Ch 8 Intermediate Accounting Concepts

Jameson Company uses average cost and a perpetual system. On January 1, the company had 600 units of inventory at an average cost of $55 per unit for a total cost of $33,000. The company purchased and sold inventory during the month as follows: Purchases:January 10: 1,000 units at $59 = $59,000January 20: 800 units at $62 = $49,600 Sales:January 12: 1,200 unitsJanuary 28: 900 units What is the average cost per unit that should be used to determine the cost of the units sold on January 28? (Round your answer to two decimal points.)

$60.50 At January 10: Cost of units available for sale = $33,000 + $59,000 = $92,000 Units available for sale = 600 + 1,000 = 1,600 Average cost per unit = $92,000 ÷ 1,600 units = $57.50 At January 12: 1,600 units available − 1,200 units sold = 400 units Cost of units available for sale = 400 × $57.50 = $23,000 At January 20: Cost of units available for sale = $23,000 + $49,600 = $72,600 Units available for sale = 400 + 800 = 1,200 Average cost per unit = $72,600 ÷ 1,200 units = $60.50

Platen purchased inventory on August 17 and received an invoice with a list price amount of $5,900 and payment terms of 4/10, n/30. Platen uses the net method to record purchases. For what amount should Platen record the purchase?

5664 (5900 * .96)

Bluestein Inc. purchases goods from one of its suppliers and incurs freight charges to have the goods delivered. The company uses a perpetual system. Which of the following statements is correct?

Bluestein will record the freight charges in its Inventory account. Bluestein, the purchaser of the goods, will add the freight costs to the inventory account in a perpetual system. Those costs will then be reported as cost of goods sold once the items are sold.

Barrington Company began the year with inventory of $100,000. During the year, the company purchased inventory in the amount of $750,000. Sales revenue for the year totaled $800,000. A physical count determined the cost of inventory at the end of the year to be $90,000. The adjusting entry needed at the end of the year under a periodic inventory system includes a:

Debit to Cost of Goods Sold for $760,000

Looking at questions 10 and 11, If costs are rising, which inventory method will result in the highest cost of goods sold.

LIFO

Which of the following statements about the types of inventory is (are) correct? (Select all that apply.) Merchandising companies produce the goods they sell to customers. Merchandising companies produce the goods they sell to customers. When the manufacturing process is complete, the cost of the related inventory items is transferred into finished goods. When the manufacturing process is complete, the cost of the related inventory items is transferred into finished goods. Inventory is classified as an asset in the balance sheet until it is sold, at which time the cost is transferred to cost of goods sold in the income statement. Inventory is classified as an asset in the balance sheet until it is sold, at which time the cost is transferred to cost of goods sold in the income statement. Costs necessary to get inventory in condition and location for sale are not included as a cost of inventory. Costs necessary to get inventory in condition and location for sale are not included as a cost of inventory. Incorrect

Merchandising companies purchase goods that are primarily in finished form. Unlike merchandising companies, manufacturing companies actually produce the goods they sell to customers.The cost of merchandise inventory includes the purchase price plus any other costs necessary to get the goods in condition and location for sale.

Hales Inc. ships goods on December 30 to Osher Inc., who receives the goods on January 2. Both companies have December 31 year-ends. If the goods are shipped f.o.b. shipping point, which of the following statements is (are) correct? (Select all that apply.) Hales will include the goods in its December 31 inventory. Osher will include the goods in its December 31 inventory. Hales will record the sale on December 30. Hales will record the sale on January 2. Osher will record the purchase on December 30.

Osher will include the goods in its December 31 inventory. Hales will record the sale on December 30. Osher will record the purchase on December 30.

Platter Inc. purchases goods from a supplier and later returns those goods. Platter uses a perpetual system. Which of the following statements is correct?

Platter will record the return by reducing its Inventory account.

On December 15, Reynolds Inc. ships goods on consignment to Manella Inc., who receives the goods on December 20. Manella sells the goods to a customer on January 5 of the following year. Both companies have December 31 year-ends. Which of the following statements is correct?

Reynolds will include the goods in its December 31 inventory. When Reynolds (the consignor) shipped the goods on consignment to Manella (the consignee), the goods were physically transferred to Manella, but Reynolds retained legal title. Goods held on consignment generally are not included in the consignee's inventory. While in stock, the goods belong to the consignor. Thus, Reynolds will include the goods in its December 31 inventory, and the sale won't be recorded until January 5.

Abbott Company uses a perpetual inventory system. When does Abbott record transactions relating to its inventory?

Sales revenue and cost of goods sold are both recorded at the time of the sale.

On January 1, Greenview Company adopted the dollar-value LIFO method. The inventory cost on January 1 was $112,000. On December 31, ending inventory had a cost of $136,400. The cost index for the year was 1.10. For what amount would ending inventory be reported?

Step 1: Convert ending inventory to base year cost by dividing ending inventory by the year's cost index. $136,400/1.10 = $124,000 Step 2: Identify the layers of ending inventory created each year. Ending inventory (from Step 1)$124,000 Beginning layer (given) 112,000 Current year layer $12,000 Step 3: Restate each layer using the cost index in the year acquired. Base year costs×Cost index=Ending Inventory Beginning layer $112,000 × 1.00 = $112,000 Current year layer 12,000 × 1.10 = 13,200 Ending inventory $125,200

Otis Corp. uses a periodic system and the FIFO method. Otis had beginning inventory of 30 units purchased at $120 each and made the following purchases during the year: Jan. 15: 34 units at $110 May 30: 61 units at $84 Oct. 20: 160 units at $60 Sales during the year totaled 271 units. What is the cost of ending inventory?

The first-in, first-out (FIFO) method assumes that the first units purchased are sold first. Beginning inventory is sold first, followed by purchases in chronological order. Thus, we assume the 14 units in ending inventory (30 + 34 + 61 + 160 − 271) are from the last purchase on October 20.14 units × $60 = $840

Same data as #10, but with LIFO.

The last-in, first-out (LIFO) method assumes that units sold are the most recent units acquired. The units just purchased are sold first, followed by purchases during the period in the reverse chronological order of their acquisition. Thus, we assume the 14 units in ending inventory (30 + 34 + 61 + 160 − 271) are from the beginning inventory.14 units × $120 = $1,680