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Exam 6: Accounting for Merchandise Inventory

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Question 31

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If the cost of an item of inventory is $80 and the current selling price is $75, the amount shown in inventory on the balance sheet under the lower-of-cost-and-net realizable-value rule is:

A) $75.
B) $80.
C) $155.
D) $75 or $80.

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Question 32

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Given the following data, what is cost of goods sold? $\begin{array} { | l | r | } \hline \text { Sales revenue } & \$ 950,000 \\\hline \text { Beginning inventory } & 150,000 \\\hline \text { Ending inventory } & 230,000 \\\hline \text { Purchases } & 720,000 \\\hline\end{array}$

A) $870,000
B) $640,000
C) $570,000
D) $510,000

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Question 33

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The adjusting entry at year end under a perpetual inventory system to record cost of goods sold includes a:

Table 6-1 Assume the following data for Burnette Merchandising for 2019: $\begin{array} { | l | l | } \hline\text { Beginning inventory } & 10 \text { units at } \$ 7 \text { each } \\\hline \text { March } 18 \text { purchase } & 15 \text { units at } \$ 9 \text { each } \\\hline \text { June } 10 \text { purchase } & 20 \text { units at } \$ 10 \text { each } \\\hline \text { October } 30 \text { purchase } & 12 \text { units at } \$ 11 \text { each } \\\hline\end{array}$ On December 31, a physical count reveals 15 units in ending inventory. -Refer to Table 6-1. Assume a periodic inventory system. Under the weighted-average method, cost of goods sold on the income statement would be:

Two separate errors affected Satellite City in 2019. The beginning inventory was understated by $28,000 and the ending inventory was understated by $43,000. Net income in 2019 will be:

Given the following data: $\begin{array} { | l | r | } \hline\text { Ending inventory at cost } & \$ 62,000 \\\hline \text { Ending inventory at net realizable value } & 61,000 \\\hline \begin{array} { c } \text { Cost of goods sold (before consideration of the } \\\text { lower-of-cost-and-net-realizable-value rule) }\end{array} & 104,000 \\\hline\end{array}$ Which of the following depicts the proper account balance after the application of the lower-of-cost-and-net realizable value rule?

Which of the following inventory costing methods requires a company to keep track of the actual physical movement of individual inventory items?

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 FIFO. Assume a periodic inventory system.

The lower-of-cost-and-net-realizable-value rule is an application of the consistency principle.

Given the following data, what is the cost of ending inventory rounded to the nearest whole dollar using periodic FIFO? $\begin{array} { | l | l | } \hline \text { Sales revenue } & 100 \text { units at } \$ 10 \text { per unit } \\\hline \text { Beginning inventory } & 50 \text { units at } \$ 8 \text { per unit } \\\hline \text { Purchases } & 90 \text { units at } \$ 9 \text { per unit } \\\hline\end{array}$

FIFO costing is consistent with the physical movement of inventory for many companies.

The journal entry to sell merchandise under a periodic inventory system includes a:

Piggly Wiggly Sales had six CD players in inventory on December 31. They were purchased in November for $170 each. A quoted price received from the supplier on December 31 shows the CD players now cost $175 each. Piggly Wiggly has marked each player to sell for $320. Using the lower-of-cost-and-net-realizable-value rule, the ending inventory of CD players should be shown at:

When the sales value of the inventory subsequently increases after a write down to net-realizable-value the reported value may be increased to the limit of the original cost.

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 cost of goods sold for the two months assuming that Sam's uses the periodic weighted-average inventory method?

The lower-of-cost-and-net-realizable-value rule is a good example of conservatism in accounting.

Inventory at the end of the current year is overstated by $20,000. What effect will this error have on the following year's net income?

Table 6-5 Assume the following data for Kruger Sales for November 2019: $\begin{array}{llcc} \text {Beginning inventory Nov. 1 } & 5 \text { units at } \$ 90 \text { each } \\ \text {Sale Nov. 3 } &3 \text { units at } \$ 120 \text { each } \\ \text {Nov. 6 purchase } &11 \text { units at } \$ 95 \text { each }\\ \text { Sale Nov. 8} &4 \text { units at } \$ 120 \text { each }\\ \text { Sale Nov. 9 } & 3 \text { units at } \$ 120 \text { each }\\\end{array}$ On November 30, a physical count reveals 6 units on hand. -Refer to Table 6-5. Calculate gross margin for Kruger Sales assuming the perpetual moving-weighted-average-cost method is being used.

All balance sheets have inventory listed as an asset.

The disclosure principle of accounting requires that a business reveal to the user of the financial statement the method used to value inventory.