Exam 6: Inventories and Cost of Sales

Explain the difference between the retail inventory method and gross profit inventory method for valuing inventory.

Pettis needs to determine its year-end inventory. The warehouse contains 20,000 units, of which 3,000 were damaged by flood and cannot be sold. Another 2,000 units, shipped FOB shipping point, are in transit. The company also consigns goods and has 4,000 units at a consignee's location. How many units should Pettis include in its year-end inventory?

The _________________ method is commonly used to estimate the value of inventory that has been destroyed, lost, or stolen.

A company made the following purchases during the year: On December 31, there were 28 units in ending inventory. These 28 units consisted of 1 from the January 10 purchase, 2 from the March 15 purchase, 5 from the April 25 purchase, 15 from the July 30 purchase, and 5 from the October 10 purchase. Using specific identification, calculate the cost of the ending inventory.

The full disclosure principle requires that the notes to the financial statements report a change in accounting method for inventory.

Acceptable methods of assigning specific costs to inventory and cost of goods sold include all of the following except:

The choice of an inventory valuation method can have a major impact on gross profit and cost of sales.

An inventory error is sometimes said to be self-correcting because it causes an offsetting error in the next period.

The inventory valuation method that identifies each item in ending inventory with a specific purchase and invoice is the:

The full disclosure principle:

An understatement of the ending inventory balance will understate cost of goods sold and overstate net income.

A company's total cost of inventory was $305,000 and its market value is $297,000. Under the lower cost or market, the amount reported should be $305,000.

A company's store was destroyed by a fire on February 10 of the current year. The only information for the current period that could be salvaged included the following: Beginning inventory, January 1: $34,000 Purchases to date: $118,000 Sales to date: $140,000 Historically, the company's gross profit ratio has been 30%. Estimate the value of the destroyed inventory using the gross profit method.

A company reported the following data related to its ending inventory: Calculate the lower-of-cost-or-market on the: (a) Inventory as a whole and (b) inventory applied separately to each product.

A company has inventory of 10 units at a cost of $10 each on June 1. On June 3, it purchased 20 units at $12 each. 12 units are sold on June 5. Using the FIFO perpetual inventory method, what is the cost of the 12 units that were sold?

Using the information given below, prepare the general journal entry to record the March 16 sale assuming a cash sale and the weighted average method is used.

If the _______________ is responsible for paying the freight, ownership of merchandise inventory passes when goods are loaded on the transport vehicle.

Given the following information, determine the cost of the inventory at June 30 using the LIFO perpetual inventory method. The cost of the ending inventory is

The inventory manager's compensation includes a bonus plan based on gross profit. You discover that the inventory manager has knowingly overstated ending inventory by $2 million. What effect does this error have on the financial statements of the company and specifically gross profit? Why would the manager knowingly overstate ending inventory? Would this be considered an ethics violation?

The lower of cost or market rule for inventory valuation must be applied to each individual unit separately, and not to major categories of inventory or to the entire inventory.