ch06 inventories

8/18/2019 Ch06 Inventories

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Chapter 6/Inventories 311

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Chapter 64Inventories

TRUE/F5SE

1. One of the two internal control procedures over inventory is to properly report inventory on

the financial statements.5NS7 + DIF, *oderate O-, (%)(1 /0+, 00$- 0nalytic 0I$0 F/)*easurement

2. 0 detective internal control is designed to find an error or misstatement after it has occurred.5NS7 + DIF, *oderate O-, (%)(1 /0+, 00$- 0nalytic 0I$0 F/)*easurement

3. 0 perpetual inventory system is an effective means of control over inventory.5NS7 + DIF, *oderate O-, (%)(1 /0+, 00$- 0nalytic 0I$0 F/)*easurement

". 0 subsidiary inventory ledger can be an aid in maintaining inventory levels at their properlevels.

5NS7 + DIF, 'asy O-, (%)(1 /0+, 00$- 0nalytic 0I$0 F/)*easurement

#. afeguarding inventory and proper reporting of the inventory in the boo4s are the reasonsfor controlling the inventory.

5NS7 + DIF, 'asy O-, (%)(1 /0+, 00$- 0nalytic 0I$0 F/)*easurement

%. Inventory controls start when the merchandise is shelved in the store area.5NS7 F DIF, 'asy O-, (%)(1 /0+, 00$- 0nalytic 0I$0 F/)*easurement

&. +he specific identification inventory method should be used when the inventory consists ofidentical low cost units that are purchased and sold fre5uently.

5NS7 F DIF, *oderate O-, (%)(2 /0+, 00$- 0nalytic 0I$0 F/)*easurement

6. +he selection of an inventory costing method has no significant impact on the financialstatements.

5NS7 F DIF, 'asy O-, (%)(2 /0+, 00$- 0nalytic 0I$0 F/)*easurement

7. Of the three widely used inventory costing methods 8FIFO !IFO and average9 the !IFOmethod of costing inventory is based on the assumption that costs are charged againstrevenues in the reverse order in which they were incurred.

5NS7 + DIF, *oderate O-, (%)(2 /0+, 00$- 0nalytic 0I$0 F/)*easurement


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313 $hapter %:Inventories

1(. ;hen using the FIFO inventory costing method the most recent costs are assigned to thecost of merchandise sold.

5NS7 F DIF, *oderate O-, (%)(2 /0+, 00$- 0nalytic 0I$0 F/)*easurement

11. FIFO is the inventory costing method that follows the physical flow of the goods.5NS7 + DIF, *oderate O-, (%)(2 /0+, 00$- 0nalytic 0I$0 F/)*easurement

12. If the perpetual inventory system is used and a physical count disclosed a shortage the costof merchandise sold should be debited and the merchandise inventory account credited.

5NS7 + DIF, *oderate O-, (%)(3 /0+, 00$- 0nalytic 0I$0 F/)*easurement

13. If the perpetual inventory system is used the account entitled *erchandise Inventory is

debited for purchases of merchandise.5NS7 + DIF, 'asy O-, (%)(3 /0+, 00$- 0nalytic 0I$0 F/)*easurement

1".


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Chapter 6/Inventories 31"

17. During inflationary periods the use of the FIFO method of costing inventory will yield aninventory amount for the balance sheet appro=imating the current replacement cost.

5NS7 + DIF, Difficult O-, (%)(# /0+, 00$- 0nalytic 0I$0 F/)*easurement

2(. During inflationary periods the use of the !IFO method of costing inventory will result in agreater amount of net income than would result from the use of the FIFO method.

5NS7 F DIF, Difficult O-, (%)(# /0+, 00$- 0nalytic 0I$0 F/)*easurement

21. During deflationary periods the use of the !IFO method of costing inventory will result in alower amount of current assets than would result from the use of the FIFO method.

