Accounting Chapter 7

Determine the gross profit using the periodic inventory system and the LIFO inventory method, assuming that 16 units were sold at a sales price of $15. Date Item Units Cost Total Jan. 1 Inventory 5 $2 $10 12 Purchase 9 $5 $45 18 Purchase 7 $6 $42 Totals 21 -- $97

$153 LIFO: (16 × $15) - [(7 × $6) + (9 × $5)] = $153

Determine the ending inventory using the periodic inventory system and the weighted average inventory cost flow method. (Round answers to the nearest cent.) Date Item Units Cost Total Jan. 1 Inventory 4 $3 $12 12 Purchase 9 $4 $36 18 Purchase 7 $6 $42 Totals 20 -- $90 Sold 16

$18.00 Weighted average cost flow: $90 ÷ 20 = $4.50 × 4 = $18.00

Determine the gross profit using the periodic inventory system and the FIFO inventory method, assuming that 16 units were sold at a sales price of $15. Date Item Units Cost Total Jan. 1 Inventory 5 $2 $10 12 Purchase 9 $4 $36 18 Purchase 7 $6 $42 Totals 21 -- $88

$182 Sales - Cost of Merchandise Sold = Gross Profit, so (16 units × $15) - [(5 × $2) + (9 × $4) + (2 × $6)] = $182

Determine the ending inventory using the periodic inventory system and the LIFO inventory method, assuming that 17 units were sold at a sales price of $16. Date Item Units Cost Total Jun. 1 Inventory 5 $5 $25 12 Purchase 9 $7 $63 18 Purchase 8 $9 $72 Totals 22 -- $160

$25 LIFO ending inventory: 5 × $5 = $25

Determine the ending inventory using the periodic inventory system and the weighted average cost method (rounded to the nearest cent), assuming that 18 units were sold at a price of $16. Date Item Units Cost Total Jun. 1 Inventory 5 $5 $25 12 Purchase 9 $6 $54 18 Purchase 9 $10 $90 Totals 23 -- $169

$36.75 $169 ÷ 23 = $7.35 per unit × 5 = $36.75

Determine the cost of merchandise sold for the transaction on September 25 using the perpetual inventory system and the FIFO method. Date Item Units Cost Total Sept.1 Inventory 5 $5 $25 4 Purchase 9 $6 $54 8 Sale 6 20 Purchase 15 $9 $135 25 Sale 11

$75 (8 × $6) + (3 × $9) = $75

A company purchased inventory on August 1, August 17, August 22, and August 30. The unit cost from which of these purchases would likely be used to compute the ending inventory value for August under FIFO, assuming a periodic inventory system and that not all the units owned were sold?

August 30

Which of the following statements regarding the perpetual FIFO inventory method is true?

Costs are included in the cost of merchandise sold in the order in which units were purchased

Which cost flow method is used most frequently?

FIFO

The inventory costing method that will yield an ending inventory that is closer to current prices is the

FIFO inventory cost method.

The following three identical units of item ABC are purchased during july: Item ABC Units Cost Jul 9 Purchase 1 $32 July 16 Purchase 1 $42 July 27 Purchase 1 $52 Total 3 Averagte Cost Per Unit $42 (126/3 units) Assume that one unit is sold on July 30 for $62. Determine the gross profit for July and ending inventory on July 31 using the last-in, first out (LIFO) method.

Gross profit = $10; ending inventory = $74 Gross profit: $62 - $52 = $10; Ending inventory: $32 + $42 = $74

The following three identical units of item ABC are purchased during july: Item ABC Units Cost Jul 9 Purchase 1 $32 July 16 Purchase 1 $44 July 27 Purchase 1 $56 Total 3 $132 Averagte Cost Per Unit $44 (132/3 units) Assume that one unit is sold on July 30 for $66. Determine the gross profit for July and ending inventory on July 31 using the weighted average cost method.

Gross profit = $22; ending inventory = $88 Gross profit: $66 - $44 = $22; Ending inventory: $44 × 2 = $88

The following three identical units of item ABC are purchased during july: Item ABC Units Cost Jul 9 Purchase 1 $31 July 16 Purchase 1 $44 July 27 Purchase 1 $57 Total 3 $132 Averagte Cost Per Unit $44 (132/3 units) Assume that one unit is sold on July 30 for $62. Determine the gross profit for July and ending inventory on July 31 using the first-in, first out (FIFO) method.

Gross profit = $31; ending inventory = $101 Gross profit: $62 - $31 = $31; Ending inventory: $44 + $57 = $101

A company purchased inventory on November 1, November 12, November 22, and November 30. The unit cost from which of these purchases would likely be used to compute the ending inventory for November under LIFO, assuming a periodic inventory system and that not all the units owned were sold?

November 1

When using the periodic FIFO inventory cost method, which of the following statements is correct?

The cost of merchandise sold is made up of the earliest purchases., The physical count determines the inventory on hand., The cost of merchandise on hand is made up of the most recent costs.

Which of the following statements regarding the perpetual LIFO inventory method is true?

The cost of the units sold is the cost of the most recent purchases.

When using the periodic LIFO inventory cost method, which of the following statements is correct?

The physical count determines the inventory on hand.

Which of the inventory costing methods under a periodic inventory system provides results that are similar to the physical flow of goods, assuming purchases are relatively uniform?

Weighted average

Morgan Industries is comparing and contrasting its ending inventory value in terms of the three common inventory costing methods in order to help management determine the most appropriate method to use. The company determines three values, which are $96,000, $100,000, and $105,000. If management determines that $100,000 is the most appropriate value for its ending inventory, what inventory costing method has it most likely chosen?

Weighted average inventory cost method

Several controls are used to safeguard inventory EXCEPT

allowing all employees access to the materials warehouse.

Several controls are used to safeguard inventory, and one of those is to

hire security guards.

Under the specific identification method, gross profit is determined by

identifying the unit sold with the specific cost when it was purchased.

The inventory subsidiary ledger is used to keep track of

inventory sold, inventory purchased, proper inventory maximum and minimum levels

Determining gross profit using the weighted average cost flow method assumes that the cost of the units sold

is a weighted average of the purchase cost of all units and is costed the same as the ending inventory, that is using a weighted average of the purchase cost of all units

When identical units of an item are purchased at different costs, an inventory cost flow method

must be used under both perpetual and periodic inventory systems.

When a periodic inventory system is used,

only revenue is recorded each time a sale is made.

The inventory is added to the inventory records after three documents are reconciled. One of those documents is the

receiving report.

Inventory is added to the inventory records after all of the following are reconciled, EXCEPT the

sales invoice.

The ending inventory valuation using the FIFO cost flow method is made up of

the most recent purchases.

The ending inventory valuation using the LIFO cost flow method is made up of

the oldest purchases.