Exam 8: Inventories and the Cost of Goods Sold

Salerno Co. has an inventory turnover rate of 7 and an accounts receivable turnover rate of 5. Assuming 365 days in a year, the period of time required for Salerno to convert its inventory into cash through normal business operations is approximately:

Castle TV, Inc. purchased 1,000 monitors on January 5 at a per-unit cost of $185, and another 1,000 units on January 31 at a per-unit cost of $230. In the period from February 1 through year-end, the company sold 1,800 units of this product. At year-end, 200 units remained in inventory. -Assume that Castle TV, Inc. uses the FIFO flow assumption. The cost of the 200 units in inventory at year-end is:

In a periodic inventory system, understating the amount of ending inventory will cause an understatement of gross profit in the current year.

During the current year, Carl Equipment Stores had net sales of $500 million, a cost of goods sold of $400 million, average accounts receivable of $60 million, and average inventory of $50 million. -Assuming a 365-day year, the number of days required for Carl Equipment to convert its average inventory into cash is:

Short-term creditors are likely to view a higher-than-average inventory turnover rate as indicating that:

Inventory turnover In the spaces provided, indicate the likely effect of each of the following events or strategies upon the inventory turnover rate in the coming period. Use the following code letters: I for Increase, D for Decrease, and NE for No Effect. ____ (a) Reduced sales prices in order to increase sales volume. ____ (b) Ordered substantially larger amounts of merchandise in order to receive a volume discount from the supplier. ____ (c) Switched from the FIFO flow assumptions to LIFO during a period of rising prices. ____ (d) Placed sales clerks on commission, rather than a fixed monthly salary. ____ (e) Decided to offer customers a wider selection of merchandise available for immediate delivery.

A perpetual inventory system eliminates the need for periodically taking a physical inventory.

Soriano Company had net sales of $300,000 for the month (after returns and allowances of $1,500 and sales discounts of $3,250). Beginning inventory for the month was $60,000; purchases for the month were $175,000; and gross profit was 43%. -What was the cost of goods sold for the month?

During the current year, Carl Equipment Stores had net sales of $600 million, a cost of goods sold of $500 million, average accounts receivable of $75 million, and average inventory of $50 million. -Assuming a 365-day year, the number of days required for Carl Equipment to convert its average inventory into cash is: