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Exam 6: Inventories

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Question 81

Multiple Choice

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Kristin's Boutiques has identified the following items for possible inclusion in its December 31, 2010 inventory. Which of the following would not be included in the year end inventory?

A) Merchandise purchased FOB shipping point was picked up by the freight company but had still not arrived at Kristin's Boutique as of December 31, 2010.
B) Kristin has in its warehouse merchandise on consignment from Abby Co.
C) Kristin has sent merchandise to various retailers on a consignment basis.
D) Kristin has merchandise on hand which has been returned by customers because of wrong size.

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Question 82

Multiple Choice

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The following lots of a particular commodity were available for sale during the year: $\begin{array}{ll}\text { Beginning invent ory } & 10 \text { units at } \$ 30 \\\text { First purchase } & 25 \text { units at } \$ 32 \\\text { Second purchase } & 30 \text { units at } \$ 34 \\\text { Third purchase } & 10 \text { units at } \$ 35\end{array}$ The firm uses the periodic system and there are 20 units of the commodity on hand at the end of the year. What is the amount of inventory at the end of the year according to the average cost method?

A) $655
B) $620
C) $690
D) $659

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Question 83

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If ending inventory for the year is understated, net income for the year is overstated.

If the revenues are correctly reported and the Gross Profit of a company is understated, what is the effect on Owner's Equity?

The following data were taken from Bowman Inc. $\begin{array}{lc}&{2014}\\\text { Cost of Merchandise Sold } &{\$ 894,000} \\\text { Inventory, end of year } & 78,000 \\\text { Inventory, beginning of the year } & 92,000\end{array}$ Determine the inventory turnover ratio and the number of days' sales in inventory for Bowman Inc. Round to two decimal places.

A subsidiary inventory ledger can be an aid in maintaining inventory levels at their proper levels.

Basic inventory data for April 30 are presented below for a business that employs the lower of cost or market basis of inventory valuation.

Taking a physical count of inventory

The following units of a particular item were available for sale during the year: The firm uses the perpetual inventory system and there are 240 units of the item on hand at the end of the year. What is the total cost of ending inventory according to FIFO?

During periods of rapidly rising costs, the use of the LIFO method results in illusory or inventory profits.

Assume that three identical units of merchandise are purchased during October, as follows: Assume one unit is sold on October 31 for $28. Determine Cost of Merchandise Sold, Gross Profit, and Ending Inventory under the LIFO method.

Too much inventory on hand

Use of the retail inventory method requires taking a physical count of inventory.

In the retail inventory method, the cost to retail ratio is equal to the cost of goods sold divided by the retail price of the good sold.

Beginning inventory, purchases and sales data for tennis rackets are as follows: Complete the inventory cost card assuming the business maintains a perpetual inventory system and calculates the cost of merchandise sold and ending inventory using LIFO.

Brutus Corporation, a newly formed corporation, has the following transactions during May, 2011, it's first month of operation. Calculate total sales, cost of goods sold, gross profit and ending inventory using each of the following inventory methods: 1. FIFO Perpetual 2. FIFO Periodic 3. LIFO Perpetual 4. LIFO Periodic 5. Average Cost Periodic (round average to nearest cent) Total Sales (not dependant on inventory method):

Assume that three identical units of merchandise are purchased during October, as follows: $\begin{array}{|l|l|l|l|l|}\hline & & & \text { Units } & \text { Cost } \\\hline \text { October } & 5 & \text { Purchase } & 1 & \$ 5 \\\hline & 12 & \text { Purchase } & 1 & 13 \\\hline & \text { Purchase } & \underline{1} & \underline{15} \\\hline \text { Total } & 28 & & \underline{3} & \underline{33} \\\hline\end{array}$ Assume one unit is sold on October 31 for $28. Determine Cost of Merchandise Sold, Gross Profit, and Ending Inventory under the Average Cost method.

The units of an item available for sale during the year were as follows: There are 19 units of the item in the physical inventory at December 31. The periodic inventory system is used. Determine the ending inventory cost using LIFO.

1. Explain the effect of the following on the financial statements: Goods held on consignment were included in the ending inventory count. Goods purchased FOB shipping point were in transit on the last day of the year. The goods were not counted as part of ending inventory. Goods sold FOB shipping point were in transit on the last day of the year. These goods were not counted as part of ending inventory. 2. What happens if inventory errors are not found and corrected?

For the year ended December 31, 2014 Depot Max's cost of merchandise sold was $56,900. Inventory at the beginning of the year was $6,540. Ending inventory was $7,250. Depot Max's number of days sales in inventory is closest to