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Exam 6: Inventories and Cost of Sales

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Question 91

Multiple Choice

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Tops had cost of goods sold of $9,421 million, ending inventory of $2,089 million, and average inventory of $1,965 million. Its inventory turnover equals:

A) 0.21.
B) 4.51.
C) 4.79.
D) 76.1 days.
E) 80.9 days.

F) None of the above
G) C) and D)

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Question 92

Multiple Choice

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Thelma Company reported cost of goods sold for Year 1 and Year 2 as follows: Thelma Company made two errors: 1) ending inventory at the end of Year 1 was understated by $15,000 and 2) ending inventory at the end of Year 2 was overstated by $6,000. Given this information, the correct cost of goods sold figure for Year 2 would be:

A) $291,000
B) $276,000
C) $264,000
D) $285,000
E) $249,000

F) A) and B)
G) None of the above

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Question 93

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Pettis needs to determine its year-end inventory. The warehouse contains 20,000 units, of which 3,000 were damaged by flood and cannot be sold. Another 2,000 units, shipped FOB shipping point, are in transit. The company also consigns goods and has 4,000 units at a consignee's location. How many units should Pettis include in its year-end inventory?

When LIFO is used with the periodic inventory system, cost of goods sold is assigned costs from the most recent purchases at the point of each sale, rather than from the most recent purchases for the period.

The reliability of the gross profit method depends on a good estimate of the gross profit ratio.

All of the following statements related to goods on consignment are except:

Regardless of what inventory method or system is used, cost of goods available for sale must be allocated between ___________________ and __________________.

The _____________________ is a measure of how quickly a merchandiser sells its merchandise inventory.

A company reported the following information regarding its inventory. Beginning inventory: cost is $70,000; retail is $130,000 Net purchases: cost is $65,000; retail is $120,000 Sales at retail: $145,000 The year-end inventory showed $105,000 worth of merchandise available at retail prices. What is the cost of the ending inventory?

The cost of an inventory item includes its invoice cost minus any discount, and plus any added or incidental costs necessary to put it in a place and condition for sale.

A company has inventory of 10 units at a cost of $10 each on June 1. On June 3, it purchased 20 units at $12 each. 12 units are sold on June 5. Using the FIFO perpetual inventory method, what is the cost of the 12 units that were sold?

How do the consistency concept and the full disclosure principle affect inventory valuation?

When purchase costs of inventory regularly decline, which method of inventory costing will yield the lowest cost of goods sold?

_______________________ is the estimated sales price of damaged goods minus the cost of making the sale.

The assignment of costs to the cost of goods sold and to ending inventory using FIFO is the same for both the perpetual and periodic inventory systems.

The full disclosure principle:

A company reported the following data: Required: 1. Calculate the company's merchandise inventory turnover for each year. 2. Comment on the company's efficiency in managing its inventory.

When purchase costs regularly rise, the ___________________ method of inventory valuation yields the lowest gross profit and net income, providing a tax advantage.

When purchase costs of inventory regularly decline, which method of inventory costing will yield the lowest gross profit and income?

On May 1 of the current year, Peck Company experienced a 500 year flood which destroyed the company's entire inventory. The company had not completed its month end reporting for April and must estimate the amount of inventory lost. At the beginning of April, the company reported beginning inventory of $215,450. Inventory purchased during April (until the date of the disaster) was $192,530. Sales for the month of April were $542,500. Assuming the company's typical gross profit ratio is 40%, estimate the amount of inventory destroyed in the flood.