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Exam 8: Valuation of Inventories: a Cost-Basis Approach

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Question 1

Multiple Choice

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Johnson Company had 500 units of "Tank" in its inventory at a cost of $4 each.It purchased, for $2,800, 300 more units of "Tank".Johnson then sold 400 units at a selling price of $10 each, resulting in a gross profit of $1,600.The cost flow assumption used by Johnson

A) is FIFO.
B) is LIFO.
C) is weighted average.
D) cannot be determined from the information given.

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C

Question 2

Multiple Choice

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Kingman Company had 400 units of "Dink" in its inventory at a cost of $6 each.It purchased 600 more units of "Dink" at a cost of $9 each.Kingman then sold 700 units at a selling price of $15 each.The LIFO liquidation overstated normal gross profit by

A) $ -0-
B) $300.
C) $600.
D) $900.

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Question 3

Multiple Choice

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Use the following information for questions Richey Co.records purchases at net amounts.On May 5 Richey purchased merchandise on account, $16,000, terms 2/10, n/30.Richey returned $1,200 of the May 5 purchase and received credit on account.At May 31 the balance had not been paid. -The amount to be recorded as a purchase return is

The accountant for the Orion Sales Company is preparing the income statement for 2007 and the balance sheet at December 31, 2007.Orion uses the periodic inventory system.The January 1, 2007 merchandise inventory balance will appear

Use the following information for questions Transactions for the month of June were: $\begin{array} { r r r r r r } { \text { Purchases } } && { \text { Sales } } \\\hline \text { June } 1 & \text { (balance) } 800 @ \$ 3.20 & \text { June } 2 & 600 @ \$ 5.50 \\3 & 2,200 @ 3.10 & 6 & 1,600 @ 5.50 \\7 & 1,200 @ 3.30 & 9 & 1,000 @ 5.50 \\15 & 1,800 @ 3.40 & 10 & 400 @ 6.00 \\22 & 500 @ 3.50 & 18 & 1,400 @ 6.00 \\& & 25 & 200 @ 6.00\end{array}$ -Assuming that perpetual inventory records are kept in units only, the ending inventory on a LIFO basis is

The acquisition cost of a certain raw material changes frequently.The book value of the inventory of this material at year end will be the same if perpetual records are kept as it would be under a periodic inventory method only if the book value is computed under the

All of the following costs should be charged against revenue in the period in which costs are incurred except for

The following information was derived from the 2007 accounting records of Logan Co.: $\begin{array}{lrr}&& \text {Logan's Goods }\\& \text { Logan 's Central Warehouse}& \text {Held by Consignees }\\\text { Beginning inventory } & \$ 130,000 & \$ 14,000 \\\text { Purchases } & 575,000 & 70,000 \\\text { Freight-in } & 10,000 &\\\text { Transportation to consignees } & & 5,000 \\\text { Freight-out } & 30,000 & 8,000 \\\text { Ending inventory } & 145,000 & 20,000\end{array}$ Logan 's 2007 cost of sales was

Use the following information for questions Kiner Co.has the following data related to an item of inventory: $\begin{array}{lc}\text { Inventory, March } 1 & 100 \text { units } @ \$ 4.20 \\\text { Purchase, March } 7 & 350 \text { units } @ \$ 4.40 \\\text { Purchase, March } 16 & 70 \text { units } @\$ 4.50 \\\text { Inventory, March } 31 & 130 \text { units }\end{array}$ -The value assigned to ending inventory if Kiner uses LIFO is

When using a perpetual inventory system,

The use of a Purchase Discounts account implies that the recorded cost of a purchased inventory item is its

Use the following information for questions The following information was available from the inventory records of Neer Company for January: $\begin{array}{lcr}&\text { Units }&\text {Unit Cost }&\text {Total Cost }\\\text { Balance at January } 1&3,000 &\$ 9.77 & \$ 29,310 \\\text { Purchases: }\\\text { January } 6&2,000 & 10.30 & 20,600 \\\text { January } 26&2,700 & 10.71 & 28,917\\\\\text { Sales: } & \\\quad \text { January } 7 & (2,500) \\\text { January } 31 & {(4,000) }\\\text { Balance at January } 31&1,200\end{array}$ -Assuming that Neer does not maintain perpetual inventory records, what should be the inventory at January 31, using the weighted-average inventory method, rounded to the nearest dollar?

Which of the following is correct?

If ending inventory is understated, then net income is understated.

Eller Co.received merchandise on consignment.As of January 31, Eller included the goods in inventory, but did not record the transaction.The effect of this on its financial statements for January 31 would be

Use the following information for Ely Company had January 1 inventory of $100,000 when it adopted dollar-value LIFO.During the year, purchases were $600,000 and sales were $1,000,000.December 31 inventory at year-end prices was $126,500, and the price index was 110. -What is Ely Company's ending inventory?

How should the following costs affect a retailer's inventory valuation? $\begin{array}{lcc} & \text { Freight-in } & \text { Interest on Inventory Loan } \\\text { a. } & \text { Increase } & \text { No effect } \\b.&\text { Increase } & \text { Increase } \\ c.&\text { No effect } & \text { Increase } \\d.&\text { No effect } & \text { No effect }\end{array}$

In a period of rising prices, the inventory method which tends to give the highest reported net income is

Use the following information for questions Transactions for the month of June were: $\begin{array} { r r r r r r } { \text { Purchases } } && { \text { Sales } } \\\hline \text { June } 1 & \text { (balance) } 800 @ \$ 3.20 & \text { June } 2 & 600 @ \$ 5.50 \\3 & 2,200 @ 3.10 & 6 & 1,600 @ 5.50 \\7 & 1,200 @ 3.30 & 9 & 1,000 @ 5.50 \\15 & 1,800 @ 3.40 & 10 & 400 @ 6.00 \\22 & 500 @ 3.50 & 18 & 1,400 @ 6.00 \\& & 25 & 200 @ 6.00\end{array}$ -Assuming that perpetual inventory records are kept in dollars, the ending inventory on a LIFO basis is

Purchase Discounts Lost is a financial expense and is reported in the "other expenses and losses" section of the income statement.