5NS7 F DIF, Difficult O-, (%)(# /0+, 00$- 0nalytic 0I$0 F/)*easurement

22. During inflationary periods an advantage of the !IFO inventory cost method is that itmatches more recent costs against current revenues.5NS7 + DIF, Difficult O-, (%)(# /0+, 00$- 0nalytic 0I$0 F/)*easurement

23. In valuing damaged merchandise for inventory purposes net reali>able value is theestimated selling price less any direct costs.

5NS7 + DIF, 'asy O-, (%)(% /0+, 00$- 0nalytic 0I$0 F/)*easurement

2".


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26. A*ar4etA as used in the phrase Alower of cost or mar4etA for valuing inventory refers to the price at which the inventory is being offered for sale by its owner.

5NS7 F DIF, 'asy O-, (%)(% /0+, 00$- 0nalytic 0I$0 F/)*easurement

27. 0 consignor who has goods out on consignment with an agent should include the goods inending inventory even though they are not in the possession of the consignor.

5NS7 + DIF, *oderate O-, (%)(% /0+, 00$- 0nalytic 0I$0 F/)*easurement

3(. +he use of the lower)of)cost)or)mar4et method of inventory valuation increases net incomefor the period in which the inventory replacement price declined.

5NS7 F DIF, *oderate O-, (%)(% /0+, 00$- 0nalytic 0I$0 F/)*easurement

31. +he lower)of)cost)or)mar4et method of determining the value of ending inventory can beapplied on an item by item by major classification of inventory or by the total inventory.5NS7 + DIF, 'asy O-, (%)(% /0+, 00$- 0nalytic 0I$0 F/)*easurement

32. ;hen merchandise inventory is shown on the balance sheet both the method of determiningthe cost of the inventory and the method of valuing the inventory should be shown.


33. *ost large companies will use only one inventory costing methods for all of its different

segments.5NS7 F DIF, 'asy O-, (%)(% /0+, 00$- 0nalytic 0I$0 F/)*easurement

3". $ompanies having inventory decreases due to lower of cost or mar4et valuations willdisclose the information to stoc4holders.


3#. In the retail inventory method the cost to retail ratio is e5ual to the cost of merchandise solddivided by the retail price of the good sold.

5NS7 F DIF, *oderate O-, (%)(& /0+, 00$- 0nalytic 0I$0 F/)*easurement

3%. If the retail inventory method is used inventory figures can be provided for interimstatements without the necessity of ta4ing a physical inventory.

5NS7 + DIF, 'asy O-, (%)(& /0+, 00$- 0nalytic 0I$0 F/)*easurement


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Chapter 6/Inventories 31%

3&. If a fire destroys the merchandise inventory the gross profit method can be used to estimatethe cost of merchandise destroyed.


36. If a company uses the periodic inventory system to cost its inventory the gross profitmethod is a method that can be used to chec4 on theft when the actual inventory is ta4en bythe company.

5NS7 + DIF, *oderate O-, (%)(& /0+, 00$- 0nalytic 0I$0 F/)*easurement

37. Benerally the lower the number of days? sales in inventory the better.5NS7 + DIF, *oderate O-, (%)(& /0+, 00$- 0nalytic 0I$0 F/)*easurement

"(. One negative effect of carrying too much inventory is ris4 that customers will change their buying habits.5NS7 + DIF, 'asy O-, (%)(& /0+, 00$- 0nalytic 0I$0 F/)*easurement

"1. 0verage inventory is computed by adding the inventory at the beginning of the period to theinventory at the end of the period and dividing by two.


0UTI2E C8OICE

1.


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3. $ontrol of inventory should begin as soon as the inventory is received. ;hich of thefollowing internal control steps is not done to meet this goalCa. chec4 the invoice to the receiving report b. chec4 the invoice to the purchase order

c. chec4 the invoice with the person who specifically purchased the itemd. chec4 the invoice e=tensions and totals5NS7 $ DIF, *oderate O-, (%)(1 /0+, 00$- 0nalytic 0I$0 F/)*easurement

". ;hich of the following is not an e=ample for safeguarding inventoryCa. toring inventory in restricted areas. b. hysical devices such as two)way mirrors cameras and alarms.c. *atching receiving documents purchase orders and vendor@s invoice.d. eturning inventory that is defective or bro4en.

5NS7 D DIF, 'asy O-, (%)(1

/0+, 00$- 0nalytic 0I$0 F/)*easurement

#. ;hich of the following is not true about ta4ing physical inventoriesCa. !arge variances may re5uire investigations and implementation of corrective actions. b. hysical inventories are ta4en when inventory levels are at their lowest.c. hysical inventories deter employee thefts and inventory misuses.d. hysical inventories are ta4en when inventory levels are at their highest.

5NS7 D DIF, *oderate O-, (%)(1 /0+, 00$- 0nalytic 0I$0 F/)*easurement

%. ;hich of the following inventory cost methods is appropriate for a business who has

inventory with a relatively small number of uni5ue items and a high cost per itemCa. FIFO b. !IFOc. averaged. specific identification

5NS7 D DIF, *oderate O-, (%)(2 /0+, 00$- 0nalytic 0I$0 F/)*easurement

&. +he inventory method that considers the inventory to be composed of the units ofmerchandise ac5uired earliest is calleda. first)in first)out b. last)in first)outc. average costd. retail method

5NS7 - DIF, *oderate O-, (%)(2 /0+, 00$- 0nalytic 0I$0 F/)*easurement


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6. ;hen merchandise sold is assumed to be in the order in which the e=penditures were madethe inventory method is calleda. first)in last)out b. last)in first)out

c. first)in first)outd. average cost5NS7 $ DIF, *oderate O-, (%)(2 /0+, 00$- 0nalytic 0I$0 F/)*easurement

7. +he two most widely used methods for determining the cost of inventory area. FIFO and !IFO b. FIFO and averagec. !IFO and averaged. gross profit and average

5NS7 0 DIF, 'asy O-, (%)(2


1(.


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13. Inventory costing methods place primary emphasis on assumptions abouta. flow of goods b. flow of costsc. flow of goods or costs depending on the method

d. flow of values5NS7 - DIF, Difficult O-, (%)(2 /0+, 00$- 0nalytic 0I$0 F/)*easurement

1". +he inventory costing method that reflects a cost flow that is in the order in which the costswere incurred and will report the most current prices in ending inventory isa. First in first out b. pecific identificationc. !ast in first outd. 0verage cost

5NS7 0 DIF, *oderate O-, (%)(2


1#. +he inventory costing method that reflects the cost flow in the reverse order and will reportthe earliest costs in ending inventory isa. First in first out b. !ast in first outc. 0verage costd. pecific identification

5NS7 - DIF, *oderate O-, (%)(2 /0+, 00$- 0nalytic 0I$0 F/)*easurement

1%. ;hich of the following companies would be more li4ely to use the specific identificationinventory costing methodCa. Bordon@s ewelers b. !owe@sc. -est -uyd. ;al)*art

5NS7 0 DIF, 'asy O-, (%)(2 /0+, 00$- 0nalytic 0I$0 F/)*easurement

1&. +he inventory data for an item for /ovember are,

/ov. 1 Inventory 2( units at E2( " old 1( units 1( urchased 3( units at E21 1& old 2( units 3( urchased 1( units at E22


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Chapter 6/Inventories 32(


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21. +he inventory system employing accounting records that continuously disclose the amountof inventory is calleda. retail b. periodic

c. physicald. perpetual5NS7 D DIF, 'asy O-, (%)(3 /0+, 00$- 0nalytic 0I$0 F/)*easurement

22. +he inventory data for an item for /ovember are,

/ov. 1 Inventory 2( units at E2( " old 1( units 1( urchased 3( units at E21 1& old 2( units

3( urchased 1( units at E22


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2". 0ssuming that the company uses the perpetual inventory system determine the cost ofmerchandise sold for the sale of uly 2( using the average inventory cost method.a. E12# b. E6(

c. E1((d. E1(25NS7 $ DIF, Difficult O-, (%)(3 /0+, 00$- 0nalytic 0I$0 F/)*easurement

2#. 0ssuming that the company uses the perpetual inventory system determine the endinginventory for the month of uly using the Fifo inventory cost method.a. E132 b. E2#1c. E2((d. E37#

5NS7 - DIF, Difficult O-, (%)(3 /0+, 00$- 0nalytic 0I$0 F/)*easurement

2%. 0ssuming that the company uses the perpetual inventory system determine the gross profitfor the sale of uly 23 using the Fifo inventory cost method.a. E37 b. E"#c. E#1d. E7(

5NS7 0 DIF, *oderate O-, (%)(3 /0+, 00$- 0nalytic 0I$0 F/)*easurement

2&. 0ssuming that the company uses the perpetual inventory system determine the endinginventory for the month of uly the !ifo inventory cost method.a. E161 b. E2&"c. E2%(d. E2"&

5NS7 D DIF, Difficult O-, (%)(3 /0+, 00$- 0nalytic 0I$0 F/)*easurement

26. 0ssuming that the company uses the perpetual inventory system determine the endinginventory for the month of uly using the average inventory cost method.a. E2#1 b. E22%c. E2#(d. E22#

5NS7 $ DIF, Difficult O-, (%)(3 /0+, 00$- 0nalytic 0I$0 F/)*easurement


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27. -eginning inventory purchases and sales data for tennis rac4ets are as follows,

Feb 3 Inventory 12 units G E1#

11 urchase 13 units G E1&

1" ale 16 units 21 urchase 7 units G E2(

2# ale 1( units

0ssuming the business maintains a perpetual inventory system calculate the cost ofmerchandise sold and ending inventory under First)in first)out,a. cost of merchandise sold "71 ending inventory 7( b. cost of merchandise sold 12( ending inventory "%1c. cost of merchandise sold "%1 ending inventory 12(d. cost of merchandise sold 7( ending inventory "71

5NS7 $

a. $ost of merchandise sold H E"%1 816(1(2117%(9 'nding Inventory H E12( 8% units G E2(9

2ur$hases

Cost o%

0er$han9ise So9 Inventor&

Date Qt& Unit

Cost

Tota

Cost

Qt& Unit

Cost

Tota

Cost

Qt& Unit

Cost

Tota

Cost

Feb 3 12 1#.(( 16(.((

Feb 11 13 1&.(( 221.(( 12 1#.(( 16(.((

13 1&.(( 221.((

Feb 1" 12 1#.(( 16(.(( & 1&.(( 117.((

% 1&.(( 1(2.((

Feb 21 7 2( 16(.(( & 1&.(( 117.((7 2(.(( 16(.((

Feb 2# & 1&.(( 117.(( % 2(.(( 12(.((

3 2(.(( %(.((

DIF, Difficult O-, (%)(3 /0+, 00$- 0nalytic 0I$0 F/)*easurement

3(. -eginning inventory purchases and sales data for tennis rac4ets are as follows,



1" ale 16 units

21 urchase 7 units G E2(

2# ale 1( units


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0ssuming the business maintains a perpetual inventory system calculate the cost ofmerchandise sold and ending inventory under !ast)in first)out,a. cost of merchandise sold "71 ending inventory 7( b. cost of merchandise sold 12( ending inventory "%1

c. cost of merchandise sold "%1 ending inventory 12(d. cost of merchandise sold 7( ending inventory "715NS7 0 b. $ost of merchandise sold H E"71 822116(1#9

'nding Inventory H E7( 8% units G E1#9

2ur$hases

Cost o%

0er$han9ise So9

Inventor&

Date Qt& Unit

Cost

Tota

Cost

Qt& Unit

Cost

Tota

Cost

Qt& Unit

Cost

Tota

Cost

Feb 3 12 1#.(( 16(.((

Feb

11

13 1&.(( 221.(( 12 1#.(( 16(.((

13 1&.(( 221.((

Feb1"

13 1&.(( 221.(( & 1#.(( 1(#.((

# 1#.(( .((

Feb21

7 2( 16(.(( & 1#.(( 1(#.((

7 2(.(( 16(.((

Feb2#

7 2(.(( 16(.(( % 1#.(( 7(.((

1 1#.(( 1#.((


31. +he following lots of a particular commodity were available for sale during the year

-eginning inventory 1( units at E#(First purchase 2# units at E#3econd purchase 3( units at E#"+hird purchase 1# units at E%(


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+he firm uses the periodic system and there are 2( units of the commodity on hand at theend of the year. ;hat is the amount of inventory at the end of the year according to the first)in first)out methodCa. E1(3(

b. E11"(c. E11&(d. E1(%(

5NS7 $ DIF, *oderate O-, (%)(" /0+, 00$- 0nalytic 0I$0 F/)*easurement

32. +he following lots of a particular commodity were available for sale during the year,

-eginning inventory 1( units at E%(First purchase 2# units at E%3econd purchase 3( units at E%"

+hird purchase 1( units at E&(

+he firm uses the periodic system and there are 2( units of the commodity on hand at theend of the year. ;hat is the amount of inventory at the end of the year according to the last)in first)out methodCa. E123( b. E122(c. E12"(d. E13"(

5NS7 0 DIF, *oderate O-, (%)(" /0+, 00$- 0nalytic 0I$0 F/)*easurement

33. +he following lots of a particular commodity were available for sale during the year,

-eginning inventory 1( units at E%1First purchase 2# units at E%3econd purchase 3( units at E%"+hird purchase 1# units at E&3

+he firm uses the periodic system and there are 2( units of the commodity on hand at theend of the year. ;hat is the amount of the inventory at the end of the year according to theaverage cost methodCa. E13(( b. E13(#c. E1"1#d. E123%

5NS7 0 DIF, *oderate O-, (%)(" /0+, 00$- 0nalytic 0I$0 F/)*easurement


17/40

Chapter 6/Inventories 32%

3".


18/40


36. If merchandise inventory is being valued at cost and the price level is steadily rising themethod of costing that will yield the highest net income isa. periodic b. !IFO

c. FIFOd. average5NS7 $ DIF, Difficult O-, (%)(# /0+, 00$- 0nalytic 0I$0 F/)*easurement

37. If merchandise inventory is being valued at cost and the purchase price is steadily fallingwhich method of costing will yield the largest net incomeCa. average cost b. !IFOc. FIFOd. weighted average

5NS7 - DIF, Difficult O-, (%)(# /0+, 00$- 0nalytic 0I$0 F/)*easurement

"(. During a period of falling prices which of the following inventory methods generally resultsin the lowest balance sheet amount for inventory.a. average method b. !IFO methodc. FIFO methodd. can not tell without more information

5NS7 $ DIF, Difficult O-, (%)(# /0+, 00$- 0nalytic 0I$0 F/)*easurement

"1. Damaged merchandise that can be sold only at prices below cost should be valued ata. net reali>able value b. !IFOc. FIFOd. average

5NS7 0 DIF, *oderate O-, (%)(% /0+, 00$- 0nalytic 0I$0 F/)*easurement

"2. If a manufacturer ships merchandise to a retailer on consignment the unsold merchandiseshould be included in the inventory of thea. consignee b. retailer c. manufacturer d. shipper

5NS7 $ DIF, 'asy O-, (%)(% /0+, 00$- 0nalytic 0I$0 F/)*easurement


19/40


"3. *erchandise inventory at the end of the year was inadvertently overstated. ;hich of thefollowing statements correctly states the effect of the error on net income assets andstoc4holders? e5uityCa. net income is overstated assets are overstated stoc4holders? e5uity is understated

b. net income is overstated assets are overstated stoc4holders? e5uity is overstatedc. net income is understated assets are understated stoc4holders? e5uity is understatedd. net income is understated assets are understated stoc4holders? e5uity is overstated

