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Exam 5: Inventories and Cost of Sales

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Question 41

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On March 31 a company needed to estimate its ending inventory to prepare its first quarter financial statements.The following information is available: Beginning inventory,January 1: $4,000 Net sales: $80,000 Net purchases: $78,000 The company's gross margin ratio is 25%.Using the gross profit method,the estimated ending inventory value would be:

A) $82,000.
B) $60,000.
C) $20,000.
D) $22,000.
E) $19,500.

F) C) and D)
G) B) and E)

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Question 42

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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 43

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Forever Young Game Stores (FYG)has taken a physical count of its inventory at March 31,its fiscal year-end.After reviewing the accounting records and documentation,the following items have been discovered: (a)An invoice from Shreck Co.indicates that $30,000 of games were shipped to FYG on March 27,terms FOB shipping point.The games and invoice did not arrive at FYG until February 2 and were not included in the physical count. (b)An invoice from Gamers,Inc.indicates that $8,000 of games were shipped to FYG on March 29,terms FOB destination.The games and invoice did not arrive at FYG until February 2 and were not included in the physical count. The physical count and cost assignment on March 31 prior to these two items is $440,000.The cost of goods sold for FYG is $2,100,000. 1.Calculate the amount that should be reported as ending inventory for FYG. 2.Calculate the days' sales in inventory before and after the appropriate adjustments for inventory.

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

An advantage of the weighted average inventory method is that it tends to smooth out erratic changes in costs.

Match the following terms with the appropriate definition. -A procedure for estimating inventory where the past gross profit rate is used to estimate the cost of goods sold,which is then subtracted from the cost of goods available for sale to determine the estimated ending inventory.

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

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

Overstating beginning inventory will understate cost of goods sold and net income.

Using the retail inventory method,if the cost to retail ratio is 70% and ending inventory at retail is $145,000,then estimated ending inventory at cost is $207,143.

Match the following terms with the appropriate definition. -The accounting principle that a company use the same accounting methods period after period so that the financial statements of succeeding periods will be comparable.

McCarthy Company has inventory of 8 units at a cost of $200 each on October 1.On October 2,it purchased 20 units at $205 each.11 units are sold on October 4. -Using the FIFO perpetual inventory method,what is the value of inventory after the October 4 sale?

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

Use the information below to determine the sales revenue,cost of goods sold and gross profit that would be reported for the company related to the March 16 sale assuming the company uses LIFO inventory valuation and a perpetual inventory system. $\begin{array} { | l | l | } \hline \text { January 1: } & \text { Purchased } 100 \text { units at } \$ 10 \text { per unit. } \\\hline \text { February 5: } & \text { Purchased } 60 \text { units at } \$ 12 \text { per unit. } \\\hline \text { March 16: } & \text { Sold } 40 \text { units for } \$ 16 \text { per unit. } \\\hline\end{array}$

The inventory turnover ratio is computed by dividing cost of goods sold by average merchandise inventory.

The full disclosure principle requires that the notes to the financial statements report any change in the method of accounting for inventory.

Monarch Company uses a weighted-average perpetual inventory system and has the following purchases and sales: $\begin{array} { | l | l | } \hline \text { January } 1 & 20 \text { units were purchased at } \$ 10 \text { per unit. } \\\hline \text { January } 12 & 12 \text { units were sold. } \\\hline \text { January 20 } & 18 \text { units were purchased at } \$ 11 \text { per unit. } \\\hline\end{array}$ - What is the value of cost of goods sold?

The costs of goods purchased will vary under the different inventory methods of specific identification,FIFO,LIFO,and weighted average.

Goods on consignment are goods that are shipped by the owner,called the ________,to another party called the ________ that will sell the goods for the owner.

Costs included in the Merchandise Inventory account can include all of the following except: