Exam 8: Cost-Based Inventories and Cost of Sales

DEF Inc.entered into a non-cancellable commitment to purchase raw materials in the amount of $30,000 on December 31^st,2010.Replacement cost was estimated at $25,000 on November 30^th,2010 and this amount was not expected to change.Which of the following statements is correct?

Big Sky Ltd.attempts to price merchandise so as to yield a gross margin of 25 percent based on selling price.If the inventory on August 1 was $30,000 and sales and purchases during August and September were as given below,compute a reliable estimate of the inventory at the end of each month. Month Sales Purchases Ending Inventory August \ 160,000 \ 126,000 \ September 180,000 128,000 \ Computations:

Counter-balancing inventory errors have no effect on the financial statements whatsoever.

During Year 1,ABC Inc.'s ending inventory was overstated by $10,000.During Year 2,ABC Inc.'s ending inventory was understated by $20,000.Assuming that the Year 2 books have been closed,the adjustment to Year 2 financial statements would include:

The following data pertain to a retail inventory situation: Compute the ending FIFO

Bargain Bins Ltd.had a beginning inventory of $20,000 and purchases for the period amounted to $110,000.Merchandise customarily sells at a 25 percent mark-up on cost.Sales revenue for the period was $150,000.Therefore,the ending inventory can be reliably estimated to be $________.

Which of the following items should not be included in the inventory at year-end?

Inventory data for the accounting period were as follows (in order of date): Units Unit Cost Beginning inventory. 400 \ 3.00 Purchase \#1. 800 \ 3.10 Sale \# 1 . 1,000 Purchase \#2. 800 \ 3.20 Sale \#2. 600 Compute the following amounts under each inventory flow method (round to nearest cent): $\begin{array} { |l |l|l| }\hline &\text { Ending }\\\hline&\text { Inventory }&\text {Cost of }\\&\text { Valuation }&\text {Goods Sold }\\\hline \text {(a) FIFO. }&\$&\$\\\hline \text {(b) Weighted average }&\$&\$\\\hline \text {(c) Moving average }&\$&\$\\\hline \end{array}$

Because commissions are a large component in selling costs for a firm,cost of disposal averages 20 percent of selling price.Historical data has revealed the normal profit margin of the company has averaged 10 percent of sales.Per unit cost and selling price,for five different kinds of inventory items are given below.The five cases are independent.Under lower-of-cost-or-market,fill in the proper reported value of a unit of the inventory for each of the five cases: 1 2 3 4 5 Units cost............... \ 70 \ 100 \ 160 \ 230 \ 90 Selling price............ 100 120 200 300 100 Replacement cost......... 68 94 172 220 88 Inventory value...........

A company uses the retail method of inventory.Data for the year 2013 follows.Compute the ending inventory at cost,assuming FIFO,LCM. Cost $\quad$$\quad$$\quad$ Retail Beginning inventory (cost $19,840, retail $30,000) Purchases (net cost $53,360,retail $86,000) Mark-up (net,$6,000) Markdowns (net,$2,000)

The records of a company provided the following information at December 31,2001: \begin{array} {| l|l| } \hline \text {invoice mailed. }&\$70\\\hline \text { Items purchased, fo.b. shipping point invoices mailed, items not yet en route}&104\\\hline \text { Items purchased, fo.b. destination, terms 5 / 10, \mathrm{n} / 30 , received at warehouse. }&100\\\hline \text {Items held on consignment from another company. }&50\\\hline \text {Ending inventory \( 12 / 31 / 2001 \) (excluding above items). }&80\\\hline\end{array} Items en route to customers,f.o.b.destination What December 31,2001,inventory cost should the company report?

Lumber Number Ltd.began business in 2001.It uses a periodic inventory system and values inventory at lower-of-cost-or-market.The following data represents price information related to the inventory on a unit basis: 2002 Inventory 2003 Inventory Beginning Ending Beginning Ending Cost \ 80 \ 86 \ 86 \ 98 Market 80 84 84 90 What effect will this information have on the 2003 statement of income if the allowance method is used?

Under a periodic inventory system,the ending inventory balance is computed as a residual amount.

On December 31,2013 Trade Cards Ltd.completed a physical inventory count that reflected an inventory valuation of $25,000.Theft is suspected; therefore,a reliable estimate of what the inventory should be is needed.Relevant data are: Sales revenue,$400,000; Average gross margin rate on sales for the past three years was 30 percent; Beginning inventory $20,000,and purchases,$290,000.The estimated amount of the theft loss is:

A company buys large recreational vehicles ("RVS") and sells them on credit.The company uses a perpetual inventory system and always pays for purchases within the discount period by borrowing.Information about the latest purchase of an RV is: \begin{array} { l } \text {Purchase price. }&\$60,000\\ \text { Delivery charges.}&2,500\\ \text {Terms, on credit, 5 / 30, \mathrm{n} / 90 Insurance premium paid. }&3,000\\ \text {Cleaning and making ready for sale. }&250\\ \text {Interest on purchase loan. }&7,200\\ \text {Cost of permanent shed built to display the RV pending sale. }&3,750\\\end{array} The cost that should be assigned to the RV for inventory purposes is:

Inventory items purchased on credit that are correctly debited to 2013 purchases,but improperly included in the 2013 ending inventory cause:

State-of-the-Art Inc.uses a perpetual inventory system.A fire damaged certain merchandise that had a sale price of $10,000 and cost $4,000.The insurance company agreed to pay $1,000 for the damage and let the company keep the merchandise.The company estimated that the goods can be sold for $3,800 and that $600 will be spent to clean and sell the damage goods.Give the entry to record the fire damage,including the receivable from the insurance company.

Food Depot Ltd.assembled the following information at the end of the current reporting period: Sales revenue. \5 6,400 Beginning inventory. 21,250 Purchases. 9,000 Purchase returns. 600 Freight-in.. 950 Selling expense. 15,750 Mark-up on cost (estimated) 25percent If the gross margin method is used to estimate ending inventory,what amount should be reported as pre-tax income or loss?

When inventory declines in value below original cost,and the decline is considered other than temporary,what is the maximum amount that the inventory can be valued at?

The following tabulation gives data pertinent to the inventory valuation of five different items of raw material.For each item,compute a) unit net realizable value,b)"market," and c) unit inventory value under lower-of-cost-or-market.Normal profit in each instance is 10 percent of selling price. Items Cost. \ 13 \ 76 \ 16 \ 35 Selling price. 20 80 17 50 Replacement cost. 14 70 15 32 Estimated cost to complete and sell 4 6 3 10 $\text { (a) Unit realizable value (net)\quad---\quad---\quad---\quad--- }$ $\text { (b) Market. \quad---\quad---\quad---\quad---}$ (c) Unit inventory value under $\text { lower-of-cost-or-market\quad---\quad---\quad---\quad--- }$