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Exam 5: Inventories and Cost of Sales

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Question 61

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An understatement of the ending inventory balance will overstate cost of goods sold and understate net income.

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Question 62

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Which of the following inventory costing methods will always result in the same values for ending inventory and cost of goods sold regardless of whether a perpetual or periodic inventory system is used?

A) FIFO and LIFO
B) LIFO and weighted-average cost
C) Specific identification and FIFO
D) FIFO and weighted-average cost
E) LIFO and specific identification

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Question 63

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Describe the internal controls that must be applied when taking a physical count of inventory.

A company had the following ending inventory costs: Required: Calculate the lower of cost or market (LCM)value for each individual item.

Match the following terms with the appropriate definition.

Days' sales in inventory:

Whether purchase costs are rising or falling,FIFO always will yield the highest gross profit and net income.

Given the following information,determine the cost of the inventory at June 30 using the LIFO perpetual inventory method. The cost of the ending inventory is:

A company's store was destroyed by an earthquake on February 10 of the current year.The only information for the current period that could be salvaged included the following: Historically,the company's gross profit ratio has been 30%.Estimate the value of the destroyed inventory using the gross profit method.

Raleigh Co.has the following products in its ending inventory.Compute the lower of cost or market total for inventory applied separately to each product.

Perfection Company had cost of goods sold of $853,000,ending inventory of $70,500,and average inventory of $71,600.Its inventory turnover equals:

A company's inventory records indicate the following data for the month of April: If the company uses the first-in,first-out (FIFO)method and the perpetual inventory system,what would be the cost of the ending inventory?

An advantage of the ________ method of inventory valuation is that it tends to smooth out the effect of erratic changes in costs.

Use the following information for Shafer Company to compute inventory turnover for year 2.

FIFO is preferred when purchase costs are rising and managers have incentives to report higher income for reasons such as bonus plans,job security,and reputation.

The LIFO method of inventory costing best matches current costs with revenues.

Underwood had cost of goods sold of $8 million and its ending inventory was $2 million.Therefore,its days' sales in inventory equals 25 days.

Grays Company has inventory of 10 units at a cost of $10 each on August 1.On August 3,it purchased 20 units at $12 each.12 units are sold on August 6.Using the FIFO perpetual inventory method,what amount will be reported as cost of goods sold for the 12 units that were sold?

When LIFO is used with the periodic inventory system,cost of goods sold is assigned costs from the most recent purchases at the point of each sale,rather than from the most recent purchases for the period.

Errors in the ending inventory balance only affect the current period's records and financial statements.