Test bank accounting 25th editon warren chapter 7 inventories

Chapter Inventories Student: _ One of the two internal control procedures over inventory is to properly report inventory on the financial statements True False A purchase order establishes an initial record of the receipt of the inventory True False A perpetual inventory system is an effective means of control over inventory True False A subsidiary inventory ledger can be an aid in maintaining inventory levels at their proper levels True False Safeguarding inventory and proper reporting of the inventory in the books are the reasons for controlling the inventory True False Inventory controls start when the merchandise is shelved in the store area True False A physical inventory should be taken at the end of every month True False The specific identification inventory method should be used when the inventory consists of identical, low cost units that are purchased and sold frequently True False The selection of an inventory costing method has no significant impact on the financial statements True False 10 Of the three widely used inventory costing methods (FIFO, LIFO, and average cost), the LIFO method of costing inventory assumes costs are charged based on the most recent purchases first True False 11 When using the FIFO inventory costing method, the most recent costs are assigned to the cost of goods sold True False 12 FIFO is the inventory costing method that follows the physical flow of the goods True False 13 Under the LIFO inventory costing method, the most recent costs are assigned to ending inventory True False 14 The average cost inventory method is the rarely used with a perpetual inventory system True False 15 If the perpetual inventory system is used, the account entitled Merchandise Inventory is debited for purchases of merchandise True False 16 Under the periodic inventory system, the merchandise inventory account continuously discloses the amount of inventory on hand True False 17 Under the periodic inventory system, a physical inventory is taken to determine the cost of the inventory on hand and the cost of the merchandise sold True False 18 The three inventory costing methods will normally each yield different amounts of net income True False 19 The average cost method will always yield results between FIFO and LIFO True False 20 During periods of increasing costs, the use of the FIFO method of costing inventory will result in a greater amount of net income than would result from the use of the LIFO cost method True False 21 During periods of increasing costs, the use of the FIFO method of costing inventory will yield an inventory amount for the balance sheet that is higher than LIFO would produce True False 22 During periods of rapidly rising costs, the use of the LIFO method results in illusory or inventory profits True False 23 During periods of decreasing costs the use of the LIFO method of costing inventory will result in a lower amount of net income than would result from the use of the FIFO method True False 24 During periods of increasing costs, an advantage of the LIFO inventory cost method is that it matches more recent costs against current revenues True False 25 In valuing damaged merchandise for inventory purposes, net realizable value is the estimated selling price less any direct costs of disposal True False 26 Unsold consigned merchandise should be included in the consignee's inventory True False 27 If ending inventory for the year is understated, net income for the year is overstated True False 28 If ending inventory for the year is overstated, owner's equity reported on the balance sheet at the end of the year is understated True False 29 The lower of cost or market is a method of inventory valuation True False 30 "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 True False 31 A consignor who has goods out on consignment with an agent should include the goods in ending inventory even though they are not in the possession of the consignor True False 32 The use of the lower-of-cost-or-market method of inventory valuation increases net income for the period in which the inventory replacement price declined True False 33 The lower-of-cost-or-market method of determining the value of ending