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Exam 5: Accounting for Inventories

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Question 1

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If a company overstates its Inventory balance at the end of Year 1 due to an error,its Retained Earnings will also be overstated on the Year 1 balance sheet.

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Question 2

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When preparing its quarterly financial statements,Pace Co.uses the gross margin method to estimate ending inventory.The following information is available for the quarter ending March 31,Year 2: What is the estimated amount of inventory that is on hand on March 31,Year 2?

A) $236,250
B) $288,750
C) $206,250
D) $258,750

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Question 3

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On December 31,Year 1,Owings Corporation overstates the ending inventory by $5,000.How will this affect the amount of retained earnings shown on the balance sheet at December 31,Year 2?

Which of the following is not required to apply the gross margin method?

Anton Co.uses the perpetual inventory system and FIFO cost flow method.During the year,Anton purchased 400 units of inventory that cost $12.00 each and then purchased an additional 600 units of inventory that cost $16.00 each.If Anton sells 700 units of inventory,what is the amount of cost of goods sold?

The specific identification inventory method is not practical for companies that sell many low-priced,high turnover items.

What happens when prices are falling?

The inventory records for Radford Co.reflected the following: -What is the amount of gross margin assuming the FIFO cost flow method?

Carson Company has an inventory turnover of 12.75,and its inventory amounts to $2,400,000.What is the amount of cost of goods sold?

Which of the following circumstances would be a valid reason to estimate the amount of inventory that is on hand at the end of the period?

One of the disadvantages of the specific identification inventory cost flow method is that it can allow managers of a business to manipulate the amount of income the business reports.

Glasgow Enterprises started the period with 80 units in beginning inventory that cost $7.50 each.During the period,the company purchased inventory items as follows: Glasgow sold 220 units after purchase 3 for $17.00 each. -What is Glasgow's cost of goods sold under FIFO?

A company uses a cost flow method (such as LIFO or FIFO)to allocate product costs between cost of goods sold and beginning inventory.

When the perpetual inventory system is used,where can the best estimate of the amount of inventory on hand be found?

Koontz Company uses the perpetual inventory method and the weighted-average method.On January 1,Year 1,the company's first day of operations,Koontz purchased 400 units of inventory that cost $7.50 each.On January 10,Year 1,the company purchased an additional 600 units of inventory that cost $9.00 each.If the company sells 550 units of inventory,what is the amount of inventory that would appear on the balance sheet immediately following the sale?

A company's gross margin reported on the income statement is not affected by the inventory cost flow method it uses.

Chase Co.uses the perpetual inventory method.The inventory records for Chase reflected the following information: -Assuming Chase uses a LIFO cost flow method,what is the amount of cost of goods sold for the sales transaction on January 18?

If a company is using the lower-of-cost-or-market rule and a write-down is required,how will that write-down affect the elements of the company's financial statements?

Generally accepted accounting principles often allows companies to account for the same types of events in different ways.

When the cost of purchasing inventory is declining,which inventory cost flow method will produce the highest amount of cost of goods sold?