Ch8

An inventory costing procedure in which the oldest costs incurred rarely have an effect on the ending inventory valuation is

FIFO

In a period of rising prices, the inventory method which tends to give the highest reported inventory is

FIFO.

Which of the following inventories carried by a manufacturer is similar to the merchandise inventory of a retailer?

Finished goods.

How should the following costs affect a retailer's inventory valuation?

Freight In = Increase Interest on Inventory Loan = no effect

Which of the following is correct?

Manufacturing overhead costs are product costs.

What is the effect of a $44500 overstatement of last year's inventory on current years ending retained earning balance?

No effect.

How is a significant amount of consignment inventory reported in the balance sheet?

The inventory is reported separately on the consignor's balance sheet.

Goods on consignment are

included in the consignor's inventory.

Goods in transit which are shipped f.o.b. shipping point should be

included in the inventory of the buyer.

The use of a Purchase Discounts account implies that the recorded cost of a purchased inventory item is its

invoice price.

If the beginning inventory for 2020 is overstated, the effects of this error on cost of goods sold for 2020, net income for 2020, and assets at December 31, 2021, respectively, are

overstatement, understatement, no effect.

Which method may be used to record cash discounts a company receives for paying suppliers promptly?

Both the net method and the gross method.

During 2020, which was the first year of operations, Waterway Industries had merchandise purchases of $994000 before cash discounts. All purchases were made on terms of 4/10, n/30. Three-fourths of the items purchased were paid for within 10 days of purchase. All of the goods available had been sold at year end.Which of the following recording procedures would result in the highest net income for 2020? 1. Recording purchases at gross amounts 2. Recording purchases at net amounts, with the amount of discounts not taken shown under "other expenses" in the income statement

Either 1 or 2 will result in the same net income.

Which inventory costing method most closely approximates current cost for each of the following:

Ending Inventory FIFO Cost of Goods Sold LIFO

When the double-extension approach to the dollar-value LIFO inventory cost flow method is used, the inventory layer added in the current year is multiplied by an index number. How would the following be used in the calculation of this index number?

Ending inventory at current year cost - Numerator Ending inventory at base year cost - Denominator

The acquisition cost of a certain raw material changes frequently. The book value of the inventory of this material at year end will be the same if perpetual records are kept as it would be under a periodic inventory method only if the book value is computed under the

FIFO method.

During periods of rising prices, a perpetual inventory system would result in the same dollar amount of ending inventory as a periodic inventory system under which of the following inventory cost flow methods?

Fifo = Yes Lifo = No

Which method of inventory costing best approximates specific identification of the actual flow of costs and units in most manufacturing situations?

First-in, first-out

Which of the following items should be included in a company's inventory at the balance sheet date?

Goods in transit which were purchased f.o.b. destination. Goods received from another company for sale on consignment. Goods sold to a customer which are being held for the customer to call for at his or her convenience. - None of these answer choices are correct.

Which of the following statements is not valid as it applies to inventory costing methods? If inventory quantities are to be maintained, part of the earnings must be invested (plowed back) in inventories when FIFO is used during a period of rising prices. The use of FIFO permits some control by management over the amount of net income for a period through controlled purchases, which is not true with LIFO. When a firm using the LIFO method fails to maintain its usual inventory position (reduces stock on hand below customary levels), there may be a matching of old costs with current revenue. LIFO tends to smooth out the net income pattern by matching current cost of goods sold with current revenue, when inventories remain at constant quantities.

The use of FIFO permits some control by management over the amount of net income for a period through controlled purchases, which is not true with LIFO.

When using the periodic inventory system, which of the following generally would not be separately accounted for in the computation of cost of goods sold?

Trade discounts applicable to purchases during the period

If a company uses the periodic inventory system, what is the impact on net income of including goods in transit f.o.b. shipping point in purchases, but not ending inventory?

Understate net income.

If a company uses the periodic inventory system, what is the impact on the current ratio of including goods in transit f.o.b. shipping point in purchases, but not ending inventory?

Understate the current ratio.

Under what circumstances should a company with high rate of return on sales consider the inventory sold?

When it can reasonably estimate the amount of returns

The failure to record a purchase of merchandise on account even though the goods are properly included in the physical inventory results in

an understatement of liabilities and an overstatement of owners' equity.

On June 15, 2020, Wynne Corporation accepted delivery of merchandise which it purchased on account. As of June 30, Wynne had not recorded the transaction or included the merchandise in its inventory. The effect of this on its balance sheet for June 30, 2020 would be

assets and liabilities were understated but stockholders' equity was not affected.

In situations where there is a rapid turnover, an inventory method which produces a balance sheet valuation similar to the first-in, first-out method is

average cost.

All of the following costs should be charged against revenue in the period in which costs are incurred except for

costs of normal shrinkage and scrap incurred for the manufacture of a product.

In a period of rising prices, the inventory method which tends to give the highest reported net income is

first-in, first-out.

Goods in transit which are shipped f.o.b. destination should be

included in the inventory of the seller.

The use of a Purchase Discounts Lost account implies that the recorded cost of a purchased inventory item is its

invoice price less the purchase discount allowable whether taken or not.

Sheffield Corp. had 480 units of "Dink" in its inventory at a cost of $5 each. It purchased, for $2360, 300 more units of "Dink". Sheffield then sold 590 units at a selling price of $11 each, resulting in a gross profit of $2680. The cost flow assumption used by Sheffield

is LIFO.

Bonita Industries had 450 units of "Tank" in its inventory at a cost of $5 each. It purchased, for $2850, 320 more units of "Tank". Bonita then sold 385 units at a selling price of $11 each, resulting in a gross profit of $1685. The cost flow assumption used by Bonita

is weighted average.

Dolan Co. received merchandise on consignment. As of March 31, Dolan had recorded the transaction as a purchase and included the goods in inventory. The effect of this on its financial statements for March 31 would be

net income was correct and current assets and current liabilities were overstated.

Green Co. received merchandise on consignment. As of January 31, Green included the goods in inventory, but did not record the transaction. The effect of this on its financial statements for January 31 would be

net income, current assets, and retained earnings were overstated.

Feine Co. accepted delivery of merchandise which it purchased on account. As of December 31, Feine had recorded the transaction, but did not include the merchandise in its inventory. The effect of this on its financial statements for December 31 would be

net income, current assets, and retained earnings were understated.

When using a perpetual inventory system,

no Purchases account is used. a Cost of Goods Sold account is used. two entries are required to record a sale.

The accountant for the Pryor Sales Company is preparing the income statement for 2020 and the balance sheet at December 31, 2020. Pryor uses the periodic inventory system. Where in the financial statements for year 2020 should accountant record the merchandise inventory beginning balance?

only in the cost of goods sold section of the income statement.

During 2020 Carne Corporation transferred inventory to Nolan Corporation and agreed to repurchase the merchandise early in 2021. Nolan then used the inventory as collateral to borrow from Norwalk Bank, remitting the proceeds to Carne. In 2021 when Carne repurchased the inventory, Nolan used the proceeds to repay its bank loan.This transaction is known as a(n)

product financing arrangement.

Costs which are inventoriable include all of the following except costs that are directly connected with the bringing of goods to the place of business of the buyer. selling costs of a sales department. costs that are directly connected with the converting of goods to a salable condition. buying costs of a purchasing department.

selling costs of a sales department.

Valuation of inventories requires the determination of all of the following except the cost flow assumption to be adopted. the costs to be included in inventory. the physical goods to be included in inventory. the cost of goods held on consignment from other companies.

the cost of goods held on consignment from other companies..

The costing of issues from inventory must be deferred until the end of the accounting period under the following method of inventory valuation:

weighted-average.

Bramble Corp. has the following data related to an item of inventory: Inventory, March 1 410 units@ $1.90 Purchase, March 7 1400 units@ $2.00 Purchase, March 16 290 units@ $2.05 Inventory, March 31 550 units The value assigned to ending inventory if Bramble uses LIFO is

$1059.

The balance in Coronado Industries's accounts payable account at December 31, 2020 was $985000 before any necessary year-end adjustments relating to the following: ●Goods were in transit to Coronado from a vendor on December 31, 2020. The invoice cost was $45000. The goods were shipped f.o.b. shipping point on December 29, 2020 and were received on January 4, 2021●Goods shipped f.o.b. destination on December 21, 2020 from a vendor to Coronado were received on January 6, 2021. The invoice cost was $30000●On December 27, 2020, Coronado wrote and recorded checks to creditors totaling $35000 that were mailed on January 10, 2021. In Coronado's December 31, 2020 balance sheet, the accounts payable should be

$1065000.

Swifty Corporation adopted the dollar-value LIFO inventory method on December 31, 2020. Swifty's entire inventory constitutes a single pool. On December 31, 2020, the inventory was $964000 under the dollar-value LIFO method. Inventory data for 2021 are as follows: 12/31/21 inventory at year-end prices $1260000 Relevant price index at year end (base year 2020) 110 Using dollar value LIFO, Swifty's inventory at December 31, 2021 is (Round intermediate calculations and final answer to 0 decimal places, e.g. 10,000.)

$1163601.

Marigold Corp. had January 1 inventory of $290000 when it adopted dollar-value LIFO. During the year, purchases were $1850000 and sales were $3040000. December 31 inventory at year-end prices was $384060, and the price index was 111.What is Marigold Corp.'s gross profit?

$1252160. $290000 + $1850000 - $352160 = $1787840 COGS$3040000 - $1787840 = $1252160.

Crane uses the periodic inventory system. For the current month, the beginning inventory consisted of 7000 units that cost $9.00 each. During the month, the company made two purchases: 2800 units at $10.00 each and 11800 units at $10.50 each. Crane also sold 12700 units during the month. Using the average cost method, what is the amount of cost of goods sold for the month? (Round average cost per unit to 2 decimal places, e.g. 1.48.)

$126365. 7000(9)+2800(10)+11800(10.5)=214900 7000+2800+11800 = 21600 214900/21600 = 9.95 12700*9.95=126365

Concord Corporation purchased merchandise with a list price of $143000, subject to trade discounts of 30% and 20%, with no cash discounts allowable. Concord should record the cost of this merchandise as

$143000 × 0.70 × 0.80 = $80080.

Crane Company had January 1 inventory of $292000 when it adopted dollar-value LIFO. During the year, purchases were $1750000 and sales were $3080000. December 31 inventory at year-end prices was $439570, and the price index was 113.What is Crane Company's gross profit?

$1439610. $292000 + $1750000 - $401610* = $1640390 COGS$3080000 - $1640390 = $1439610. *439570/1.13=389000 389000-292000 = 97000 97000*1.13 =109610 109610+292000= 401610

Transactions for the month of June were: Assuming that perpetual inventory records are kept in units only, the ending inventory on an average-cost basis, rounded to the nearest dollar, is (Round average cost per unit to 2 decimal places, e.g. 1.48.)

$16565.

Q4 Transactions for the month of June were: Assuming that perpetual inventory records are kept in units only, the ending inventory on a LIFO basis is

$16678.

Transactions for the month of June were: Assuming that perpetual inventory records are kept in dollars, the ending inventory on a FIFO basis is

$16990.

Swifty Corporation's accounts payable balance at December 31, 2020 was $1594000 before considering the following transactions: ●Goods were in transit from a vendor to Swifty on December 31, 2020. The invoice price was $70000, and the goods were shipped f.o.b. shipping point on December 29, 2020. The goods were received on January 4, 2021●Goods shipped to Swifty, f.o.b. shipping point on December 20, 2020, from a vendor were lost in transit. The invoice price was $48000. On January 5, 2021, Swifty filed a $48000 claim against the common carrier In its December 31, 2020 balance sheet, Swifty should report accounts payable of

$1712000.

Sheffield Corp. uses the periodic inventory system. For the current month, the beginning inventory consisted of 482 units that cost $62 each. During the month, the company made two purchases: 715 units at $65 each and 362 units at $67 each. Sheffield Corp. also sold 1195 units during the month. Using the average cost method, what is the amount of ending inventory? (Round average cost per unit to 2 decimal places, e.g. 21.48.)

$23493.

Bonita Industries uses the FIFO method for internal reporting purposes and LIFO for external reporting purposes. The balance in the LIFO Reserve account at the end of 2020 was $328000. The balance in the same account at the end of 2021 is $472000. Bonita's Cost of Goods Sold account has a balance of $2360000 from sales transactions recorded during the year. What amount should Bonita report as Cost of Goods Sold in the 2021 income statement?

$2504000. $2360000 + ($472000 - $328000) = $2504000.

Concord Corporation uses the FIFO method for internal reporting purposes and LIFO for external reporting purposes. The balance in the LIFO Reserve account at the end of 2020 was $286000. The balance in the same account at the end of 2021 is $413000. Concord's Cost of Goods Sold account has a balance of $2180000 from sales transactions recorded during the year. What amount should Concord report as Cost of Goods Sold in the 2021 income statement?

$2593000. $2180000 + ($413000 - $286000) = $2307000.

Concord Corporation has the following data related to an item of inventory: Inventory, March 1 420 units@ $2.00 Purchase, March 7 1420 units@ $2.10 Purchase, March 16 300 units@ $2.15 Inventory, March 31 520 units The value assigned to cost of goods sold if Concord uses FIFO is

$3360.

