Exam 6: Inventories

Identify whether the following are benefits of using a perpetual inventory system (in comparison to a periodic system). Potential benefit True/False A perpetual system is less costly than a periodic system. A perpetual system helps to estimate expected amounts of inventory at year- end. A perpetual system is required by IFRS and ASPE. A perpetual system helps to determine the amount of shrinkage.

What definition is used for "market" under IFRS and ASPE?

Compare the perpetual inventory control system and the periodic inventory control system. Which system provides better information for inventory management?

Which statement is not correct about the periodic inventory system for inventory management?

Explain why the absorption costing method is appropriate under GAAP.

What journal entry is required after the inventory count under the perpetual inventory system when shrinkage has been detected?

Which statement is correct?

A retailer has a standard mark-up of 25% on cost. For the month of June, the company recorded sales of $200,000 and purchases of $170,000. Inventory at the beginning of June was estimated to be $240,000. Required: Using the gross margin method, estimate the cost of goods sold for the month of June and the cost of inventory at the end of June.

If the gross margin percentage used in the gross margin method were overstated (e.g., 36% instead of 32%), what would happen?

Which statement is not correct about the perpetual inventory system for inventory management?

Which goods in transit would be recorded in inventory at year end?

Explain the meaning of product costs and period costs. Discuss which costs should be included in the cost of inventories.

Which statement best explains the retail inventory method?

Use the following information: Cost Materials \ 150,000 Costs to process into finished product 100,000 If the market price at year end is $210,000, what is the write down required?

Johnson Ltd. began operations on January l, 2019. Merchandise purchases and four alternative methods of valuing inventory for the first two years of operations are summarized below: Purchases 2019 2020 Ending inventory \ 700,000 \ 850,000 - Specific identification - FIFO 210,000 203,000 - Average cost 238,000 188,000 - Lower of cost and market 224,000 189,000 Required: a. Which of the four methods listed above does not apply the matching principle? Briefly explain. b. Determine the cost flow assumption or inventory valuation method that would report the highest net income for 2019. c. Assuming that FIFO had been used for both years, how much would the cost of goods sold be for 2020?

Assume that a purchase invoice for $1,000 was appropriately recorded in fiscal 2019, but the inventory was excluded in error during the ending inventory count. What impact will this have on fiscal 2019 financial reporting?

A particular production process requires two types of raw materials to produce the end product. Each unit of finished product requires three units of raw material A and 2 units of raw material B and processing costs of $35. The following provides information on inventories at year-end: Inventory item \# units Cost per unit Replacement cost Net realizable value Finished product 800 \ 181 \ 161 Raw material A 150 10 \ 17 NA Raw material B 110 58 53 NA Required: a. Evaluate these inventories to determine the amount of write-down, if any. b. Would your answer change if the replacement cost of raw material A were $11 per unit?

Which transaction would not be included in year end inventory?

Why is a cost flow assumption used?

For each of the following independent scenarios, indicate the effect of the error (if any)on: i.2019 net income; ii.2020 net income; and iii.2020 closing retained earnings The company uses the periodic system of inventory and its fiscal year-end is December 31. Ignore income tax effects. Consider each of the following independent scenarios: a. Your analysis of inventory indicates that inventory at the end of 2019 was overstated by $27,000 due to an inventory count error. Inventory at the end of 20 13 was correctly stated. b. Invoices in the amount of $107,000 for inventory received in December 2019 were not entered on the books in 2019. They were recorded as purchases in January 2020 when they were paid. The goods were counted in the 2019 inventory count and included in ending inventory on the 2019 financial statements. c. Goods received on consignment amounting to $89,000 were included in the physical count of goods at the end of 2020 and included in ending inventory on the 2020 financial statements. d. For each of the three scenarios, provide the journal entry that should be recorded in 2020 to correct the error.