Exam 8: Inventory

The primary basis of accounting for inventories is cost. A departure from the cost basis of pricing inventory is required where there is evidence that when the goods are sold in the ordinary course of business, their

All else being equal, which of the following statements is correct for a company that uses the FIFO costing formula with a perpetual inventory system (compared to a periodic system)?

An EXCEPTION to the general rule that costs should be charged to expense in the period incurred is

Which of the following statements with respect to the gross profit method of estimating inventory is NOT correct?

Use the following information for the following questions: The following information was available from the inventory records of Key Company for January: Units Unit Cost Total Cost Balance at January 1 3,000 Purchase: January 6 2,000 10.30 January 26 2,700 10.71 sales: January 7 (2,500) January 31 Balance at January -Assuming that Key uses the perpetual inventory system, what should the inventory be at January 31, using the moving-average inventory method, rounded to the nearest dollar?

Gross profit method Ohana Company uses the gross profit method to estimate inventory for monthly reports. Information follows for the month of November: Inventory, Nov 1 \ 978,000 Purchases 691,000 Freight-in 47,00 5ales 1,450,000 5ales returns 67,600 Purchase discounts 14,100 Instructions a) Calculate the estimated inventory at November 30, assuming that the gross profit is 30% of sales. b) Calculate the estimated inventory at November 30, assuming that the markup on cost is 30%.

Inventory presentation and disclosures under IFRS & ASPE Included in the December 31 trial balance of Watershed Company are the following assets: Cash \ 201,700 Work in process \ 180,000 Equipment (net) 1,314,000 Receivables (net) 320,000 Prepaid insurance 55,600 Patents 114,000 Raw materials 279,250 Finished goods 212,500 Watershed Company presents its expenses by nature of costs instead of by function. Instructions Prepare the current assets section of the December 31 statement of financial position for Watershed Company.

Accounting for biological and agricultural assets Woods' Apiary began operations on April 1, 2020, with the purchase of 220 hives for $1,204,000. It has completed the first month of operations and has the following information for its hives at the end of 2020: Hives Change in fair value due to growth and price change $\quad$$\quad$$\quad$$\$ ( 14,000 )$ Decrease in fair value due to harvet $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\$( 800 )$ Honey harvected during April 2000 (at net realizable value) $\quad$ $ 2,500 Instructions Prepare the journal entries for Woods' bio agricultural assets (beehives) for the month of April 2020.

Portland Ltd. estimates the cost of its physical inventory at March 31 for use in its interim financial statements. The rate of markup on cost is 25%. The following account balances are available: Inventory, March 1 \ 200,000 Purchases 168,000 Purchase returns 7,000 Sales during March 350,000 What is the estimated dollar value of the inventory at March 31?

Rounded to the nearest whole percent, a markup of 35% on cost is equivalent to what percentage of gross profit on selling price?

Inventory overages and shortages Explain how an inventory overage or shortage between the perpetual inventory record and the physical inventory record is adjusted. Is this any different when using a periodic inventory system?

Which of the following best describes the concept of standard costs?

For 2020, Colorado Corp.'s cost of goods sold was $562,500 and their sales were $1,200,000. Assuming an inventory turnover of 3.5 for the year, what was the company's average inventory? (Round to the nearest dollar.)

In the space provided at right, write the word or phrase that is defined or indicated. $\text { 1. An approach whereby a company }$ ------------------------------- finances its inventory without reporting either the liability or the inventory asset on its statement of financial position. $\text { 2. A contract in which neither party has }$ ------------------- fulfilled its part of the contract. $\text { 3. The costs that are "attached" to }$ --------------------- Inventory. $\text { 4. Direct costs and alloxated overhead }$ ---------------------------- that are incurred to process raw materials into finished goods. $\text { 5. The predetermined costs to produce }$ ----------------------- one unit of a given item of inventory. $\text { 6. The purchase of a group of units with }$ ------------------- different characteristics at a single lump-sum price. $\text { 7. An imventory extimation methed that }$ --------------------- uses the interrelationships between the accounts used in the calculation of cost of goods sold.

The inventory costing method that can be used only for goods that are NOT ordinarily interchangeable is the

Use the following information for the following questions: Giselle Ltd. is a calendar-year corporation. Its financial statements for the years 2020 and 2019 contained errors as follows: 2020 2019 Ending inventory \ 2,000 overstated \ 3,000 overtated Depreciation expense \ 6,000 understated \ 12,000 overstated -Assume that the proper correcting entries were made at December 31, 2019. By how much will 2020 pre-tax income be overstated or understated?

Use the following information to solve the following questions: During 2020 Ebert Corp. transferred inventory to Siskel Corp. and agreed to repurchase the merchandise early in 2021. Siskel then used the inventory as collateral to borrow from Southern Bank, remitting the proceeds to Ebert. In 2021 when Ebert repurchased the inventory, Siskel used the proceeds to repay its bank loan. -On whose books should the cost of the inventory appear at the December 31, 2020, statement of financial position date?

Analysis of errors Indicate in each of the spaces provided the effect of the described errors on the various elements of a company's financial statements. Use the following codes: O = amount is overstated; U = amount is understated; NE = no effect. Assume a periodic inventory system and that all sales and purchases are on credit.

On January 1, 2020, the merchandise inventory of Shoesmith Corp. was $600,000. During 2020, Shoesmith purchased $1,150,000 of merchandise and recorded sales of $1,350,000. The gross profit rate on these sales was 35%. What is the estimated dollar value of the inventory at December 31?

Gross profit method Kiowa Ltd. prepares monthly financial statements. Inventory is counted only at year end; thus, month-end inventories must be estimated. All sales are made on account. The rate of markup on cost is 25%. The following information relates to the month of May: Accounts receivable, May 1 \3 1,000 Accounts receivable, May 31. 37,000 Collections of accounts during May. 94,000 Inventory, May 1. 47,000 Purchases during May 75,000 Instructions Calculate the estimated cost of the inventory on May 31.