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Questions
Q:
A good system of internal control:
A. Urges adherence to prescribed managerial policies.
B. Insures profitable operations.
C. Eliminates the need for an audit.
D. Requires the use of noncomputerized systems.
E. Is not necessary if the company uses a computerized system.
Q:
The main principles of internal control include which of the following:
A. Establish responsibilities.
B. Maintain minimal records.
C. Use only computerized systems.
D. Bond all employees.
E. Require automated sales systems.
Q:
Assume that a buyer receives a shipment of MODEL SD010 with an invoice amount of $780, although $870 worth of goods were received. The purchase order was for $870. Since the difference was in the buyer's favor, the buyer's purchasing department should authorize payment of $780.
Q:
A purchase requisition is a document the purchasing department sends to the vendor to place an order.
Q:
In order to streamline the purchasing process, department managers should place orders directly with suppliers.
Q:
LIFO inventory value is often less than the inventory's replacement cost because LIFO inventory is valued using the oldest purchase cost.
Q:
LIFO is the preferred inventory costing method when costs are rising and managers have incentives to report higher income. When income is higher, managers may earn bonuses and have more job security and a better reputation.
Q:
In a period of rising prices, FIFO usually gives a lower taxable income, which leads to an advantage when it comes to paying income tax.
Q:
An advantage of the weighted-average inventory method is that it tends to smooth out the effects of price changes.
Q:
Whether prices are rising or falling, FIFO always will yield the highest gross profit and net income.
Q:
A company can change its inventory costing method without mentioning this change in its financial statements since it is a decision made by internal management.
Q:
The consistency concept requires a company to use the same accounting methods period after period, so that financial statements are comparable across periods.
Q:
The matching principle is used by some companies to avoid allocating incidental inventory costs to cost of goods sold.
Q:
All incidental costs of inventory acquisition and handling, whether necessary or not, are assigned to inventory.
Q:
Not many companies take a physical count of inventory each year as they rely primarily on inventory records alone to determine the inventory value.
Q:
The Inventory account is a controlling account for the inventory subsidiary ledger that contains a separate record for each individual product.
Q:
Incidental costs most commonly added to the costs of inventory include import duties, freight, storage, and insurance.
Q:
When taking a physical count of inventory, the use of prenumbered inventory tickets assists in the control process.
Q:
The cost of an inventory item includes its invoice cost and any added or incidental costs necessary to make it saleable less any discount.
Q:
Net realizable value for damaged or obsolete goods is equal to the sales price plus the cost of making the sale.
Q:
If the seller is responsible for paying freight charges, then ownership of inventory passes when goods arrive at their destination.
Q:
If obsolete or damaged goods can be sold, they will be included in inventory at their net realizable value.
Q:
Goods on consignment are goods shipped by their owner, called the consignee, to another party called the consignor.
Q:
If damaged and obsolete goods cannot be sold, they are not included in inventory.
Q:
Goods in transit are automatically included in a companys inventory account.
Q:
The _________________ method is commonly used to estimate the value of inventory that has been destroyed, lost or stolen.
Q:
When the __________ method is used with a periodic inventory system, cost of goods sold is assigned costs from the most recent purchases for the period.
Q:
When applying the lower of cost or market method of inventory valuation, market is defined as the ______________________.
Q:
Regardless of what inventory method or system is used, cost of goods available for sale must be allocated between ___________________ and ___________________.
Q:
The ______________________ method of assigning costs to inventory and cost of goods sold requires that the cost of goods available for sale be divided by the units of inventory available when each sale takes place.
Q:
The ______________________ method of assigning costs to inventory and cost of goods sold assumes that the most recent purchases are sold first.
Q:
The _____________________ method of assigning costs to inventory and cost of goods sold assumes that the inventory items are sold in the order acquired.
Q:
The ______________________ method of assigning costs to inventory and cost of goods sold is usually only practical for companies with expensive, custom-made inventory.
Q:
The _____________________ is a measure of how quickly a merchandiser sells its merchandise inventory.
Q:
The ____________________ ratio reflects how much inventory is available in terms of days' sales.
Q:
An advantage of the _________________ method of inventory valuation is that it tends to smooth out the effect of erratic changes in costs.
Q:
When purchase costs regularly rise, the ___________________ method of inventory valuation yields the lowest gross profit and net income, providing a tax advantage.
Q:
When purchase costs regularly rise, the ___________________ method of inventory valuation yields the highest gross profit and net income.
Q:
The cost of an inventory item includes the _____________, plus ______________ costs necessary to put it in a place and condition for sale.
Q:
Some companies use the _________________ constraint or the __________________ constraint to avoid assigning incidental costs of acquiring merchandise to inventory.
Q:
If damaged goods can be sold at a reduced price, they are included in inventory at their ________________________.
Q:
If the _______________ is responsible for paying the freight, ownership of merchandise inventory passes when the goods arrive at their destination.
Q:
If the _______________ is responsible for paying the freight, ownership of merchandise inventory passes when goods are loaded on the transport vehicle.
Q:
Given the following information, determine the cost of goods sold at November 30 using the weighted-average perpetual inventory method.
November 3: 15 units were purchased at $8 per unit.
November 11: 18 units were purchased at $9.50 per unit.
November 15: 15 units were sold at $45 per unit.
November 18: 30 units were purchased at $10.75 per unit.
November 30: 20 units were sold at $55 per.
Q:
Given the following information, determine the cost of goods sold at November 30 using the LIFO perpetual inventory method.
November 3: 15 units were purchased at $8 per unit.
November 11: 18 units were purchased at $9.50 per unit.
November 15: 15 units were sold at $45 per unit.
November 18: 30 units were purchased at $10.75 per unit.
November 30: 20 units were sold at $55 per unit.
Q:
Given the following information, determine the cost of goods sold for November 30 using the FIFO perpetual inventory method.
November 3: 15 units were purchased at $8 per unit.
November 11: 18 units were purchased at $9.50 per unit.
November 15: 15 units were sold at $45 per unit.
November 18: 30 units were purchased at $10.75 per unit.
November 30: 20 units were sold at $55 per unit.
Q:
Given the following information, determine the cost of ending inventory at November 30 using the weighted-average perpetual inventory method.
November 3: 15 units were purchased at $8 per unit.
November 11: 18 units were purchased at $9.50 per unit.
November 15: 15 units were sold at $45 per unit.
November 18: 30 units were purchased at $10.75 per unit.
November 30: 20 units were sold at $55 per unit.
Q:
Given the following information, determine the cost of ending inventory at November 30 using the LIFO perpetual inventory method.
November 3: 15 units were purchased at $8 per unit.
November 11: 18 units were purchased at $9.50 per unit.
November 15: 15 units were sold at $45 per unit.
November 18: 30 units were purchased at $10.75 per unit.
November 30: 20 units were sold at $55 per unit.
Q:
Given the following information, determine the cost of ending inventory at November 30 using the FIFO perpetual inventory method.
November 3: 15 units were purchased at $8 per unit.
November 11: 18 units were purchased at $9.50 per unit.
November 15: 15 units were sold at $45 per unit.
November 18: 30 units were purchased at $10.75 per unit.
November 30: 20 units were sold at $55 per unit.
Q:
A company uses the retail inventory method and has the following information available concerning its most recent accounting period: At Cost
At Retail Beginning-of-period inventory
$148,600
$ 245,200 Net purchases
677,400
1,229,800 Sales 1,200,000 (a) What is the cost-to-retail ratio using the retail method?
(b) What is the estimated cost of the ending inventory?
Q:
Apply the retail method to the following company information to calculate the cost of the ending inventory for the current period: Cost
Retail Beginning inventory
$20,224
$31,600 Net purchases
59,508
97,000 Sales 89,000
Q:
A company's store was destroyed by a fire on February 10 of this year. The only information for the current period that could be salvaged included the following:
Beginning inventory, January 1: $34,000
Purchases to date: $118,000
Sales to date: $140,000
Historically, the company's gross profit ratio has been 30%. Estimate the value of the destroyed inventory using the gross profit method.
