Exam 5: Inventories and Cost of Sales

The reasoning behind the retail inventory method is that if we can get a good estimate of the cost-to-retail ratio,we can multiply ending inventory at retail by this ratio to estimate ending inventory at cost.

Generally accepted accounting principles require that the inventory of a company be reported at:

Match each of the following terms with the appropriate definition. -An estimate of days needed to convert the inventory at the end of the period into receivables or cash.

Explain the effects of inventory valuation methods on the cost of ending inventory,income,and income taxes.

Determining the unit costs assigned to inventory items is one of the most important decisions in accounting for inventory.

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 weighted average inventory valuation and a perpetual inventory system. January 1: Purchased 100 units at \ 10 per unit. February 5: Purchased 60 units at \ 12 per unit. March 16: Sold 40 units for \ 16 per unit.

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

A company's total cost of 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.

Which of the following inventory costing methods will always result in the same values for ending inventory and cost of goods sold regardless of whether a perpetual or periodic inventory system is used?

Internal controls that should be applied when a business takes a physical count of inventory should include all of the following except:

Marquis Company uses a weighted-average perpetual inventory system and has the following purchases and sales: August 2 10 units were purchased at \ 12 per unit. August 18 15 units were purchased at \ 14 per unit. August 29 12 units were sold. What is the amount of the cost of goods sold for this sale? (Round average cost per unit to 2 decimal places.)

Match each of the following terms with the appropriate definition. -An inventory valuation method that assumes costs for the most recent items purchased are sold first and charged to cost of goods sold.

The cost of an inventory item includes its invoice cost minus any discount,plus any added or incidental costs necessary to put it in a place and condition for sale.

Buffalo Company reported a December 31 ending inventory balance of $412,000.The following additional information is also available: ? The ending inventory balance of $412,000 did not include goods costing $48,000 that were purchased by Buffalo on December 28 and shipped FOB destination on that date. Buffalo did not receive the goods until January 2 of the following year. ? The ending inventory balance of $412,000 included damaged goods at their original cost of $38,000. The net realizable value of the damaged goods was $10,000. Based on this information,the correct balance for ending inventory on December 31 is:

The choice of an inventory valuation method has little to no impact on gross profit and cost of sales.

The company's inventory manager receives compensation that includes a bonus based on gross profit.You discover that the inventory manager has knowingly overstated ending inventory by $2 million.What effect does this error have on the financial statements of the company and specifically gross profit? Why would the manager knowingly overstate ending inventory? Would this be considered an ethics violation?

Ulrich had cost of goods sold of $6.7 million,ending inventory of $2.2 million,and average inventory of $1.9 million.Its days' sales in inventory equals:

A company made the following merchandise purchases and sales during the month of May: May 1 Purchased 380 units at \ 15 each May 5 Purchased 270 units at \ 17 each May 10 Sold 400 units at \ 50 each May 20 Purchased 300 units at \ 22 each May 25 Sold 400 units at \ 50 each There was no beginning inventory.If the company uses the weighted average periodic method,what would be the cost of the ending inventory?

A company's inventory records indicate the following data for the month of April: April 1 Beginning 350 units at \ 18 each April 5 Purchase 290 units at \ 20 each April 9 Sale 500 units at \ 55 each April 14 Purchase 250 units at \2 2 each April 20 Sale 200units at \5 5 each April 30 Purchase 240units at \ 25 each If the company uses the first-in,first-out (FIFO)method and the perpetual inventory system,what is the amount of cost of goods sold for April?

Lucia Company reported cost of goods sold for Year 1 and Year 2 as follows: Year 1 Year 2 Beginning inventory \ 120,000 \ 130,000 Cost of goods purchased 250,000 275,000 Cost of goods available for sale 370,000 405,000 Ending inventory 130,000 135,000 Cost of goods sold \ 240,000 \ 270,000 Lucia Company made two errors: 1)ending inventory at the end of Year 1 was understated by $15,000 and 2)ending inventory at the end of Year 2 was overstated by $6,000.Given this information,the correct cost of goods sold figure for Year 2 would be: