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Chapter 06 - Inventories
Copyright Cengage Learning. Powered by Cognero.
Page 71
*Cost of goods available for sale:
60
units at $145
$ 8,700
90
units at $150
13,500
75
units at $154
11,550
225
units (at average cost of $150)
$33,750
POINTS:
1
DIFFICULTY:
Bloom's: Applying
Moderate
QUESTION TYPE:
Subjective Short Answer
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.06-04 - LO: 06-04
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.17 - Inventories Reporting
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:20 PM
DATE MODIFIED:
10/16/2017 5:09 PM
173. The units of Manganese Plus available for sale during the year were as follows:
Mar. 1
Inventory
16 units
@ $30
$ 480
June 16
Purchase
30 units
@ $35
1,050
Nov. 28
Purchase
45 units
@ $39
1,755
91 units
$3,285
There are 15 units of the product in the physical inventory at November 30. The periodic inventory system is
used. Determine the inventory cost by (a) FIFO, (b) LIFO, and (c) average cost methods.
ANSWER:
(a) 15 units @ $39 = $585
(b) 15 units @ $30 = $450
(c) $3,285/91 = $36.10 per unit;
15 units @ $36.10 = $541.50
174. Complete the chart, indicating whether LIFO or FIFO would give the highest and lowest amounts for each item,
assuming a period of increasing costs.
Chapter 06 - Inventories
Highest Amount
Lowest Amount
Cost of goods sold
Gross profit
Net income
Ending inventory
ANSWER:
Highest Amount
Lowest Amount
Cost of goods sold
LIFO
FIFO
Gross profit
FIFO
LIFO
Net income
FIFO
LIFO
Ending inventory
FIFO
LIFO
POINTS:
1
DIFFICULTY:
Moderate
Bloom's: Applying
QUESTION TYPE:
Subjective Short Answer
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.06-05 - LO: 06-05
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.17 - Inventories Reporting
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:20 PM
DATE MODIFIED:
10/16/2017 5:09 PM
175. The units of Manganese Plus available for sale during the year were as follows:
Mar. 1
Inventory
16 units
@ $30
$ 480
June 16
Purchase
30 units
@ $35
1,050
Nov. 28
Purchase
45 units
@ $39
1,755
91 units
$3,285
There are 15 units of the product in the physical inventory at November 30. The periodic inventory system is
used. Determine the difference in gross profit between the LIFO and FIFO inventory cost systems.
ANSWER:
FIFO cost of goods sold (16 × $30) + (30 × $35) + (30 ×
$39)
$2,700
LIFO cost of goods sold (45 × $39) + (30 × $35) + (1 ×
179. While taking a physical inventory, a company counts its inventory as less than the actual amount on hand. How will
this error affect the income statement?
ANSWER:
Net income will be understated.
POINTS:
1
DIFFICULTY:
Moderate
Bloom's: Applying
QUESTION TYPE:
Subjective Short Answer
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.06-07 - LO: 06-07
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.17 - Inventories Reporting
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:20 PM
DATE MODIFIED:
10/16/2017 5:09 PM
180. On the basis of the following data, determine the value of the inventory at the lower of cost or market. Apply lower
of cost or market to each inventory item. Show your work.
Item
Inventory Quantity
Unit Cost Price
Unit Market Price
Product C
300
$ 6
$ 5
Product D
420
12
14
ANSWER:
Total
Item
Inventory
Quantity
Cost per
Unit
Market
Value
per Unit
Cost
Market
LCM
Product C
300
$6
$5
$1,800
$1,500
$1,500
Product D
420
12
14
5,040
5,880
5,040
Total
$6,840
$7,380
$6,540
POINTS:
1
DIFFICULTY:
Moderate
Bloom's: Applying
QUESTION TYPE:
Subjective Short Answer
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.06-07 - LO: 06-07
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.17 - Inventories Reporting
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:20 PM
Chapter 06 - Inventories
Gear X
175
$33
$29
Gear Y
225
27
28
ANSWER:
Total
Item
Inventory
Quantity
Cost per
Unit
Market
Value per
Unit
Cost
Market
LCM
Gear X
175
$33
$29
$ 5,775
$ 5,075
$ 5,075
Gear Y
225
27
28
6,075
6,300
6,075
Total
$11,850
$11,375
$11,150
POINTS:
1
DIFFICULTY:
Moderate
Bloom's: Applying
QUESTION TYPE:
Subjective Short Answer
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.06-07 - LO: 06-07
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.17 - Inventories Reporting
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:20 PM
DATE MODIFIED:
10/16/2017 5:09 PM
182. The following data were taken from the annual reports of Big Bang Inc., a manufacturer of fireworks, and Orange
Inc., a manufacturer of computers.
Big Bang, Inc.
Orange, Inc.
Cost of goods sold
$830,000
$11,540,000
Inventory, end of year
190,000
320,000
Inventory, beginning of year
240,000
290,000
(a) Determine the (1) inventory turnover and (2) number of days' sales in inventory for Big Bang and Orange.
Round your answers to two decimal places.
(b) How would you expect these measures to compare between the companies? Why?
ANSWER:
(a) 1.
Inventory Turnover:
Big Bang, Inc.: 3.86 {$830,000/[($190,000 + $240,000)/2]}
Orange, Inc.: 37.84 {$11,540,000/[($320,000 + $290,000)/2]}
(a) 2.
Number of Days' Sales in Inventory:
Chapter 06 - Inventories
Copyright Cengage Learning. Powered by Cognero.
Page 79
using the retail method of estimation.
Cost
Retail
Inventory, October 1
$13,687
$19,553
Purchases for October (net)
?
98,344
Merchandise available for sale
$82,528
$ ?
Ratio of cost to retail price: ?
Sales for October
?
Merchandise at retail, October 31
$25,340
Merchandise at cost, October 31
$ ?
ANSWER:
Cost
Retail
Inventory, October 1
$13,687
$ 19,553
Purchases for October (net)
68,841
98,344
Merchandise available for sale
$82,528
$117,897
Ratio of cost to retail price: 70%
($82,528/$117,897)
Sales for October
92,557
Merchandise at retail, October 31
$ 25,340
Merchandise at cost, October 31
($25,340 × 70%)
$17,738
POINTS:
1
DIFFICULTY:
Challenging
Bloom's: Applying
QUESTION TYPE:
Subjective Short Answer
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.06-APP - LO: 06-APP
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.17 - Inventories Reporting
ACCT.AICPA.BB.07 - Critical Thinking
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:20 PM
DATE MODIFIED:
10/16/2017 5:09 PM
187. List the internal control objectives illustrated by the following:
(a)
keeping the inventory storeroom locked
(b)
counting the inventory at the end of the accounting period and comparing it with the
inventory ledger clerk's records
(c)
using subsidiary ledgers and a perpetual inventory system
ANSWER:
(a)
safeguarding the inventory from damage or theft
(b)
safeguarding the inventory from damage or theft and reporting inventory in the
