Accounting Chapter 6 Review for Final

Assume Baxter Manufacturing begins March with 25 units of inventory that cost $20 each. During March, the following purchases and goods sold were: March 15 Purchased 10 units at $22 March 30 Sold 30 units Using the LIFO inventory costing method and the perpetual system, what is the ending Merchandise Inventory on March 30?

$100

Assume Baxter Manufacturing begins March with 25 units of inventory that cost $20 each. During March, the following purchases and goods sold were: March 15 Purchased 10 units at $22 March 30 Sold 30 units Using the FIFO inventory costing method and the perpetual system, what is the ending Merchandise Inventory on March 30?

$110

Assume Jones Manufacturing begins January with 10 units of inventory that cost $10 each. During January, the following purchases and goods sold were: Jan 5 Purchased 8 units at $11 7 Sold 11 units 15 Purchased 6 units at $12 30 Sold 15 units Using the FIFO inventory costing method and the perpetual system, how much is Costs of Goods Sold for the sale of January 7?

$111

Data for Shelby Company for the current year is as follows: Sales Revenue $10,000 Cost of Goods Sold: Beginning Merchandise Inventory $3,000 Net Cost of Purchases 7,000 Cost of Goods Available for Sale 10,000 Less: Ending Merchandise Inventory 2,000 Cost of Goods Sold 8,000 Gross Profit $2,000 Assume that the ending Merchandise Inventory was accidentally understated by $300. What are the correct amounts for Cost of Goods Sold and Gross Profit?

Cost of Goods Sold = $7,700 Gross Profit = $2,300

Which principle holds that a business's financial statements must report enough information for outsiders to make a knowledgeable decision about the company?

Disclosure Principle

The following statement is true regarding inventory errors (overstating or understating ending Merchandise Inventory):

Ending merchandise inventory is subtracted to compute costs of goods sold in one period and the same amount is added to the beginning merchandise inventory of the next period. Therefore, an inventory error cancels out after two periods.

Which of the following costing method results in the highest net income during a period of increasing inventory costs?

FIFO

The Tampa Manufacturing Company had the following financial data for December 31, the end of the current year: Cost of Goods Sold $500,000 Beginning Merchandise Inventory 55,000 Ending Merchandise Inventory 45,000 What is the inventory turnover for the year?

Inventory turnover is calculated as Cost of Goods Sold divided by Average Merchandise Inventory. Average Merchandise Inventory is beginning and ending inventory added together and divided by 2. So, inventory turnover is $500,000 / (($55,000 + $45,000)/2) = 10 times per year.

Which inventory costing method results in a higher Cost of Goods Sold to be reported on the Income Statement when inventory costs are rising?

LIFO

When inventory costs are rising, a company may prefer to use the __________ method in the perpetual system in order to pay the lowest amount of taxes.

LIFO results in a higher Cost of Goods Sold, and then a lower net income, resulting in less taxes being paid.

On December 31 of the current year, Aztec Company understated ending Merchandise Inventory by $10,000. How does this error affect the Cost of Goods Sold and the Net Income for the current year?

Overstates Cost of Goods Sold and understates Net Income.

Assume the following beginning inventory, purchases, and sales during the month of April: April 1 Beginning Merchandise Inventory, 10 units @ $15 each April 3 7 units sold April 10 Purchased 9 units at $16 April 23 4 units sold Determine the Cost of Goods Sold using the FIFO inventory costing method and the periodic inventory system on April 30.

Take the first 10 units purchased at $15, then take 1 unit * $16 (the next purchase down for a total of 11 units): (10 * $15) + (1 * $16) = $166 Or it can be put into the following format: Beginning Merchandise Inventory (10 units x $15) $150 Net Cost of Purchases (9 units x $16) 144 Cost of Goods Available for Sale 294 Less: Ending Merchandise Inventory (8 units x $15)** (128) Cost of Goods Sold $166 **Use $16 as in FIFO the last units purchased at $16 would be the units remaining in merchandise inventory. You have 8 units in merchandise inventory (10 beginning inventory + 9 purchases - 7 sold - 4 sold = 8 units).

Assume the following beginning inventory, purchases, and sales during the month of April: April 1 Beginning Merchandise Inventory, 10 units @ $20 each April 3 8 units sold April 10 Purchased 9 units at $21 April 23 4 units sold Determine the Cost of Goods Sold using the FIFO inventory costing method and the periodic inventory system on April 30.

Take the first 10 units purchased at $20, then take 2 units * $21 (the next purchase down for a total of 11 units): (10 * $20) + (2 * $21) = $242 Or it can be put into the following format: Beginning Merchandise Inventory (10 units x $20) $200 Net Cost of Purchases (9 units x $21) 189 Cost of Goods Available for Sale 389 Less: Ending Merchandise Inventory (7 units x $21)** (147) Cost of Goods Sold $242 **Use $21 as in FIFO the last units purchased at $21 would be the units remaining in merchandise inventory. You have 8 units in merchandise inventory (10 beginning inventory + 9 purchases - 8 sold - 4 sold = 7 units).

Assume the following beginning inventory, purchases, and sales during the month of April: April 1 Beginning Merchandise Inventory, 10 units @ $15 each April 3 7 units sold April 10 Purchased 9 units at $16 April 23 4 units sold Determine the Cost of Goods Sold using the LIFO inventory costing method and the periodic inventory system on April 30.

Take the last 9 units purchased at $16 , then take 2 units * $15 (the next level up for a total of 11 units): (9 * $16) + (2 * $15) = $174 Or it can be put into the following format: Beginning Merchandise Inventory (10 units x $15) $150 Net Cost of Purchases (9 units x $16) 144 Cost of Goods Available for Sale 294 Less: Ending Merchandise Inventory (8 units x $15)** (120) Cost of Goods Sold $174 **Use $15 as in LIFO the first units purchased at $15 would be the units remaining in merchandise inventory. You have 8 units in merchandise inventory (10 beginning inventory + 9 purchases - 7 sold - 4 sold = 8 units).

The Smith Manufacturing Company had inventory turnover of 9 for the current year. What is the days' sales in inventory for the current year?

To calculate days' sales in inventory, one must divide the number of days in a year by the number of times the inventory turns over in a year. Therefore, if the inventory turnover ratio is 9, inventory turnover is 365 days / 9 = 40.56 days.

Bates Manufacturing purchased merchandise inventory for $10,000. At the end of the accounting period it has a market value of $8,700. Using the lower-of-cost-or-market rule, what is the amount to report on the Balance Sheet as Merchandise Inventory?

Using the lower-of-cost-or-market, the lower of the cost or market value is reported on the Balance Sheet. The market value is lower at $8,700 so that is the amount to report on the Balance Sheet as Merchandise Inventory.

Inventory turnover measures __________.

how rapidly merchandise inventory is sold