ch8 301

A company purchases inventory on account for $45,000 with terms 2/10, n/30. Under the net method of accounting for purchases, the purchase would be recorded at:

44100

Sanfillipo, Incorporated, had 800 units of inventory on hand at March 1 of the current year, costing $20 each. Purchases and sales of inventory during the month of March were as follows: DatePurchasesSalesMarch 8 600unitsMarch 15400 units @ $22 each March 22400 units @ $24 each March 27 400units Sanfillipo uses the periodic inventory system. According to a physical count, 600 units were on hand at the end of March. The cost of inventory at the end of March applying the LIFO method is

600 units @ $20 each.

Identify the statement below concerning the LIFO inventory method that is untrue.

The ending inventory under LIFO will tend to approximate replacement cost.

A company uses the dollar-value LIFO inventory method. At the end of 2025 the cost index is 1.25 and the ending inventory at base year cost is $360,000. If 2025 beginning inventory at base year cost was $300,000, 2025 ending inventory at dollar-value LIFO cost is: Multiple Choice

$300,000 + [($360,000 − $300,000) × 1.25]

Symington Corporation uses the periodic inventory system. At December 31, 2024, the end of the company's fiscal year, a physical count of inventory revealed an ending inventory balance of $320,000. The following items were not included in the physical count: Goods held on consignment at Murphy Corporation$ 23,000Merchandise shipped to a customer on 12/30/2024 free on board destination(merchandise arrived at customer's location on 1/3/2025)12,000Merchandise shipped to a customer on 12/29/2024 free on board shipping point(merchandise arrived at customer's location on 1/2/2025)6,000Merchandise purchased from a supplier, shipped free on board destinationon 12/29/2024, in transit at year-end24,000

$320,000 (ending balance) + $12,000 (free on board destination shipment made 12/30/2024) + $23,000 (goods held on consignment).

The Hamlet Company uses the periodic inventory system. Information for the current year is as follows: Sales$ 2,650,000Beginning inventory680,000Purchases1,200,000Purchase returns12,000Ending inventory740,000 Hamlet's cost of goods sold for the current year is:

$680,000 (beginning balance) + $1,200,000 (purchases) − $12,000 (purchase returns) − $740,000 (ending balance).

For its fiscal year, the King Pharmaceutical Company reported sales of $10,500,000, cost of goods sold of $6,300,000, and net income of $525,000. The company's gross profit ratio for the year is:

($10,500,000 − $6,300,000) ÷ $10,500,000 =40%

Sanfillipo, Incorporated, had 800 units of inventory on hand at March 1 of the current year, costing $20 each. Purchases and sales of inventory during the month of March were as follows: DatePurchasesSalesMarch 8 600unitsMarch 15400 units @ $22 each March 22400 units @ $24 each March 27 400unit Sanfillipo uses the periodic inventory system. According to a physical count, 600 units were on hand at the end of March. The cost of inventory at the end of March applying the FIFO method is: Multiple Choice

14,000 400 units @ $24 each + 200 units @ $22 each.

Sanfillipo, Incorporated, had 800 units of inventory on hand at March 1 of the current year, costing $20 each. Purchases and sales of inventory during the month of March were as follows: DatePurchasesSalesMarch 8 600unitsMarch 15400 units @ $22 each March 22400 units @ $24 each March 27 400units Sanfillipo uses the perpetual inventory system. According to a physical count, 600 units were on hand at the end of March. The cost of goods sold for March applying the FIFO method is:

800 units @ $20 each + 200 units @ $22 each.

Sanfillipo, Incorporated, had 800 units of inventory on hand at March 1 of the current year, costing $20 each. Purchases and sales of inventory during the month of March were as follows: DatePurchasesSalesMarch 8 600unitsMarch 15400 units @ $22 each March 22400 units @ $24 each March 27 400units Sanfillipo uses the periodic inventory system. According to a physical count, 600 units were on hand at the end of March. The cost of inventory at the end of March applying the average cost method is:

Average cost of purchases = $21.50 each [(800 × $20) + (400 × $22) + (400 × $24)] ÷ 1600. Ending inventory = 600 units @ $21.50 each. 12900

Company A is identical to Company B in every regard except that Company A uses FIFO and Company B uses LIFO. In an extended period of rising inventory costs, which of the following is true of Company A compared to Company B?

Company A's gross profit is higher and inventory turnover is lower.

The following balances come from the financial statements of a company: Sales revenue$ 850,000 Accounts receivable 280,000 Beginning inventory 50,000 Ending inventory30,000 Net purchases460,000 Sales returns 50,000 Sales discount 20,000 Given this information, what is the company's inventory turnover ratio and average days in inventory?

