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Exam 5: Inventories and Cost of Sales

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Question 21

True/False

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Toys "R" Us had cost of goods sold of $8,321 million and ending inventory of $2,027 million.Based on this,its days' sales in inventory is equal to 89 days.

A) True
B) False

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Question 22

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A company markets a climbing kit and uses the perpetual inventory system to account for its merchandise.The beginning balance of the inventory and its transactions during January were as follows: $\begin{array}{|l|l|}\hline \text { January 1: } & \text { Beginning balance of } 18 \text { units at } \$ 13 \text { each. } \\\hline \text { January 12: } & \text { Purchased } 30 \text { units at } \$ 14 \text { each. } \\\hline \text { January 19: } & \text { Sold } 24 \text { units at } \$ 30 \text { selling price each. } \\\hline \text { January 20: } & \text { Purchased } 24 \text { units at } \$ 17 \text { each } \\\hline \text { January 27: } & \text { Sold } 27 \text { units at } \$ 30 \text { selling price each. } \\\hline\end{array}$ If the ending inventory is reported at $276,which inventory method was used?

A) LIFO method
B) FIFO method
C) Weighted-average method
D) Specific identification method
E) Retail inventory method

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

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Question 23

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A company had inventory of 5 units at a cost of $20 each on November 1.On November 2,they purchased 10 units at $22 each.On November 6,they purchased 6 units at $25 each.On November 8,they sold 18 units for $54 each.Using the LIFO perpetual inventory method,what was the cost of the 18 units sold?

The matching principle requires that the inventory valuation method follow the physical flow of inventory.

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

A company made the following merchandise purchases and sales during the month of May: $\begin{array}{|l|l|l|l|}\hline\text { May 1 purchased } & 380 & \text { units at } & \$ 15 \text { each } \\\hline \text { May 5 purchased } & 270 & \text { units at } & \$ 17 \text { each } \\\hline \text { May 10 sold } & 400 & \text { units at } & \$ 50 \text { each } \\\hline \text { May 20 purchased } & 300 & \text { units at } & \$ 22 \text { each } \\\hline \text { May 25 sold } & 400 & \text { units at } & \$ 50 \text { each }\\\hline\end{array}$ There was no beginning inventory.If the company uses the LIFO periodic inventory method,what would be the cost of the ending inventory?

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.

Goods in transit are included in a purchaser's inventory:

In applying the lower of cost or market method to inventory valuation,market is defined as:

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?

Not many companies take a physical count of inventory each year as they rely primarily on inventory records alone to determine the inventory value.

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: $\begin{array}{|l|l|}\hline \text { January 1: } & \text { Beginning balance of } 18 \text { units at } \$ 13 \text { each } \\\hline \text { January 12: } & \text { Purchased } 30 \text { units at } \$ 14 \text { each } \\\hline \text { January 19: } & \text { Sold } 24 \text { units at a selling price of } \$ 30 \text { each } \\\hline \text { January 20: } & \text { Purchased } 24 \text { units at } \$ 17 \text { each } \\\hline \text { January 27: } & \text { Sold } 27 \text { units at a selling price of } \$ 30 \text { each } \\\hline\end{array}$ If the ending inventory is reported at $357,what inventory method was used?

The full disclosure principle:

Given the following information,determine the cost of goods sold for December 31 using the FIFO 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.

Generally accepted accounting principles require that the inventory of a company be reported at:

Apply the retail method to the following company information to calculate the cost of the ending inventory for the current period: $\begin{array}{|l|r|r|}\hline& \text { Cost } & \text { Retail } \\\hline \text { Beginning inventory } & \$ 20,224 & \$ 31,600 \\\hline \text { Net purchases } & 59,508 & 97,000 \\\hline \text { Sales } & & 89,000 \\\hline\end{array}$

The conservatism constraint:

A company reported the following data related to its ending inventory: $\begin{array} { | l | l | c | c | } \hline \text { Product } & \text { Units Available } & \text { Cost } & \text { Market } \\\hline 849 & 100 & \$ 10 & \$ 11 \\\hline 842 & 75 & 16 & 14 \\\hline 847 & 60 & 14 & 13 \\\hline 860 & 40 & 16 & 20 \\\hline\end{array}$ Calculate the lower of cost or-market on both the: (a)Inventory as a whole. (b)Inventory applied separately to each product.

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.

The conservatism constraint requires that when more than one estimate of the amounts that are to be received or paid in the future exist and these estimates are about equally likely,then the less optimistic amount is used.