Exam 6: Inventories

Use this information to answer the following question. Feb. 1 Inventory 200 units @ \ 6.00 6 Purchase 300 units @ \ 6.60 13 Purchase 100 units @ \ 7.20 20 Purchase 200 units @ \ 7.80 25 Purchase 40 units @ \ 8.40 Total sales 620 units A periodic inventory system is used. Using FIFO,the cost assigned to ending inventory is

The average-cost method produces an ending inventory figure that is somewhere between the figures produced by FIFO and LIFO.

For each of the following descriptive statements,indicate whether FIFO or LIFO is being described. _____ 1.Preferable method for conforming to matching principle _____ 2.Preferable method for tax purposes under rising prices _____ 3.Results in more up-to-date ending inventory figure _____ 4.Results in fictitious profits under rising prices _____ 5.Produces higher income when prices are declining _____ 6.Produces higher ending inventory when prices are rising

In general,when prices are rising,use of the FIFO method will result in a lower tax liability than the other methods.

Goods in transit shipped FOB shipping point should be included in the seller's ending inventory.

The lower-of-cost-or-market rule implies that it is unrealistic to carry inventory at a cost that is in excess of its market value.

In periods of rising prices,the FIFO method will result in a larger gross margin than the LIFO method.

The most important accounting problem in dealing with merchandise inventory is the application of which of the following conventions or rules?

Given the following information about purchases and sales during the year,compute the cost to be assigned to ending inventory under each of three methods: (a)average-cost,(b)FIFO,and (c)LIFO.Assume the periodic inventory system is used.(Show your work.) Jan. 1 Beginning inventory 100 items @ \ 4= \4 00 July 1 Purchases items @\ 8= 2,400 Totals 400 items \2 ,800 Total sales items Dec. 31 Ending inventary items

Under rising prices,why will the FIFO method produce a higher ending inventory than LIFO?

Why are cost flow assumptions made when accounting for merchandise inventory?

When the average-cost method is applied to a perpetual inventory system,a moving average cost per unit is computed with each purchase.

When applying the retail method,which of the following would not be a component of the cost-to-retail percentage?

Use this information to answer the following question. Feb. 1 Inventory 200 units @ \ 6.00 6 Purchase 300 units @ \ 6.60 13 Purchase 100 units @ \ 7.20 20 Purchase 200 units @ \ 7.80 25 Purchase 40 units @ \ 8.40 Total sales 620 units A periodic inventory system is used. Using the average-cost method,the cost assigned to ending inventory is

Jayne's Department Store had net retail sales of $310,000 during the current year.The following additional information was obtained from the accounting records. At Cost At Retail Beginning inventory \ 55,000 \ 95,000 Net purchases for the period 169,000 290,000 Freight-in 7,000 Estimate the company's ending inventory at cost using the retail method.(Show your work.)

A company has goods available for sale of $250,000 at retail and $175,000 at cost.It also had sales of $210,000 for the period.What is the estimated cost of ending inventory,using the retail method?

During the first quarter of 20xx,Blake Company sold 12,000 cases of Product T for $120,000.Facts related to its beginning inventory and purchases are as follows: Jan. 1 Beginning inventory 5,000 cases @\ 4.00 10 Purchases 3,000 cases @\ 5.00 Feb. 13 Purchases 8,000 cases @\ 4.50 Mar. 5 Purchases 2,000 cases @\ 5.00 For the quarter ended March 31,20xx,compute the ending inventory,cost of goods sold,and gross margin under three methods: (a)average-cost,(b)FIFO,and (c)LIFO.Assume the periodic inventory system is used.(Show your work.)

A retail store has beginning inventory of $30,000,purchases of $220,000,sales of $200,000,and a normal gross margin of 25 percent.What is estimated inventory based on these facts and the gross profit method?

Winer & Daughters reports income before income taxes of $10,000 during 2010.If beginning inventory was understated by $3,000 and ending inventory was overstated by $1,200,calculate corrected income before income taxes for the year.(Show your work.)

The lower the value assigned to ending inventory,the lower the gross margin.