Exam 5: Inventories and Cost of Sales

Forever Young Game Stores (FYG)has taken a physical count of its inventory at March 31,its fiscal year-end.After reviewing the accounting records and documentation,the following items have been discovered: (a)An invoice from Shreck Co.indicates that $30,000 of games were shipped to FYG on March 27,terms FOB shipping point.The games and invoice did not arrive at FYG until April 2 and were not included in the physical count. (b)An invoice from Gamers,Inc.indicates that $8,000 of games were shipped to FYG on March 29,terms FOB destination.The games and invoice did not arrive at FYG until April 2 and were not included in the physical count. The physical count and cost assignment on March 31 prior to these two items is $440,000.The cost of goods sold for FYG is $2,100,000. 1.Calculate the amount that should be reported as ending inventory for FYG. 2.Calculate the days' sales in inventory before and after the appropriate adjustments for inventory.

Accounting principles require that LIFO inventory be reported at the market value (cost)of replacing inventory when market value is lower than cost.

The inventory valuation method that identifies each item in ending inventory with a specific purchase and invoice is the:

The retail inventory method estimates the cost of ending inventory by applying the gross profit ratio to net sales.

Explain the reason a company might use gross profit inventory method for valuing inventory.

What is the effect of an error in the ending inventory balance on the accounts reported in the income statement?

A company reported the following data: Required: 1.Calculate the days' sales in inventory for each year. 2.Comment on the trend in inventory management.

The ________ ratio reflects how much inventory is available in terms of days' sales.

A company has beginning inventory of 10 units at a cost of $10 each on February 1.On February 3,it purchases 20 units at $12 each.12 units are sold on February 5.Using the FIFO periodic inventory method,what is the cost of the 12 units that are sold?

A company reported the current month purchase and sales data for its only product and uses the perpetual inventory system.Determine the cost assigned to ending inventory and cost of goods sold using FIFO.

Salmone Company reported the following purchases and sales of its only product.Salmone uses a perpetual inventory system. -Determine the cost assigned to ending inventory using LIFO.

A company had the following purchases and sales during its first year of operations: On December 31,there were 26 units remaining in ending inventory.Using the periodic LIFO inventory costing method,what is the value of cost of goods sold? (Assume all sales were made on the last day of the month.)

An overstatement of ending inventory will cause an overstatement of assets and an understatement of equity on the balance sheet.

Use the following information for Davis Company to compute inventory turnover for Year 2.

Using the retail inventory method,if the cost to retail ratio is 70% and ending inventory at retail is $145,000,then estimated ending inventory at cost is $207,143.

Use the following information for Ephron Company to compute days' sales in inventory for Year 2.

A merchandiser's ability to pay its short-term obligations depends on many factors including how quickly it sells its merchandise inventory.

The understatement of the beginning inventory balance causes:

What is the LIFO conformity rule?

A company had the following purchases and sales during its first year of operations: On December 31,there were 26 units remaining in ending inventory. -Using the perpetual FIFO inventory costing method,what is the value of cost of goods sold? (Assume all sales were made on the last day of the month.)