Exam 5: Inventories and Cost of Sales

Oxford Packing Company reported net sales in November of the current year of $1,000,000.At the beginning of November,the company reported beginning inventory of $368,000.Cost of goods purchased during November amounted to $217,500.The company reported ending inventory at the end of November of $226,750. The company's gross profit rate for November of the current year was:

The cost of an inventory item includes the ________,plus ________ costs necessary to put it in a place and condition for sale.

One application of internal control when taking a physical count of inventory is the use of pre-numbered inventory tickets.

Damaged and obsolete goods that can be sold:

A company has inventory with a selling price of $451,000,a market value of $223,000,and a cost of $241,000.According to the lower of cost or market,the inventory should be written down to $223,000.

Most companies do not take a physical count of inventory each year,but rather rely on inventory records to determine the inventory value.

A company's total cost of FIFO inventory was $329,000 and its current replacement cost is $307,000.Under the lower cost or market,the amount reported should be $329,000.

Use the information below to determine the sales revenue,cost of goods sold and gross profit that would be reported for the company related to the March 16 sale assuming the company uses FIFO inventory valuation and a perpetual inventory system.

Acceptable methods of assigning specific costs to inventory and cost of goods sold include all of the following except:

The understatement of the ending inventory balance causes:

In a period of rising purchase costs,LIFO usually gives a lower taxable income and therefore,yields a tax advantage.

On December 31 of the current year,Plunkett Company reported an ending inventory balance of $215,000.The following additional information is also available: •Plunkett sold and shipped goods costing $38,000 to Savannah Enterprises on December 28 with shipping terms of FOB shipping point.The goods were not included in the ending inventory amount of $215,000. •Plunkett purchased goods costing $44,000 on December 29.The goods were shipped FOB destination and were received by Plunkett on January 2 of the following year.The shipment was a rush order that was supposed to arrive by December 31.These goods were included in the ending inventory balance of $215,000. •Plunkett's ending inventory balance of $215,000 included $15,000 of goods being held on consignment from Carole Company.(Plunkett Company is the consignee.) •Plunkett's ending inventory balance of $215,000 did not include goods costing $95,000 that were shipped to Plunkett on December 27 with shipping terms of FOB destination and were still in transit at year-end. Based on the above information,the amount that Plunkett should report in ending inventory on December 31 is:

Identify and describe the four inventory valuation methods.

A company's cost of goods sold was $15,500 and its average merchandise inventory was $4,500.Its inventory turnover equals 3.4.

A company normally sells its product for $20 per unit.However,the selling price has fallen to $15 per unit.This company's current FIFO inventory consists of 200 units purchased at $16 per unit.Net realizable value has now fallen to $13 per unit.What is the amount of the lower cost of market adjustment the company must make as a result of this decline in value?

Evaluate each inventory error separately and determine whether it overstates or understates cost of goods sold and net income.

An error in ending inventory causes an error in the next period's:

On March 31 a company needed to estimate its ending inventory to prepare its first quarter financial statements.The following information is available: Beginning inventory,January 1: $4,000 Net sales: $80,000 Net purchases: $78,000 The company's gross margin ratio is 25%.Using the gross profit method,the cost of goods sold would be:

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 FIFO inventory costing method.What is the cost of the ending inventory? (Assume all sales were made on the last day of the month.)