Marigold Corp. has been using the LIFO method of inventory valuation for 10 years, since it began operations. Its 2020 ending inventory was $57500, but it would have been $92000 if FIFO had been used. Thus, if FIFO had been used, Marigold's income before income taxes would have been

$34500 greater over the 10-year period.

Swifty Corporation had January 1 inventory of $303000 when it adopted dollar-value LIFO. During the year, purchases were $1870000 and sales were $3080000. December 31 inventory at year-end prices was $382800, and the price index was 110.What is Swifty Corporation's ending inventory?

$352500. $382800 ÷ 1.10 = $348000 - $303000 = $45000.$303000 + ($45000 × 1.10) = $352500.

Vaughn Manufacturing had January 1 inventory of $303000 when it adopted dollar-value LIFO. During the year, purchases were $1840000 and sales were $2910000. December 31 inventory at year-end prices was $435680, and the price index was 112.What is Vaughn Manufacturing's ending inventory?

$399320.

The following information applied to Sunland Company for 2020: Merchandise purchased for resale $409000 Freight-in 7600 Freight-out 4600 Purchase returns 2100 Sunland's 2020 inventoriable cost was

$414500.

Sheffield Corp. had 600 units of "Tank" in its inventory at a cost of $8 each. It purchased 890 more units of "Tank" at a cost of $11 each. Sheffield then sold 1050 units at a selling price of $19 each. The LIFO liquidation overstated normal gross profit by

$480. [(1050 - 890) × ($11 - $8)] = $480.

Marigold Corp. began using dollar-value LIFO for costing its inventory two years ago. The ending inventory for the past two years in end-of-year dollars was $293000 and $446000 and the year-end price indices were 1.0 and 1.3, respectively. Assuming the current inventory at end of year prices equals $640000 and the index for the current year is 1.35, what is the ending inventory using dollar-value LIFO? (Round intermediate calculations and final answer to 0 decimal places, e.g. 10,000.)

$640000 ÷ 1.35 = $474074; $474074 - ($446000 ÷ 1.3) = $130997;$293000 + [(($446000 ÷ 1.3) - $293000) × 1.3] = $358100$358100 + ($130997 × 1.35) = $534946.

Marigold Corp. sells one product and uses a perpetual inventory system. The beginning inventory consisted of 75 units that cost $18 per unit. During the current month, the company purchased 482 units at $18 each. Sales during the month totaled 360 units for $42 each. What is the cost of goods sold using the LIFO method?

$6480.

Bonita Industries had 680 units of "Dink" in its inventory at a cost of $10 each. It purchased 930 more units of "Dink" at a cost of $16 each. Bonita then sold 1040 units at a selling price of $26 each. The LIFO liquidation overstated normal gross profit by

$660. [(1040 - 930) × ($16 - $10)] = $660.

Waterway Industries began using dollar-value LIFO for costing its inventory last year. The base year layer consists of $605000. Assuming the current inventory at end of year prices equals $830000 and the index for the current year is 1.2, what is the ending inventory using dollar-value LIFO?

$709000.

Bramble Corp. uses the periodic inventory system. For the current month, the beginning inventory consisted of 487 units that cost $60 each. During the month, the company made two purchases: 720 units at $63 each and 362 units at $65 each. Bramble Corp. also sold 1204 units during the month. Using the FIFO method, what is the amount of cost of goods sold for the month?

$74391.

On June 1, 2020, Bramble Corp. sold merchandise with a list price of $75500 to Blossom on account. Bramble allowed trade discounts of 30% and 20%. Credit terms were 2/15, n/40 and the sale was made f.o.b. shipping point. Bramble prepaid $1050 of delivery costs for Blossom as an accommodation. On June 12, 2020, Bramble received from Blossom a remittance in full payment amounting to

$75500 × .7 × .8 = $42280 ($42280 × 0.98) + 1050 = $42484.

Crane Company uses the periodic inventory system. For the current month, the beginning inventory consisted of 480 units that cost $62 each. During the month, the company made two purchases: 716 units at $65 each and 361 units at $67 each. Crane Company also sold 1196 units during the month. Using the LIFO method, what is the amount of cost of goods sold for the month?

$78105. (361 × $67) + (716 × $65) + (119 × $62) = $78105.

Q46 Vaughn Manufacturing had 260 units of product A on hand at January 1, 2020, costing $20 each. Purchases of product A during January were as follows: A physical count on January 31, 2020 shows 400 units of product A on hand. The cost of the inventory at January 31, 2020 under the LIFO method is

$8140.

