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Exam 6: Inventories

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Question 51

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Under the FIFO method, the costs of the earliest units purchased are the first charged to cost of goods sold.

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Question 52

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Bellingham Inc. took a physical inventory at the end of the year and calculated that $£ 1,650,000$ of goods were on hand. Bellingham determined that $£ 25,000$ of goods were in transit. The goods were shipped f.o.b. shipping point and were received two days after the inventory count. The company also had $£ 275,000$ of goods out on consignment. What amount should Bellingham report for inventory on its statement of financial position?

A) $£ 1,350,000$ .
B) $£ 1,650,000$ .
C) $£ 1,925,000$ .
D) $£ 1,950,000$ .

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Question 53

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Raw materials inventories are the goods that a manufacturer has completed and are ready to be sold to customers.

Holliday Company's inventory records show the following data: $\begin{array}{lrr}&\text { Units }&\text { Unit Cost }\\\text { Inventory, January } 1 & 5,000 & £ 4.50 \\\text { Purchases: June 18 } & 4,500 & 4.00 \\\text { November } 8 & 3,000 & 3.50\end{array}$ A physical inventory on December 31 shows 2,000 units on hand. Holliday sells the units for $£ 6$ each. The company has an effective tax rate of $20 \%$ . Holliday uses the periodic inventory method. What is the cost of goods available for sale?

The expense recognition principle requires that the cost of goods sold be matched against the ending merchandise inventory in order to determine income.

Shandy Shutters has the following inventory information. $\begin{array} { r l l } \text { Nov. } 1 & \text { Inventory } & 15 \text { units @ } € 6.00 \\ 8 & \text { Purchase } & 60 \text { units @ } € 6.45 \\ 17 & \text { Purchase } & 30 \text { units @ } € 6.30 \\ 25 & \text { Purchase } & 45 \text { units @ } € 6.60 \end{array}$ A physical count of merchandise inventory on November 30 reveals that there are 50 units on hand. Assume a periodic inventory system is used. Assuming that the specific identification method is used and that ending inventory consists of 15 units from each of the three purchases and 5 units from the November 1 inventory, cost of goods sold is

If a company changes its inventory valuation method, the effect of the change on net income should be disclosed in the financial statements.

The cost of goods available for sale is allocated between

The factor which determines whether or not goods should be included in a physical count of inventory is

A company uses the periodic inventory method and the beginning inventory is overstated by $4,000 because the ending inventory in the previous period was overstated by $4,000.The amounts reflected in the current end of the period statement of financial position are $\begin{array}{ll}\text {\quad\quad Assets }&\text {\quad\quad Equity }\\\end{array}$

The moving-average cost flow assumption for a perpetual inventory system and the average-cost cost flow assumption for a periodic inventory system will allocate the same amounts to ending inventory and cost of goods sold.

The manager of Yates Company is given a bonus based on income before income taxes.Net income, after taxes, is $8,400 for FIFO and $7,560 for average-cost.The tax rate is 30%.The bonus rate is 20%.How much higher is the manager's bonus if FIFO is adopted instead of average-cost?

At May 1, 2011, Deitrich Company had beginning inventory consisting of 100 units with a unit cost of $€ 3.50$ . During May, the company purchased inventory as follows:. 200 units at $€ 3.50$ 300 units at $€ 4.00$ The company sold 500 units during the month for $€ 6$ per unit. Deitrich uses the average-cost method. The average cost per unit for May is

One reason a company using a perpetual inventory system must make a physical count of goods is to determine the amount of inventory on hand as of the statement of financial position date.

Goods that have been purchased FOB destination but are in transit, should be excluded from a physical count of goods.

Graham Company uses a periodic inventory system.Details for the inventory account for the month of January, 2011 are as follows: $\begin{array}{llrr}&\text { Units } &\text { Per unit price }&\text { Total }\\\text { Balance, } 1 / 1 / 11 & 300 & \$ 5.00 & \$ 1500 \\\text { Purchase, } 1 / 15 / 11 & 150 & 5.30 & 795 \\\text { Purchase, } 1 / 28 / 11 & 150 & 5.50 & 825\end{array}$ An end of the month (1/31/11) inventory showed that 180 units were on hand.How many units did the company sell during January, 2011?

In a period of rising prices, the statement of financial position will report a higher inventory amount if FIFO, rather than average-costing, is the cost flow assumption used.

Accountants believe that the write down from cost to net realizable value should not be made in the period in which the price decline occurs.

Of the following companies, which one would not likely employ the specific identification method for inventory costing?

Graham Company uses a periodic inventory system.Details for the inventory account for the month of January, 2011 are as follows: $\begin{array}{llrr}&\text { Units } &\text { Per unit price }&\text { Total }\\\text { Balance, } 1 / 1 / 11 & 300 & \$ 5.00 & \$ 1500 \\\text { Purchase, } 1 / 15 / 11 & 150 & 5.30 & 795 \\\text { Purchase, } 1 / 28 / 11 & 150 & 5.50 & 825\end{array}$ An end of the month (1/31/11) inventory showed that 180 units were on hand.If the company uses FIFO, what is the value of the ending inventory?