Exam 6: Inventories

Which of the following methods generally is used to determine the loss when inventory is destroyed or stolen?

Marina Sailboats reports income before income taxes of $80,000 during 2010.If beginning inventory was overstated by $7,000 and ending inventory was understated by $8,000,calculate corrected income before income taxes for the year.(Show your work.)

Despite its advantages,the just-in-time operating environment produces increased carrying costs for inventory.

During periods of consistently falling prices,the FIFO inventory method will produce the highest possible amount of net income.

Which of the following terms best describes the assumption made in applying the four inventory methods?

The determination of the balance sheet cost of merchandise inventory is important to the determination of net income.

Use this inventory information for the month of May to answer the following question. May 1 Beginning inventory 20 units @ \ 76 7 Purchase 70 units @ \ 80 18 Sale 25 units 22 Purchase 10 units @ \ 88 29 Sale 40 units What is ending inventory under the specific identification method?

What is a LIFO liquidation,and what is its effect on income before income taxes?

Applying the lower-of-cost-or-market rule follows which of the following accounting conventions?

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 150 items @ \3 = \4 50 May 1 Purchases 450 items @ \1 6= 2,700 Totals 600 items \3 ,150 Total sales 300 items Dec. 31 Ending inventory 300 items

In a period of rising prices,the liquidation of base-layer inventory will result in an unusually high income tax liability under which of the following methods?

Given equal circumstances,which inventory method probably would be the most time consuming?

Use this inventory information for the month of September to answer the following question. Sept. 1 Beginning inventory 10 units @ \ 120 5 Purchase 60 units @ \ 112 14 Sale 40 units 21 Purchase 30 units @ \ 116 30 Sale 28 units Assuming that a perpetual inventory system is used,what is ending inventory (rounded)under the average-cost method?

Use this information to answer the following question. Beginning inventory 100 units @ \8 .00 Purchase-Oct. 200 units @\ 6.00 Purchase-Dec. 100 units @\ 12.00 A periodic inventory system is used; ending inventory is 147 units. What is cost of goods sold under LIFO?

Use this information to answer the following question. Beginning inventory 100 units @ \8 .00 Purchase-Oct. 200 units @\ 6.00 Purchase-Dec. 100 units @\ 12.00 A periodic inventory system is used; ending inventory is 151 units. What is ending inventory under FIFO?

Ending merchandise inventory for LIFO will be the same dollar amount under a periodic inventory system as under a perpetual inventory system.

Which inventory method generally results in the most realistic ending inventory figure?

Assume that during the physical count of the inventory of a large corporation for this year,$900,000 of merchandise was counted twice.The error was not detected,and the financial statements were prepared.Identify the individual statements that would be affected and explain the effect the count error would have on each.(Omit income tax consideration.)

Emil Hinkel owns and operates a large antique shop.He uses the specific identification method to account for transactions that affect inventory.Hinkel recently completed a physical inventory of the merchandise in his shop as part of his year-end work.Today,his accountant called to inform him that it would be necessary to adjust the inventory figure shown on the balance sheet,which will increase Hinkel's tax liability.Hinkel argued that the inventory had to be correct,because he counted it twice and matched every item to an invoice.Cite reasons why the accountant would find it necessary to adjust the inventory even if Hinkel's count is accurate.

Merchandise inventory is valued on the balance sheet at the expected resale price.