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Exam 5: Inventories and Cost of Sales

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Question 71

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The ______________________ method of assigning costs to inventory and cost of goods sold requires that the cost of goods available for sale be divided by the units of inventory available when each sale takes place.

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Question 72

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

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Question 73

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A company's ability to pay its short-term obligations depends on many factors including how quickly it is able to sell its merchandise inventory.

Using the retail inventory method,if the cost to retail ratio is 60% and ending inventory at retail is $45,000,then estimated ending inventory at cost is $27,000.

A company that uses a perpetual inventory system made the following cash purchases and sales.There was no beginning inventory. $\begin{array}{|l|l|}\hline \text { January } 1: & \text { Purchased } 100 \text { units at } \$ 10 \text { per unit } \\\hline \text { February 5: } & \text { Purchased } 60 \text { units at } \$ 12 \text { per unit } \\\hline \text { March 16: } & \text { Sold } 40 \text { units for } \$ 16 \text { per unit }\\\hline\end{array}$ Prepare the general journal entry to record the March 16 sale,assuming the weighted-average method is used.

A company had gross profit of $134,200 on net sales of $205,000.If ending inventory was $8,000 and average inventory was $7,080,what is the company's inventory turnover?

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

A company that uses a perpetual inventory system made the following cash purchases and sales.There was no beginning inventory. $\begin{array}{|l|l|}\hline \text { January 1: } & \text { Purchased } 100 \text { units at } \$ 10 \text { per unit } \\\hline \text { February 5: } & \text { Purchased } 60 \text { units at } \$ 12 \text { per unit } \\\hline \text { March 16: } & \text { Sold } 40 \text { Units for } \$ 16 \text { per unit }\\\hline\end{array}$ Prepare the general journal entries to record the March 16 sale using the LIFO inventory valuation method.

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

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

Which inventory valuation method assigns a value to the inventory on the balance sheet that approximates current cost and also mimics the actual flow of goods for most businesses?

Monitor Company uses the LIFO method for valuing its ending inventory.The following financial statement information is available for their first year of operation: $\begin{array}{c}\text { MONITOR COMPANY}\\\text { Income Statement}\\\text { For the year ended December 31}\\\begin{array}{|l|r|}\hline \text { Sales } \quad \quad \quad \quad & \$ 50,000 \\\hline \text { Cost of goods sold } & 23,000 \\\hline \text { Gross profit } & \$ 27,000 \\\hline \text { Expenses } & \underline{13,000} \\\hline \text { Income before taxes } & \$ 14,000\\\hline\end{array}\end{array}$ Monitor's ending inventory using the LIFO method was $8,200.Monitor's accountant determined that had they used FIFO,the ending inventory would have been $8,500. a.Determine what the income before taxes would have been had Monitor used the FIFO method of inventory valuation instead of LIFO b.What would be the difference in income taxes between LIFO and FIFO,assuming a 30% tax rate?

The ______________________ method of assigning costs to inventory and cost of goods sold assumes that the most recent purchases are sold first.

The assignment of costs to cost of goods sold and inventory using weighted average usually yields different results depending on whether a perpetual or periodic system is used

A company has inventory with a market value of $217,000 and a cost of $241,000.According to the lower of cost or market,the inventory should be written down to $217,000.

Use the following information to estimate the third quarter ending inventory under the gross profit method.This company's gross profit ratio is 20%. Third quarter beginning inventory: $54,000 Net sales for third quarter: $85,000 Net purchases for third quarter: $21,000

The understatement of the ending inventory balance causes:

Damaged and obsolete goods:

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

An advantage of the _________________ method of inventory valuation is that it tends to smooth out the effect of erratic changes in costs.