Exam 8: Inventories and the Cost of Goods Sold

When prices are increasing, which inventory method will produce the highest cost of goods sold?

Any business that sells numerous units of identical products may determine its cost of goods sold using a flow assumption, rather than the specific identification method.

Assuming that Ace Systems uses the average cost flow assumption, the cost of goods sold to be recorded at January 28 is:

Inventory:

The principle of consistency states that:

During periods of inflation which method would yield the largest ending inventory and cost of goods sold?

In a period of rising prices, a company is most likely to use the specific identification method of pricing inventory if:

Comparison of LIFO and FIFO Company X and Company Y sell the same product. The cost of this product has been rising steadily throughout the year. Both companies reported the same net income for the year, although Company X used the first-in, first-out method of pricing inventory, while Company Y used the last-in, first-out method. (a) Which company's valuation of ending inventory in the balance sheet is more likely to approximate replacement cost? Company ______________________________ (b) Which company reports a cost of goods sold figure in the current year income statement that is more likely to reflect the replacement cost of the units sold? Company ______________________________ (c) Which company is minimizing income taxes it must pay? Company ______________________________ (d) Which company would have reported the higher net income if both companies had used the same method of pricing inventory? Company ______________________________

Under the FIFO flow assumption, the cost of these items to be included in inventory in the company's year-end balance sheet is:

The CPA firm auditing Capri Corporation found that net income had been overstated. Which of the following could be the cause?

Inventory flow assumptions The perpetual inventory records of Handy Hardware show 150 units of a particular product on hand, acquired at the following dates and costs: On June 3, Handy sold 120 units of this product. Instructions: Prepare a journal entry to record the cost of goods sold relating to the sale on June 3, assuming that Handy uses: (a) A LIFO flow assumption. (b) A FIFO flow assumption. (c) The average cost (or moving average) flow assumption.

Garden World uses the retail method to estimate its monthly cost of goods sold and month-end inventory. At May 31, the accounting records indicate the cost of goods available for sale during the month (beginning inventory plus purchases) totaled $540,000. These goods had been priced for resale at $900,000. Sales in May totaled $480,000. The estimated inventory at May 31 is:

A write down of inventory due to obsolescence reduces the amount in the Inventory account and may increase the amount in the Cost of Goods Sold account.

In a perpetual inventory system, two entries are normally made to record each sales transaction. The purpose of these entries is best described as follows:

In a perpetual inventory system, an inventory flow assumption is used primarily for determining which costs to use in:

During January, Sundown Corporation had sales of $300,000 and a cost of goods available for sale of $600,000. The company consistently earns a gross profit rate of 45%. Using the gross profit method, the estimated inventory at January 31 amounts to:

An advantage to the LIFO method of accounting for inventory is that it values the cost of goods sold at current replacement costs.

Kent Company has used the same inventory method for many years. This is an example of which principle?

As a result of taking an annual physical inventory, it usually is necessary in a perpetual inventory system to make an entry:

Which of the four inventory cost flow assumptions transfers the most recent purchase cost to the cost of goods sold and the remaining items in inventory are valued at the oldest acquisition costs?