159)
Salmone Company reported the following purchases and sales of its only product. Salmone uses a
perpetual inventory system. Determine the cost assigned to the ending inventory using FIFO.
Date
Activities
Units Acquired at Cost
Units Sold at Retail
May 1
Beginning Inventory
150 units @ $10.00
5
Purchase
220 units @ $12.00
10
Sales
140 units @ $20.00
15
Purchase
100 units @ $13.00
24
Sales
90 units @ $21.00
A) $2,460 B) $2,850 C) $2,860 D) $2,590 E) $2,980
160)
Salmone Company reported the following purchases and sales of its only product. Salmone uses a
perpetual inventory system. Determine the cost assigned to cost of goods sold using FIFO.
Date
Activities
Units Acquired at Cost
Units Sold at Retail
May 1
Beginning Inventory
150 units @ $10.00
5
Purchase
220 units @ $12.00
10
Sales
140 units @ $20.00
15
Purchase
100 units @ $13.00
24
Sales
90 units @ $21.00
A) $5,440 B) $2,850 C) $2,980 D) $2,460 E) $2,590
161)
Salmone Company reported the following purchases and sales of its only product. Salmone uses a
perpetual inventory system. Determine the cost assigned to ending inventory using LIFO.
Date
Activities
Units Acquired at Cost
Units Sold at Retail
May 1
Beginning
Inventory
150 units @ $10.00
5
Purchase
220 units @ $12.00
10
Sales
140 units @ $20.00
15
Purchase
100 units @ $13.00
24
Sales
90 units @ $21.00
A) $2,980 B) $2,590 C) $2,460 D) $5,440 E) $2,860
162)
Salmone Company reported the following purchases and sales for its only product. Salmone uses a
perpetual inventory system. Determine the cost assigned to cost of goods sold using LIFO.
Date
Activities
Units Acquired at Cost
Units Sold at Retail
May 1
Beginning Inventory
150 units @ $10.00
5
Purchase
220 units @ $12.00
10
Sales
140 units @ $20.00
15
Purchase
100 units @ $13.00
24
Sales
90 units @ $21.00
A) $2,980 B) $2,590 C) $2,850 D) $2,860 E) $2,460
163)
Salmone Company reported the following purchases and sales of its only product. Salmone uses a
periodic inventory system. Determine the cost assigned to the ending inventory using FIFO.
Date
Activities
Units Acquired at Cost
Units Sold at Retail
May 1
Beginning Inventory
150 units @ $10.00
5
Purchase
220 units @ $12.00
10
Sales
140 units @ $20.00
15
Purchase
100 units @ $13.00
24
Sales
90 units @ $21.00
A) $5,440 B) $2,850 C) $2,980 D) $2,590 E) $2,460
164)
Salmone Company reported the following purchases and sales of its only product. Salmone uses a
periodic inventory system. Determine the cost assigned to cost of goods sold using FIFO.
Date
Activities
Units Acquired at Cost
Units Sold at Retail
May 1
Beginning Inventory
150 units @ $10.00
5
Purchase
220 units @ $12.00
10
Sales
140 units @ $20.00
15
Purchase
100 units @ $13.00
24
Sales
90 units @ $21.00
A) $2,860 B) $2,590 C) $2,850 D) $2,460 E) $2,980
165)
Salmone Company reported the following purchases and sales of its only product. Salmone uses a
periodic inventory system. Determine the cost assigned to ending inventory using LIFO.
Date
Activities
Units Acquired at Cost
Units Sold at Retail
May 1
Beginning Inventory
150 units @ $10.00
5
Purchase
220 units @ $12.00
10
Sales
140 units @ $20.00
15
Purchase
100 units @ $13.00
24
Sales
90 units @ $21.00
A) $2,100 B) $2,260 C) $2,580 D) $3,580 E) $3,180
166)
Salmone Company reported the following purchases and sales for its only product. Salmone uses a
periodic inventory system. Determine the cost assigned to cost of goods sold using LIFO.
Date
Activities
Units Acquired at Cost
Units Sold at Retail
May 1
Beginning Inventory
150 units @ $10.00
5
Purchase
220 units @ $12.00
10
Sales
140 units @ $20.00
15
Purchase
100 units @ $13.00
24
Sales
90 units @ $21.00
A) $2,460 B) $2,590 C) $2,850 D) $2,860 E) $2,580
167)
On September 1 of the current year, Scots Company experienced a flood that destroyed the
company’s entire inventory. Because the company had not completed its month end reporting for
August, it must estimate the amount of inventory lost using the gross profit method. At the
beginning of August, the company reported beginning inventory of $215,450. Inventory purchased
during August was $192,530. Sales for the month of August were $542,500. Assuming the
company’s typical gross profit ratio is 40%, estimate the amount of inventory destroyed in the
flood.
A) $81,480 B) $87,480 C) $134,520 D) $109,980 E) $82,480
168)
Use the following information for Shafer Company to compute inventory turnover for year 2.
Year 2
Year 1
Net sales
$647,500
$582,000
Cost of goods sold
389,500
360,840
Ending inventory
76,700
79,380
A) 8.44 B) 9.98 C) 5.08 D) 4.99 E) 8.30
169)
Use the following information for Davis Company to compute inventory turnover for Year 2.
Year 2
Year 1
Cost of goods sold
279,500
291,800
Ending inventory
47,700
49,350
A) 5.89 B) 5.86 C) 5.76 D) 11.77 E) 5.67
170)
Use the following information for Ephron Company to compute days’ sales in inventory for Year 2.
Year 2
Year 1
Net sales
$547,500
$572,000
Cost of goods sold
348,500
370,840
Ending inventory
75,700
81,400
A) 50.5 B) 76.8 C) 82.3 D) 79.3 E) 52.4
SHORT ANSWER QUESTIONS
171)
Match each of the following terms with the appropriate definition.
1. The number of times a company’s average inventory is sold during a period.
2. An inventory valuation method where each item in inventory is identified with a specific purchase
and invoice.
3. The expected sales price of an item minus the cost of making the sale.
4. An inventory pricing method that assumes the unit prices of the beginning inventory and of each
purchase are weighted by the number of units of each in inventory; the calculation occurs at the time
of each sale.
5. A method for estimating an ending inventory based on the ratio of the amount of goods for sale at
cost to the amount of goods for sale at retail price.
6. An estimate of days needed to convert the inventory at the end of the period into receivables or
cash.
7. An inventory valuation method that assumes that inventory items are sold in the order acquired.
8. Financial statements prepared for periods of less than one year.
9. The accounting constraint that aims to select the less optimistic estimate when two or more
estimates are about equally likely.
10. An inventory valuation method that assumes costs for the most recent items purchased are sold
first and charged to cost of goods sold.
172)
Match the following terms with the appropriate definition.
1. The required method of reporting inventory at market when market is lower than cost.
2. The method of assigning costs to inventory where the purchase cost of each item in inventory is
identified and used to determine the cost of inventory.
3. 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.
4. An owner of goods who ships them to another party who will then sell the goods for the owner.
5. One who receives and holds goods owned by another for purposes of selling the goods for the
owner.
6. The principle that aims to select the less optimistic estimate when two or more estimates are about
equally likely.
7. The number of times a company’s average inventory is sold during an accounting period.
8. An estimate of days needed to convert the inventory available at the end of the period into
receivables or cash.
9. 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.
10. 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.
173)
Match the inventory valuation method from the list below that is being described in each situation in
letters a-e. In all cases, assume a period of rising prices.
FIFO
First in, first out
LIFO
Last in, first out
WA
Weighted average
SI
Specific identification
a. The method that is used if each inventory item can be matched with a specific purchase
and 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 current cost.
________ e. The method that will tend to smooth out erratic changes in costs.
ESSAY QUESTIONS
174)
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.)
175)
What specific costs and deductions are used to determine the final cost of merchandise inventory?
Identify all costs including the incidental costs.
176)
Describe the internal controls that must be applied when taking a physical count of inventory.
177)
Explain the effects of inventory valuation methods on the cost of ending inventory, income, and
income taxes.
178)
How do the consistency concept and the full disclosure principle affect inventory valuation?
179)
What is the effect of an error in the ending inventory balance on the accounts reported in the
income statement?
180)
Explain how the inventory turnover ratio and the days’ sales in inventory ratio are used to evaluate
inventory management.
181)
Identify and describe the four inventory valuation methods.
182)
Explain why the lower of cost or market rule is used to value inventory.
183)
Discuss the important accounting features of a periodic inventory system including accounts and
procedures used.
184)
Explain the reason a company might use the retail inventory method for valuing inventory.
185)
Explain the reason a company might use gross profit inventory method for valuing inventory.
186)
Sarbanes Oxley (SOX) demands that companies safeguard inventory and properly report it. List
methods that companies should use to safeguard inventory and accounting procedures that should
be used to properly report inventory.
187)
The company’s inventory manager receives compensation that includes a bonus based on gross
profit. You discover that the inventory manager has knowingly overstated ending inventory by $2
million. What effect does this error have on the financial statements of the company and
specifically gross profit? Why would the manager knowingly overstate ending inventory? Would
this be considered an ethics violation?
188)
Mary’s Antiques does not have its own retail location, instead maintains inventory in its warehouse
and sells merchandise through Oldtime Antique Mall. Oldtime does not assume responsibility for
goods until they are sold to customers at which time it takes a commission for items sold and sends
the sale proceeds to Mary’s. Identify which company has the role of the consignor and the
consignee. Which company should include any unsold goods as part of its inventory?