Exam 8: Inventories and the Cost of Goods Sold

[The following information applies to the questions displayed below.] Harding Systems,Inc.uses a periodic inventory system.The purchases of a particular product during the year are shown below: At December 31 the ending inventory consisted of 1,500 units. -Compute the cost of goods sold for the current year based on the average-cost method of inventory valuation.

Short-term creditors are likely to view a higher-than-average inventory turnover rate as indicating that:

[The following information applies to the questions displayed below.] 200 At the end of last year,Games-2-Use had merchandise costing $140,000 in inventory.During January of the current year,the company purchased merchandise costing $102,000,and sold merchandise that it had purchased at a total cost of $84,000.Games-2-Use uses a perpetual inventory system. -The balance in the Inventory account at January 31 was:

What was the ending inventory for the month?

In a perpetual inventory system,two entries are normally made to record each sales transaction.The purpose of these entries is best described as follows:

Which of the following types of businesses would you expect to have the highest inventory turnover?

[The following information applies to the questions displayed below.] Harding Systems,Inc.uses a periodic inventory system.The purchases of a particular product during the year are shown below: At December 31 the ending inventory consisted of 1,500 units. -Compute the cost of goods sold for the current year based on the LIFO method of inventory valuation.

Lower-of-cost-or-market Elite Systems sells a single product.At December 31,the company's perpetual inventory records indicate 2,500 units on hand with a total cost (FIFO basis)of $155,000.The replacement cost of this product at this date is $35 per unit. Prepare journal entries to record (a)the write-down of the inventory to the lower-of-cost-or-market value at December 31,and (b)the cash sale of 100 units on January 4 at a retail price of $50 per unit. (a)Dec.31 (b)Jan.4

The inventory turnover rate is equal to the average inventory divided by the cost of goods sold.

[The following information applies to the questions displayed below.] Castle TV,Inc.purchased 1,000 monitors on January 5 at a per-unit cost of $185,and another 1,000 units on January 31 at a per-unit cost of $230.In the period from February 1 through year-end,the company sold 1,800 units of this product.At year-end,200 units remained in inventory. -Assume that the replacement cost of this monitor at year-end is $220 per unit.Using the FIFO flow assumption and the lower-of-cost-or-market rule,Castle TV should write down the carrying value of this inventory by:

At year-end,Venus restates the carrying value of its inventory using periodic LIFO costing procedures.Under periodic costing procedures,the LIFO cost of the inventory is:

Companies with perpetual inventories need not take physical inventory counts because inventory amounts are perpetually available.

Garden World uses the retail method to estimate its monthly cost of goods sold and month-end inventory.At May 31,the accounting records indicate the cost of goods available for sale during the month (beginning inventory plus purchases)totaled $540,000.These goods had been priced for resale at $900,000.Sales in May totaled $480,000.The estimated inventory at May 31 is:

Overstating the ending inventory will result in understating the cost of goods sold and overstating profits.

The cost flow assumption selected by a company must correspond to the actual physical movement of the company's merchandise.

[The following information applies to the questions displayed below.] Castle TV,Inc.purchased 1,000 monitors on January 5 at a per-unit cost of $185,and another 1,000 units on January 31 at a per-unit cost of $230.In the period from February 1 through year-end,the company sold 1,800 units of this product.At year-end,200 units remained in inventory. -Assume that the replacement cost of this monitor at year-end is $210 per unit.Using LIFO flow assumption and the lower-of-cost-or-market rule,the ending inventory amounts to:

In a periodic system,the only account with regard to inventory that is kept up-to-date is the inventory account.

[The following information applies to the questions displayed below.] Harding Systems,Inc.uses a periodic inventory system.The purchases of a particular product during the year are shown below: At December 31 the ending inventory consisted of 1,500 units. -Compute the cost of the ending inventory based on the FIFO method of inventory valuation.

During a period of steadily falling prices,which of the following methods of measuring the cost of goods sold is likely to result in reporting the highest gross profit?

The specific identification method is acceptable only when the actual cost of individual units of merchandise can be determined from the accounting records.