Exam 8: Cost-Based Inventories and Cost of Sales

On December 15,2013,a corporation accepted delivery of goods for resale which it purchased on credit.As of December 31,the company had not recorded the transaction or included the merchandise in its inventory.The effect of this on the balance sheet for December 31,2013 would be:

The harmonization of the provincial sales tax and GST effectively results in a value-added tax (VAT).

Using the direct reduction method of reporting a holding loss for lower-of-cost or NRV valuation of inventory,any holding loss is merged into the cost of goods sold amount.

The following information is available from the records of Bulk Foods Inc.for the year ended December 31,2005: At Cost At Retail Sales \ 100,00 Purchases \ 48,000 90,000 Inventory, January 1, 2005 24,000 54,000 Net additional mark-ups 12,000 Net markdowns 6,000 (a) Under the average cost retail method (non LCM) the inventory cost on December 31,2005 is $__________. (b) Under the retail method on FIFO basis,LCM,the inventory cost on December 31,2005 is $__________.

A department store's accounts showed the following at the end of the period: At Cost At Retail Beginning inventory. \ 120 \ 160 Purchases. 240 340 Sales. 430 Markdowns. 60 Markdown cancellations. 10 Additional mark-ups. 120 Additional mark-up cancellations. 20 Using the above data,apply the retail inventory method to compute the approximate average cost (LCM) for the ending inventory.$___________________.

Lower-of-cost-or-market (LCM) is to be applied to the following situation: Cost,$10; Net realizable value,$8; Replacement cost,$7; Net realizable value less normal profit,$7.50.One unit in inventory should be valued at:

Goods held on consignment from a supplier should be included in the ending inventory count of the retailer.

Shoes-A-Lot Ltd.decided to adopt the retail method to value its inventory.The following information is found for 2005: Required: Determine the December 31,2005 inventory cost under the retail method-average cost basis.

An independent accounting firm has been engaged to audit the 2014 financial statements of a corporation which has never undergone an audit.During the audit,it is concluded that the 2014 ending inventory presented by management is in error.The inventory cannot be counted because much of it has been sold as of the time of the audit.Therefore,a "test of reasonableness" of the inventory is performed by using the following data from the 2014 income statement prepared by the client. (a) Sales revenue,$182,000; return sales,$2,000 (b) Purchases,$100,000,purchase returns,$1,000 (c) Freight-in,$2,000 (d) Beginning inventory,$26,000; ending inventory,$60,000 Estimated gross margin rate,45 percent on sales. Required: The approximate 2014 ending inventory is,$_______________ Computations:

The FIFO retail inventory method requires that the inventory valuation be determined first on a(n):

The inventory records of a corporation provided the following information at the end of 2013: Cost per unit. \1 0,000 Insurance premium paid per unit. 500 Financing expense per unit. 600 Cost of permanent security system per unit (allocated). 1,500 Freight per unit (when purchased). 300 Cost of permanent reusable display case for this product only, per unit. 400 Advertising expense per unit (allocated). 1,000 What unit cost should be used for valuing inventory on hand at the end of 2013?

The average inventory costing method,which results in a changed unit inventory,cost after each successive purchase is:

When a periodic inventory system is used:

At December 31,2013,after preparing the financial statements,several errors were discovered.The first line in the tabulation below gives the uncorrected amounts.You are to develop the correct amount for each category on the bottom line.Enter for each item the appropriate amount(s) needed for correction; indicate deductions (i.e.,subtractions) with parentheses.Assume a periodic inventory system. Notes: 1.Some items may not involve errors. 2.You are only to correct the 2013 financial statements (do not give correcting entries). 3.Do not assume errors not specifically indicated. 4.Assume all amounts given are correct.

A company uses a perpetual inventory system,and follows GAAP in preparing its external financial statements.At the end of 2002,the balance in the inventory account was $66,000; $6,000 of those goods were purchased f.o.b.shipping point and did not arrive until 2013.Purchases in 2013 were $30,000.The perpetual inventory showed an ending inventory of $72,000 for 2013.A physical count of the goods on hand at the end of 2013 showed an inventory of $60,000.What should the company report on its 2013 income statement for cost of goods sold?

Listed below are some items of inventory for a company at May 31,2001.A substantial portion of the merchandise is stored in a separate warehouse and the company transfers damaged goods to a special inventory account.The company policy is "satisfied customers." \begin{array} {| l|l| l| } \hline(1)& \text { Items counted in warehouse, May 31, 2001}&\$70,000\\\hline(2)& \text { Items shipped today*, \mathrm{FOB} destination, invoice maled to customer}&70\\\hline(3)& \text {Invoice received for goods ordered, FOB destination, goods not yet received. }&800\\\hline(4)& \text { Items shipped today*. FOB shipping point, invoice mailed to customer}&400\\\hline\end{array} *Shipped after the count in (1) was made. The correct inventory to be shown on the May 31,2001 balance sheet 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 a periodic inventory system?

Nuts-2-U Ltd.purchased 1,000 bags of pecans at a total cost of $6,920.In addition,the company incurred $100 for transportation and grading.The pecans were graded as follows: Assuming the relative sales value method is used to allocate joint costs: (a) Give the entry to record the purchase,assuming perpetual inventory records are kept.Include transportation and sorting costs in the entry.Show computations. (b) Give the valuation of the ending inventory,assuming the following quantities on hand (show computations): Total $

Seaton's of Canada Ltd.uses the retail inventory method to approximate average cost at lower-of-cost-or-market.The following information is available for the month of April 2008 (in 000's): Retail Cost Cost of goods available for sale. \4 ,500 \3 ,600 Net mark-ups . \5 00 Net markdowns. \2 00 Sales. \3 ,400 The inventory approximation at April 30,2008,was:

The purchases account used in a periodic inventory system contains a running balance of the inventory during the accounting period.