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Exam 6: Inventories

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Question 41

True/False

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Inventory errors,if not discovered,will self-correct within two years.

A) True
B) False

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Question 42

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One negative effect of carrying too much inventory is risk that customers will change their buying habits.

A) True
B) False

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Question 43

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Under a perpetual inventory system,the amount of each type of merchandise on hand is available in the

Complete the chart,indicating whether LIFO or FIFO would give the highest and lowest amounts for each item,assuming a period of increasing costs. $\begin{array}{|l|c|c|}\hline & \text { Highest Amount } & \text { Lowest Amount } \\\hline \text { Cost of merchandise sold } & \\\hline \text { Gross profit } & \\\hline \text { Net income } & \\\hline \text { Ending merchandise inventory } & \\\hline\end{array}$

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

The following data were taken from the annual reports of Big Bang Inc.,a manufacturer of fireworks,and Orange Inc.,a manufacturer of computers. $\begin{array}{|l|r|r|}\hline & {\text { Big Bang, Inc. }} & {\text { Orange, Inc. }} \\\hline \text { Cost of merchandise sold } & \$ 830,000 & \$ 11,540,000 \\\hline \text { Inventory, end of year } & 190,000 & 320,000 \\\hline \text { Inventory, beginning of year } & 240,000 & 290,000 \\\hline\end{array}$ a Determine the 1 inventory turnover and 2 number of days' sales in inventory for Big Bang and Orange.Round your answers to two decimal places. b How would you expect these measures to compare between the companies? Why?

Damaged merchandise that can be sold only at prices below cost should be valued at

The following units of an inventory item were available for sale during the year: The firm uses the periodic inventory system. During the year, 60 units of the item were sold. -The value of ending inventory using FIFO is

Excess inventory results in all of the following except

Ending inventory is made up of the oldest purchases when a company uses

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

Kristin's Boutiques has identified the following items for possible inclusion in its December 31 inventory.Which of the following would not be included in the year-end inventory?

Beginning inventory,purchases,and sales data for tennis rackets are as follows: $\begin{array}{lcllll}& \text { April }3 & \text { Inventory } & & \text { 12 units } & @& \$45\\& 11 & \text { Purchase } & & \text { 13 units } & @& \$47 \\& 14 & \text { Sale } & & \text { 18 units } & @& \\& 21 & \text { Purchase } & & \text { 9 units } & @& \$60 \\& 25 & \text { Sale } & & \text { 10 units } & @& \\\end{array}$ 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.

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. $\begin{array}{|c|l|c|c|}\hline \text { Date } & {\text { Blankets }} & \text { Units } & \text { Cost } \\\hline \text { May } 3 & \text { Purchase } & 5 & \$ 20 \\\hline 10 & \text { Sale } & 3 & \\\hline 17 & \text { Purchase } & 10 & \$ 24 \\\hline 20 & \text { Sale } & 6 & \\\hline 23 & \text { Sale } & 3 & \\\hline 30 & \text { Purchase } & 10 & \$ 30 \\\hline\end{array}$ -Assuming that the company uses the perpetual inventory system,determine the gross profit for the sale of May 23 using the FIFO inventory cost method.

If the estimated rate of gross profit is 30%,what is the estimated cost of the merchandise inventory on September 30,based on the following data?

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

The following lots of a particular commodity were available for sale during the year: -What is the amount of the inventory at the end of the year rounded to nearest dollar using the average cost method?

Three identical units of merchandise were purchased during March,as shown: $\begin{array}{|l|l|c|c|}\hline & {\text { SteelePlate }} & \text { Units } & \text { Cost } \\\hline \text { Mar. } 3 & \text { Purchase } & 1 & \$ 830 \\\hline 10 & \text { Purchase } & 1 & 840 \\\hline 19 & \text { Purchase } & \underline{1} & \underline{880} \\\hline \text { Total } & & \underline{3} & \underline{\$ 2.550} \\\hline\end{array}$ Assume that one unit is sold on March 23 for $1,125.Determine the gross profit for March and ending inventory on March 31 using a FIFO and b LIFO.

The method of estimating inventory that uses records of the selling prices of the merchandise is called

If the perpetual inventory system is used,the merchandise inventory account is debited for purchases of merchandise.