Question 1

Match each of the following terms with the appropriate definition.
-The expected sales price of an item minus the cost of making the sale.

Accepted Answer

Net realizable value is defined as the estimated selling price in the ordinary course of business, minus reasonably predictable costs of completion, disposal, and transportation.

Question 2

On September 1 of the current year,Scots Company experienced a flood that destroyed the company's entire inventory.Because the company had not completed its month end reporting for August,it must estimate the amount of inventory lost using the gross profit method.At the beginning of August,the company reported beginning inventory of $215,450.Inventory purchased during August was $192,530.Sales for the month of August were $542,500.Assuming the company's typical gross profit ratio is 40%,estimate the amount of inventory destroyed in the flood.

Accepted Answer

Merchandise available for sale - $215,450 + $192,530 = $407,980
Estimate cost of goods sold - $542,500 * .6 = $325,500
Estimated ending inventory - $407,980 - $325,500 = $82,480

Question 3

Use the following information for Shafer Company to compute inventory turnover for year 2.
$$\begin{array} { | l | r | r | } 
\hline & \text { Year 2 } & \text { Year 1 } \
\hline \text { Net sales } & \$ 647,500 & \$ 582,000 \
\hline \text { Cost of goods sold } & 389,500 & 360,840 \
\hline \text { Ending inventory } & 76,700 & 79,380 \
\hline
\end{array}$$

Accepted Answer

Inventory turnover is calculated as Cost of Goods Sold divided by Average Inventory. For Year 2, Cost of Goods Sold is $389,500. Average Inventory is calculated as (Beginning Inventory + Ending Inventory) / 2. Beginning Inventory for Year 2 is the Ending Inventory for Year 1, which is $79,380. Thus, Average Inventory for Year 2 is ($79,380 + $76,700) / 2 = $78,040. Inventory turnover for Year 2 is $389,500 / $78,040 = 4.99.

Question 4

Match each of the following terms with the appropriate definition.
-The accounting constraint that aims to select the less optimistic estimate when two or more estimates are about equally likely.

Accepted Answer

The conservatism constraint in accounting guides the selection of the least optimistic estimate among several equally likely options to avoid overestimating assets or income, ensuring that financial statements are not overly optimistic.

Question 5

Salmone Company reported the following purchases and sales for its only product.Salmone uses a periodic inventory system.Determine the cost assigned to cost of goods sold using LIFO.
$$\begin{array} { | c | l | l | l | } 
\hline \text { Date } & { \text { Activities } } & \text { Units Acquired at Cost } & \text { Units Sold at Retail } \
\hline \text { May 1}& \text { Beginning Inventory } & 150 \text { units @ } \$ 10.00 & \
\hline 5& \text { Purchase } & 220 \text { units @ } \$ 12.00 & \
\hline 10& \text { Sales } & & 140 \text { units @ \$20.00 } \
\hline 15& \text { Purchase } & 100 \text { units @ } \$ 13.00 & \
\hline 24& \text { Sales } & & 90 \text { units @ \$21.00 } \
\hline
\end{array}$$

Accepted Answer

Using the LIFO (Last-In, First-Out) method, the most recent purchases are sold first. The cost of goods sold (COGS) is calculated as follows:1. For the first sale of 140 units:   - 100 units @ $13.00 = $1,300   - 40 units from the 220 units @ $12.00 = $480   Total for the first sale = $1,7802. For the second sale of 90 units:   - The remaining 180 units from the 220 units @ $12.00 = $1,080   Total for the second sale = $1,080Adding the totals for both sales gives the COGS:$1,780 (first sale) + $1,080 (second sale) = $2,860

Question 6

Salmone Company reported the following purchases and sales of its only product.Salmone uses a periodic inventory system.Determine the cost assigned to ending inventory using LIFO.
$$\begin{array} { | c | l | l | l | } 
\hline \text { Date } & { \text { Activities } } & \text { Units Acquired at Cost } & \text { Units Sold at Retail } \
\hline \text { May 1}& \text { Beginning Inventory } & 150 \text { units @ } \$ 10.00 & \
\hline 5& \text { Purchase } & 220 \text { units @ } \$ 12.00 & \
\hline 10& \text { Sales } & & 140 \text { units @ \$20.00 } \
\hline 15& \text { Purchase } & 100 \text { units @ } \$ 13.00 & \
\hline 24& \text { Sales } & & 90 \text { units @ \$21.00 } \
\hline
\end{array}$$

Accepted Answer

Under LIFO (Last-In, First-Out), the most recent purchases are sold first. The ending inventory consists of the oldest costs. Here's the calculation:1. Total units purchased: 220 + 100 = 320 units2. Total units sold: 140 + 90 = 230 units3. Ending inventory units: 470 total units - 230 sold units = 240 unitsThe ending inventory will consist of:- All 150 units from the beginning inventory at $10 each = $1,500- 90 units from the May 5 purchase (220 units purchased - 130 units sold from this batch) at $12 each = $1,080Total ending inventory cost = $1,500 (from beginning inventory) + $1,080 (from May 5 purchase) = $2,580.

