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Exam 5: Inventories and Cost of Sales

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Question 101

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Given the following items and costs as of the balance sheet date, determine the value of Faltron Company's merchandise inventory. $1,000 goods sold by Faltron to another company. The goods are in transit and shipping terms are FOB destination. $2,000 goods sold by another company to Faltron. The goods are in transit and shipping terms are FOB destination. $3,000 owned by Faltron but in the possession of another company the consignee. Damaged goods owned by Faltron which originally cost $4,000, but which now have a $500 net realizable value.

A) $10,000
B) $6,500
C) $5,500
D) $5,000
E) $4,500

F) B) and D)
G) A) and B)

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Question 102

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Acme-Jones Corporation uses a weighted-average perpetual inventory system. August 2, 10 units were purchased at $12 per unit. August 18, 15 units were purchased at $14 per unit. August 29, 12 units were sold. What was the amount of the cost of goods sold for this sale?

A) $148.00
B) $150.50
C) $158.40
D) $210.00
E) $330.00

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

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Question 103

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Goods on consignment:

An understatement of ending inventory will cause an understatement of assets and equity on the balance sheet.

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

Explain why the lower of cost or market rule is used to value inventory.

The reasoning behind the retail inventory method is that if an accurate estimate of the cost-to-retail ratio is made, it can be multiplied by the ending inventory at retail to estimate ending inventory at cost.

Acme-Jones Corporation uses a LIFO perpetual inventory system. August 2, 25 units were purchased at $12 per unit. August 5, 10 units were purchased at $13 per unit August 15, 12 units were sold at $25 per unit. August 18, 15 units were purchased at $14 per unit. What was the amount of the ending inventory for the month of August?

The full disclosure principle requires that the notes to the financial statements report a change in accounting method for inventory costing.

Acme-Jones Company uses a weighted-average perpetual inventory system. August 2: 10 units were purchased at $12 per unit. August 18: 15 units were purchased at $15 per unit. August 29: 20 units were sold. August 31: 14 units were purchased at $16 per unit. What is the per-unit value of ending inventory on August 31?

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.

Given the following information, determine the cost of ending inventory at June 30 using the LIFO perpetual inventory method. Assume this is the first month of the company's operations. June 1: 15 units were purchased at $20 per unit. June 15: 12 units were sold. June 29: 8 units were purchased for $25 per unit.

Acme-Jones Corporation uses a LIFO perpetual inventory system. August 2, 25 units were purchased at $12 per unit. August 5, 10 units were purchased at $13 per unit August 15, 12 units were sold at $25 per unit. August 18, 15 units were purchased at $14 per unit. What was the amount of the Cost of Goods Sold?

Given the following information, determine the cost of ending inventory at December 31 using the LIFO perpetual inventory method. December 2: 5 units were purchased at $7 per unit. December 9: 10 units were purchased at $9.40 per unit. December 11: 12 units were sold at $35 per unit December 15: 20 units were purchased at $10.15 per unit December 22: 18 units were sold at $35 per unit

If damaged and obsolete goods cannot be sold they are not included in inventory.

Randy Hetrick founded Fitness Anywhere, Inc. Why is managing inventory an important issue for his company?

The inventory turnover ratio is computed by dividing average merchandise inventory by cost of goods sold.

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?

A company normally sells its product for $20 per unit. However, the selling price has fallen to $15 per unit. This company's current inventory consists of 200 units purchased at $16 per unit. Replacement cost has now fallen to $13 per unit. Calculate the value of this company's inventory at the lower of cost or market.