Exam 6: Merchandise Inventory and Cost of Sales

On March 15,Stark Company's inventory was destroyed by a tornado.The following was the only information salvaged: (1)Inventory,January 1: $31,000 (2)Purchases to Mar 15: $14,000 (3)Sales to Mar 15: $65,000 (4)Sales returns to Mar 15: $7,000 Stark's average gross profit ratio is 35%.What is the estimated value of the destroyed inventory?

An understatement of beginning inventory will understate cost of goods sold and overstate net income.

Errors in inventory valuation only affect the current period's records and financial statements.

There is no difference in the amount of inventory calculated by the periodic and perpetual inventory systems when using the FIFO cost flow assumption.

There is no difference in the amount of inventory calculated by the periodic and perpetual inventory systems when using FIFO or weighted average cost flow assumptions.

Bakstreet Company wants to estimate inventory destroyed by flood.Its average gross profit percentage is 37%.The following information is available: Instructions: Calculate the value of the destroyed ending inventory using the gross profit method.Round numbers to the nearest dollar,if necessary.

Bethel Co.has collected the following data related to its ending inventory: Calculate the lower of cost and net realizable value (LCNRV)on an item by item basis.

The cost of an inventory item includes _____________________,plus ______________ costs necessary to put it in a place and condition for sale.

When the ______________ cost flow assumption is used with a periodic system,cost of goods sold is assigned costs from the earliest purchases for the period.

Explain how inventory management is evaluated using the merchandise turnover and days' sales in inventory ratios.

Player Company made the following merchandise purchases during the current year: There was no beginning inventory,but ending inventory consisted of 400 units.If Player uses the first-in,first-out method and the periodic inventory system,what would be the cost of the ending inventory?

Days' sales in inventory is calculated by:

One of the most important decisions in accounting for inventory is determining the per-unit costs assigned to inventory items.

The materiality principle requires that the inventory valuation method follow the flow of goods.

An error in valuing inventory will cause an error in the amount of cost of goods sold.

The decline in merchandise inventory from cost to NRV is recorded in an adjusting entry at the end of the period.

Management must include which of the following considerations when accounting for inventory:

Because inventory errors are self-correcting in following accounting periods,managers will be able to make correct decisions based on changes in net income and cost of goods sold.

A form attached to the counted items in the process of taking a physical inventory is a(n):

Which inventory cost flow assumption results in the highest tax expense in a period of inflation?