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When is a physical inventory usually taken?

At the end of the company's fiscal year

As a result of a thorough physical inventory, Railway Company determined that it had inventory worth $180,000 at December 31, 2010. This count did not take into consideration the following transactions:
• Rogers Consignment store currently has goods worth $35,000 on its sales floor that belong to Railway but are being sold on consignment by Rogers. The selling price of these goods is $50,000.
• Railway purchased $13,000 of goods that were shipped on December 27, FOB destination, that will be received by Railway on January 3.
Determine the correct amount of inventory that Railway should report.

$180,000 + $35,000 = $215,000

At December 31, 2012, Sunrise Company's inventory records indicated a balance of $752,000. Upon further investigation it was determined that this amount included the following:
• $112,000 in inventory purchases made by Sunrise shipped from the seller December 27, 2012 terms FOB destination, but not due to be received until January 2, 2013
• $74,000 in goods sold by Sunrise with terms FOB destination on December 27. The goods are not expected to reach their destination until January 6, 2013
• $6,000 of goods received on consignment from Wallwood Company

What is Sunrise's correct ending inventory balance at December 31, 2012?

Corrected balance = $752,000 - $412,000 - $6,000 = $634,000.

Merchandising firms usually classify their inventory into raw materials, work in process and finished goods. (true or False)

False

Cost of goods purchased is $540,000, ending inventory is $20,000, and cost of goods sold is $560,000. How much is beginning inventory?

$20,000 + $540,000 -$520,000 = $40,000.

Which of the following not an acceptable inventory costing method?


=Last-in, last-out
=Average cost
=Last-in, first-out
=First-in, first-out

Last-in, last-out

Which of the following is true of the FIFO inventory method?

=It assumes that the cost of the earliest units purchased are the first to be allocated to cost of goods sold.
=It assumes that the cost of the earliest units purchased are the first to be allocated to the ending inventory.
=It assumes that the cost of the earliest units purchased are the last to be allocated to the beginning inventory.
=It assumes that the cost of the earliest units purchased are the last to be allocated to cost of goods sold.

It assumes that the cost of the earliest units purchased are the first to be allocated to cost of goods sold.

Which of the following would most likely employ the specific identification method of inventory costing?

=Grocery store
=Jewelry store
=Hardware store
=Gasoline station

=Jewelry store

Which of the following statements is true?

a. LIFO inventory valuation requires physical flow of goods to be representative of the cost flow.

b. FIFO inventory valuation requires physical flow of goods to be representative of the cost flow.

c. Specific identification method inventory valuation requires physical flow of goods to be representative of the cost flow.

d. All of the above statements are correct.

Specific identification method inventory valuation requires physical flow of goods to be representative of the cost flow.

Kam Company has the following units and costs:

Units Unit Cost
Inventory, Jan. 1 8,000 $11
Purchase, June 19 13,000 $12
Purchase, Nov. 8 5,000 $13

If 9,000 units are on hand at December 31, what is the cost of the ending inventory under FIFO using a periodic inventory system?

(5,000 × $13) + (4,000 × $12) = $113,000.

Kam Company has the following units and costs:

Units Unit Cost
Inventory, Jan. 1 8,000 $11
Purchase, June 19 13,000 $12
Purchase, Nov. 8 5,000 $13

If 9,000 units are on hand at December 31, what is the cost of the ending inventory under LIFO using a periodic system?

(8,000 × $11) + (1,000 × $12) = $100,000

Which one of the following is not a consideration that affects the selection of an inventory costing method?

=Balance sheet effects
=Income statement effects
=Perpetual versus periodic inventory system
=Tax effects

Perpetual versus periodic inventory system

With the assumption of costs and prices generally rising, which of the following is correct?

=FIFO provides the closest cost of goods sold to replacement cost.

=LIFO provides the closest valuation of inventory on the balance sheet to replacement cost.

=Specific identification method provides the closest cost of goods sold to replacement cost on the income statement.

=LIFO provides the closest valuation of cost of goods sold to replacement cost of inventory sold.

LIFO provides the closest valuation of cost of goods sold to replacement cost of inventory sold.

Which of these tranasctions would cause the inventory turnover ratio to increase the most?

=Keeping the amount of inventory on hand constant but increasing sales
=Increasing the amount of inventory on hand
=Keeping the amount of inventory on hand constant but decreasing sales
=Decreasing the amount of inventory on hand and increasing sales.

Decreasing the amount of inventory on hand and increasing sales.

Carlos Company had beginning inventory of $80,000, ending inventory of $110,000, cost of goods sold of $285,000, and sales of $475,000. How much is Carlos' days in inventory?

121.7 days

Reporting which one of the following allows analysts to make adjustments to compare companies using different cost flow methods?

-IFO reserve
-Current replacement cost
-FIFO reserve
-Inventory turnover ratio

LIFO reserve

In 2012, a company shows inventory of $250,000 using LIFO. If the company had used FIFO, its inventories would have been higher by $40,000 and $30,000 in 2012 and 2011, respectively. How much is the company's LIFO reserve in 2012?

$40,000

What is the LIFO reserve?

the difference between the value of the inventory under LIFO and the value under FIFO

Which statement is true in a perpetual inventory system?

=LIFO cost of goods sold will be the same as in a periodic inventory system.

=FIFO cost of goods sold will be the same as in a periodic inventory system.

=A new average is computed under the average cost method after each sale.

=Average costs are based entirely on unit-cost simple averages.

FIFO cost of goods sold will be the same as in a periodic inventory system.

A company just starting business made the following purchases in August:

August 1 300 units $1,560
August 12 400 units 2,340
August 24 400 units 2,520
August 30 300 units 1,980
1,400 units $8,400

A physical count of the inventory on August 31 reveals that there are 500 units on hand. Using the FIFO inventory method in a perpetual inventory system, how much is the value of the ending inventory on August 31?

(200 × $6.30) + (300 × $6.60) = $3,240

A company just starting business made the following inventory transactions in August:

Purchase on August 1 300 units $1,560
Sale on August 8 200 units 3,400
Purchase on August 12 400 units 1,340
Sale on August 24 350 units 5,950

Using the LIFO inventory method, how much is cost of goods sold for August using a perpetual inventory system?

Sale on August 8: 200 × $5.20 - $1,040.
Sale on August 24: 350 units ×$3.35 = $1,172.50
Total cost of goods sold = $2,212.50.

A company just starting business made the following inventory transactions in August:

Purchase on August 1 350 units $1,820
Sale on August 8 200 units 3,400
Purchase on August 12 400 units 1,340
Sale on August 24 350 units 5,950


Using the average cost perpetual inventory method, how much is the average cost of the units sold on August 24?

[(150 × $5.20) + (400 × $3.35)] / (150 + 400) = $3.85

If a firm is using a perpetual inventory system and is using the average-cost method of valuation, when is a new average cost computed?

After each purchase

How do the results under FIFO in a perpetual system compare to the results using a periodic system?

They are the same.

Which is true if the ending inventory is overstated?

=Net income will be overstated and the stockholders' equity will be understated.

=Net income will be overstated and the stockholders' equity will be overstated.

=Net income will be understated and the stockholders' equity will be understated.

=Net income will be understated and the stockholders' equity will be overstated.

Net income will be overstated and the stockholders' equity will be overstated.

If there is an error in the ending inventory affecting the net income of the current period, what will happen to the net income of the next accounting period?

=Cannot be determined from the information given.

=It will have no effect on the net income of the next accounting period.

=It will have the reverse effect on the net income during the next accounting period.

=If net income was overstated in the current period, it will be overstated in the next period.

It will have the reverse effect on the net income during the next accounting period.

If the ending inventory is overstated, what occurs?

=Assets are overstated and the cost of goods sold is overstated.

=Assets are overstated and the net income is understated.

=Assets are overstated and stockholders' equity is overstated.

=Assets are overstated and the liabilities are understated.

Assets are overstated and stockholders' equity is overstated.

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