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Exam 6: Inventories and Cost of Sales

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Question 51

True/False

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To avoid the time-consuming process of taking an inventory each year, most companies use the gross profit method to estimate ending inventory.

A) True
B) False

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Question 52

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The assignment of costs to the cost of goods sold and to ending inventory using FIFO is the same for both the perpetual and periodic inventory systems.

A) True
B) False

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Question 53

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A company had the following purchases during the current year: On December 31, there were 26 units remaining in ending inventory. These 26 units consisted of 2 from January, 4 from February, 6 from May, 4 from September, and 10 from November. Using the specific identification method, what is the cost of the ending inventory?

If the _______________ is responsible for paying the freight, ownership of merchandise inventory passes when the goods arrive at their destination.

The inventory turnover ratio:

The inventory valuation method that results in the lowest taxable income in a period of inflation is:

A company uses the retail inventory method and has the following information available concerning its most recent accounting period: 1. Use the retail inventory method to estimate the company's year-end inventory at cost. 2. A year-end physical count at retail prices yields a total inventory of $404,800. Prepare a calculation showing the company's loss from shrinkage at cost and at retail.

Goods on consignment are goods that are shipped by the owner, called the ______________, to another party called the _____________________.

The consistency concept prescribes that a company use the same accounting methods period after period, so that financial statements are comparable across periods.

Fast Auto Parts is an auto parts wholesaler that stocks several major brand names for Complete Auto Parts stores across the country. Complete Auto Parts does not assume responsibility for parts until they are sold to the customer. Identify the consignor and the consignee. Which company should include any unsold goods as part of its inventory?

The costs of goods purchased will vary under the different inventory methods of specific identification, FIFO, LIFO, and weighted average.

Companies are allowed to use FIFO for financial reporting and LIFO for tax reporting, according to IRS requirements.

Jackson Company has sales of $300,000 and cost of goods available for sale of $270,000. If the gross profit ratio is typically 30%, the estimated cost of the ending inventory under the gross profit method would be:

When applying the lower of cost or market method of inventory valuation, market is defined as the _____________________.

The assignment of costs to cost of goods sold and inventory using weighted average usually yields different results depending on whether a perpetual or periodic system is used.

Internal controls that should be applied when a business takes a physical count of inventory should include all of the following except:

All of the following statements regarding U.S. GAAP and IFRS are true except?

Goods in transit are automatically included in inventory.

The conservatism constraint:

A company had inventory on November 1 of 5 units at a cost of $20 each. On November 2, they purchased 10 units at $22 each. On November 6 they purchased 6 units at $25 each. On November 8, 8 units were sold for $55 each. Using the LIFO perpetual inventory method, what was the value of the inventory on November 8 after the sale?