inventory can be applied on an item by item, by major classification of inventory, or by the total inventory True False 34 When merchandise inventory is shown on the balance sheet, both the method of determining the cost of the inventory and the method of valuing the inventory should be shown True False 35 Most large companies will use only one inventory costing methods for all of its different segments True False 36 Direct disposal costs not include special advertising or sales commissions True False 37 Inventory errors, if not discovered, will self-correct in two years True False 38 Generally, the lower the number of days' sales in inventory, the better True False 39 One negative effect of carrying too much inventory is risk that customers will change their buying habits True False 40 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 True False 41 Inventory turnover measures the length of time is takes to acquire, sell and replace the inventory True False 42 In the retail inventory method, the cost to retail ratio is equal to the cost of goods sold divided by the retail price of the good sold True False 43 Use of the retail inventory method requires taking a physical count of inventory True False 44 If a fire destroys the merchandise inventory, the gross profit method can be used to estimate the cost of merchandise destroyed True False 45 If a company uses the periodic inventory system to cost its inventory, the gross profit method is a method that can be used to check on theft when the actual inventory is taken by the company True False 46 Match the following documents used for inventory control: last document in the chain, use to compare all three for accuracy establishes an initial record of the receipt of inventory authorizes the purchase of inventory from an approved vendor Vendor’s Invoice Purchase Order Receiving Report 47 Match the following cost flow assumption to their inventory costing method: 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 Average Cost Last-in, Last-out (LIFO) Specific Identification First-in, First-out (FIFO) 48 Under a perpetual inventory system, the amount of each type of merchandise on hand is available in the A customer's ledger B creditor's ledger C inventory ledger D purchase ledger 49 Taking a physical count of inventory A is not necessary when a periodic inventory system is used B should be done near year-end C has no internal control relevance D is not necessary when a perpetual inventory system is used 50 Control of inventory should begin as soon as the inventory is received Which of the following internal control steps is not done to meet this goal? A check the invoice to the receiving report B check the invoice to the purchase order C check the invoice with the person who specifically purchased the item D check the invoice extensions and totals 51 Which of the following is not an example for safeguarding inventory? A Storing inventory in restricted areas B Physical devices such as two-way mirrors, cameras, and alarms C Matching receiving documents, purchase orders, and vendor’s invoice D Returning inventory that is defective or broken 52 Which of the following methods is appropriate for a business whose inventory consists of a relatively small number of unique, high-cost items? A FIFO B LIFO C average D specific identification 53 Ending inventory is made up of the oldest purchases when a company uses A first-in, first-out B last-in, first-out C average cost D retail method 54 When merchandise sold is assumed to be in the order in which the purchases were made, the company is using A first-in, last-out B last-in, first-out C first-in, first-out D average cost 55 The two most widely used methods for determining the cost of inventory are A FIFO and LIFO B FIFO and average C LIFO and average D gross profit and average 56 Cost flow is in the order in which costs were incurred when using A average cost B last-in, first-out C first-in, first-out D weighted average 57 Cost flow is in the reverse order in which costs were incurred when using A weighted average B last-in, first-out C first-in, first-out D average cost 58 The inventory method that assigns the most recent costs to cost of goods sold is A FIFO B LIFO C average D specific identification 