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Exam 7: Inventories

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Question 71

True/False

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A purchase order establishes an initial record of the receipt of the inventory.

A) True
B) False

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Question 72

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Match each description to the appropriate inventory system (a or b) .​ -When using this system, a physical inventory is necessary to determine cost of merchandise sold.

A) Perpetual
B) Periodic

C) A) and B)
D) undefined

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Question 73

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Beginning inventory, purchases, and sales for an inventory item are as follows:​​ $\begin{array} { | l | l | } \hline \text { Beginning inventory } & 150 \text { units } @ \$ 755 \\\hline \text { Sale } & 120 \text { units } \\\hline \text { First purchase } & 400 \text { units } @ \$ 785 \\\hline \text { Sale } & 200 \text { units } \\\hline \text { Second purchase } & 300 \text { units } @ \$ 805 \\\hline \text { Sale } & 290 \text { units } \\\hline\end{array}$ The firm uses the perpetual inventory system and there are 240 units of the item on hand at the end of the year. What is the total cost of ending inventory according to FIFO?

A physical inventory should be taken at the end of every month.

Beginning inventory, purchases, and sales data for tennis rackets are as follows:? $\begin{array} { | r | r | l | r | r | r | r | } \hline & \text { Apr. } 3 & \text { Inventory } & & 12 \text { units } & @ & \$ 45 \\\hline & 11 & \text { Purchase } & & 13 \text { units } & @ & \$ 47 \\\hline &14 & \text { Sale } & & 18 \text { units } & & \\\hline& 21 & \text { Purchase } & & 9 \text { units } & @ & \$ 60 \\\hline &25 & \text { Sale } & & 10 \text { units } & & \\\hline\end{array}$ Complete the inventory cost card assuming the business maintains a perpetual inventory system and calculates the cost of merchandise sold and ending inventory using FIFO.?

Under the LIFO inventory costing method, the most recent costs are assigned to ending inventory.

Match each description to the appropriate cost flow assumption (a-c) . -Produces the same cost of merchandise sold under both the periodic and the perpetual inventory systems

Match each description to the appropriate inventory system (a or b) .​ -This system can be costly and time consuming if not computerized.

Three identical units of merchandise were purchased during May, as follows:?? $\begin{array} { | c | l | c | r | } \hline & \text { Magnesium XP } & \text { Units } & { \text { Cost } } \\\hline \text { May 3 } & \text { Purchase } & 1 & \$ 130 \\\hline 10 & \text { Purchase } & 1 & 136 \\\hline 19 & \text { Purchase } & \underline { 1 } & \underline { 142 } \\\hline \text { Total } & & \underline { \mathbf { 3 } } & \underline { \mathbf { \$ 4 0 8 } } \\\hline\end{array}$ Assume that two units are sold on May 23 for $313 total. Determine the gross profit for May and ending inventory on May 31 using (a) FIFO, (b) LIFO, and (c) average cost methods.

Match each description to the appropriate cost flow assumption (a-d) . -Cost flow is assumed to be in the reverse order of costs incurred.

Determine the total value of the merchandise using net realizable value.? $\begin{array} { | c | c | r | r | } \hline \text { Item } & \text { Quantity } & \text { Selling Price } & \text { Commission } \\\hline \text { Doll } & 10 & \$ 7 & \$ 2 \\\hline \text { Horse } & 5 & 9 & 3 \\\hline\end{array}$

Assume that three identical units of merchandise were purchased during October, as follows:?? $\begin{array} { | l | c | c | c | r |} \hline & & & \text { Units } & \text { Cost } \\\hline \text { Oct. } & 5 & \text { Purchase } & 1 & \$ 5 \\\hline & 12 & \text { Purchase } & 1 & 13 \\\hline & 28 & \text { Purchase } & \underline { 1 } & \underline { 15 } \\\hline \text { Total } & & & \underline { \mathbf { 3 } } & \underline { \underline { \mathbf { 3 3 } } } \\\hline\end{array}$ Assume one unit is sold on October 31 for $28. Determine cost of merchandise sold, gross profit, and ending inventory under the average cost method.

Beginning inventory, purchases, and sales for an inventory item are as follows:? $\begin{array}{llllll}\text { Sept. } &1 \text { Beginning inventory }&&24~ units& @ ~\$ 10\\&5 \text { Sale } &&17~ units\\&17 \text { Purchase } &&10 ~units& @ ~\$ 15\\&30 \text { Sale }&&~~8~ units\end{array}$ Assuming a perpetual inventory system and the last-in, first-out method, determine (a) the cost of the merchandise sold for the September 30 sale and (b) the inventory on September 30.

On the basis of the following data for Sanford Industries as of December 31, determine the value of the inventory at the lower of cost or market. Also, show how the merchandise inventory would appear on the balance sheet (assume that the cost was determined by the FIFO method). Apply lower of cost or market to each inventory item. $\begin{array} { | c | c | c | c | } \hline \text { Commodity } & \text { Inventory Quantity } & \text { Cost per Unit } & \begin{array} { c } \text { Market Value per } \\\text { Unit }\end{array} \\\hline \text { Size } 4 & 9 & \$ 17 & \$ 19 \\\hline \text { Size } 5 & 10 & 17 & 14 \\\hline \text { Size } 6 & 14 & 20 & 22 \\\hline \text { Size } 7 & 12 & 13 & 15 \\\hline\end{array}$

Use the information below to answer the following questions. 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. $\begin{array} { | c | l | c | c | } \hline \text { Date } & { \text { Blankets } } & \text { Units } & \text { Cost } \\\hline \text { May } 3 & \text { Purchase } & 5 & \$ 20 \\\hline 10 & \text { Sale } & 3 & \\\hline 17 & \text { Purchase } & 10 & 24 \\\hline 20 & \text { Sale } & 6 & \\\hline 23 & \text { Sale } & 3 & 30 \\\hline 30 & \text { Purchase } & 10 & \\\hline\end{array}$ ? -Assuming that the company uses the perpetual inventory system, determine the ending inventory for the month of May using the LIFO inventory cost method.

Merchandise inventory at the end of the year is overstated. Which of the following statements correctly states the effect of the error?

Match each situation to its impact (a-c) on the current year's net income. -Beginning inventory was understated.

During a period of falling prices, which of the following inventory methods generally results in the lowest balance sheet amount for inventory?

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

Describe three inventory cost flow assumptions and how they impact the financial statements.