Question 7

Match each of the following terms with the appropriate definition.
-An estimate of days needed to convert the inventory at the end of the period into receivables or cash.

Accepted Answer

Days' sales in inventory is a measure of the average number of days a company takes to sell its inventory, indicating how quickly inventory is converted into receivables or cash.

Question 8

Match each of the following terms with the appropriate definition.
-A method for estimating an ending inventory based on the ratio of the amount of goods for sale at cost to the amount of goods for sale at retail price.

Accepted Answer

The Retail Inventory Method estimates ending inventory by using a ratio that compares the cost of goods available for sale to the retail price of the goods available for sale.

Question 9

Match each of the following terms with the appropriate definition.
-An inventory valuation method that assumes that inventory items are sold in the order acquired.

Accepted Answer

The FIFO (First In, First Out) method assumes that the first items placed in inventory are the first sold, meaning inventory items are sold in the order they are acquired.

Question 10

Salmone Company reported the following purchases and sales for its only product.Salmone uses a perpetual inventory system.Determine the cost assigned to cost of goods sold using LIFO.
$$\begin{array} { | c | l | l | l | } 
\hline \text { Date } & { \text { Activities } } & \text { Units Acquired at Cost } & \text { Units Sold at Retail } \
\hline \text { May 1 } & \text { Beginning Inventory } & 150 \text { units @ } \$ 10.00 & \
\hline5& \text { Purchase } & 220 \text { units @ } \$ 12.00 & \
\hline 10& \text { Sales } & & 140 \text { units @ } \$ 20.00 \
\hline 15 &\text { Purchase } & 100 \text { units @ } \$ 13.00 & \
\hline 24&\text {Sales } & & 90 \text { units @ } \$ 21.00 \
\hline
\end{array}$$

Accepted Answer

Under LIFO (Last-In, First-Out), the most recent purchases are sold first. For the first sale of 140 units: 100 units @ $13 (from May 15 purchase) + 40 units @ $12 (from May 5 purchase) = $1,300 + $480 = $1,780. For the second sale of 90 units: 180 units remaining from May 5 purchase (220 units - 40 units sold) and 150 units from May 1 inventory, so 90 units @ $12 (from the remaining May 5 purchase) = $1,080. Total COGS = $1,780 (first sale) + $1,080 (second sale) = $2,860.

Question 11

Salmone Company reported the following purchases and sales of its only product.Salmone uses a periodic inventory system.Determine the cost assigned to the ending inventory using FIFO.
$$\begin{array} { | c | l | l | l | } 
\hline \text { Date } & { \text { Activities } } & \text { Units Acquired at Cost } & \text { Units Sold at Retail } \
\hline \text { May 1}& \text { Beginning Inventory } & 150 \text { units @ } \$ 10.00 & \
\hline 5& \text { Purchase } & 220 \text { units @ } \$ 12.00 & \
\hline 10& \text { Sales } & & 140 \text { units @ \$20.00 } \
\hline 15& \text { Purchase } & 100 \text { units @ } \$ 13.00 & \
\hline 24& \text { Sales } & & 90 \text { units @ \$21.00 } \
\hline
\end{array}$$

Accepted Answer

FIFO (First-In, First-Out) assumes that the first units purchased are the first units sold. Therefore, the ending inventory consists of the units purchased on May 5 and May 15. The cost of the ending inventory is calculated as follows:Units from May 5 purchase: 220 units @ $12.00 = $2,640Units from May 15 purchase: 100 units @ $13.00 = $1,300Total cost of ending inventory: $2,640 + $1,300 = $3,940

Question 12

Match each of the following terms with the appropriate definition.
-Financial statements prepared for periods of less than one year.

Accepted Answer

Interim statements are financial statements that are prepared for periods shorter than one year, often quarterly or semi-annually, to provide timely information to decision-makers.

Question 13

Match each of the following terms with the appropriate definition.
-The number of times a company's average inventory is sold during a period.

Accepted Answer

Inventory turnover refers to the number of times a company's average inventory is sold and replaced over a specific period, indicating the efficiency of the company in managing and selling its inventory.

Question 14

Match each of the following terms with the appropriate definition.
-An inventory valuation method that assumes costs for the most recent items purchased are sold first and charged to cost of goods sold.

Accepted Answer

The LIFO (Last In, First Out) method assumes that the most recent items purchased are the first ones to be sold, and these costs are charged to the cost of goods sold.

Question 15

Use the following information for Davis Company to compute inventory turnover for Year 2.
$$\begin{array} { | l | r | r | } 
\hline & \text { Year 2 } & \text { Year 1 } \
\hline \text { Cost of goods sold } & 279,500 & 291,800 \
\hline \text { Ending inventory } & 47,700 & 49,350 \
\hline
\end{array}$$

Accepted Answer

The answer of Use the following information for Davis Company...

Question 16

Match each of the following terms with the appropriate definition.
-An inventory pricing method that assumes the unit prices of the beginning inventory and of each purchase are weighted by the number of units of each in inventory; the calculation occurs at the time of each sale.

Accepted Answer

The weighted average inventory method calculates the cost of inventory sold and ending inventory based on the weighted average cost of all items available for sale. This involves taking the total cost of goods available for sale and dividing it by the total units available for sale, applying this average cost to units sold and units in ending inventory.

Question 17

Salmone Company reported the following purchases and sales of its only product.Salmone uses a perpetual inventory system.Determine the cost assigned to ending inventory using LIFO.
$$\begin{array} { | c | l | l | l | } 
\hline \text { Date } & \text { Activities } & \text { Units Acquired at Cost } & \text { Units Sold at Retail } \
\hline & \text { Beginning } & & \
\text { May 1 } & \text { Inventory } & 150 \text { units @ } \$ 10.00 & \
\hline 5 &\text { Purchase } & \text { 220units @ \$12.00 } & \
\hline 10 &\text { Sales } & & 140 \text { units @ } \$ 20.00 \
\hline 15&\text {  Purchase } & 100 \text { units @ } \$ 13.00 & \
\hline \text { 24 } & \text { Sales } & & 90 \text { units @ } \$ 21.00 \
\hline
\end{array}$$

Accepted Answer

The answer of Salmone Company reported the following purchases and...

Question 18

Match each of the following terms with the appropriate definition.
-An inventory valuation method where each item in inventory is identified with a specific purchase and invoice.

Accepted Answer

The specific identification method matches each item in inventory with a specific purchase and invoice, allowing for precise tracking of costs.

Question 19

Salmone Company reported the following purchases and sales of its only product.Salmone uses a periodic inventory system.Determine the cost assigned to cost of goods sold using FIFO.
$$\begin{array} { | c | l | l | l | } 
\hline \text { Date } & { \text { Activities } } & \text { Units Acquired at Cost } & \text { Units Sold at Retail } \
\hline \text { May 1}& \text { Beginning Inventory } & 150 \text { units @ } \$ 10.00 & \
\hline 5& \text { Purchase } & 220 \text { units @ } \$ 12.00 & \
\hline 10& \text { Sales } & & 140 \text { units @ \$20.00 } \
\hline 15& \text { Purchase } & 100 \text { units @ } \$ 13.00 & \
\hline 24& \text { Sales } & & 90 \text { units @ \$21.00 } \
\hline
\end{array}$$

Accepted Answer

Under FIFO, the cost of goods sold is calculated using the oldest inventory first. For the sales on May 10 (140 units), 150 units from the beginning inventory are used, costing $10 each. For the sales on May 24 (90 units), 70 units from the remaining beginning inventory and 20 units from the May 5 purchase are used, costing $12 each. The total cost is (140 units x $10) + (90 units x $12) = $2,460.

Question 20

Use the following information for Ephron Company to compute days' sales in inventory for Year 2.
$$\begin{array} { | l | r | r | } 
\hline & \text { Year 2 } & \text { Year 1 } \
\hline \text { Net sales } & \$ 547,500& \$ 572,000 \
\hline \text { Cost of goods sold } & 348,500& 370,840 \
\hline \text { Ending inventory } & 75,70& 81,400 \
\hline
\end{array}$$

Accepted Answer

Days' sales in inventory is calculated as (Ending Inventory / Cost of Goods Sold) * 365. For Year 2, it is (75,700 / 348,500) * 365 = 79.3 days.

Quiz 5: Inventories and Cost of Sales

Match each of the following terms with the appropriate definition. -The expected sales price of an item minus the cost of making the sale.

Match each of the following terms with the appropriate definition. -The accounting constraint that aims to select the less optimistic estimate when two or more estimates are about equally likely.

Match each of the following terms with the appropriate definition. -An estimate of days needed to convert the inventory at the end of the period into receivables or cash.

Match each of the following terms with the appropriate definition. -A method for estimating an ending inventory based on the ratio of the amount of goods for sale at cost to the amount of goods for sale at retail price.

Match each of the following terms with the appropriate definition. -An inventory valuation method that assumes that inventory items are sold in the order acquired.

Match each of the following terms with the appropriate definition. -Financial statements prepared for periods of less than one year.

Match each of the following terms with the appropriate definition. -The number of times a company's average inventory is sold during a period.

Match each of the following terms with the appropriate definition. -An inventory valuation method that assumes costs for the most recent items purchased are sold first and charged to cost of goods sold.

Use the following information for Davis Company to compute inventory turnover for Year 2. $\begin{array} { | l | r | r | } \hline & \text { Year 2 } & \text { Year 1 } \\\hline \text { Cost of goods sold } & 279,500 & 291,800 \\\hline \text { Ending inventory } & 47,700 & 49,350 \\\hline\end{array}$

Match each of the following terms with the appropriate definition. -An inventory pricing method that assumes the unit prices of the beginning inventory and of each purchase are weighted by the number of units of each in inventory; the calculation occurs at the time of each sale.

Match each of the following terms with the appropriate definition. -An inventory valuation method where each item in inventory is identified with a specific purchase and invoice.