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Exam 7: Inventories

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Question 1

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Match the following cost flow assumption to their inventory costing method:

Premises

Responses

Cost flow matches the unit sold to the unit purchased.

Average Cost

Cost flow is in the reverse order in which the cost were incurred.

Last-in, Last-out (LIFO)

Cost flow is an average of the costs.

Specific Identification

Cost flow is in the order in which the costs were incurred.

First-in, First-out (FIFO)

Premises

Cost flow matches the unit sold to the unit purchased.

Cost flow is in the reverse order in which the cost were incurred.

Cost flow is an average of the costs.

Cost flow is in the order in which the costs were incurred.

Responses

Average Cost

Last-in, Last-out (LIFO)

Specific Identification

First-in, First-out (FIFO)

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Correct Answer

Premises

Responses

Cost flow matches the unit sold to the unit purchased.

Cost flow is in the reverse order in which the cost were incurred.

Cost flow is an average of the costs.

Cost flow is in the order in which the costs were incurred.

Premises

Cost flow matches the unit sold to the unit purchased.

Cost flow is in the reverse order in which the cost were incurred.

Cost flow is an average of the costs.

Cost flow is in the order in which the costs were incurred.

Responses

Question 2

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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 FIFO.

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Question 3

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The following data regarding purchases and sales of a commodity were taken from the related perpetual inventory account:

Beginning inventory, purchases and sales data for widgets 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 FIFO.

Determine the total value of the merchandise using Net Realizable Value:

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?

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 Average Cost method.

If the perpetual inventory system is used, the account entitled Merchandise Inventory is debited for purchases of merchandise.

The method of computing inventory that uses records of the selling prices of the merchandise is called

Average inventory is computed by adding the inventory at the beginning of the period to the inventory at the end of the period and dividing by two.

The following lots of a particular commodity were available for sale during the year: 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?

Merchandise inventory at the end of the year is overstated. Which of the following statements correctly states the effect of the error?

Beginning inventory, purchases and sales data for hammers are as follows: Assuming the business maintains a perpetual inventory system, complete the inventory cards and calculate the cost of merchandise sold and ending inventory under the following assumptions: a. First-in, first-out b. Last-in, first-out

On the basis of the following data, what is the estimated cost of the merchandise inventory on May 31 using the retail method?

During August, the first month of the fiscal year, sales totaled $875,000 and the cost of merchandise available for sale totaled $700,000. Estimate the cost of the merchandise inventory as of August 31, based on an estimated gross profit rate of 45%.

On the basis of the following data, determine the value of the inventory at the lower of cost or market. Apply lower of cost or market to each inventory item. Show your work.

The specific identification inventory method should be used when the inventory consists of identical, low cost units that are purchased and sold frequently.

"Market," as used in the phrase "lower of cost or market" for valuing inventory, refers to the price at which the inventory is being offered for sale by its owner.

Direct disposal costs do not include special advertising or sales commissions.

The units of an item available for sale during the year were as follows: There are 30 units of the item in the physical inventory at December 31. The periodic inventory system is used. Determine the ending inventory cost using FIFO.