Exam 6: Inventories and Cost of Sales

A company made the following merchandise purchases and sales during the month of May: There was no beginning inventory. If the company uses the weighted average inventory valuation method and the perpetual inventory system, what would be the cost of its ending inventory?

A company made the following merchandise purchases and sales during the current month: There was no beginning inventory. If the company uses the last-in, first-out perpetual inventory system, what would be the cost of the ending inventory?

To avoid the time-consuming process of taking an inventory each year, most companies use the gross profit method to estimate ending inventory.

A company has inventory of 15 units at a cost of $12 each on August 1. On August 5, it purchased 10 units at $13 per unit. On August 12 it purchased 20 units at $14 per unit. On August 15, it sold 30 units. Using the FIFO perpetual inventory method, what is the value of the inventory at August 12 after the sale?

Georgia Peach Company reported net sales in June of the current year of $1,000,000. At the beginning of June, the company reported beginning inventory of $368,000. Cost of goods purchased during June amounted to $217,500. The company reported ending inventory at the end of June of $226,750. The company's gross profit rate for June of the current year was:

Costs included in the Merchandise Inventory account can include all of the following except:

A merchandiser's ability to pay its short-term obligations depends on many factors including how quickly it sells its merchandise inventory.

Internal controls that should be applied when a business takes a physical count of inventory should include all of the following except:

In a period of rising purchase costs, FIFO usually gives a lower taxable income and therefore, yields a tax advantage.

Companies are allowed to use FIFO for financial reporting and LIFO for tax reporting, according to IRS requirements.

In applying the lower of cost and net realizable value (NRV) to inventory valuation, NRV is defined as the current selling price.

Whether purchase costs are rising or falling, FIFO always will yield the highest gross profit and net income.

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.

The consistency concept:

Interim statements:

If the _______________ is responsible for paying the freight, ownership of merchandise inventory passes when the goods arrive at their destination.

A company sells a climbing kit and uses the periodic inventory system to account for its merchandise. The beginning balance of the inventory and its transactions during January were as follows: If the ending inventory is reported at $357, what inventory method was used?

A company had inventory of 10 units at a cost of $20 each on November 1. On November 2, it purchased 10 units at $22 each. On November 6 it purchased 6 units at $25 each. On November 8, it sold 22 units for $54 each. Using the FIFO perpetual inventory method, what was the cost of the 22 units sold?

A company normally sells its product for $20 per unit. However, the selling price has fallen to $15 per unit. This company's current inventory consists of 200 units purchased at $16 per unit. Net realizable value has now fallen to $13 per unit. Calculate the value of this company's inventory at the lower of cost and net realizable value.

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?