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Exam 6: Inventories

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Question 1

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During a period of falling prices, which of the following inventory methods generally results in the lowest balance sheet amount for inventory?

A) average cost method
B) LIFO method
C) FIFO method
D) cannot tell without more information

E) All of the above
F) B) and D)

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Question 2

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The units of an item available for sale during the year were as follows: $\begin{array}{ll}\text { Jan. } 1 \text { Inventory } & 25 \text { units at } \$ 45 \\\text { Mar. } 4 \text { Purchase } & 15 \text { units at } \$ 50 \\\text { June } 7 \text { Purchase } & 35 \text { units at } \$ 58 \\\text { Nov. } 15 \text { Purchase } & 20 \text { units at } \$ 65\end{array}$ 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.

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$1,880 20 units at $65 and 10 units at $58)

Question 3

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Based upon the following data, estimate the cost of ending merchandise inventory using the gross profit method.

Under the inventory method, accounting records maintain a continuously updated inventory value.

On the basis of the following data, determine the value of the inventory at the lower of cost or market. Apply lower of cost or market to each inventory item. Show your work.

If merchandise inventory is being valued at cost and the purchase price is steadily falling, which method of costing will yield the largest net income?

All of the following are reasons to use an estimated method of costing inventory except

If a company uses a periodic inventory system, the gross profit method can be used to estimate inventory for monthly or quarterly statements.

Describe three inventory cost flow assumptions and how they impact the financial statements.

During periods of increasing costs, an advantage of the LIFO inventory cost method is that it matches more recent costs against current revenues.

If the perpetual inventory system is used, the merchandise inventory account is debited for purchases of merchandise.

A perpetual inventory system is an effective means of control over inventory.

Match each description to the appropriate document used for inventory control a-c) . -establishes an initial record of the receipt of inventory

Fill in the missing amounts from the chart below regarding the calculation of Bean Corporation's estimated inventory using the retail method of estimation.

Which document establishes an initial record of the receipt of the inventory?

The firm uses the periodic system and there are 20 units of the commodity on hand at the end of the year. What is the amount of inventory at the end of the year according to the FIFO method?

Beginning inventory, purchases, and sales for an inventory item are as follows: $\begin{array}{|l|l|}\hline \text { Beginning inventory } & 150 \text { units } @ \$ 755 \\\hline \text { Sale } & 120 \text { units } \\\hline \text { First purchase } & 400 \text { units } @ \$ 785 \\\hline \text { Sale } & 200 \text { units } \\\hline \text { Second purchase } & 300 \text { units } @ \$ 805 \\\hline \text { Sale } & 290 \text { units } \\\hline\end{array}$ The firm uses the perpetual inventory system and there are 240 units of the item on hand at the end of the year. What is the total cost of ending inventory according to FIFO?

Under a perpetual inventory system, the amount of each type of merchandise on hand is available in the

Match each description to the appropriate cost flow assumption a-c) . -Cost of the latest purchases are assigned to ending inventory

During the taking of its physical inventory on December 31, 2014, Barry's Bike Shop incorrectly counted its inventory as $350,000 instead of the correct amount of $280,000. The effect on the balance sheet and income statement would be