Cost of goods sold = $50,000 + $460,000 − $30,000 = $480,000. Inventory turnover ratio = $480,000 / [($50,000 + $30,000) / 2] = 12.0. Average days in inventory = 365 / 12.0 = 30 days (rounded)

LIFO liquidation profits occur when:

Costs are rising and inventory quantity declines.

In 2024, a company reports inventory under LIFO for the amount of $128,000. Inventory would have been reported for $140,000 if the company had reported using FIFO. In 2025, the company calculates ending inventory under LIFO to be $137,000 and under FIFO to be 155,000. Which of the following correctly records the LIFO reserve adjusting entry at the end of 2025?

Debit cost of goods sold and credit LIFO reserve for $6,000.

On December 31, 2024, a company adopted the dollar-value LIFO inventory method. Inventory at the end of 2024 for its only inventory pool was $400,000 under the dollar-value LIFO method. At the end of 2025, inventory at year-end cost is $473,000 and the cost index is 1.10. At the end of 2026, inventory at year-end cost is $492,000 and the cost index is 1.20. Inventory at the end of 2026 at dollar-value LIFO cost is:

End-of-2025 inventory at base-year cost (2024) = $430,000 (= $473,000 ÷ 1.10). The increase from $400,000 in the base year (2024) indicates an inventory layer of $30,000 was added in 2025. This layer has a cost index of 1.10. End-of-2026 inventory at base-year cost (2024) = $410,000 (= $492,000 ÷ 1.20). The decrease in base-year cost in 2026 indicates that more inventory was sold in 2026 than was purchased. Under the LIFO assumption, no layer of inventory would have been added in 2026. The remaining layers of LIFO are $400,000 from 2024 with a cost index of 1.00, and $10,000 from 2025 with a cost index of 1.10. Multiplying each year's amounts and adding the layers results in reported inventory in 2026 of $411,000.

On December 31, 2024, a company adopted the dollar-value LIFO inventory method. Inventory at the end of 2024 for its only inventory pool was $500,000 under the dollar-value LIFO method. At the end of 2025, inventory at year-end cost is $672,000 and the cost index is 1.05. Inventory at the end of 2025 at dollar-value LIFO cost is:

End-of-2025 inventory at end-of-2024 year cost = $640,000 (= $672,000 ÷ 1.05). The increase in the end-of-2024 inventory at end-of 2024 dollars is $140,000. Adjusting this to end-of-2025 cost is $147,000 (=$140,000 × 1.05) and adding this to the beginning inventory gives $647,000.

A company that sells a large quantity of inventory in a competitive industry would likely have which of the following?

Low gross profit ratio and high inventory turnover ratio.

Sanfillipo, Incorporated, had 800 units of inventory on hand at March 1 of the current year, costing $20 each. Purchases and sales of inventory during the month of March were as follows: DatePurchasesSalesMarch 8 600unitsMarch 15400 units @ $22 each March 22400 units @ $24 each March 27 400units Sanfillipo uses the perpetual inventory system. According to a physical count, 600 units were on hand at the end of March. The cost of goods sold for March applying the average cost method is:

March 8 sale: 600 × $20 = $12,000. March 27 sales: Average cost = [(200 × $20) + (400 × $22) + (400 × $24)] ÷ 1,000 = $22.40. Cost of goods sold = 400 units @ $22.40 each = $8,960. Total cost of goods sold for March = $12,000 + $8,960 = $20,960.

A company had a decrease in the LIFO reserve during the year from $40,000 to $30,000. Which of the following would be true (ignore tax effects)?

Reported profits are higher under LIFO than under FIFO by $10,000 for that year. Ending inventory is higher under FIFO than under LIFO by $30,000 at the end of the year. Cost of goods sold is higher under FIFO than under LIFO by $10,000 for that year.

Under the gross method of accounting for purchases:

The purchase of inventory is recorded for its full amount. The amount paid for inventory during the discount period is the full amount of the purchase minus the discount. The amount paid for inventory after the discount period is the full amount of the purchase.

Using a perpetual inventory system the purchase of inventory on account is recorded with a

debit to inventory

Which inventory method typically most closely matches the actual flow of inventory being sold?

fifo

In a perpetual inventory system if merch is returned to a supplier

inventory is credited

In a period of declining costs, the use of which of the following inventory cost methods would result in the highest ending inventory?

lifo

companies that purchase inventories that are primarily in finished form for resale to customers are known as

merch companies