relating to the following: Goods were in transit from a vendor to the company on December 31,2012.The invoice cost was $50,000,and the goods were shipped f.o.b.shipping point on December 29,2012.The goods were received on January 4,2013. Goods shipped f.o.b.shipping point on December 20,2012 from a vendor to the company were lost in transit.The invoice cost was $25,000.On January 5,2013,the company filed a $25,000 claim against the common carrier. Goods shipped f.o.b.destination on December 21,2012 from a vendor to the company were received on January 6,2013.The invoice cost was $15,000. What amount should the company report as accounts payable on its December 31,2012 balance sheet?

When determining the unit cost of an inventory item,which of the following should not be included?

In the FIFO retail method,what does the ending inventory for any period represent?

Ideally,the lower-of-cost and NRV technique should be applied an item-by-item basis or by category when this is not possible.

The records of Weight Unlimited showed the following for June: Sales. 2.100 units at \ 100 each Purchases. 2,000 units at \ 75 each Beginning inventory. 3,000 units at \ 56 each Assuming the periodic inventory system is used complete the following tabulation. FIFO Weighted Average (1) Sales............ \ \ (2) Cost of goods sold... \ \ (3) Gross margin.......... \ \ (4) Ending inventory.... \ hline Computations: FIFO: Weighted Average:

A company using the periodic inventory method correctly recorded a December 29 purchase of merchandise,but the merchandise was not included in the physical inventory count on December 31 (end of the accounting period).The error caused an:

Sales taxes paid by the purchaser that cannot be claimed back will usually become a part of the cost of the inventory.

The following costs were associated with the acquisition of an inventory item purchased by a firm (the item is to be resold by the firm): Freight costs, FOB shipping point \ 2,000 Sales and excise taxes 800 Interest on debt used to purchase item 600 Special material added to item by firm 900 Labour costs to add the special material 400 Gross invoice price 90,000 Terms: 3/10,n/30 Payment was made on the 12^th day after purchase What is the proper inventoriable cost for this item of inventory?

Inventory cost includes the total outlay required to acquire goods plus the cost to prepare the goods for sale.