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Exam 6: Accounting for Merchandise Inventory

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Question 51

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If ending inventory for the current accounting period is understated by $4,700:

A) beginning inventory for the next period will be overstated by $4,700.
B) net income for the current period will be overstated by $4,700.
C) owner's equity at the end of the next accounting period will be understated by $4,700.
D) cost of goods sold for the current period will be overstated by $4,700.

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Question 52

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Understating beginning inventory in 2018 will overstate net income for 2019.

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Question 53

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Jan-Con Company provides the following information for the month of August. $\begin{array} { | l | l | c | c | c | } \hline { \text { Date } } & & \text { Units } & \$/ \text { Unit } & \text { Total } \\\hline \text { Aug 1 } & \text { Opening inventory } & 40 & \$ 30 & \$ 1,200 \\\hline \text { Aug 3 } & \text { Purchase } & 60 & \$ 35 & \$ 2,100 \\\hline \text { Aug 10 } & \text { Sale } & 100 & \$ 60 & \$ 6,000 \\\hline \text { Aug 22 } & \text { Purchase } & 90 & \$ 40 & \$ 3,600 \\\hline \text { Aug 24 } & \text { Sale } & 70 & \$ 70 & \$ 4,900 \\\hline\end{array}$ Required: (a)What is the value of the ending inventory assuming the company uses a periodic inventory system and the weighted-average method? (b)What is the cost of goods sold if the company uses a perpetual inventory system and the FIFO method of valuing inventory? (c)What is the cost of goods sold if the company uses a perpetual inventory system and the weighted average method of valuing inventory?

Which of the following is not an acceptable inventory cost method?

Under either the periodic or the perpetual system, ending inventory will be the same when FIFO inventory costing method is used.

Engle Enterprises reports net sales revenue for 2019 to be $595,000, January 1, 2019 inventory at $102,000, net purchases at $370,000, and operating expenses at $155,000. Under FIFO, December 31, 2019, inventory would be valued at $96,700. Compute net income for 2019.

The moving-weighted-average-cost method generates a gross margin that will be lower than the gross margin generated under FIFO costing when prices are rising.

For the current year, Heedy's Department Store reported the following data: $\begin{array} { | l | r | } \hline \text { Goods available for sale } & \$ 1,074,450 \\\hline \text { December } 31 , \text { inventory balance } & 85,430 \\\hline\end{array}$ The current net realizable value of the inventory on the balance sheet date is $91,730. Using the lower-of-cost-and-net-realizable-value rule, what is cost of goods sold for Heedy's Department Store?

Table 6-2 $\begin{array} { | l | l | } \hline \text { Manuary } 1 \text { inventory balance } & 100 \text { units at } \$ 10 \text { per unit } \\\hline \text { March } 2 \text { purchase } & 50 \text { units at } \$ 11 \text { per unit } \\\hline \text { July } 8 \text { purchase } & 80 \text { units at } \$ 10 \text { per unit } \\\hline \text { November } 15 \text { purchase } & 30 \text { units at } \$ 12 \text { per unit } \\\hline\end{array}$ On December 31, a physical count reveals 80 units in ending inventory. -Referring to Table 6-2, cost of goods sold calculated under the periodic FIFO method would be:

Ending inventory for Commodity X consists of 20 units. Under the FIFO method, the cost of the 20 units is $5 each. Current net realizable value is $4.75 per unit. Using the lower-of-cost-and-net -realizable-value rule to value inventory, the balance sheet would show ending inventory of:

The cost of goods available for sale is equal to the:

The specific-unit-cost method is useful for inventory items that have a distinctive identity.

The following data are available for the month of April for Gore Company: $\text {April 1 inventory}$ $\quad 120$ $\text {units at \$ 8.15 each}$ $\text {April 10 purchase}$ $\quad 200$ $\text {units at \$ 8.20 each}$ $\text {April 20 purchase}$$\quad 410$ $\text {units at \$ 8.40 each}$ $\text {April 25 purchase}$ $\quad 310$ $\text {units at \$ 8.50 each}$ Gore sold 630 units during April. Compute the value of ending inventory under the weighted-average method. Assume a periodic inventory system.(round per unit cost to the nearest cent, round final answer to the nearest dollar)

The materiality concept of accounting allows a business to expense the cost of freight-in rather than add it to the cost of the inventory on the basis that the difference in the accounting treatment would not sway a decision by a financial statement user.

When prices are rising, the ending inventory balance reported on a weighted-average basis is generally:

Table 6-2 $\begin{array} { | l | l | } \hline \text { Manuary } 1 \text { inventory balance } & 100 \text { units at } \$ 10 \text { per unit } \\\hline \text { March } 2 \text { purchase } & 50 \text { units at } \$ 11 \text { per unit } \\\hline \text { July } 8 \text { purchase } & 80 \text { units at } \$ 10 \text { per unit } \\\hline \text { November } 15 \text { purchase } & 30 \text { units at } \$ 12 \text { per unit } \\\hline\end{array}$ On December 31, a physical count reveals 80 units in ending inventory. -Referring to Table 6-2, assuming all goods are sold throughout the year for $17 per unit, gross margin calculated under the periodic FIFO method would be:

Two separate errors affected Rollings Company in 2018. The beginning inventory was overstated by $12,000 and the ending inventory was overstated by $18,000. Net income in 2019 will be:

When prices are falling, the cost of goods sold reported on the income statement on a weighted-average basis is generally:

Table 6-6 Sam's Wholesale Bikes $\begin{array} { | l | l | } \hline \text { January } 1 \text { inventory balance } & 15 \text { units at } \$ 350 \text { per unit } \\\hline \text { January } 4 \text { purchase } & 50 \text { units at } \$ 375 \text { per unit } \\\hline \text { January } 15 \text { sale } & 40 \text { units at } \$ 550 \text { per unit } \\\hline \text { February } 8 \text { purchase } & 80 \text { units at } \$ 405 \text { per unit } \\\hline \text { February } 15 \text { sale } & 70 \text { units at } \$ 550 \text { per unit } \\\hline\end{array}$ -Refer to Table 6-6. What is the gross margin for the two months assuming that Sam's uses the periodic inventory weighted-average inventory method?

A perpetual inventory system: