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Exam 5: Inventories and Cost of Sales

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Question 61

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Match the following terms with the appropriate definition. -One who receives and holds goods owned by another for purposes of selling the goods for the owner.

A) Gross profit method
B) Inventory turnover
C) Conservatism principle
D) Consistency concept
E) Consignor
F) Consignee
G) Days' sales in inventory
H) Retail inventory method
I) Specific identification method
J) Lower of cost or market

K) A) and H)
L) F) and H)

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Question 62

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On December 31 of the current year,Plunkett Company reported an ending inventory balance of $215,000.The following additional information is also available: ? Plunkett sold and shipped goods costing $38,000 to Savannah Enterprises on December 28 with shipping terms of FOB shipping point. The goods were not included in the ending inventory amount of $215,000. ? Plunkett purchased goods costing $44,000 on December 29. The goods were shipped FOB destination and were received by Plunkett on January 2 of the following year. The shipment was a rush order that was supposed to arrive by December 31. These goods were included in the ending inventory balance of $215,000. ? Plunkett's ending inventory balance of $215,000 included $15,000 of goods being held on consignment from Carole Company. (Plunkett Company is the consignee.) ? Plunkett's ending inventory balance of $215,000 did not include goods costing $95,000 that were shipped to Plunkett on December 27 with shipping terms of FOB destination and were still in transit at year-end. Based on the above information,the amount that Plunkett should report in ending inventory on December 31 is:

A) $194,000
B) $209,000
C) $200,000
D) $171,000
E) $156,000

F) A) and C)
G) A) and E)

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Question 63

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IFRS reporting currently does not allow which method of inventory costing?

Bedrock Company reported a December 31 ending inventory balance of $412,000.The following additional information is also available: ? The ending inventory balance of $412,000 included $72,000 of consigned inventory for which Bedrock was the consignor. ? The ending inventory balance of $412,000 included $22,000 of office supplies that were stored in the warehouse and were to be used by the company's supervisors and managers during the coming year. Based on this information,the correct balance for ending inventory on December 31 is:

The LIFO method of inventory valuation can result in a company's ending inventory being valued at less than the inventory's replacement cost because LIFO inventory leaves the oldest costs in inventory.

Accounting principles require that inventory be reported at the market value (cost)of replacing inventory when market value is lower than cost.

Match each of the following terms with the appropriate definition. -The accounting constraint that aims to select the less optimistic estimate when two or more estimates are about equally likely.

A company reported the following data related to its ending inventory: $\begin{array} { | l | l | r | r | } \hline \text { Product } & \text { Units Available } & \text { Cost } & \text { Market } \\\hline 849 & 100 & \$ 10 & \$ 11 \\\hline 842 & 75 & 16 & 14 \\\hline 847 & 60 & 14 & 13 \\\hline 860 & 40 & 16 & 20 \\\hline\end{array}$ Calculate the lower-of-cost-or-market on the inventory applied separately to each product.

LIFO assumes that inventory costs flow in the order incurred.

All of the following statements regarding U.S.GAAP and IFRS are true except:

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. $\begin{array} { | c | l | l | l | } \hline \text { Date } & { \text { Activities } } & \text { Units Acquired at Cost } & \text { Units Sold at Retail } \\\hline \text { May 1 }&\text {Beginning Inventory } & 150 \text { units @ } \$ 10.00 & \\\hline 5& \text { Purchase } & 220 \text { units @ } \$ 12.00 & \\\hline 10& \text { Sales } & & 140 \text { units @ \$20.00 } \\\hline 15 &\text { Purchase } & 100 \text { units @ } \$ 13.00 & \\\hline 24& \text { Sales } & & 90 \text { units @ \$21.00 } \\\hline\end{array}$

On March 31 a company needed to estimate its ending inventory to prepare its first quarter financial statements.The following information is available: Beginning inventory,January 1: $4,000 Net sales: $80,000 Net purchases: $78,000 The company's gross margin ratio is 25%.Using the gross profit method,the cost of goods sold 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?

Match the following terms with the appropriate definition. -The method of assigning costs to inventory where the purchase cost of each item in inventory is identified and used to determine the cost of inventory.

If the seller is responsible for paying freight charges,then ownership of inventory passes when goods arrive at their destination.

One application of internal control when taking a physical count of inventory is the use of pre-numbered inventory tickets.

The lower of cost or market rule for inventory valuation is always applied to individual units separately rather than to major categories of inventory or to the entire inventory.

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

A company reported the following data: $\begin{array} { | l | r | r | } \hline & \text { Year 1 } & \text { Year 2 } \\\hline \text { Cost of goods sold } & \$ 317,500 & \$ 279,100 \\\hline \text { Average inventory } & 72,000 & 93,000 \\\hline\end{array}$ Required: 1.Calculate the company's merchandise inventory turnover for each year. 2.Comment on the company's efficiency in managing its inventory.

A company had the following purchases and sales during its first month of operations: $\begin{array} { | l | l | } \hline \text { January } 1 & \text { Purchased } 10 \text { units at } \$ 4.00 \text { per unit } \\\hline \text { January } 9 & \text { Sold } 6 \text { units at } \$ 12.00 \text { per unit } \\\hline \text { January } 17 & \text { Purchased } 8 \text { units at } \$ 5.50 \text { per unit } \\\hline \text { January } 27 & \text { Sold } 7 \text { units at } \$ 12.00 \text { per unit } \\\hline\end{array}$ - Using the Perpetual weighted average method,what is the value of cost of goods sold? (Round weighted average costs per unit to 2 decimal places.)