59 Inventory costing methods place primary emphasis on assumptions about A flow of goods B flow of costs C flow of goods or flow of costs depending on the method D neither flow of goods or flow of costs 60 The inventory costing method that reports the most current prices in ending inventory is A FIFO B Specific identification C LIFO D Average cost 61 The inventory costing method that reports the earliest costs in ending inventory is A FIFO B LIFO C Average cost D Specific identification 62 Which of the following companies would be more likely to use the specific identification inventory costing method? A Gordon’s Jewelers B Lowe’s C Best Buy D Wal-Mart 63 Addison, Inc uses a perpetual inventory system The following is information about one inventory item for the month of September: Sep 10 17 30 Inventory Sold Purchased Sold Purchased 20 units at $20 10 units 30 units at $25 20 units 10 units at $30 If Addison uses FIFO, the cost of the ending merchandise inventory on September 30 is A $800 B $650 C $750 D $700 64 Addison, Inc uses a perpetual inventory system The following is information about one inventory item for the month of September: Sep 10 17 30 Inventory Sold Purchased Sold Purchased 20 units at $20 10 units 30 units at $25 20 units 10 units at $30 If Addison uses LIFO, the cost of the ending merchandise inventory on September 30 is A $800 B $650 C $750 D $700 65 When using a perpetual inventory system, the journal entry to record the cost of merchandise sold is: A debit Cost of Merchandise Sold; credit Sales B debit Cost of Merchandise Sold; credit Merchandise Inventory C debit Merchandise Inventory; credit Cost of Merchandise Sold D No journal entry is made to record the cost of merchandise sold 66 Under the _ inventory method, accounting records maintain a continuously updated inventory value A retail B periodic C physical D perpetual 67 The inventory data for an item for November are: Nov 10 17 30 Inventory Sold Purchased Sold Purchased 20 units at $19 10 units 30 units at $20 20 units 10 units at $21 Using a perpetual system, what is the cost of the merchandise sold for November if the company uses LIFO? A $610 B $600 C $590 D $580 68 The inventory data for an item for November are: Nov 10 17 30 Inventory Sold Purchased Sold Purchased 20 units at $19 10 units 30 units at $20 20 units 10 units at $21 Using a perpetual system, what is the cost of the merchandise sold for November if the company uses FIFO? A $610 B $600 C $590 D $580 Merchandise Inventory, October Purchases for October (net) Merchandise Available for Sale Ratio of cost to retail price: 70% (82,528 / 117,897) Sales for October (net) Merchandise at Retail, October 31 Cost 13,687 68,841 82,528 Merchandise at Cost, October 31 Retail 19,553 98,344 117,897 92,557 25,340 17,738 155 List the internal control objectives illustrated by the following: (a) (b) (c) (a) (b) (c) keeping the inventory storeroom locked counting the inventory at the end of the accounting period and comparing it with the inventory ledger clerk's records using subsidiary ledgers and a perpetual inventory system safeguarding the inventory from damage or theft safeguarding the inventory from damage or theft and reporting inventory in the financial statements reporting inventory in the financial statements 156 Describe three inventory cost flow assumptions and how they impact the financial statements Cost flow is in the order in which costs were incurred or first-in, first-out (FIFO) The first units purchased are assumed sold, so the oldest costs flow to the income statement and the cost of the newest purchases are on the balance sheet Cost flow is in the reverse order in which costs were incurred or last-in, first-out (LIFO) The last units purchased are assumed sold, so the newest costs flow to the income statement and the cost of the oldest purchases are on the balance sheet Cost flow is an average of the costs Under the average cost method, all units are assigned the same average cost for the period 157 The following data regarding purchases and sales of a commodity were taken from the related perpetual inventory account: June 16 20 23 30 Balance Sale Purchase Sale Purchase Sale Purchase 25 units at $60 20 units 20 units at $61 10 units 20 units at $62 25 units 15 units at $63 Calculate the cost of the ending inventory at June 30, using (1) the first-in, first-out (FIFO) method and (2) the last-in, first-out (LIFO) method Identify the quantity, unit price, and total cost of each lot in the inventory (1) June 20 30 10 units at $62 15 units at $63 Total $ 620 945 $1,565 (2) June 30 units at $60 units at $61 15 units at $63 Total $ 300 305 945 $1,550 158 Beginning inventory, purchases and sales data for hammers are as follows: Mar 11 14 21 25 Inventory Purchase Sale Purchase Sale 12 units 13 units 18 units units 10 units @ @ $15 $17 @ $20 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 Purchases Cost of Mercha Inventory ndise Sold Date Mar Qty Unit Cost Total Cost Qty Unit Cost Total Cost Qty Unit Cost Total Cost Cost of Merch Inventory andise Sold Unit Cost Total Cost Qty Unit Cost Total Cost Qty Unit Cost Total Cost Qty 12 12 13 Unit Cost 15 15 17 17 Total Cost 180 180 221 119 17 20 20 119 180 120 Mar 11 Mar 14 Mar 21 Mar 25 Balances b Last-in, first-out Purchases Date Mar Qty Mar 11 Mar 14 Mar 21 Mar 25 Balances a Cost of merchandise sold = $461 (180+102+119+60) Ending Inventory = $120 (6 units @ $20) Qty Cost of Merch Inventory andise Sold Unit Cost Total Cost 13 17 Purchases Date Mar Mar 11 20 Total Cost 12 15 17 180 102 180 Mar 25 Balances b Unit Cost 221 Mar 14 Mar 21 Qty Cost of merchandise sold = $491 (221+75+180+15) Ending Inventory = $90 (6 units @ $15) Purchases Cost of Mercha Inventory ndise Sold 17 20 119 60 461 120 Date Mar Mar 11 Qty Unit Cost Total Cost 13 17 221 Mar 14 Mar 21 20 Qty Unit Cost Total Cost 13 17 15 221 75 180 Mar 25 Balances 20 15 180 15 491 Qty 12 12 13 Unit Cost 15 15 17 15 Total Cost 180 180 221 105 15 20 15 105 180 90 90 159 The units of an item available for sale during the year were as follows: Jan Mar June Nov 15 Inventory Purchase Purchase Purchase 25 units at $45 15 units at $50 35 units at $58 20 units at $65 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 $1,880 (20 units at $65 and 10 units at $58) 160 The units of an item available for sale during the year were as follows: Jan Apr May 20 Oct 30 Inventory Purchase Purchase Purchase 10 units at $25 15 units at $24 20 units at $28 18 units at $30 There are 19 units of the item in the physical inventory at December 31 The periodic inventory system is used Determine the ending inventory cost using LIFO $466 (10 units at $25 and units at $24) 161 The beginning inventory and purchases of an item for the period were as follows: Beginning inventory First purchase Second purchase Third purchase units at $70 each 10 units at $75 each 18 units at $80 each 10 units at $85 each The company uses the periodic system, and there were 15 units in the inventory at the end of the period Determine the cost of the 15 units in the inventory by each of the following methods, presenting details of your computations: (a) first-in, first-out; (b) last-in, first-out; (c) average cost Do not round your intermediate calculations Round your final answer to two decimal places (a) 10 units @ $85 units @ $80 Total $ 850 400 $1,250 (b) units @ $70 units @ $75 Total $ 420 675 $1,095 (c) Average unit cost = $3,460/44 15 units @ $78.64 = $ 78.64 $1,179.55 162 Beginning inventory, purchases and sales data for T-shirts are as follows: Apr 11 14 21 25 Inventory Purchase Sale Purchase Sale 24 units 26 units 36 units 18 units 20 units @ @ $10 $12 @ $15 Assuming the business maintains a periodic inventory system, calculate the cost of merchandise sold and ending inventory under the following assumptions: a FIFO b LIFO c Average cost (round cost of merchandise sold and ending inventory to the nearest dollar) a Cost of Merchandise Sold = $642.00 Ending Inventory = $180 (12 units @ $15) Apr Apr 11 Apr 21 Inventory Purchase Purchase Available for Sale 24 units @ 10 26 units @ 12 18 units @ 15 68 $240.00 312.00 270.00 $822.00 Apr 14 Sale Apr 25 Sale Cost of Merchandise Sold 24 units @ 10 12 units @ 12 14 units @ 12 units @ 15 56 $240.00 144.00 168.00 90.00 $642.00 Ending Inventory 12 units @ 15 $180.00 b Cost of Merchandise Sold = $702.00 Ending Inventory = $120 (12 units @ $10) Apr Apr 11 Apr 21 Inventory Purchase Purchase Available for Sale 24 units @ 10 26 units @ 12 18 units @ 15 68 $240.00 312.00 270.00 $822.00 Apr 14 Sale Apr 25 Sale Cost of Merchandise Sold 18 units @ 15 18 units @ 12 units @ 12 12 units @ 10 56 $270.00 216.00 96.00 120.00 $702.00 Ending Inventory 12 units @ 10 $120.00 24 units @ 10 26 units @ 12 18 units @ 15 68 $240.00 312.00 270.00 $822.00 b Cost of Merchandise Sold = $12.09 x 56 = $677.00 Ending Inventory = $12.09 x 12 units = $145.00 Apr Apr 11 Apr 21 Inventory Purchase Purchase Available for Sale Average Cost $822/68 = $12.09 Apr 14 & 25 Sales: 56 x $12.09 $677.00 Ending Inv.: 12 x $12.09 $145.00 163 The units of Product Green-2 available for sale during the year were as follows: Apr Jun 16 Sep 28 Inventory Purchase Purchase 15 units 29 units 45 units @ @ @ $30 $33 $35 There are 17 units of the product in the physical inventory at Sep 30 The periodic inventory system is used Determine the cost of merchandise sold by (a) FIFO, (b) LIFO, and (c) average cost methods FIFO 15 units @ $30 = 29 units @ $33 = 28 units @ $35 = Total $450 $957 $980 $2,387 LIFO 45 units @ $35 = 27 units @ $33 = Total $1,575 $891 $2,466 Average $2,982 / 89 = $33.51 72 units @ $33.51 = $2,412.72 164 Brutus Corporation, a newly formed corporation, has the following transactions during May, 2011, it’s first month of operation May May May May May 13 May 20 May 22 May 27 May 28 May 30 Purchased 500 units @ $25.00 each Purchased 300 units @ $24.00 each Sold 400 units @ $38.00 each Purchased 700 units @ $23.00 each Sold 450 units @ $37.50 each Purchased 250 units @ $25.25 each Sold 275 units @ $36.00 each Sold 300 units @ $37.00 each Purchased 550 units @ $26.00 each Sold 100 units @ $39.00 each Calculate total sales, cost of goods sold, gross profit and ending inventory using each of the following inventory methods: FIFO Perpetual FIFO Periodic LIFO Perpetual LIFO Periodic Average Cost Periodic (round average to nearest cent) Total Sales (not dependant on inventory method): May May 13 May 22 May 27 May 30 Total Sales 400 @ 38.00 = $ 15,200.00 450 @ 37.50 = 16,875.00 275 @ 36.00 = 9,900.00 300 @ 37.00 = 11,100.00 100 @ 39.00 = _ 3,900.00 1,525 units $56,975.00 Total Goods Available for Sale May 500 @ 25.00 = $ 12,500.00 May 300 @ 24.00 = 7,200.00 May 700 @ 23.00 = 16,100.00 May 20 250 @ 25.25 = 6,312.50 May 28 550 @ 26.00 = 14,300.00 2,300 units $56,412.50 Total GAFS & FIFO Perpetual FIFO Periodic: There is no difference between these methods since FIFO is always first-in, first-out Cost of Goods Sold & Ending Inventory Ending Inventory Total Units - Units Sold = Ending Inventory 2,300 - 1,525 = 775 Units 225 @ $25.25 = 550 @ $26.00 = Ending Inventory: $ 5,681.25 14,300.00 $19,981.25 Cost of Goods Sold Total Goods Available Less Ending Inventory COGS: $56,412.50 19,981.25 $36,431.25 Gross Profit Total Sales Less COGS Gross Profit: $56,975.00 36,431,25 $20,543.75 Inventory Valuation Perpetual LIFO Date 1-May 4-May Bal 6-May Bal 8-May Bal 13-May Bal 20-May Bal 22-May Purchased Units / Balance 500 300 Price 25.00 24.00 400 700 400 700 25.00 23.00 25.00 23.00 400 250 25.00 23.00 250 25.25 27-May Bal 28-May 30-May 325 550 End Bal 325 450 Cost 300 100 24.00 25.00 450 23.00 250 25 225 75 25.25 23.00 23.00 25.00 100 26.00 25.00 26.00 25.00 26.00 LIFO Valuation: Ending Inventory Total Units - Units Sold = Ending Inventory 2,300 - 1,525 = 775 Units 325 @ $25.00 = 450 @ $26.00 = Ending Inventory: Units Sold $ 8,125.00 11,700.00 $19,825.00 Cost of Goods Sold Total Goods Available Less Ending Inventory COGS: $56,412.50 19,825.00 $36,587.50 Gross Profit Total Sales Less COGS Gross Profit: $56,975.00 36,587.50 $20,387.50 Inventory Balance 12,500.00 7,200.00 19,700.00 (7,200.00) (2,500.00) 10,000.00 16,100.00 10,000.00 16,100.00 26,100.00 (10,350.00) 10,000.00 5,750.00 15,750.00 6,312.50 22,062.50 (6,312.50) (575.00) (5,175.00) (1,875.00) 8,125.00 14,300.00 (2,600.00) 8,125.00 11,700.00 19,825.00 Ending Inventory 500 @ $25.00 = 275 @ $24.00 = Ending Inventory: $ 12,500.00 6,600.00 $19,100.00 Cost of Goods Sold Total Goods Available Less Ending Inventory COGS: $56,412.50 19,100.00 $37,312.50 Gross Profit Total Sales Less COGS Gross Profit: $56,975.00 37,312,50 $19,662.50 Average Cost Calculation: $56,412.50 / 2,300 units = $24.53 Ending Inventory: 775 units x $24.53 = $19,010.75 Cost of Goods Sold: $56,412.50 - $19,010.75 = $37,401.75 Gross Profit: $56,975.00 - $37,401.75 = $19,573.25 165 Basic inventory data for April 30 are presented below for a business that employs the lower of cost or market basis of inventory valuation Commodity A B C D (a) (b) Quantity 35 10 25 40 Unit Unit Cost Market Price Price $ 52 $ 55 155 150 82 85 58 55 Total Cost _ _ _ _ Market _ _ _ _ Complete the table Determine the amount of reduction in the inventory at April 30 attributable to market decline (a) Total Commodity A B C D Total Cost _ $1,820 1,550 2,050 2,320 $7,740 Market $1,925 1,500 2,125 2,200 $7,750 Lower of C or M $1,820 1,500 2,050 2,200 $7,570 Lower of C or M _ _ _ _ (b) $155 ($7,300 - $7,145) 166 Hampton Co took a physical count of its inventory on December 31 In addition, it had to decide whether or not the following items should be added to this count (a) (b) (c) (d) (e) (f) Merchandise on hand had been sold earlier in the year but had been returned by customers for various warranty repairs Hampton Co sent merchandise on a consignment basis on December 31 just prior to the physical count On December 22, Hampton Co ordered merchandise on FOB destination terms The merchandise was shipped by the supplier on December 30 but had not been received by December 31 On December 27, Hampton Co ordered merchandise on FOB shipping point terms The merchandise was shipped on December 29 but had not been received by December 31 Merchandise sold FOB shipping point on December 31 was picked up by the freight company just before closing on December 31 Merchandise shipped to a customer FOB destination was picked up by the freight company on December 28 but had not arrived at its destination as of December 31 Indicate which items should be added to (answer: yes) and which items should not be added to (answer: no) the December 31 inventory count (a) (b) (c) (d) (e) (f) no yes no yes no yes 167 Explain the effect of the following on the financial statements: Goods held on consignment were included in the ending inventory count Goods purchased FOB shipping point were in transit on the last day of the year The goods were not counted as part of ending inventory Goods sold FOB shipping point were in transit on the last day of the year These goods were not counted as part of ending inventory What happens if inventory errors are not found and corrected? Goods held on consignment were included in the ending inventory count: Goods held on consignment should not be included in the consignee’s ending inventory By including these goods, ending inventory, gross profit and net income are overstated and cost of goods sold is understated On the balance sheet, inventory, current assets, total assets and owners’ capital are all overstated Goods purchased FOB shipping point were in transit on the last day of the year These goods were not counted as part of ending inventory: Goods purchased FOB shipping point become part of inventory when they are shipped to the purchaser Thus, these goods should have been included in ending inventory even though they were not yet received By excluding these goods, ending inventory, gross profit and net income are understated and cost of goods sold is overstated On the balance sheet, inventory, current assets, total assets and owners’ capital are all understated Goods sold FOB shipping point were in transit on the last day of the year These goods were not counted as part of ending inventory: When goods are sold FOB shipping point, title transfers when they are shipped to the purchaser As such, they should not have been included in ending inventory so this transaction has no effect on the financial statements Inventory errors reverse themselves within two years Therefore, if not discovered the balance sheet will be correct two years after the error occurs 168 On the basis of the following data for Barker Industries as of December 31, 2011, determine the value of the inventory at the lower of cost or market Also, show how the merchandise inventory would appear on the balance sheet (assume that the cost was determined by the FIFO method) Apply lower of cost or market to each inventory item Commodity Size Size Size Size Inventory Quantity 10 14 12 Unit Cost Price $17 17 23 13 Unit Market Price $19 14 20 15 Inventory valuation = $701 Commodity Size Size Size Size Inventory Quantity 10 14 12 Unit Cost Price $17 17 23 13 Unit Market Price Cost $153 170 322 156 $801 $19 14 20 15 Market $171 140 280 180 $771 Lower of C or M $153 140 280 156 $729 Baker Industries Balance Sheet December 31, 2011 Assets Current assets: Merchandise inventory - at lower of cost (first-in,first-o $729.00 ut) or market 169 Based on the following information: compute (a) Inventory turnover; (b) Average daily cost of merchandise sold; and (c) Number of days' sales in inventory for 2011 Use a 365-day year (d) If an inventory turnover of 12 is average for the industry, how is this company doing? Item Cost of merchandise sold Inventory (a) (b) (c) (d) 12/31/10 Amount $172,900 18,000 $160,600 ÷ $15,000 = 10.71 times $160,600 ÷ 365 = $440.00 $15,000 ÷ $440.00 = 34.09 days This company is close to average, but doing somewhat worse than the overall industry 170 The following data were taken from Bowman Inc Cost of Merchandise Sold Inventory, end of year Inventory, beginning of the year 2014 $894,000 78,000 92,000 12/31/11 Amount $160,600 12,000 Determine the inventory turnover ratio and the number of days’ sales in inventory for Bowman Inc Round to two decimal places Inventory turnover = Cost of merchandise sold / Average inventory Inventory turnover = 894,000 / ((78,000 + 92,000)/2) Inventory turnover = 894,000 / 85,000 Inventory turnover = 10.52 Number of days’ sales in inventory = Average Inventory / Ave daily cost of merch sold Number of days’ sales in inventory = 85,000 / (894,000/365) Number of days’ sales in inventory = 85,000 / 2,449.32 Number of days’ sales in inventory = 34.70 days 171 Based on the following information, compute (a) Inventory turnover; (b) Average daily cost of merchandise sold using a 365 day year; and (c) Number of days’ sales in inventory April 30, 2012 Cost of merchandise sold Inventory: Beginning Ending $195,640 20,500 18,628 (a) $ 195,640 ¸ (($20,500+18,628)/2) = 10 (b) $ 195,640 ¸ 365 = $536 (c) $ 19,564 ¸ $536 = 36.5 days 172 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% Merchandise available for sale in August August sales Less estimated gross profit ($875,000 ´ 45%) Estimated cost of merchandise sold Estimated ending merchandise inventory $700,000 $875,000 393,750 481,250 $218,750 173 On the basis of the following data, estimate the cost of the merchandise inventory at March 31 by the retail method: March March 1-31 March 1-31 Merchandise Inventory Purchases (net) Sales (net) Cost $250,000 850,000 Retail $350,000 1,650,000 845,000 Estimated cost of merchandise inventory, March 31 = $635,250 March March 1-31 Merchandise Inventory Purchases (net) Cost $250,000 850,000 $1,100,000 Retail $350,000 1,650,000 $2,000,000 Ratio of cost to retail price: 55% (1,100,000/2,000,000) March - 31 Sales (net) Merchandise Inventory, March 31 at retail Merchandise Inventory, March 31 at est cost ($1,155,000 ´ 55%) 845,000 $1,155,000 $635,250 174 On the basis of the following data, determine the estimated cost of the inventory as of March 31 by the retail method, presenting details of the computation in good order Mar 1-31 1-31 Merchandise inventory Purchases (net) Sales (net) Merchandise inventory, Mar Purchases in March (net) Merchandise available for sale Ratio of cost to retail price: $617,250 ÷ $1,065,000 = 58% Sales in March (net) Merchandise inventory, March 28, at retail price Merchandise inventory, March 28, at estimated cost price ($665,000 ´ 58%) Cost $310,000 307,250 Cost $310,000 307,250 $617,250 Retail $550,000 515,000 400,000 Retail $550,000 515,000 $1,065,000 400,000 $665,000 $385,700 ... journal entry is made to record the cost of merchandise sold 66 Under the _ inventory method, accounting records maintain a continuously updated inventory value A retail B periodic C physical... to the LIFO method? A $1,380 B $1,375 C $1,510 D $1,250 84 Under a periodic inventory system A accounting records continuously disclose the amount of inventory B a separate account for each type... period of consistently rising prices, the method of inventory that will result in reporting the greatest cost of merchandise sold is A FIFO B LIFO C average cost D weighted average 90 During times