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Exam 6: Inventories and Cost of Sales

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Question 81

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Regardless of what inventory method or system is used, cost of goods available for sale must be allocated between ___________________ and __________________.

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Question 82

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Louise Company reported the following income statement information for Year 1 and Year 2: The beginning inventory balance for Year 1 is correct. The ending inventory balance for Year 2 is also correct. However, the ending inventory figure for Year 1 was overstated by $20,000. Given this information, the correct gross profit figures for Year 1 and Year 2 would be:

A) $129,000 for Year 1 and $256,000 for Year 2.
B) $281,000 for Year 1 and $274,000 for Year 2.
C) $129,000 for Year 1 and $276,000 for Year 2.
D) $169,000 for Year 1 and $236,000 for Year 2.
E) $169,000 for Year 1 and $276,000 for Year 2.

F) A) and D)
G) C) and D)

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Question 83

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Explain why the lower of cost or market rule is used to value inventory.

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.

A company uses the periodic inventory system and had the following activity during the current monthly period. In a periodic inventory system, using the weighted-average inventory method, the company's ending inventory would be:

A merchandiser's ability to pay its short-term obligations depends on many factors including how quickly it sells its merchandise inventory.

Sarbanes Oxley (SOX) demands that companies safeguard inventory and properly report it. List methods that companies should use to safeguard inventory and accounting procedures that should be used to properly report inventory.

Using the information given below for a company that uses a perpetual inventory system, calculate the ending inventory using weighted average.

Tops had cost of goods sold of $9,421 million, ending inventory of $2,089 million, and average inventory turnover of $1,965 million. Its days' sales in inventory equals:

Discuss the important accounting features of a periodic inventory system including accounts and procedures used.

Some companies use the _________________ principle or the __________________ constraint to avoid assigning incidental costs of acquiring merchandise to inventory.

The ______________________ method of assigning costs to inventory and cost of goods sold required that we divide the cost of goods available for sale by the units of inventory available at the time of each sale.

A company uses the periodic inventory system, and the following information is available. All purchases and sales are on credit. 1. Prepare the general journal entries to record: The October 6 purchase. The October 12 sale. 2. Assuming the periodic inventory system is used, determine both the cost of the ending inventory and the cost of goods sold using the LIFO method for October.

Perch Company reported the following purchases and sales for its only product. Perch uses a perpetual inventory system. Determine the cost assigned to the ending inventory using FIFO.

In applying the lower of cost or market method to inventory valuation, market is defined as:

The inventory valuation method that has the advantages of assigning an amount to inventory on the balance sheet that approximates its current cost, and also mimics the actual flow of goods for most businesses is:

A company reported the following information regarding its inventory. Beginning inventory: cost is $70,000; retail is $130,000 Net purchases: cost is $65,000; retail is $120,000 Sales at retail: $145,000 The year-end inventory showed $105,000 worth of merchandise available at retail prices. What is the cost of the ending inventory?

An error in the period-end inventory causes an offsetting error in the next period and therefore:

What costs are assigned to merchandise inventory? Identify all costs including the incidental costs.

When purchase costs of inventory regularly decline, which method of inventory costing will yield the lowest gross profit and income?