Exam 5: Inventories and Cost of Goods Sold

A company using the periodic inventory system has the following account balances: Merchandise Inventory at the beginning of the year,$3,600;Transportation-In,$650;Purchases,$10,700;Purchase Returns and Allowances,$1,950;Purchase Discounts,$330.The cost of goods purchased is equal to

The following information was taken from the Operating Activities category of the 2017 statement of cash flows for Limited Corp.: ? Additions to net income: Change in accounts payable \ 2,000 Deductions from net income: Change in inventories 8,000 Based on the information provided,which of the following conclusions is correct?

Which inventory costing method results in the highest inventory balance during a period of rising prices?

The value assigned to an asset such as inventory on the balance sheet determines the amount eventually recognized as an expense on the income statement.

In order to evaluate a company's gross profit ratio,the ratio should be compared with

When an inventory system updates the Inventory account after each sale or purchase of merchandise,this is known as a(n)

If Taylor Corp.understates its ending inventory balance for 2017 by $15,500 and it is not corrected,what are the effects on its net income for 2018 and 2017? Effect on 2018 Net Income Effect on 2017 Net Income a. Overstated by \ 15,500 Understated by \ 15,500 b. Understated by \ 15,500 Overstated by \ 15,500 c. Understated by \ 15,500 No effect d. Overstated by \ 15,500 No effect

Purchase discounts decrease the total cost of merchandise acquired.

Share,Inc. The following data is available for one of the products sold by Share,Inc. ,which uses a perpetual inventory system. May 1 $\quad$ On hand, 10 units $@ \$ 2$ each 8 $\quad$ Sold 6 units@$10 each 14 $\quad$ Purchased 30 units $@ \$ 3$ each 23 $\quad$ Sold 24 units $@ \$ 10$ each -Refer to the data for Share,Inc. If the LIFO method is used,how much is cost of goods sold for May?

If Diamond,Inc.overstates its ending inventory balance for 2018 by $10,000 and understates its ending inventory balance for 2017 by $5,000 what are the effects on its net income for 2018 and 2017 if either error is corrected? Effect on 2018 Net Income Effect on 2017 Net Income a. Overstated by \ 15,000 Understated by \ 10,000 b. Understated by \ 5,000 Overstated by \ 10,000 c. Overstated by \ 15,000 Understated by \ 5,000 d. Overstated by \ 10,000 Understated by \ 5,000

The gross profit ratio is computed by dividing net sales by gross profit.

Cooking Corner Cooking Corner reported inventory on its balance sheet at December 31, 2016 at $32,000. During 2017, Cooking Corner purchased goods totaling $634,000 on account with terms of 2/10, n/30, FOB shipping point. Total charges paid by Cooking Corner directly to the freight company were $1,000. At the end of 2017, inventory on hand totaled to $45,000. Net sales for 2017 totaled $1,300,000. Cooking Corner employs a periodic inventory system. -Refer to the information about Cooking Corner. How much would Cooking Corner pay its supplier if Cooking Corner paid for one-half of the goods acquired within the discount period,and the other half after the expiration of the discount period?

Selected data for Sorenta,Inc.and New World Corp. ,two companies in the same industry,are presented below: Based on this data,which of the following statements is true? Sorenta, Inc. New World Corp. Sales \ 50,000 \ 80,000 Cost of goods sold 30,000 50,000 Average inventory balance 5,000 5,000

Presented below is a partially completed income statement of Lake,Inc.for 2016. Net sales Cost of goods sold: Beginning inventory B Net purchases Cost of goods avail able for sale \ 149,315 Ending inventory C Cost of goods sold Gross profit \7 2,978 Selling and administrative expenses Operating income Fill in the missing amounts for Lake's income statement.

The lower the inventory turnover ratio,the less time inventory resides in storage.

Under the perpetual inventory system,each time goods are purchased,the Inventory account is transferred to sales revenue.

Both U.S.GAAP and international financial reporting standards (IFRS)require the use of the lower-of-cost-or-market rule to value inventories.

In the following information from the 2017 annual reports of Focal Point Industries all figures have been rounded to millions of dollars. ? Balance Sheet Data May 31, 2017 May 31, 2016 Raw materials \ 25.8 \ 52.1 Work in process 44.8 34.7 Finished goods Inventories at FIFO 1,203.3 1,390.6 Adjustment to LIFO 5.6 21.9 ? $\text { Cash Flow Data (Operating Activities) }$ Net income \ 451.4 \3 99.9 Additions to net income: Depreciation 198.2 100.2 Amortization 30.6 49.0 Changes in assets and liabilities: Inventories 187.3 (58.0) Accounts payable and other (170.4) (70.1) Required (1)Explain what the amount "adjustment to LIFO" represents.What effects has this "adjustment" had on Focal Point Industries' net earnings in 2016 and 2017? (2)What method of determining cash flows from operating activities has Focal Point Industries used in preparing its statement of cash flows? Explain your answer. (3)From 2016 to 2017,what change in the inventory balance (increase or decrease)occurred in each year as a result of operating activities? What was the effect on the company's cash flow each year as a result of the inventory change?

With the periodic inventory system,the Inventory account is updated after each sale or purchase of merchandise.

A LIFO reserve represents the amount by which cost of goods sold on a FIFO basis exceeds the cost of goods sold on a LIFO basis for the current year.