Question 1

Explain the reason a company might use the retail inventory method for valuing inventory.

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Question 2

A company's inventory records indicate the following data for the month of July:
 $$\begin{array} { | l | l | l | } 
\hline \text { July 1 } & \text { Beginning } & 380 \text { units at } \$ 15 \text { each } \
\hline \text { July 5 } & \text { Purchased } & 270 \text { units at } \$ 17 \text { each } \
\hline \text { July 10 } & \text { Sold } & 400 \text { units at } \$ 50 \text { each } \
\hline \text { July 20 } & \text { Purchased } & 300 \text { units at } \$ 22 \text { each } \
\hline \text { July 25 } & \text { Sold } & 400 \text { units at } \$ 50 \text { each } \
\hline
\end{array}$$ 
If the company uses the weighted average inventory valuation method and the perpetual inventory system,what would be the cost of its ending inventory? (Round average cost per unit to 2 decimals,and final answer to the nearest dollar.)

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Question 3

The Community Store reported the following amounts on their financial statements for Year 1,Year 2,and Year 3:
  $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $$\begin{array} { c } 
\text { For the year ended } \
\text { December 31 }
\end{array} $
$\begin{array} { | l | r | r | r | } 
\hline & \text { Year 1 } & \text { Year 2 } & \text { Year 3 } \
\hline \text { Cost of goods sold } & \$ 75,000 & \$ 87,000 & \$ 77,000 \
\hline \text { Net income } & 22,000 & 25,000 & 21,000 \
\hline \text { Total current assets } & 155,000 & 165,000 & 110,000 \
\hline \text { Equity } & 287,000 & 295,000 & 304,000 \
\hline
\end{array}$ 
It was discovered early in Year 4 that the ending inventory on December 31,Year 1 was overstated by $6,000,and the ending inventory on December 31,Year 2 was understated by $2,500.The ending inventory on December 31,Year 3 was correct.Ignoring income taxes determine the correct amounts of cost of goods sold,net income,total current assets,and equity for each of the years Year 1,Year 2,and Year 3.

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Question 4

Discuss the important accounting features of a periodic inventory system including accounts and procedures used.

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Question 5

Sarbanes Oxley (SOX)demands that companies safeguard inventory and properly report it.List methods that companies should use to safeguard inventory and accounting procedures that should be used to properly report inventory.

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Question 6

A company's inventory records indicate the following data for the month of April:
 $$\begin{array} { | l | l | l | } 
\hline \text { April 1 } & \text { Beginning } & 350 \text { units at \$18 each } \
\hline \text { April 5 } & \text { Purchase } & 290 \text { units at \$20 each } \
\hline \text { April 9 } & \text { Sale } & 500 \text { units at \$55each } \
\hline \text { April 14 } & \text { Purchase } & 250 \text { units at \$22 each } \
\hline \text { April 20 } & \text { Sale } & 200 \text { units at \$55 each } \
\hline \text { April 30 } & \text { Purchase } & 240 \text { units at \$25each } \
\hline
\end{array}$$ 
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?

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Question 7

A company made the following purchases during the year:
 $$\begin{array} { | l | l | } 
\hline \text { Jan.10 } & 15 \text { units @ \$360 each } \
\hline \text { Mar.15 } & 25 \text { units @ \$390 each } \
\hline \text { Apr.25 } & 10 \text { units @ \$420 each } \
\hline \text { July 30 } & 20 \text { units @ 450 each } \
\hline \text { Oct.10 } & 15 \text { units @ \$480 each } \
\hline
\end{array}$$ 
On December 31,there were 28 units in ending inventory.These 28 units consisted of 2 from the January 10 purchase,3 from the March 15 purchase,4 from the April 25 purchase,11 from the July 30 purchase,and 8 from the October 10 purchase.Using specific identification,calculate the cost of the ending inventory.

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Question 8

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.

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The answer of A company reported the following data:
 \[\begin{array}...

Question 9

Evaluate each inventory error separately and determine whether it overstates or understates cost of goods sold and net income.
 $$\begin{array} { | l | l | l | } 
\hline \text { Inventory error: } & \text { Cost of goods sold is: } & \text { Net income is: } \
\hline \text { Understatement of beginning inventory } & & \
\hline \text { Understatement of ending inventory } & & \
\hline \text { Overstatement of beginning inventory } & & \
\hline \text { Overstatement of ending inventory } & & \
\hline
\end{array}$$

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Question 10

Explain the reason a company might use gross profit inventory method for valuing inventory.

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Question 11

Mary's Antiques does not have its own retail location,instead maintains inventory in its warehouse and sells merchandise through Oldtime Antique Mall.Oldtime does not assume responsibility for goods until they are sold to customers at which time it takes a commission for items sold and sends the sale proceeds to Mary's.Identify which company has the role of the consignor and the consignee.Which company should include any unsold goods as part of its inventory?

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Question 12

A company's inventory records indicate the following data for the month of April:
 $$\begin{array} { | l | l | l | } 
\hline \text { April 1 } & \text { Beginning } & 350 \text { units at } \$ 18 \text { each } \
\hline \text { April 5 } & \text { Purchase } & 290 \text { units at } \$ 20 \text { each } \
\hline \text { April 9 } & \text { Sale } & 500 \text { units at } \$ 55 \text { each } \
\hline \text { April 14 } & \text { Purchase } & \text { 250 units at \$22 each } \
\hline \text { April 20 } & \text { Sale } & \text { 200units at \$55 each } \
\hline \text { April 30 } & \text { Purchase } & \text { 240units at } \$ 25 \text { each } \
\hline
\end{array}$$ 
If the company uses the first-in,first-out (FIFO)method and the perpetual inventory system,what is the amount of cost of goods sold for April?

