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Exam 5: Inventories and Cost of Sales

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Question 61

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A company had the following ending inventory costs: Required: Calculate the lower of cost or market (LCM)value for each individual item.

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Question 62

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Grays Company has inventory of 10 units at a cost of $10 each on August 1.On August 3,it purchased 20 units at $12 each.12 units are sold on August 6.Using the FIFO perpetual inventory method,what amount will be reported as cost of goods sold for the 12 units that were sold?

A) $120.
B) $124.
C) $128.
D) $130.
E) $140.

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Question 63

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Whether purchase costs are rising or falling,FIFO always will yield the highest gross profit and net income.

Use the following information for Shafer Company to compute inventory turnover for year 2.

A company's store was destroyed by an earthquake on February 10 of the current year.The only information for the current period that could be salvaged included the following: Historically,the company's gross profit ratio has been 30%.Estimate the value of the destroyed inventory using the gross profit method.

Raleigh Co.has the following products in its ending inventory.Compute the lower of cost or market total for inventory applied separately to each product.

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

Days' sales in inventory:

Perfection Company had cost of goods sold of $853,000,ending inventory of $70,500,and average inventory of $71,600.Its inventory turnover equals:

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

An understatement of the ending inventory balance will overstate cost of goods sold and understate net income.

A company's inventory records indicate the following data for the month of April: If the company uses the first-in,first-out (FIFO)method and the perpetual inventory system,what would be the cost of the ending inventory?

FIFO is preferred when purchase costs are rising and managers have incentives to report higher income for reasons such as bonus plans,job security,and reputation.

Describe the internal controls that must be applied when taking a physical count of inventory.

Match the following terms with the appropriate definition.

Given the following information,determine the cost of the inventory at June 30 using the LIFO perpetual inventory method. The cost of the ending inventory is:

Underwood had cost of goods sold of $8 million and its ending inventory was $2 million.Therefore,its days' sales in inventory equals 25 days.

The LIFO method of inventory costing best matches current costs with revenues.

Which of the following inventory costing methods will always result in the same values for ending inventory and cost of goods sold regardless of whether a perpetual or periodic inventory system is used?

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.