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Exam 6: Inventories

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Question 51

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Under a periodic inventory system

A) accounting records continuously disclose the amount of inventory
B) a separate account for each type of merchandise is maintained in a subsidiary ledger
C) a physical inventory is taken at the end of the period
D) merchandise inventory is debited when goods are returned to vendors

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

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Question 52

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During periods of increasing costs, the use of the FIFO method of costing inventory will result in a greater amount of net income than would result from the use of the LIFO cost method.

A) True
B) False

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Question 53

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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? $\begin{array}{lll}\text { Sep. } 1 & \text { Merchandise inventory } & \$ 125,000 \\\text { Sep. } 1-30 & \text { Purchases(net) } & 300,000 \\\text { Sep. } 1-30 & \text { Sales (net) } & 150,000\end{array}$

If a company mistakenly counts more items during a physical inventory than actually exist, how will the error affect their bottom line?

Addison, Inc. uses a perpetual inventory system. The following is information about one inventory item for the month of September: $\begin{array}{rll}\text { Sep. } 1 & \text { Inventory } & 20 \text { units at } \$ 20 \\4 & \text { Sold } & 10 \text { units } \\10 & \text { Purchased } & 30 \text { units at } \$ 25 \\17 & \text { Sold } & 20 \text { units } \\30 & \text { Purchased } & 10 \text { units at } \$ 30\end{array}$ If Addison uses LIFO, the cost of the ending merchandise inventory on September 30 is

"Market," as used in the phrase "lower of cost or market" for valuing inventory, refers to the price at which the inventory is being offered for sale by its owner.

The following data were taken from the annual reports of Jong Inc., a manufacturer of fireworks, and Hobson Inc., a manufacturer of computers. (a) Determine the (1) inventory turnover and (2) number of day's sales in inventory for Jong and Hobson. Round your answer to two decimal places. (b) How would you expect these measures to compare between the companies? Why?

Unsold consigned merchandise should be included in the consignee's inventory.

On the basis of the following data, determine the estimated cost of the inventory as of March 31 by the retail method, presenting details of the computation in good order.

Three identical units of Item Steele Plate are purchased during March, as shown below. $\begin{array} { | l | l | l | l | } \hline & \text { Item Steele Plate } & \text { Units } & \text { Cost } \\\hline \text { Mar. } 3 & \text { Purchase } & 1 & \$ 830 \\\hline \text { Mar. } 10 & \text { Purchase } & 1 & 840 \\\hline \text { Mar. 19 } & \text { Purchase } & 1 & 880 \\\hline \text { Total } & & 3 & \$ 2,550 \\\hline\end{array}$ 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, (b) LIFO, and (c) average cost methods.

The inventory costing method that reports the earliest costs in ending inventory is

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

If a manufacturer ships merchandise to a retailer on consignment, the unsold merchandise should be included in the inventory of the

Which of the following companies would be more likely to use the specific identification inventory costing method?

On the basis of the following data, estimate the cost of the merchandise inventory at March 31 by the retail method:

Fill in the missing amounts from the chart below regarding the calculation of Bean Corporation's estimated inventory using the retail method of estimation.

Inventory costing methods place primary emphasis on assumptions about

Direct disposal costs do not include special advertising or sales commissions.

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

During periods of increasing costs, an advantage of the LIFO inventory cost method is that it matches more recent costs against current revenues.