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Exam 6: Inventories and Cost of Sales

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Question 31

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A company's current inventory consists of 5,000 units purchased at $6 per unit. Replacement cost has now fallen to $5 per unit. What is the entry the company must record to adjust inventory to market?

A) Debit Merchandise Inventory $25,000; credit Cost of Goods Sold $25,000.
B) Debit Loss on Inventory $5,000; credit Cost of Goods Sold $5,000.
C) Debit Cost of Goods Sold $30,000; credit Merchandise Inventory $30,000.
D) Debit Cost of Goods Sold $5,000; credit Merchandise Inventory $5,000.
E) Debit Merchandise Inventory $30,000; credit Cost of Goods Sold $25,000.

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

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Question 32

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Lucia Company reported cost of goods sold for Year 1 and Year 2 as follows: $\begin{array} { | l | r | r | } \hline & \text { Y ear 1 } & \text { Y ear 2 } \\\hline \text { Beginning inventory } & \$ 120,000 & \$ 130,000 \\\hline \text { Cost of goods purchased } & 250,000 & \underline { 275,000 } \\\hline \begin{array} { l } \text { Cost of goods avail able for } \\\text { sale }\end{array} & 370,000 & 405,000 \\\hline \text { Ending inventory } & 130,000 & 135,000 \\\hline \text { Cost of goods sold } & \$ 240,000 & \$ 270,000 \\\hline\end{array}$ Lucia Company made two errors: 1) ending inventory at the end of Year 1 was understated by $15,000 and 2) ending inventory at the end of Year 2 was overstated by $6,000. Given this information, the correct cost of goods sold figure for Year 2 would be:

A) $291,000
B) $276,000
C) $264,000
D) $249,000
E) $285,000

F) B) and D)
G) All of the above

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Question 33

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The inventory turnover ratio:

When LIFO is used with the periodic inventory system, cost of goods sold is assigned costs from the most recent purchases at the point of each sale, rather than from the most recent purchases for the period.

Generally accepted accounting principles require that the inventory of a company be reported at:

Mary's Antiques does not have its own retail location, instead maintains inventory in its warehouse and sells merchandise through Oldtime Antique Mall. Oldtime does not assume responsibility for goods until they are sold to customers at which time it takes a commission for items sold and sends the sale proceeds to Mary's. Identify which company has the role of the consignor and the consignee. Which company should include any unsold goods as part of its inventory?

Jefferson Company has sales of $300,000 and cost of goods available for sale of $270,000. If the gross profit ratio is typically 30%, the estimated cost of the ending inventory under the gross profit method would be:

Patrick Randall of Sports Supplies finds that maintaining appropriate levels of inventories while controlling costs is a major challenge. What are the challenges Patrick refers to?

Errors in the period-end inventory balance only affect the current period's records and financial statements.

Incidental costs for acquiring merchandise inventory, such as import duties, freight, storage, and insurance, should not be added to the cost of inventory.

A company had the following purchases and sales during its first year of operations: $\begin{array}{|l|l|l|} \hline& \text { Purchases } & \text { Sales } \\\hline \text { January: } & 10 \text { units at } \$ 120 & 6 \text { units } \\\hline \text { February: } & 20 \text { units at } \$ 125 & 5 \text { units } \\\hline \text { May: } & 15 \text { units at } \$ 130 & 9 \text { units } \\\hline \text { September: } & 12 \text { units at } \$ 135 & 8 \text { units } \\\hline \text { November: } & 10 \text { units at } \$ 140 & 13 \text { units } \\\hline\end{array}$ On December 31, there were 26 units remaining in ending inventory. Using the Periodic LIFO inventory valuation method, what is the value of cost of goods sold? (Assume all sales were made on the last day of the month.)

In the retail inventory method of inventory valuation, the retail amount of inventory refers to its dollar amount measured using selling prices of inventory items.

Salmone Company reported the following purchases and sales of its only product. Salmone uses a perpetual inventory system. Determine the cost assigned to the ending inventory using FIFO. $\begin{array} { | r | l | l | l | } \hline \text { Date } & \text { Activities } & \text { Units Acquired at Cost } & \text { Units Sold at Retail } \\\hline \text { May 1 } & \text { Beginning Inventory } & 150 \text { units } @ \$ 10.00 & \\\hline 5 & \text { Purchase } & 220 \text { units } @ \$ 12.00 & \\\hline 10 & \text { Sales } & & 140 \text { units } @ \$ 20.00 \\\hline 15 & \text { Purchase } & 100 \text { units } @ \$ 13.00 & \\\hline 24 & \text { Sales } & & 90 \text { units } @ \$ 21.00 \\\hline\end{array}$

Eastview Company uses a periodic LIFO inventory system, and has the following purchases and sales: $\begin{array} { | l | l | } \hline \text { January 1 } & 150 \text { units were purchased at } \$ 9 \text { per unit. } \\\hline \text { January } 17 & 120 \text { units were sold. } \\\hline \text { January 20 } & 160 \text { units were purchased at } \$ 11 \text { per unit. } \\\hline \text { January 29 } & 150 \text { units were sold. } \\\hline\end{array}$ What is the value of ending inventory?

Big Box Store has operated with a 30% average gross profit ratio for a number of years. It had $100,000 in sales during the second quarter of this year. If it began the quarter with $18,000 of inventory at cost and purchased $72,000 of inventory during the quarter, its estimated ending inventory by the gross profit method is:

Describe the internal controls that must be applied when taking a physical count of inventory.

A company had the following purchases during its first year of operations: $\begin{array} { | l | l | } \hline \text { January: } & \text { Purchases } \\\hline \text { February: } & 10 \text { units at } \$ 120 \\\hline \text { May: } & 20 \text { units at } \$ 130 \\\hline \text { September: } & 15 \text { units at } \$ 140 \\\hline \text { November: } & 12 \text { units at } \$ 150 \\\hline\end{array}$ On December 31, there were 26 units remaining in ending inventory. These 26 units consisted of 2 from January, 4 from February, 6 from May, 4 from September, and 10 from November. Using the specific identification method, what is the cost of the ending inventory?

A company uses the periodic inventory system and had the following activity during the current monthly period. $\begin{array} { | l | l | l | } \hline \text { November 1: } & \text { Beginning inventory } & 100 \text { units } @ \$ 20 \\\hline \text { November } 5 : & \text { Purchased } & 100 \text { units } @ \$ 22 \\\hline \text { November } 8 : & \text { Purchased } & 50 \text { units } @ \$ 23 \\\hline \text { November 16: } & \text { Sold } & 200 \text { units } @ \$ 45 \\\hline \text { November 19: } & \text { Purchased } & 50 \text { units } @ \$ 25 \\\hline\end{array}$ Using the weighted-average inventory method, the company's ending inventory would be:

A company had inventory on November 1 of 5 units at a cost of $20 each. On November 2, they purchased 10 units at $22 each. On November 6 they purchased 6 units at $25 each. On November 8, 8 units were sold for $55 each. Using the LIFO perpetual inventory method, what was the value of the inventory on November 8 after the sale?

If a period-end inventory amount is reported in error, it can cause a misstatement in all of the following except: