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Exam 5: Accounting for Inventories

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Question 51

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Sinclair, Inc. uses the perpetual inventory system. The company's management, under pressure to report favorable results to shareholders, counted $15,000 of inventory that had already been sold at year-end. Compared to an accurate inventory count, what is the effect of counting this inventory on the financial statements?

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(I) (N) (I) (N) (D) (I) (N)
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Question 52

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Zeus Company understated its ending inventory. Which of the following answers correctly states the effect of the error in the present period?

A) Overstatement of total assets and cost of goods sold.
B) Understatement of total assets and gross margin.
C) Understatement of liabilities and retained earnings.
D) Overstatement of cost of goods sold and retained earnings.

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

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Question 53

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In a period of rising prices, use of the FIFO cost flow method would cause a company to pay more income taxes than would use of LIFO.

Kurtz Company has provided the following figures as of December 31, 2013: Sales, $600,000; cost of goods sold, $320,000; net income, $120,000; inventory, $64,000. Indicate whether each of the above statements pertaining to the Kurtz Company is true or false. _____ a) Kurtz's inventory turnover is 5.0. _____ b) Kurtz's average number of days to sell inventory ratio is 39.5. _____ c) Kurtz could increase its inventory turnover by increasing prices. _____ d) Kurtz's gross margin as a percentage of sales was 46.7%. _____ e) A local competitor in the same line of business has an inventory turnover of 6.5. Assuming each firm has approximately the same gross margin rate, Kurtz is likely to be more profitable than the competitor.

If a company uses the LIFO cost flow method, it is not required by generally accepted accounting principles to apply the lower-of-cost-or-market rule.

Reichart Company has four different categories of inventory. Quantity, cost, market value for each inventory category is shown below: The company carries inventory at lower-of-cost-or-market applied to the inventory in aggregate. The implementation of the lower-of-cost-or-market rule would:

When preparing its quarterly financial statements, Patterson Co. uses the gross margin method to estimate ending inventory. The following information is available for the 1^st quarter of 2013: What was Patterson's estimated inventory on March 31, 2013?

If the replacement cost of inventory is greater than its historical cost, the increase in value does not affect the company's financial statements.

Determine the amount of cost of goods sold assuming the LIFO cost flow method.

The Banks Company had its entire inventory destroyed when a fire swept through the company's warehouse on April 30, 2013. Fortunately, the accounting records were locked in a fireproof safe and were not damaged. The following information for the period up to the date of the fire was taken from the accounting records Required: Assuming that the gross margin has averaged 35 percent of selling price, what is the estimated value of the inventory destroyed in the fire? Show all calculations in good form.

Cho Co. sells product A. The beginning inventory for product A was 70 units @ $60 per unit. During the year, Cho purchased 110 units of product A at $54 per unit. The company sold 140 units of product A @ $100 per unit at the end of the year.Required: Determine the amount of product cost that would be allocated to cost of goods sold and ending inventory using (1) FIFO, (2) LIFO, and (3) weighted average.

A company uses a cost flow method (such as LIFO or FIFO) to allocate product costs between cost of goods sold and beginning inventory.

Assuming Chandler uses a FIFO cost flow method, the ending inventory on January 31 is:

Which of the following businesses is most likely to use a specific identification cost flow method?

The following information is for Blakemore Company for 2013 Required: Assuming that Blakemore uses the FIFO cost flow method, a) How much product cost would be allocated to Cost of Goods Sold? b) How much product cost would be allocated to Merchandise Inventory at the end of the year? c) Calculate the average number of days to sell inventory for the year.

During a period of rising prices the FIFO cost flow method will result in higher total assets than LIFO.

At a time of declining prices, which cost flow assumption will result in the highest ending inventory?

Trainer Co. had beginning inventory of $400 and ending inventory of $600. Trainer Co. had cost of goods sold amounting to $1,800. Based on this information, Trainer Co. must have purchased inventory amounting to:

Determine the amount of ending inventory assuming the FIFO cost flow method.

Bowden Company paid cash to purchase two identical inventory items. The first purchase cost $16.00 cash and the second cost $18.00 cash. Bowden sold one inventory item for $28.00 cash. Based on this information alone, without considering the effect of income tax,: