Exam 5: Accounting for Inventories

Mountain Stream Outfitters is a merchandiser of specialized fly fishing gear. Its cost of goods sold for 2013 was $295,000, and sales were $490,000. The amount of merchandise on hand was $69,000, and total assets amounted to $512,000. Using this information, which of the following answers correctly states the average days in inventory ratio? Round to the nearest day.

The accountant for the Balboa Company made an error, which overstated the ending inventory for 2013 by $6,000. Balboa Company uses the periodic inventory system. Assuming that this error is not caught and corrected, indicate the effect of the error on each of the following items. Write U (understated), O (overstated) or N (not affected) next to each item. a. 2014 Beginning Inventory: _________ b. 2014 Purchases: __________ c. 2013 Goods Available for Sale: ________ d. 2013 Net Income: ________ e. 2013 Retained Earnings ending balance: __________ f. 2013 Total Assets at end of year: ___________ g. 2014 Net Income: _________ h. 2014 Retained Earnings ending balance: _________ i. 2013 Cost of Goods Sold: ___________ j. 2013 Gross Margin: _________

Which inventory costing method will produce an amount for cost of goods sold that is closest to current market value?

The Atkins Company had the following beginning inventory, purchases, and sales of inventory during the first quarter of 2013: Required: Determine the value of the company's cost of goods sold and ending inventory at the end of March, assuming a perpetual inventory method and FIFO cost flow. Show all calculations.

If Singh uses the LIFO cost flow method, its ending inventory would be $1,620.

Kitchen Company uses the perpetual inventory method. On January 1, 2013, the company's first day of operations, Kitchen purchased 400 units of inventory that cost $2.50 each. On January 10, 2013, the company purchased an additional 600 units of inventory that cost $3.00 each. If Kitchen uses a weighted average cost flow method and sells 550 units of inventory, the amount of inventory appearing on balance sheet following the sale will be approximately:

Which of the following statements is correct in regard to the importance of inventory turnover to a company's profitability?

Jenkins Company sells home weather exercise bikes. Its beginning inventory was 50 units at $200 per unit. During the year, Jenkins made two purchases of the bikes: first, a 150-unit purchase at $220 per unit, and then 100 units at $250 per unit. The ending inventory for the year was 125 units. Required: Determine the amount of product costs that would be allocated to cost of goods sold and ending inventory, assuming that Jenkins uses a) FIFO b) LIFO c) Weighted average

In an inflationary period, which cost flow method, LIFO or FIFO, results in the larger dollar amount of assets on the balance sheet?

How would the sale affect the financial statements if Pufferbellies Bookstore uses the FIFO inventory cost flow method?

Wynn Corporation's 2013 ending inventory was overstated by $20,000; however, ending inventory for 2014 was correct. Which of the following statements is correct?

What are the circumstances that might cause a company to need an estimate of the amount of its inventory?

King Camera Shop applies the lower-of-cost-or-market rule to individual items of inventory. In 2013, some of King's inventory lost value due to obsolescence. Other items increased in market value. In total, the market value of King's inventory was higher at the end of 2013 than the cost of the inventory. Would King have an adjustment to make at the end of 2013 due to the lower-of-cost-or-market rule? Would the answer be any different if King applied the rule in aggregate rather than to individual items?

Indicate whether each of the following statements related to inventory is true or false. _____ a) The lower a company's inventory turnover ratio, the higher its cost of financing inventory. _____ b) The selling price a company charges for its goods probably will not be affected by the inventory cost flow method it uses. _____ c) Other things being equal, if prices are rising, a company that uses the LIFO inventory method will have a higher amount of total assets than if it had used FIFO. _____ d) A company that plans to offer a higher level of customer service than its competitors probably will have a higher gross margin percentage than its competitors. _____ e) The lower of cost or market rule may reduce a company's net income, but it will never increase net income.

What is meant by "market" in lower-of-cost-or-market calculations?

Wooster Company purchased two units of a product for $18 and later purchased one more for $20. If the company uses the weighted average cost flow method, and it sold one unit of the product for $30, its gross margin would be $11.00.

Greene's ending inventory under weighted average would be approximately:

Define the terms FIFO and LIFO.

Torres Company purchased 2,000 units of inventory that cost $2.00 each on January 1, 2013. An additional 3,000 units of inventory were purchased on January 12, 2013 at a cost of $2.10 each. Torres Company sold 4,000 units of inventory on January 20, 2013. Which of the following entries would be required to recognize the cost of goods sold assuming that Torres Co. uses the perpetual inventory method and a FIFO cost flow method?

Kenya Co. uses the perpetual inventory method. Kenya purchased 400 units of inventory that cost $6.00 each. At a later date the company purchased an additional 600 units of inventory that cost $8.00 each. If Kenya uses the FIFO cost flow method and sells 700 units of inventory, the amount of cost of goods sold will be: