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Exam 5: Accounting for Inventories

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Question 1

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Zinke Company understated its ending inventory at the end of Year 1. Which of the following correctly states the effect of the error on the amounts shown on the Year 1 financial statements?

A) Overstatement of total assets and cost of goods sold.
B) Overstatement of cost of goods sold and retained earnings.
C) Understatement of liabilities and retained earnings.
D) Understatement of total assets and gross margin.

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

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D

Question 2

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During a period of rising inventory prices, a company's cost of goods sold would be higher using the LIFO cost flow method than with FIFO.

A) True
B) False

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Question 3

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Singleton Company's perpetual inventory records included the following information:

Koontz Company uses the perpetual inventory method and the weighted-average method. On January 1, Year 1, the company's first day of operations, Koontz purchased 1,150 units of inventory that cost $5.50 each. On January 10, Year 1, the company purchased an additional 1,400 units of inventory that cost $7.50 each. If the company sells 1,300 units of inventory, what is the amount of inventory that would appear on the balance sheet immediately following the sale? (Round your intermediate calculations to two decimal places.) :

The inventory records for Radford Company reflected the following: What is the amount of gross margin assuming the FIFO cost flow method?

The following information is for Choi Company for Year 2: Beginning inventory 120 units @ $100Units purchased 180 units @ $112Choi sold 250 units for $190 each Required:a)Calculate gross margin assuming Choi uses:1)FIFO.2)LIFO.3)Weighted average.b)Disregarding the effect of income taxes, what would be the dollar amount of difference in net income between FIFO and LIFO?c)Again, disregard the effect of income taxes. Calculate the Year 2 cash flow from operating activities assuming that Choi uses:1)FIFO.2)LIFO.

If the company's inventory items have declined in value from damage or obsolescence, what effect will the lower-of-cost-or-market rule have on the amount of inventory shown on the balance sheet? Why?

Iona Corporation's ending inventory as of December 31, Year 1, was overstated by $28,000. Indicate whether each of the following statements relating to the above error is true or false.________ a)Cost of goods sold is overstated in Year 1 by $28,000.________ b)Net Income is overstated in Year 1 by $14,000.________ c)Retained Earnings at December 31, Year 1 is overstated by $28,000.________ d)Beginning inventory will be understated in Year 2 by $28,000.________ e)Retained Earnings will not be affected by this error at the end of Year 2.

Blake Company purchased two identical inventory items. The item purchased first cost $19.00, and the item purchased second cost $20.00. Blake sold one of the items for $34.00. Which of the following statements is true?

When preparing its quarterly financial statements, Pace Company uses the gross margin method to estimate ending inventory. The following information is available for the quarter ending March 31, Year 2: What is the estimated amount of inventory that is on hand on March 31, Year 2?

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

Maynard Company started the year with no inventory. During the year, it purchased two identical inventory items at different times. The first unit cost $1,100 and the second, $1,200. One of the items was sold during the year. Based on this information, how much product cost would be allocated to cost of goods sold and ending inventory, assuming use of each of the following methods:a)FIFOb)LIFOc)Weighted average

A loss resulting from application of the lower-of-cost-or-market rule is included in cost of goods sold if the loss is material in amount.

Curtis Company's inventory records reflect the following for the month of October, Year 2: Assuming that Curtis Company uses the FIFO cost flow method in a perpetual inventory system. Required:a)Calculate the cost of goods sold for the month ending October 31, Year 2.b)Calculate the ending inventory at October 31, Year 2.

The inventory records for Radford Company reflected the following: What is the amount of ending inventory assuming the FIFO cost flow method?

Poole Company purchased two identical inventory items. One of the items, purchased in January, cost $4.50. The other, purchased in February, cost $4.75. One of the items was sold in March at a selling price of $7.50. Poole uses LIFO. Which of the following statements is true?

Singh Company sold 75 units @ $350 each on October 31, Year 2. The following information is also available: Required:a)Determine the amount of cost of goods sold using:1)FIFO2)LIFO3)Weighted Averageb)Determine the amount of ending inventory using:1)FIFO2)LIFO 3)Weighted Average

Why are the inventory and cost of goods sold accounts attractive targets for managerial fraud?

The inventory records for Radford Company reflected the following: If the company uses the weighted-average inventory cost flow method, what is the average cost per unit (rounded) for May?

Glasgow Enterprises started the period with 80 units in beginning inventory that cost $7.50 each. During the period, the company purchased inventory items as follows: Glasgow sold 220 units after purchase 3 for $17.00 each. What is Glasgow's cost of goods sold under FIFO?