Q:
A company made the following merchandise purchases and sales during the month of May: May 1 purchased
380
units at
$15 each May 5 purchased
270
units at
$17 each May 10 sold
400
units at
$50 each May 20 purchased
300
units at
$22 each May 25 sold
400
units at
$50 each There was no beginning inventory. If the company uses the FIFO periodic inventory method, what would be the cost of the ending inventory?
Q:
A company made the following merchandise purchases and sales during the month of May: May 1 purchased
380
units at
$15 each May 5 purchased
270
units at
$17 each May 10 sold
400
units at
$50 each May 20 purchased
300
units at
$22 each May 25 sold
400
units at
$50 each There was no beginning inventory. If the company uses the LIFO periodic inventory method, what would be the cost of the ending inventory?
Q:
A company made the following merchandise purchases and sales during the month of May: May 1 purchased
380
units at
$15 each May 5 purchased
270
units at
$17 each May 10 sold
400
units at
$50 each May 20 purchased
300
units at
$22 each May 25 sold
400
units at
$50 each There was no beginning inventory. If the company uses the weighted-average periodic method, what would be the cost of the ending inventory?
Q:
A company had the following ending inventory costs: Product
Units Available
Cost
Market A
10
$ 5
$ 6 B
50
8
7 C
35
10
11 Instructions:
(a) Calculate the lower of cost or market (LCM) value for the inventory as a whole.
(b) Calculate the lower of cost or market (LCM) value for each individual item.
Q:
A company that uses a perpetual inventory system made the following cash purchases and sales. There was no beginning inventory. January 1:
Purchased 100 units at $10 per unit February 5:
Purchased 60 units at $12 per unit March 16:
Sold 40 units for $16 per unit Prepare the general journal entry to record the March 16 sale, assuming the weighted-average method is used.
Q:
. During January, a company that uses a perpetual inventory system had beginning inventory, purchases, and sales as follows. What was the weighted-average cost of the company's January 31 inventory? Units Cost per Unit Beginning inventory 100 $10 Jan. 5 purchase 40 12 10 sale 60 15 purchase 70 13 25 sale 50
Q:
. During January, a company that uses a perpetual inventory system had beginning inventory, purchases, and sales as follows. What was the LIFO cost of the company's January 31 inventory? Units Cost per Unit Beginning inventory 100 $10 Jan. 5 purchase 40 12 10 sale 60 15 purchase 70 13 25 sale 50
Q:
. A company made the following merchandise purchases and sales during the month of July: July 1 purchased 380 units at $15 each July 5 purchased 270 units at $20 each July 9 sold 500 units at $55 each July 14 purchased 300 units at $24 each July 20 sold 250 units at $55 each July 30 purchased 250 units at $30 each There was no beginning inventory. If the company uses the first-in, first-out perpetual inventory method, what would be the cost of the ending inventory?
Q:
. A company made the following merchandise purchases and sales during the month of
May: May 1 purchased 380 units at $15 each May 5 purchased 270 units at $17 each May 10 sold 400 units at $50 each May 20 purchased 300 units at $22 each May 25 sold 400 units at $50 each There was no beginning inventory. If the company uses the weighted-average perpetual inventory method, what would be the cost of its ending inventory?
Q:
A company made the following purchases during the year: Jan. 10 15 units at $360 each Mar. 15 25 units at $390 each Apr. 25 10 units at $420 each July 30 20 units at $450 each Oct. 10 15 units at $480 each On December 31, there were 28 units in ending inventory. These 28 units consisted of 1 from the January 10 purchase, 2 from the March 15 purchase, 5 from the April 25 purchase, 15 from the July 30 purchase, and 5 from the October 10 purchase. Using specific identification, calculate the cost of the ending inventory.
Q:
. A company reported the following data: Year 1 Year 2 Year 3 Cost of goods sold $238,000 $375,000 $495,000 Ending inventory 120,000 150,000 180,000 Required:
1. Calculate the days' sales in inventory for each year.
2. Comment on the trend in inventory management.
Q:
The City Store reported the following amounts on their financial statements for 2012, 2013, and 2014: For the Year Ended December 31 2012
2013
2014 Cost of goods sold
$75,000
$87,000
$77,000 Net income
22,000
25,000
21,000 Total current assets
155,000
165,000
110,000 Equity
287,000
295,000
304,000 It was discovered early in 2015 that the ending inventory on December 31, 2012, was overstated by $6,000 and the ending inventory on December 31, 2013, was understated by $2,500. The ending inventory on December 31, 2014, 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 2012, 2013, and 2014.
Q:
Evaluate each inventory error separately and determine whether it overstates or understates cost of goods sold and net income. Inventory Error
Cost of Goods Sold
Net Income Understatement of beginning inventory Understatement of ending inventory Overstatement of beginning inventory Overstatement of ending inventory
Q:
Monitor Company uses the LIFO method for valuing its ending inventory. The following financial statement information is available for their first year of operation: MONITOR COMPANY Income Statement For the year ended December 31 Sales
$50,000 Cost of goods sold
23,000 Gross profit
$27,000 Expenses
13,000 Income before taxes
$14,000 Monitor's ending inventory using the LIFO method was $8,200. Monitor's accountant determined that had they 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?
Q:
Derick Pearson and Felecia Hatcher founded Feverish Ice Cream. Why is managing inventory an important issue for their company?
Q:
Explain the difference between the retail inventory method and gross profit inventory method for valuing inventory.
Q:
Discuss the important accounting features of a periodic inventory system including accounts and procedures used.
Q:
Explain why the lower of cost or market rule is used to value inventory.
Q:
Explain how the inventory turnover ratio and the days' sales in inventory ratio are used to evaluate inventory management.
Q:
What is the effect of an error in the ending inventory balance on the income statement?
Q:
How do the consistency concept and the full disclosure principle affect inventory valuation?
Q:
Explain the effects of inventory valuation methods on the cost of ending inventory, income, and income taxes.
Q:
Describe the internal controls that must be applied when taking a physical count of inventory.
Q:
Identify the items that are included in merchandise inventory. (In your answer address the special situations of goods in transit, consigned goods, and damaged goods.)
Q:
Identify the inventory valuation method that is being described for each situation below. In all cases, assume a period of rising prices. Use the following to identify the inventory valuation method: FIFO
First in, first out LIFO
Last in, first out SI
Specific identification WA
Weighted average a. The method that can only be used if each inventory item can be matched with a specific purchase and its invoice.
b. The method that will cause the company to have the lowest income taxes.
c. The method that will cause the company to have the lowest cost of goods sold.
d. The method that will assign a value to inventory that approximates its current cost.
e. The method that will tend to smooth out erratic changes in costs.
Q:
Use the following information to estimate the third quarter ending inventory under the gross profit method. This company's gross profit ratio is 20%.
Third quarter beginning inventory: $54,000
Net sales for third quarter: $85,000
Net purchases for third quarter: $21,000
A. $101,000
B. $58,000
C. $35,000
D. $7,000
E. $14,000
Q:
On December 31, a company needed to estimate its ending inventory to prepare its fourth quarter financial statements. The following information is currently available:
Inventory as of October 1: $12,500
Net sales for fourth quarter: $40,000
Net purchases for fourth quarter: $27,500
The company typically achieves a gross profit ratio of 15%. Ending Inventory under the gross profit method would be:
A. $4,000
B. $6,000
C. $10,000
D. $16,000
E. $34,000
Q:
A company that has operated with a 30% average gross profit ratio for a number of years had $100,000 in sales during the first quarter of this year. If it began the quarter with $18,000 of inventory at cost and purchased $72,000 of inventory during the quarter, its estimated ending inventory using the gross profit method is:
A. $30,000
B. $21,000
C. $20,000
D. $18,000
E. $27,000