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Exam 6: Inventories

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Question 51

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Use of the LIFO inventory valuation method enables a company to report paper or phantom profits.

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Question 52

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Errors occasionally occur when physically counting inventory items on hand. Identify the financial statement effects of an overstatement of the ending inventory in the current period. If the error is not corrected how does it affect the financial statements for the following year?

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The overstatement of ending inventory wi...

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Question 53

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Freight terms of FOB shipping point mean that the

Storme Shutters has the following inventory information. $\begin{array} { r l r } \text { Nov. } 1 & \text { Inventory } & 30 \text { units } @\$ 8.00 \\8 & \text { Purchase } & 120 \text { units }@\$ 8.30 \\17 & \text { Purchase } & 60 \text { units } @ \$ 8.70 \\25 & \text { Purchase } & 90 \text { units }@\$ 8.80\end{array}$ A physical count of merchandise inventory on November 30 reveals that there are 80 units on hand. Assume a periodic inventory system is used. Assuming that the specific identification method is used and that ending inventory consists of 20 units from each of the three purchases and 20 units from the November 1 inventory cost of goods sold is

If a company changes its inventory valuation method the effect of the change on net income should be disclosed in the financial statements.

FIFO and LIFO are the two most common cost flow assumptions made in costing inventories. The amounts assigned to the same inventory items on hand may be different under each cost flow assumption. If a company has no beginning inventory explain the difference in ending inventory values under the FIFO and LIFO cost bases when the price of inventory items purchased during the period have been (1) increasing (2) decreasing and (3) remained constant.

Determine the difference in the amount of income that the company would have reported if it had used the FIFO method instead of the LIFO method. Would income have been greater or less?

Storme Shutters has the following inventory information. $\begin{array} { r l r } \text { Nov. } 1 & \text { Inventory } & 30 \text { units } @\$ 8.00 \\8 & \text { Purchase } & 120 \text { units }@\$ 8.30 \\17 & \text { Purchase } & 60 \text { units } @ \$ 8.70 \\25 & \text { Purchase } & 90 \text { units }@\$ 8.80\end{array}$ A physical count of merchandise inventory on November 30 reveals that there are 80 units on hand. Assume a periodic inventory system is used. Ending inventory under FIFO is

Lester Company sells many products. Hackenberry is one of its popular items. Below is an analysis of the inventory purchases and sales of Hackenberry for the month of March. Lester Company uses the periodic inventory system. Instructions (a) Using the FIFO assumption calculate the amount charged to cost of goods sold for March. (Show computations) (b) Using the weighted average method calculate the amount assigned to the inventory on hand on March 31. (Show computations) (c) Using the LIFO assumption calculate the amount assigned to the inventory on hand on March 31. (Show computations)

Certain agricultural and mineral products can be reported at net realizable value under $\begin{array} { l l l } & \underline{ \text {GAAP }} & \underline{ \text { IFRS }} \\\end{array}$ A) $\begin{array} { l l l } &\text { Yes } & &\text { No } \\\end{array}$ B) $\begin{array} { l l l } &\text { Yes } && \text { Yes } \\\end{array}$ C) $\begin{array} { l l l }& \text { No } && \text {No } \\\end{array}$ D) $\begin{array} { l l l } &\text { No } && \text {Yes }\end{array}$

Under the lower-of-cost-or-market basis market is defined as current replacement cost.

The lower-of-cost-or-market basis of valuing inventories is an example of

Barley Company developed the following information about its inventories in applying the lower-of-cost-or-market (LCM) basis in valuing inventories: $\begin{array}{ccc} \text { Product } & \text { Cost } & \text { Market } \\\hline \text { A } & \$ 115,000 & \$ 120,000 \\ \text { B } & 80,000 & 73,000 \\ \text { C } & 158.000 &162,000 \\\end{array}$ If Barley applies the LCM basis the value of the inventory reported on the balance sheet would be

Inventoriable costs may be thought of as a pool of costs consisting of which two elements?

An auto manufacturer would classify vehicles in various stages of production as

Which of the following statements is correct with respect to inventories?

Glenn Company has the following inventory information. $\begin{array} { r l l } \text { July } 1 & \text { Beginning Inventory } & 10 \text { units at } \$ 90 \\5 & \text { Purchases } & 60 \text { units at } \$ 92 \\14 & \text { Sale } & 50 \text { units } \\21 & \text { Purchases } & 30 \text { units at } \$ 95 \\30 & \text { Sale } & 35 \text { units }\end{array}$ Assuming that a perpetual inventory system is used what is the ending inventory (round all calculations to nearest dollar) under the moving-average cost method?

The managers of Venice Company receive performance bonuses based on the net income of the firm. Which inventory costing method are they likely to favor in periods of declining prices?

A. Macarty Company's records indicate the following information for the year: $\begin{array}{lr}\text { Merchandise inventory, } 1 / 1 & \$ 550,000 \\\text { Purchases } & 2,250,000 \\\text { Net sales } & 3,100,000\end{array}$ On December 31 a physical inventory determined that ending inventory of $600000 was in the warehouse. A. Macarty's gross profit on sales has remained constant at 30%. A. Macarty suspects some of the inventory may have been taken by some new employees. At December 31 what is the estimated cost of missing inventory?

Inventory is reported in the financial statements at