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Exam 5: Accounting for Inventories

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Question 31

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Carson Company has an inventory turnover of 13.25, and its inventory amounts to $5,100,000. What is the amount of cost of goods sold?

A) $384,906
B) $67,575,000
C) $38,490,566
D) $76,500

E) B) and D)
F) A) and B)

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Question 32

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What happens when a company is operating in an inflationary environment?

A) The company's net income will be higher if it uses LIFO than if it uses FIFO.
B) The company's cost of goods sold will be lower if it uses LIFO as opposed to FIFO.
C) The company's net income will be the same regardless of whether LIFO or FIFO is used.
D) The company's assets will be lower if it uses LIFO as opposed to FIFO cost flow.

E) All of the above
F) B) and D)

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Question 33

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What is meant by "market" in the lower-of-cost-or-market rule?

Landis Company is preparing its financial statements. Gross margin is normally 40% of sales. Information taken from the company's records revealed sales of $25,000; beginning inventory of $2,500 and purchases of $17,500. What is the estimated amount of ending inventory at the end of the period?

Max Company's first year in operation was Year 1. The following inventory purchase information comes from Max's accounting records for the year: In December Year 1, Max sold 350 units for $480 each. Operating expenses for the year were $30,000, and the tax rate was 30%. Required:a)Calculate the cost of goods sold using LIFO.b)Calculate the cost of goods sold using FIFO.c)What amount of income tax would Max have to pay if it uses LIFO?d)What amount of income tax would Max have to pay if it uses FIFO?e)Assuming that the results for Year 2 are representative of what Max can generally expect; would you recommend that the company use LIFO or FIFO? Explain.

Discuss the significance of the average number of days to sell inventory.

Stubbs Company uses the perpetual inventory method and the weighted-average cost flow method. On January 1, Year 2, Stubbs purchased 400 units of inventory that cost $8.00 each. On January 10, Year 2, the company purchased an additional 600 units of inventory that cost $9.00 each. If the company sells 700 units of inventory for $16.00 each, what is the amount of gross margin reported on the income statement?

Blake Company purchased two identical inventory items. The item purchased first cost $16.00, and the item purchased second cost $18.00. Blake sold one of the items for $24.00. Which of the following statements is true?

Chase Company uses the perpetual inventory method. The inventory records for Chase reflected the following information: Assuming Chase uses a FIFO cost flow method, what is the ending inventory on January 31?

Which of the following statements is not correct regarding the importance of inventory turnover to a company's profitability?

Carson Company has an inventory turnover of 12.75, and its inventory amounts to $2,400,000. What is the amount of cost of goods sold?

During December Year 2, Crowe Company sold 125 units @ $225 each. Cash selling and administrative expenses for the year were $11,000. All transactions were cash transactions. The following information is also available: The company's income tax rate is 30%. Required:a)Prepare an income statement for Crowe Company for Year 2 assuming:1)FIFO inventory cost flow2)LIFO inventory cost flowb)Prepare the operating activities section of the statement of cash flows for Year 2 assuming:1)FIFO inventory cost flow 2)LIFO inventory cost flow

Glasgow Enterprises started the period with 80 units in beginning inventory that cost $7.50 each. During the period, the company purchased inventory items as follows: Glasgow sold 220 units after purchase 3 for $17.00 each. What is Glasgow's ending inventory under LIFO?

Bell Company has provided the following figures as of December 31, Year 2: sales of $600,000, cost of goods sold of $320,000, net income of $120,000, and ending inventory of $64,000. Indicate whether each of the above statements pertaining to the Bell Company is true or false.________ a)Bell's inventory turnover is 5.0.________ b)Bell's average number of days to sell inventory is 39.5.________ c)Bell could increase its inventory turnover by increasing prices.________ d)Bell'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 3.5. Assuming each firm has approximately the same gross margin rate, Bell Company is likely to be more profitable than the competitor.

Chase Company uses the perpetual inventory method. The inventory records for Chase reflected the following information: Assuming Chase uses a first-in, first-out (FIFO) cost flow method, what is the cost of goods sold for the sales transaction on January 31?

What are the circumstances that might cause a company to need an estimate of the amount of its inventory?

Phipps Corporation overstated its ending inventory on December 31, Year 1. Which of the following correctly identifies the effect of the error on Year 2 financial statements?

During a period of declining prices, a company would report a lower gross margin using the FIFO cost flow method than with LIFO.

The Internal Revenue Service allows a company to use LIFO for income tax purposes only if it also uses LIFO for financial reporting.

If a company overstates its Inventory balance at the end of Year 1 due to an error, its Retained Earnings will also be overstated on the Year 1 balance sheet.