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Exam 6: Inventories

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Question 101

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Match each situation to its impact a-c) on the current year's net income. -Merchandise was purchased FOB destination on the last day of the year. The cost of the merchandise purchased was not included in ending inventory.

A) Net income for the current year will be overstated.
B) Net income for the current year will be understated.
C) There will be no error effect on net income.

D) All of the above
E) A) and C)

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Question 102

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The number of days' sales in inventory measures

A) the length of time it takes to acquire, sell, and replace the inventory
B) the length of time it takes to acquire and receive payment for the inventory
C) the number of days inventory is on hand prior to sale
D) the number of days inventory takes to arrive after ordering

E) A) and D)
F) B) and C)

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Question 103

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Cost flow is in the order in which costs were incurred when using

During the taking of its physical inventory on December 31, Almond Supplies Company incorrectly counted its inventory as $545,000 instead of the correct amount of $554,000. Indicate the effects of the misstatement on Almond Supplies Company's balance sheet and income statement for the year ended December 31.

If the cost of an item of inventory is $60 and the current replacement cost is $75, the amount included in inventory according to the lower of cost or market is

Use the information below to answer the following questions. The Boxwood Company sells blankets for $60 each. The following was taken from the inventory records during May. The company had no beginning inventory on May 1. $\begin{array} { | l | l | l | l | } \hline \text { Date } & { \text { Blankets } } & \text { Units } & \text { Cost } \\\hline { \text { May } 3 } & \text { Purchase } & 5 & \$ 20 \\\hline 10 & \text { Sale } & 3 & \\\hline 17 & \text { Purchase } & 10 & \$ 24 \\\hline 20 & \text { Sale } & 6 & \\\hline 23 & \text { Sale } & 3 & \\\hline 30 & \text { Purchase } & 10 & \$ 30 \\\hline\end{array}$ -Assuming that the company uses the perpetual inventory system, determine the ending inventory value for the month of May using the FIFO inventory cost method.

Of the three widely used inventory costing methods FIFO, LIFO, and average cost), the LIFO method of costing inventory assumes costs are charged based on the most recent purchases first.

The inventory data for an item for November are: $\begin{array} { r l l } \text { Nov. } 1 & \text { Inventory } & 20 \text { units at } \$ 19 \\4 & \text { Sold } & 10 \text { units } \\10 & \text { Purchased } & 30 \text { units at } \$ 20 \\17 & \text { Sold } & 20 \text { units } \\30 & \text { Purchased } & 10 \text { units at } \$ 21\end{array}$ Using a perpetual system, what is the cost of the merchandise sold for November if the company uses FIFO?

Match each description to the appropriate document used for inventory control a-c) . -last document in the chain, use to compare all three for accuracy

Match each description to the appropriate cost flow assumption a-c) . -Produces the highest gross profit when costs are decreasing

Too much inventory on hand

Merchandise inventory at the end of the year was inadvertently overstated. Which of the following statements correctly states the effect of the error on net income, assets, and stockholders' equity?

Under the periodic inventory system, the merchandise inventory account continuously discloses the amount of inventory on hand.

Three identical units of merchandise were purchased during July, as follows: Assume one unit sells on July 28 for $45. Determine the gross profit, cost of merchandise sold, and ending inventory on July 31 using a) first-in, first-out, b) last-in, first-out, and c) average cost flow methods.

The units of an item available for sale during the year were as follows: $\begin{array}{|ll|l|l|}\hline \text { January } & 11 & \text { Inventory } & 60 \text { units @ } \$ 145 \\\hline \text { February } & 27 & \text { Purchase } & 90 \text { units @ } \$ 150 \\\hline \text { November } &21 & \text { Purchase } & 75 \text { units } @ \$ 154 \\\hline\end{array}$ There are 48 units of the item in the physical inventory at December 31. The periodic inventory system is used. Determine the inventory cost by a) the first-in, first-out method, b) the last-in, first-out method, and c) the average cost method. Show your work.

Match each description to the appropriate cost flow assumption a-d) . -Cost flow matches the unit sold to the unit purchased.

The value of ending inventory using LIFO is

Use the information below to answer the following questions. The Boxwood Company sells blankets for $60 each. The following was taken from the inventory records during May. The company had no beginning inventory on May 1. $\begin{array} { | l | l | l | l | } \hline \text { Date } & { \text { Blankets } } & \text { Units } & \text { Cost } \\\hline { \text { May } 3 } & \text { Purchase } & 5 & \$ 20 \\\hline 10 & \text { Sale } & 3 & \\\hline 17 & \text { Purchase } & 10 & \$ 24 \\\hline 20 & \text { Sale } & 6 & \\\hline 23 & \text { Sale } & 3 & \\\hline 30 & \text { Purchase } & 10 & \$ 30 \\\hline\end{array}$ -Assuming that the company uses the perpetual inventory system, determine the Gross Profit for the month of May using the LIFO cost method.

The inventory data for an item for November are: $\begin{array} { r l l } \text { Nov. } 1 & \text { Inventory } & 20 \text { units at } \$ 19 \\4 & \text { Sold } & 10 \text { units } \\10 & \text { Purchased } & 30 \text { units at } \$ 20 \\17 & \text { Sold } & 20 \text { units } \\30 & \text { Purchased } & 10 \text { units at } \$ 21\end{array}$ Using a perpetual system, what is the cost of the merchandise sold for November if the company uses LIFO?

Safeguarding inventory and proper reporting of the inventory in the financial statements are the reasons for controlling the inventory.