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Exam 6: Inventories and Cost of Sales

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Question 41

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Gotham 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 Gotham 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. The ending inventory balance of $412,000 did not include goods costing $48,000 that were purchased by Gotham on December 28 and shipped FOB destination on that date. Gotham did not receive the goods until January 2 of the following year. The ending inventory balance of $412,000 included damaged goods at their original cost of $38,000. The net realizable value of the damaged goods was $10,000. The ending inventory balance of $412,000 included $43,000 of consigned inventory for which Gotham was the consignee. Based on this information, the correct balance for ending inventory on December 31 is:

A) $247,000
B) $341,000
C) $362,000
D) $309,000
E) $319,000

F) B) and D)
G) C) and E)

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Question 42

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An error in the period-end inventory balance will cause an error in the calculation of cost of goods sold.

A) True
B) False

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Question 43

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Monitor Company uses the LIFO method for valuing its ending inventory. The following financial statement information is available for its first year of operation: Monitor's ending inventory using the LIFO method was $8,200. Monitor's accountant determined that had the company 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? c. If Monitor wanted to lower the amount of income taxes to be paid, which method would it choose?

Apply the retail method to the following company information to calculate the cost of the ending inventory for the current period.

When taking a physical count of inventory, the use of prenumbered inventory tickets is an application of internal control.

A company had inventory of 10 units at a cost of $20 each on November 1. On November 2, it purchased 10 units at $22 each. On November 6 it purchased 6 units at $25 each. On November 8, it sold 22 units for $54 each. Using the FIFO perpetual inventory method, what was the cost of the 22 units sold?

Evaluate each inventory error separately and determine whether it overstates or understates cost of goods sold and net income.

The reliability of the gross profit method depends on a good estimate of the gross profit ratio.

When purchase costs regularly rise, the ___________________ method of inventory valuation yields the highest gross profit and net income.

An advantage of the weighted average inventory method is that it tends to smooth out erratic changes in costs.

Interim statements:

A company has inventory of 10 units at a cost of $10 each on June 1. On June 3, it purchased 20 units at $12 each. 12 units are sold on June 5. Using the FIFO periodic inventory method, what is the cost of the 12 units that were sold?

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

During a period of steadily rising costs, the inventory valuation method that yields the lowest reported net income is:

Under LIFO, the most recent costs are assigned to ending inventory.

For Randy Hetrick of Fitness Anywhere, the major challenge was maintaining appropriate levels of inventories while controlling costs. What is meant by this statement?

A company sells a climbing kit and uses the periodic inventory system to account for its merchandise. The beginning balance of the inventory and its transactions during January were as follows: If the ending inventory is reported at $357, what inventory method was used?

Incidental costs often added to the costs of inventory include import duties, freight, storage, and insurance.

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

A company reported the following data: Required: 1. Calculate the days' sales in inventory for each year. 2. Comment on the trend in inventory management.