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Exam 6: Inventory Costing and Valuation

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Question 61

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The pricing of an inventory where the purchase invoice of each item in the ending inventory is identified and used to determine the cost assigned to the inventory is

A) Weighted-average inventory method
B) First-in, first-out method
C) Average costing method
D) Specific identification method
E) Retail method

F) None of the above
G) C) and E)

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Question 62

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To avoid the time-consuming process of taking an inventory each month, some companies use the gross profit method to estimate ending inventory.

A) True
B) False

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Question 63

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Normandy Company has collected the following inventory data prior to preparing financial statements for the month of October. All purchases and sales are on credit. Assuming the periodic inventory system is used, determine the cost of the ending inventory and cost of goods sold using FIFO. Prepare the appropriate journal entries to record: (A) The October 6 purchase. (B) The October 12 sale. (C) The entries to close the October income statement items to Income Summary. (Assume that sales revenue and the elements of cost of goods sold are the only income statement items.)

The total dollar value of inventory on hand is determined by: (1) estimating the units on hand, (2) multiplying the count by cost per unit, and (3) adding the costs for all products.

A form attached to the counted items in the process of taking a physical inventory is a(n)

Because inventory errors are self-correcting in following accounting periods, managers will be able to make correct decisions based on changes in net income and cost of goods sold.

Using the perpetual system, what are the three types of inventory cost flow assumptions?

Rudd Company made the following merchandise purchases during the current year: There was no beginning inventory, but ending inventory consisted of 105 units. If Rudd uses the weighted-average cost method and the periodic inventory system, what would be the cost of the ending inventory?

The retail inventory method estimates the cost of ending inventory by applying the gross profit ratio to net sales.

An advantage of the moving weighted-average method is that it tends to smooth out price changes.

A company made the following purchases during the year: $\begin{array} { | l | l | l | } \hline \text { Jar. 10 } & 15 & \text { units at } \$ 360 \\\hline \text { Mar. 15 } & 25 & \text { units at } \$ 390 \\\hline \text { Apr. 25 } & 10 & \text { units at } \$ 420 \\\hline \text { July 30 } & 20 & \text { units at } \$ 450 \\\hline \text { Oct. 10 } & 15 & \text { units at } \$ 480 \\\hline\end{array}$ On December 31, there were 27 units in ending inventory. These 27 units consisted of 4 from the January 10 shipment, 25 from the March 15 shipment, 10 from the April 25 shipment, 20 from the July 30 shipment, and 15 from the October 10 shipment. Using specific identification, calculate the cost of the ending inventory.

Days' sales in inventory is calculated by

By how much will net income for 2020 be over or understated?

During a period of steadily falling prices, which inventory cost flow assumption results in reporting the lowest net income?

The gross profit ratio measures how much of each dollar of net sales is gross profit.

The net realizable value of Majik's ending inventory items at June 30, 2020 are as follows: Make the adjusting entry, if needed, to state Majik's inventory at its lower of cost and net realizable value (LCNRV) on an item-by-item basis at June 30, 2020.

The gross profit ratio measures how much of each dollar of gross sales is gross profit.

The merchandise turnover ratio

When businesses apply the lower of cost and net realizable value rule on an item by item basis, they will report the lowest inventory value possible.

A company's store was destroyed by a fire on February 10. The only information that could be salvaged included the following: (1) Inventory, January 1: $34,000(2) Purchases: $118,000(3) Sales: $140,000The company's gross profit rate was 30%. Calculate the estimated value of the destroyed inventory.