Exam 8: Inventories: Measurement

ATC's gross profit ratio (rounded) in 2013 is:

Slinky Company purchased merchandise on June 10, 2013, at a price of $20,000, subject to credit terms of 2/10, n/30. Slinky uses the net method for recording purchases and uses a perpetual inventory system. Required: 1. Prepare the journal entry to record the purchase. 2. Prepare the journal entry to record the appropriate payment if the entire invoice is paid on June 18, 2013. 3. Prepare the journal entry to record the appropriate payment if the entire invoice is paid on July 8, 2013.

Carmen Inc., producer of high-tech boating equipment, disclosed the following information in its 2013 annual report to shareholders: Inventories are valued at the lower of cost or net realizable value with cost determined by the last-in, first-out (LIFO) method for inventories. Inventories at May 31 were as follows: If the inventory had been valued using the first-in, first-out (FIFO) method, inventories would have been higher by $22,200 and $24,400 ($ in thousands) at the end of 2013 and 2012, respectively. How does the supplemental LIFO information indicating what the value of ending inventory would have been if measured using FIFO improve the quality of financial reporting by Carmen?

Bettencourt Clothing Corporation uses a periodic inventory system and the LIFO cost method. The company began 2013 with the following inventory layers (listed in chronological order of acquisition): During 2013, 20,000 units were purchased for $15 per unit. Sales for the year totaled 30,000 units at various prices, leaving 3,000 units in ending inventory. Required: 1. Calculate cost of goods sold for 2013. 2. Determine the amount of LIFO liquidation profit that the company must report in a disclosure note to its 2013 financial statements, assuming the amount is material. Assume an income tax rate of 40%.

Briefly explain the advantages of dollar-value LIFO (DVL).

Unit LIFO is more costly to implement than dollar-value LIFO.

The ending inventory assuming FIFO is:

Ramen Inc. adopted dollar-value LIFO (DVL) as of January 1, 2013, when it had a cost inventory of $600,000. Its inventory as of December 31, 2013, was $667,800 at year-end costs and the cost index was 1.06. What was DVL inventory on December 31, 2013?

Spando Apparel uses the LIFO inventory method for external reporting and for income tax purposes but maintains its internal records using FIFO. The following disclosure note was included in a recent annual report: Inventories ($ in millions): The company's income statement reported cost of goods sold of $3,120 million for the fiscal year ended December 31, 2013. Required: 1. Spando adjusts the LIFO reserve at the end of its fiscal year. Prepare the December 31, 2013, adjusting entry to record the cost of goods sold adjustment. 2. If Spando had used FIFO to value its inventories, what would cost of goods sold have been for the 2013 fiscal year?

A company that prepares its financial statements according to International Financial Reporting Standards can use each of the following inventory valuation methods except:

Cost of goods sold is given by:

Briefly describe why companies that use perpetual inventory systems must still perform physical inventories.

The ending inventory under a periodic inventory system assuming average cost (rounding unit cost to three decimal places) is:

Meteor Co. purchased merchandise on March 4, 2013, at a price of $30,000, subject to credit terms of 2/10, n/30. Meteor uses the net method for recording purchases and uses a periodic inventory system. Required: 1. Prepare the journal entry to record the purchase. 2. Prepare the journal entry to record the appropriate payment if the entire invoice is paid on March 11, 2013. 3. Prepare the journal entry to record the appropriate payment if the entire invoice is paid on April 2, 2013.

Under the net method, purchase discounts lost are:

What additional income tax payments did the 2010 liquidation cost PCC?

The ending inventory assuming LIFO and a periodic inventory system is:

Suppose that Badger's 2015 ending inventory, valued at year-end costs, was $153,600 and that the relative cost index for this inventory in 2015 was 1.20. What inventory balance would Badger report on its 12/31/15 balance sheet?

Required: Compute the January 31 ending inventory and cost of goods sold for January, assuming Random Creations uses LIFO and a periodic inventory system.

Bunker Auto Supply purchased merchandise on January 4, 2013, at a price of $70,000, subject to credit terms of 2/10, n/30. Bunker uses the gross method for recording purchases and uses a periodic inventory system. Required: 1. Prepare the journal entry to record the purchase. 2. Prepare the journal entry to record the payment of one-half the invoice amount on January 11, 2013. 3. Prepare the journal entry to record the balance of the amount due on February 2, 2013.