Exam 8: Cost-Based Inventories and Cost of Sales

Which of the following behaviours is NOT unethical?

A company manufactures and sells four products; the related inventories are valued at lower-of-cost-or-market. The company considers a profit margin of 20 percent of sales to be normal for all four products. The following information was compiled as of December 31: Product Original Cost Cost to Replace Estimated Cost to Complete and sell Expected Selling Price A \ 70 \ 84 \ 30 \ 160 B 94 90 41 190 C 35 30 10 60 D 90 92 118 200 Using lower-of-cost-or-NRV, the reported unit amount of the ending inventory for Product D is:

Gross margin rate, mark-up, and cost percentage, are different names for the same relationship.

Shoes-A-Lot Ltd. decided to adopt the retail method to value its inventory. The following information is found for 2005: Cost Retail Merchandise Inventory, January 1,2005 \ 5,500 \ 20,000 Purchases 82,500 125,000 Purchase returns 3,000 4,200 Freight-In 5,000 Net Additional Mark-ups 11,742 Net Markdowns 2,542 Net Sales 120,000 Required: Determine the December 31, 2005 inventory cost under the retail method-average cost basis.

Application of the FIFO inventory costing method means that:

In 2013, a company's records contained the following information about inventory. The company uses a periodic inventory system and records purchases using the net method. Beginning inventory (at net) \ 160 Purchases (at invoice price) 200 Purchase terms, 5/10, n/30 Purchase returns (at invoice price) 20 Discounts lost 10 Ending inventory (at net) 66 What was the amount of 2013 cost of goods sold?

Items purchased for resale with a right of return are valued at the lower of cost and net realizable value (NRV), as are regular inventories.

Bargain Bins Ltd. had a beginning inventory of $20,000 and purchases for the period amounted to $110,000. Merchandise customarily sells at a 25 percent mark-up on cost. Sales revenue for the period was $150,000. Therefore, the ending inventory can be reliably estimated to be $________.

A corporation compiled the information given below for their auditor. The corporation uses a periodic inventory system. 2001 2002 Purchases \ 240 \ 160 Goods out on consignment 0 80 Beginning inventory 900 ? Ending inventory ? ? Physical inventory count Unavailable 240 Cost of goods sold 360 ? What was the amount of cost of goods sold for 2002?

An increase in ending inventories from one period to the next will result in a decrease in cash flows from operating activities when the indirect method is applied to compute these cash flows.

A company uses a periodic inventory system and records purchases using the net method. The following information applies to 2013, which was the first year of operations: Purchases, at invoice price \ 135,000 Purchases returns, at invoice price 9,000 Ending inventory physical count, at net 39,750 Inventory shortage, at net 1,800 Purchase terms were: 3/10/60. All discounts were taken except for those on the first $22,500 shipped. Cost of goods sold for 2013 was:

Counter-balancing inventory errors have no effect on the financial statements whatsoever.

During Year 1, ABC Inc.'s ending inventory was overstated by $10,000. During Year 2, ABC Inc.'s ending inventory was understated by $20,000. Assuming that the Year 2 books have been closed, the adjustment to Year 2 financial statements would include:

Big Sky Ltd. attempts to price merchandise so as to yield a gross margin of 25 percent based on selling price. If the inventory on August 1 was $30,000 and sales and purchases during August and September were as given below, compute a reliable estimate of the inventory at the end of each month. Month Sales Purchases Ending Inventory August \ 160,000 \ 126,000 \ September 180,000 128,000 \

Which of the following is not relevant to the gross margin method of inventory valuation?

During January 2013, What Snew Inc. discovered that (a) the 2012 ending inventory had been understated by $2,000 (and never had been corrected by the accountants) and (b) 2013 credit purchases were understated (not recorded) by $800 (to be paid January 15, 2013). Before correction of errors, pre-tax income was: 2012, $44,000 and 2013, $52,000. Assume a periodic inventory system. Required: (a) Complete the following to show the correct amounts (show computations): Computation Answer 2012 correct pre-tax income _______________________ $_______________ 2013 correct pre-tax income _______________________ $_______________ (b) Give any entry (entries) that would be required on January 2, 2013, that should be made to correct the accounts (if none is required, so state). Ignore income taxes and assume the books for 2013 have not been closed.

Use of a perpetual inventory system versus a periodic inventory system may affect the application of the inventory cost flow methods.

Use a "+" to denote an item is too high as a result of an error, a "-" to denote too low, and a 0 to indicate no effect. What is the effect of each of the following errors on the financial statements of a company which uses the period inventory system?

To produce an inventory valuation which approximates lower-of-cost or market using the retail inventory method, the computation of the ratio of cost to retail should:

Items purchased for resale are valued at their laid down cost before considering rebates when purchased.