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Exam 5: Accounting for Inventories

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Question 61

Multiple Choice

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When the perpetual inventory system is used, where can the best estimate of the amount of inventory on hand be found?

A) On the previous period's balance sheet
B) In the Inventory account
C) By applying the gross margin method
D) By subtracting sales for the period from the beginning Inventory account balance

E) A) and B)
F) All of the above

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Question 62

True/False

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Warner Company purchased two units of a product for $36 and later purchased one more for $40. If the company uses the weighted average cost flow method, and it sold one unit of the product for $60, its gross margin would be $22.00.

A) True
B) False

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Question 63

Multiple Choice

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How is inventory turnover calculated?

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

Stan's Surf Shack purchased five surfboards for $200 each. Later it purchased two additional surfboards for $250 each. Stan's sold a total of six surfboards during the period for $350 cash each. The company uses the perpetual inventory system and has not yet accrued any income taxes for the period.Indicate how the event described in the question affects the elements of the financial statements. Use the following letters to record your answer in the box shown below. If an event increases one account and decreases another account within the same element, record I/D. If an event has no impact on the element, record NA. You do not need to enter amounts.Increase = IDecrease = DNot Affected = NAStan's sold the six surfboards for cash. The company uses the LIFO inventory cost flow method. (Consider the effects of both parts of this event.)

Chopin Company sells product A. The beginning inventory for product A was 70 units @ $240 per unit. During the year, Chopin purchased 110 units of product A at $216 per unit. The company sold 140 units of product A @ $400 per unit at the end of the year. Required:Determine the amount of product cost that would be allocated to cost of goods sold and ending inventory using (1)FIFO, (2)LIFO, and (3)weighted average (when calculating weighted average cost per unit round to 2 decimal places).

Gladding, Incorporated applies the lower-of-cost-or-market rule to the entire stock of its inventory in the aggregate. At the end of the accounting period, it is determined that the cost of the inventory is $26,985 and the market (replacement)value is $25,886. Indicate how the required adjustment affects the elements of the financial statements. Use the following letters to record your answer in the box shown below. If an event increases one account and decreases another account within the same element, record I/D. If an event has no impact on the element, record NA. You do not need to enter amounts.Increase = IDecrease = DNot Affected = NA

Rowan Company has four different categories of inventory. The quantity, cost, and market value for each of the inventory categories are as follows: The company carries inventory at lower-of-cost-or-market applied to the entire stock of inventory in the aggregate. How would the implementation of the lower-of-cost-or-market rule impact the elements of the company's financial statements?

The inventory records for Radford Company reflected the following: What is the amount of cost of goods sold assuming the LIFO cost flow method?

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

The cost flow method chosen by a company will impact its inventory turnover ratio.

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? (Do not round your intermediate calculations.)

Stan's Surf Shack purchased five surfboards for $200 each. Later it purchased two additional surfboards for $250 each. Stan's sold a total of six surfboards during the period for $350 cash each. The company uses the perpetual inventory system and has not yet accrued any income taxes for the period.Indicate how the event described in the question affects the elements of the financial statements. Use the following letters to record your answer in the box shown below. If an event increases one account and decreases another account within the same element, record I/D. If an event has no impact on the element, record NA. You do not need to enter amounts.Increase = IDecrease = DNot Affected = NAStan's Surf Shack made the second purchase of two additional surfboards for cash.

Steven, Incorporated uses the perpetual inventory system. The company's management, under pressure to report favorable results to shareholders, included $15,000 of inventory that had already been sold in its ending inventory. Indicate whether this misstatement would overstate (O), understate (U), or not affect (NA)each of the elements of the financial statements. You do not need to enter amounts.

During a period of rising inventory prices the LIFO cost flow method will result in higher total assets than FIFO.

Misty Mountain Outfitters is a merchandiser of specialized fly fishing gear. Its cost of goods sold for Year 2 was $1,838,600, and sales were $2,831,300. The amount of merchandise on hand was $489,000, and total assets amounted to $2,924,200. What is the average number of days to sell inventory? (Do not round your intermediate calculations. Use 365 days in a year. Round to the nearest day.)

What is the average number of days to sell inventory for Company Y? (Use 365 days in a year.)

The lower-of-cost-or-market rule can be applied to which of the following?

Which of the following businesses is most likely to use a specific identification cost flow method?

If Bowman Company is using FIFO and sales and purchases occur intermittently, how is cost of goods sold computed when recording a sale under the perpetual inventory system?