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Question 13

Carolina Company uses the LIFO method for valuing its ending inventory.The following financial statement information is available for its first year of operation:
 $$\begin{array} {c}
\text { Carolina Company } \
\text { Income Statement } \
\text { For the year ended December 31 }\
\begin{array} { | l | r | } 
\hline \text { Sales } & \$ 60,000 \
\hline \text { Cost of goods sold } & 23,000 \
\hline \text { Gross profit } & \$ 37,000 \
\hline \text { Expenses } & 13,000 \
\hline \text { Income before taxes } & \$ 24,000 \
\hline
\end{array}
\end{array}$$ 
Carolina's ending inventory using the LIFO method was $8,700.Carolina's accountant determined that had the company used FIFO,the ending inventory would have been $9,100.
a.Determine what the income before taxes would have been,had Carolina 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 Carolina wanted to lower the amount of income taxes to be paid,which method would it choose?

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Question 14

Patrick Randall of Sports Supplies finds that maintaining appropriate levels of inventories while controlling costs is a major challenge.What are the challenges Patrick refers to?

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Question 15

What advantages does a perpetual inventory system have over periodic inventory system?

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Question 16

A company reported the following data:
 $$\begin{array} { | l | r | r | } 
\hline & \text { Year 1 } & \text { Year 2 } \
\hline \text { Cost of goods sold } & \$ 425,000 & \$ 486,000 \
\hline \text { Ending inventory } & 140,000 & 175,000 \
\hline
\end{array}$$ 
Required:
1.Calculate the days' sales in inventory for each year.
2.Comment on the trend in inventory management.

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 \[\begin{array}...

Question 17

A company's inventory records indicate the following data for the month of January:
 $$\begin{array} { | l | l | l | } 
\hline \text { Jan. } 1 & \text { Beginning } & 180 \text { units at } \$ 9 \text { each } \
\hline \text { Jan. 5 } & \text { Purchased } & 170 \text { units at } \$ 10 \text { each } \
\hline \text { Jan. 9 } & \text { Sold } & 300 \text { units at } \$ 35 \text { each } \
\hline \text { Jan. } 14 & \text { Purchased } & \text { 200units at } \$ 11 \text { each } \
\hline \text {Jan. 20 } & \text { Sold } & 150 \text { units at } \$ 35 \text { each } \
\hline \text { Jan. 30 } & \text { Purchased } & \text { 230units at } \$ 12 \text { each } \
\hline
\end{array}$$ 
If the company uses the last-in,first-out perpetual inventory system,what is the amount of cost of goods sold for January?

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Question 18

The company's inventory manager receives compensation that includes a bonus based on gross profit.You discover that the inventory manager has knowingly overstated ending inventory by $2 million.What effect does this error have on the financial statements of the company and specifically gross profit? Why would the manager knowingly overstate ending inventory? Would this be considered an ethics violation?

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Question 19

Calculate the ending inventory using FIFO for a company that uses a perpetual inventory system,using the information given below.
 $$\begin{array} { | l | c | c | } 
\hline & \text { Units } & \text { Unit Cost } \
\hline \text { Beginning inventory } & 100 & \$ 10 \
\hline \text { Aug. 5 purchased } & 40 & 12 \
\hline \text { Aug. 10 sold } & 60 & - \
\hline \text { Aug. 15 purchased } & 70 & 13 \
\hline \text { Aug. 25 sold } & 50 & - \
\hline
\end{array}$$

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The answer of Calculate the ending inventory using FIFO for...

Question 20

A company's inventory records indicate the following data for the month of January:
 $$\begin{array} { | l | l | l | } 
\hline \text { Jan. } 1 & \text { beginning } & 180 \text { units at } \$ 9 \text { each } \
\hline \text { Jan. } 5 & \text { purchased } & 170 \text { units at } \$ 10 \text { each } \
\hline \text { Jan. } 9 & \text { sold } & 300 \text { units at } \$ 35 \text { each } \
\hline \text {Jan. } 14 & \text { purchased } & 200 \text { units at } \$ 11 \text { each } \
\hline \text { Jan. } 20 & \text { sold } & 150 \text { units at } \$ 35 \text { each } \
\hline \text { Jan. } 30 & \text { purchased } & 230 \text { units at } \$ 12 \text { each } \
\hline
\end{array}$$ 
If the company uses the last-in,first-out perpetual inventory system,what would be the cost of the ending inventory?

Accepted Answer

The answer of A company's inventory records indicate the following...

Quiz 5: Inventories and Cost of Sales

Explain the reason a company might use the retail inventory method for valuing inventory.

Discuss the important accounting features of a periodic inventory system including accounts and procedures used.

Sarbanes Oxley (SOX)demands that companies safeguard inventory and properly report it.List methods that companies should use to safeguard inventory and accounting procedures that should be used to properly report inventory.

Explain the reason a company might use gross profit inventory method for valuing inventory.

Patrick Randall of Sports Supplies finds that maintaining appropriate levels of inventories while controlling costs is a major challenge.What are the challenges Patrick refers to?

What advantages does a perpetual inventory system have over periodic inventory system?