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Exam 6: Merchandise Inventory

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Question 31

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Michigan Motors is considering which inventory costing method it should use. The business wants to show the highest Merchandise Inventory balance during a period of declining costs. Which inventory method should Michigan Motors select? Discuss your selection.

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Michigan should select the last-in, firs...

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Question 32

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When using the weighted-average inventory costing method, the dollar amounts for ending inventory and cost of goods sold are the same for both the perpetual and periodic inventory costing methods.

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Question 33

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If the historical cost of inventory is less than its current replacement cost, the business must adjust the inventory value.

The tracking of inventory shrinkage due to theft, damage, or errors is done with the help of a(n) ________ of inventory.

"The amounts obtained for cost of goods sold and ending merchandise inventory are always the same for FIFO perpetual and FIFO periodic." Is this statement true? Why or why not?

Boulevard Home Furnishings had the following balances and transactions during 2018. $\begin{array} { | l | l | } \hline \text { Beginning Inventory } & 20 \text { units at } \$ 71 \\\hline \text { June 10 } & \text { Purchased } 40 \text { units at } \$ 85 \\\hline \text { December 30 } & \text { Sold 25 units } \\\hline \text { December 31 } & \text { Replacement cost } \$ 87 \\\hline\end{array}$ The company maintains its records of inventory on a perpetual basis using the FIFO inventory costing method. Calculate the amount of ending Merchandise Inventory at December 31, 2018 using the lower-of-cost-or-market rule.

Under International Financial Reporting Standards (IFRS), companies may only use the specific identification, FIFO, and weighted-average methods to cost inventory.

Jacob, Inc. had the following balances and transactions during 2019: $\begin{array} { | l | l | } \hline \text { Beginning Merchandise Inventory } & 11 \text { units at } \$ 92 \\\hline \text { March 10 } & \text { Sold 8 units } \\ \hline \text { June } 10 & \text { Purchased } 33 \text { units at } \$ 89 \\\hline \text { October 30 } & \text { Sold 27 units } \\\hline\end{array}$ What is the amount of the company's ending Merchandise Inventory, as disclosed in the December 31, 2019 balance sheet, using the periodic weighted-average inventory costing method? (Round the unit costs to two decimal places and total costs to the nearest dollar.)

Which of the following inventory costing methods yields the highest net income during a period of rising inventory costs?

Rally Wheels, Inc. had the following balances and transactions during 2018: $\begin{array} { | l | l | } \hline \text { Beginning Merchandise Inventory as of January 1,2018 } & 200 \text { units at } \$ 71 \\\hline \text { March } 10 & \text { Sold } 50 \text { units } \\\hline \text { June } 10 & \text { Purchased } 800 \text { units at } \$ 76 \\\hline \text { October } 30 & \text { Sold } 175 \text { units } \\\hline\end{array}$ What would the company's ending merchandise inventory cost be on December 31, 2018 if the perpetual inventory system and the last-in, first-out inventory costing method are used?

Baldwin, Inc. had the following balances and transactions during 2019: $\begin{array} { | l | l | } \hline \text { Beginning Merchandise Inventory as of January 1,2019 } & 125 \text { units at } \$ 81 \\\hline \text { March } 10 & \text { Sold } 50 \text { units } \\\hline \text { June } 10 & \text { Purchased } 225 \text { units at } \$ 86 \\\hline \text { October } 30 & \text { Sold } 175 \text { units } \\\hline\end{array}$ What would be reported as Cost of Goods Sold on the income statement for the year ending December 31, 2019 if the perpetual inventory system and the first-in, first-out inventory costing method are used?

Which of the following is an application of conservatism?

A company purchased 400 units for $30 each on January 31. It purchased 135 units for $40 each on February 28. It sold 200 units for $55 each from March 1 through December 31. If the company uses the last-in, first-out inventory costing method, what is the amount of Cost of Goods Sold on the income statement for the year ending December 31? (Assume that the company uses a perpetual inventory system.)

Which of the following is affected as a result of an error in performing the physical count of inventory at the end of the accounting period?

Kelley, Inc. provided the following account balances for 2018: $\begin{array} { | l | r | } \hline \text { Cost of Goods Sold (Cost of sales) } & \$ 1,300,000 \\\hline \text { Beginning Merchandise Inventory } & 330,000 \\\hline \text { Ending Merchandise Inventory } & 350,000 \\\hline\end{array}$ Calculate the average number of days that inventory was held by Kelley, Inc. during 2018. (Assume 365 days in a year. Round your intermediate calculations and final answer to two decimal places.)

The periodic inventory records of Northstar Sales indicate the following for the month of April: $\begin{array} { | r | l | r | } \hline \text { Apr. 1 } & \text { Beginning merchandise inventory } & 15 \text { units @ \$32 each } \\\hline 7 & \text { Purchase } & 7 \text { units @ \$34 each } \\\hline 18 & \text { Purchase } & 12 \text { units @ \$37 each } \\\hline 26 & \text { Purchase } & 10 \text { units @ \$40 each } \\\hline\end{array}$ As of April 30, Northstar counts 8 units of merchandise inventory on hand. Compute ending merchandise inventory and cost of goods sold for Northstar using the LIFO inventory method.

A company purchased 130 units for $20 each on January 31. It purchased 190 units for $25 each on February 28. It sold 190 units for $60 each from March 1 through December 31. If the company uses the weighted-average inventory costing method, calculate the amount of Cost of Goods Sold on the income statement for the year ending December 31. (Assume the company uses the perpetual inventory system. Round any intermediate calculations two decimal places, and your final answer to the nearest dollar.)

Which of the following is NOT included in a perpetual inventory record?

State the effects of inventory errors on cost of goods sold and net income for periods 1 and 2. The response should be overstated or understated. Period 1 Ending Merchandise Inventory is overstated

A company that uses the perpetual inventory system sold goods for $2,600 to a customer on account. The company had purchased the inventory for $500. Which of the following journal entries correctly records the cost of goods sold?