Exam 6: Inventories and Cost of Sales

When LIFO is used with the periodic inventory system, cost of goods sold is assigned costs from the most recent purchases at the point of each sale, rather than from the most recent purchases for the period.

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. Date Activities Units Acquired at Cost Units Sold at Retail May 1 Beginning Inventory 150 units @ \1 0.00 5 Purchase 220 units @ \1 2.00 10 Sales 140 units @ \2 0.00 15 Purchase 100 units @ \1 3.00 24 Sales 90 units @ \2 1.00

Whether purchase costs are rising or falling, FIFO always will yield the highest gross profit and net income.

Monarch Company uses a weighted-average perpetual inventory system and has the following purchases and sales: January 1 20 units were purchased at \1 0 per unit. January 12 12 units were sold. January 20 18 units were purchased at \1 1 per unit. - What is the value of cost of goods sold?

The full disclosure principle requires that the notes to the financial statements report any change in the method of accounting for inventory.

Some companies choose to avoid assigning incidental costs of acquiring merchandise to inventory by recording them as cost of goods sold when incurred. The principle that supports this is called:

The expense recognition (matching) principle is used to determine how much of the cost of goods available for sale is deducted from sales and how much is carried forward as inventory.

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.

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.

A company has the following per unit original costs and replacement costs for its inventory. LCM is applied to individual items. Part A: 50 units with a cost of $5, and replacement cost of $4.50 Part B: 75 units with a cost of $6, and replacement cost of $6.50 Part C: 160 units with a cost of $3, and replacement cost of $2.50 Under the lower of cost or market method, the total value of this company's ending inventory is:

On January 31, a company needed to estimate its ending inventory to prepare its monthly financial statements. The following information is currently available: Inventory as of January 1: $120,500 Net sales for January: $400,000 Net purchases for January: $270,500 This company typically achieves a gross profit ratio of 15%. Ending Inventory under the gross profit method would be:

The assignment of costs to the cost of goods sold and to ending inventory using FIFO is the same for both the perpetual and periodic inventory systems.

The days' sales in inventory ratio is computed by dividing ending inventory by cost of goods sold and multiplying the result by 365.

Explain how the inventory turnover ratio and the days' sales in inventory ratio are used to evaluate inventory management.

Net realizable value for damaged or obsolete goods is sales price less the cost of making the sale.

What advantages does a perpetual inventory system have over periodic inventory system?

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

Starlight Company has inventory of 8 units at a cost of $200 each on October 1. On October 2, it purchased 20 units at $205 each. 11 units are sold on October 4. - Using the LIFO perpetual inventory method, what is the value of inventory after the October 4 sale?

A company normally sells its product for $20 per unit. However, the selling price has fallen to $15 per unit. This company's current inventory consists of 200 units purchased at $16 per unit. Replacement cost 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?

A company made the following purchases during the year: Jan. 10 15 units @ \3 60 each Mar. 15 25 units @ \3 90 each Apr. 25 10 units @ \4 20 each July 30 20 units @ 450 each Oct. 10 15 units @ \4 80 each On December 31, there were 28 units in ending inventory. These 28 units consisted of 2 from the January 10 purchase, 3 from the March 15 purchase, 4 from the April 25 purchase, 11 from the July 30 purchase, and 8 from the October 10 purchase. Using specific identification, calculate the cost of the ending inventory.