Crane Company's accounts payable at December 31, 2020, totaled $903000 before any necessary year-end adjustments relating to the following transactions: ●On December 27, 2020, Crane wrote and recorded checks to creditors totaling $352000 causing an overdraft of $92000 in Crane's bank account at December 31, 2020. The checks were mailed out on January 10, 2021.●On December 28, 2020, Crane purchased and received goods for $153000, terms 2/10, n/30. Crane records purchases and accounts payable at net amounts. The invoice was recorded and paid January 3, 2021.●Goods shipped f.o.b. destination on December 20, 2020 from a vendor to Crane were received January 2, 2021. The invoice cost was $64500. At December 31, 2020, what amount should Crane report as total accounts payable?

$903000 + $352000 + $149940 = $1404940.

Crane uses the periodic inventory system. For the current month, the beginning inventory consisted of 7000 units that cost $9.00 each. During the month, the company made two purchases: 2800 units at $10.00 each and 11800 units at $10.50 each. Crane also sold 12700 units during the month. Using the FIFO method, what is the ending inventory?

$93450.

Swifty uses the periodic inventory system. For the current month, the beginning inventory consisted of 7400 units that cost $10.00 each. During the month, the company made two purchases: 3000 units at $11.00 each and 11900 units at $11.50 each. Swifty also sold 12700 units during the month. Using the LIFO method, what is the ending inventory?

$98200 (7400 + 3000 + 11900) - 12700 = 9600;(7400 × $10.00) + [(9600 - 7400) × $11.00] = $98200.

Coronado Industries sells one product and uses a perpetual inventory system. The beginning inventory consisted of 81 units that cost $22 per unit. During the current month, the company purchased 475 units at $20 each. Sales during the month totaled 355 units for $45 each. What is the number of units in the ending inventory?

201 units.

During 2020 Carne Corporation transferred inventory to Nolan Corporation and agreed to repurchase the merchandise early in 2021. Nolan then used the inventory as collateral to borrow from Norwalk Bank, remitting the proceeds to Carne. In 2021 when Carne repurchased the inventory, Nolan used the proceeds to repay its bank loan.On whose books should the cost of the inventory appear at the December 31, 2020 balance sheet date?

Carne Corporation

Transactions for the month of June were: Assuming that perpetual inventory records are kept in dollars, the ending inventory on a LIFO basis is

$16637.

What is consigned inventory?

Goods that are shipped, but title remains with the consignor.

Which of the following is a period cost?

Selling costs.

During 2020, which was the first year of operations, Crane Company had merchandise purchases of $988000 before cash discounts. All purchases were made on terms of 4/10, n/30. Three-fourths of the items purchased were paid for within 10 days of purchase. All of the goods available had been sold at year-end. Which of the following recording procedures would result in the highest cost of goods sold for 2020? 1. Recording purchases at gross amounts 2. Recording purchases at net amounts, with the amount of discounts not taken shown under "other expenses" in the income statement

1. Recording purchases at gross amounts

Which of the following is a characteristic of a perpetual inventory system?

Cost of goods sold is recorded with each sale.

Tanner Corporation's inventory on its balance sheet was lower using first-in, first-out than it would have been using last-in, first-out. Assuming no beginning inventory, in what direction did the cost of purchases move during the period?

Down

Which of the following types of interest cost incurred in connection with the purchase or manufacture of inventory should be capitalized as a product cost?

Interest incurred during the production of discrete projects such as ships or real estate projects

Hite Co. was formed on January 2, 2020, to sell a single product. Over a two-year period, Hite's acquisition costs have increased steadily. Physical quantities held in inventory were equal to three months' sales at December 31, 2020, and zero at December 31, 2021. Assuming the periodic inventory system, the inventory cost method which reports the highest amount of each of the following is

Inventory December 31, 2020 = Fifo Cost of Sales 2021 = Fifo

In a period of rising prices, the inventory method which tends to give the highest reported cost of goods sold is

LIFO

Where should goods in transit that were recently purchased f.o.b. destination be included on the balance sheet?

Not on the balance sheet.

Assuming no beginning inventory, what can be said about the trend of inventory prices if cost of goods sold computed when inventory is valued using the FIFO method exceeds cost of goods sold when inventory is valued using the LIFO method?

Prices decreased.

Which of the following is included in inventory costs?

Product costs.

Which of the following is a product cost as it relates to inventory?

Raw materials.

Which of the following methods is also referred as "parking transactions"?

Sales with buyback agreement.

Which of the following is a reason why the specific identification method may be considered ideal for assigning costs to inventory and cost of goods sold?

The cost flow matches the physical flow.

Why are inventories included in the computation of net income?

To determine cost of goods sold.