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Exam 5: Accounting for Inventories

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Question 71

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The Warren Company uses the perpetual inventory system and has computed the cost of its inventory to be $12,800 as follows: 200 units of Product A at a cost per unit of $20; 300 units of Product B at a cost per unit of $24; and 100 units of Product C at a cost per unit of $16. The current replacement cost of each of the above items is $25, $22 and $14, respectively. Warren's accountant is not sure yet whether to apply the lower-of-cost-or-market rule to each individual item or to the entire stock of inventory in the aggregate. Indicate whether each of the following statements pertaining to the Warren Company is true or false.________ a)When referring to Product B, the "cost" totals $7,200.________ b)If Warren applies the lower-of-cost-or-market rule to each individual inventory item, Product A would be listed at $25 per unit.________ c)Warren would record a write-down of inventory if it applies this rule to each individual inventory item but would not have a write-down if it applies the rule to the entire stock of inventory in the aggregate.________ d)If Warren applies this rule to each individual inventory item, inventory of $12,000 will be shown on the balance sheet.________ e)The lower of cost or market is $1,600 for the 100 units of Product C.

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B) False

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Question 72

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Explain the meaning of the terms, cost and market, as used in the application of the lower-of-cost-or-market rule.

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Cost is determined using the F...

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Question 73

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If prices are rising, which inventory cost flow method will produce the lowest amount of cost of goods sold?

Taylor Company had beginning inventory of $400 and ending inventory of $600. Taylor Company had cost of goods sold amounting to $1,800. What is the amount of inventory that was purchased during the period?

The Atkins Company uses the FIFO cost flow method. The company had the following beginning inventory, purchases, and sales of inventory during the first quarter of Year 2: Required:1)Determine the cost of goods sold during the first quarter of Year 22)Determine the ending inventory at Year 2.

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?

What happens when prices are falling?

When the cost of purchasing inventory is declining, which inventory cost flow method will produce the highest amount of cost of goods sold?

Anton Company uses the perpetual inventory system and FIFO cost flow method. During the year, Anton purchased 1,080 units of inventory that cost $7 each and then purchased an additional 1,110 units of inventory that cost $9 each. If Anton sells 1,550 units of inventory, what is the amount of cost of goods sold?

The inventory records for Radford Company reflected the following: What is the amount of gross margin assuming the weighted-average inventory cost flow method? (Round your intermediate calculations to two decimal places.)

The inventory records for Radford Company reflected the following: What is the amount of cost of goods sold assuming the LIFO cost flow method?

Vargas Company uses the perpetual inventory system and the FIFO cost flow method. During the current year, Vargas purchased 400 units of inventory that cost $15.00 each. At a later date during the year, the company purchased an additional 800 units of inventory that cost $18.00 each. Vargas sold 500 units of inventory for $27.00. What is the amount of cost of goods sold that will appear on the current year's income statement?

How is the lower-of-cost-or-market rule applied to each individual inventory item?

If a company is using the lower-of-cost-or-market rule and a write-down is required, how will that write-down affect the company's financial statements?

On December 31, Year 1, Owings Corporation overstates the ending inventory by $5,000. How will this affect the amount of retained earnings shown on the balance sheet at December 31, Year 2?

Assuming that longer inventory holding periods act to increase expenses, which of the three companies would be expected to have the lowest inventory holding costs? (Use 365 days in a year.)

A company's gross margin reported on the income statement is not affected by the inventory cost flow method it uses.

In an inflationary environment, which inventory cost flow method, FIFO or LIFO, reports the lowest amount of net income?

Indicate whether each of the following statements is true or false.________ a)The FIFO cost flow method assumes that the company physically rotates inventory so that the oldest inventory is sold first.________ b)In a period of rising inventory prices, FIFO gives higher cost of goods sold than LIFO.________ c)Under the weighted-average cost flow method, the average cost per unit equals the cost of goods available for sale divided by the number of units available for sale.________ d)In a period of declining inventory prices, LIFO will result in higher income tax expense than FIFO.________ e)In a period of rising inventory prices, FIFO gives higher ending inventory than LIFO does.

The following information is for Lattimore Company for Year 2: Required:Assuming that Lattimore uses the LIFO cost flow method: a)Determine the cost of goods sold during Year 2.b)Determine the inventory balance at the end of Year 2.c)Calculate the average number of days to sell inventory for Year 2. (Round your answer to the nearest day.)