5NS7 - DIF, Difficult O-, (%)(% /0+, 00$- 0nalytic 0I$0 F/)*easurement

"". *erchandise inventory at the end of the year was understated. ;hich of the followingstatements correctly states the effect of the errorCa. net income is understated b. net income is overstatedc. cost of merchandise sold is understated

d. merchandise inventory reported on the balance sheet is overstated5NS7 0 DIF, Difficult O-, (%)(% /0+, 00$- 0nalytic 0I$0 F/)*easurement

"#. *erchandise inventory at the end of the year is overstated. ;hich of the followingstatements correctly states the effect of the errorCa. stoc4holders? e5uity is overstated b. cost of merchandise sold is overstatedc. gross profit is understatedd. net income is understated

5NS7 0 DIF, Difficult O-, (%)(%


"%. If the cost of an item of inventory is E%( and the current replacement cost is E%# the amountincluded in inventory according to the lower of cost or mar4et isa. E# b. E%(c. E%#d. E12#

5NS7 - DIF, 'asy O-, (%)(% /0+, 00$- 0nalytic 0I$0 F/)*easurement


20/40


"&. -ec4y@s -outi5ues has identified the following items for possible inclusion in its December31 2((6 inventory. ;hich of the following would not be included in the year endinventoryCa. *erchandise purchased FO- shipping point was pic4ed up by the freight company but

had still not arrived at -ec4y@s -outi5ue as of December 31 2((6. b. -ec4y@s has in its warehouse merchandise on consignment from 0-$ $o.c. -ec4y has sent merchandise to various retailers on a consignment basisd. -ec4y has merchandise on hand which has been returned by customers because of wrong

si>e.5NS7 - DIF, *oderate O-, (%)(% /0+, 00$- 0nalytic 0I$0 F/)*easurement

"6. During the ta4ing of its physical inventory on December 31 2((6 0lbert@s -i4e hopincorrectly counted its inventory as E21(((( instead of the correct amount of E16((((. +heeffect on the balance sheet and income statement would be as follows,

a. assets overstated by E3(((( retained earnings understated by E3(((( net incomestatement understated by E3((((. b. assets overstated by E3(((( retained earnings understated by E3(((( no effect on the

income statement.c. assets and retained earnings overstated by E3(((( net income overstated by E3((((.d. assets and retained earnings overstated by E3(((( net income understated by E3((((.

5NS7 $ DIF, Difficult O-, (%)(% /0+, 00$- 0nalytic 0I$0 F/)*easurement

"7. If while ta4ing a physical inventory the company counts their inventory figures more thanthe actual amount. Jow will the error affect their bottom lineC

a. /o change to net income. b. /et income will be overstatedc. /et income will be understated.d. Only gross profit will be affected.

5NS7 - DIF, *oderate O-, (%)(% /0+, 00$- 0nalytic 0I$0 F/)*easurement

#(. If while ta4ing a physical inventory the company counts their inventory figures less thanthe actual amount. Jow will the error affect the cost of merchandise soldCa.


21/40

Chapter 6/Inventories 33(

#1. +he method of computing inventory that uses records of the selling prices of themerchandise is calleda. retail method b. last)in first)out

c. first)in first)outd. average cost5NS7 0 DIF, 'asy O-, (%)(& /0+, 00$- 0nalytic 0I$0 F/)*easurement

#2. On the basis of the following data what is the estimated cost of the merchandise inventoryon October 31 by the retail methodC

$ost etailOct. 1 *erchandise Inventory E22#((( E32"#((Oct. 1)31 urchases 8net9 33#((( "#((

Oct. 1)31 ales 8net9 &(((((

a. E3&2((( b. E1"((((c. E1(((((d. E &((((

5NS7 D DIF, Difficult O-, (%)(& /0+, 00$- 0nalytic 0I$0 F/)*easurement

#3. If the estimated rate of gross profit is "(K what is the estimated cost of the merchandiseinventory on une 3( based on the following dataC

une 1 *erchandise inventory E (((une 1)3( urchases 8net9 1#((((une 1)3( ales 8net9 13#(((

a. E1""((( b. E1"((((c. E 61(((d. E #"#((

5NS7 0 DIF, Difficult O-, (%)(& /0+, 00$- 0nalytic 0I$0 F/)*easurement

#". +oo much inventory on handa. reduces solvency b. increases the cost to safeguard the assetsc. increases the losses due to price declinesd. all of the above

5NS7 D DIF, *oderate O-, (%)(& /0+, 00$- 0nalytic 0I$0 F/)*easurement


22/40


##. Inventory turnover a. is computed by dividing average inventory by cost of merchandise sold b. measures the relationship between the volume of goods sold and amount of inventory

carried

c. increases the ris4 of loss from damaged merchandised. is computed by dividing the beginning inventory plus the ending inventory by two5NS7 - DIF, *oderate O-, (%)(& /0+, 00$- 0nalytic 0I$0 F/)*easurement

#%. +he number of days? sales in inventorya. measures the length of time it ta4es to ac5uire sell and replace the inventory b. is computed by dividing the cost of merchandise sold by 3%#c. measures the length of time it ta4es to sell the merchandise on credit and collect the

account receivabled. is about the same for all industries

5NS7 0 DIF, *oderate O-, (%)(& /0+, 00$- 0nalytic 0I$0 F/)*easurement

#&. 0 company will most li4ely use an estimated method of estimating inventory whena. the company decides not to do a physical inventory. b. a natural disaster has destroyed most of their inventory.c. the company has not 4ept up with their inventory records.d. trying to determine the amount of theft that has ta4en place.

5NS7 - DIF, *oderate O-, (%)(& /0+, 00$- 0nalytic 0I$0 F/)*easurement

#6. LoLo $ompany uses the retail method of inventory costing. +hey started the year with aninventory that had a retail cost of E3#(((. During the year they purchased an inventory witha retail cost of E3(((((. 0fter performing a physical inventory they calculated theirinventory at E%((((. +he mar4 up is 1((K of cost. Determine the ending inventory at itsestimated cost.a. E12(((( b. E%((((c. E3((((d. E3#(((

5NS7 $ DIF, *oderate O-, (%)(& /0+, 00$- 0nalytic 0I$0 F/)*easurement


23/40


E:ERCISE/OT8ER

1. !ist three different security measures ta4en by stores to safeguard inventory.5NS7

0nswers may vary.) Inventory should be stored in a warehouse or restricted area.) hysical devices such as two)way mirrors cameras security guards.) Inventory store under loc4 and 4ey.) ensors at each of the e=its which are set off by alarm tags.

DIF, *oderate O-, (%)(1 /0+, 00$- 0nalytic 0I$0 F/)*easurement

2. +he three identical units of roduct + are purchased during uly as shown below.

Date roduct +


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3. -eginning inventory purchases and sales for roduct M$M are as follows,

Oct 1 -eginning Inventory 2" units G E12Oct. # ale 1& units

Oct. 1& urchase 1( units G E1"Oct. 3( ale 6 units

0ssuming a perpetual inventory system and the first)in first)out method determine 8a9 thecost of the merchandise sold for the October 3( sale and 8b9 the inventory on October 31.

5NS7

8a9 $ost of merchandise sold, & units G 12 H E6" 1 unit G 1" H E1" 6 units E76

8b9 Inventory October 31 7 units G E1" H E12%DIF, *oderate O-, (%)(3 /0+, 00$- 0nalytic 0I$0 F/)*easurement +O, '=ample '=ercise %)2

". -eginning inventory purchases and sales for roduct M$M are as follows,

Oct 1 -eginning Inventory 2" units G E12Oct. # ale 1& unitsOct. 1& urchase 1( units G E1"Oct. 3( ale 6 units

0ssuming a perpetual inventory system and the last)in first)out method determine 8a9 thecost of the merchandise sold for the October 3( sale and 8b9 the inventory on October 31.

5NS7

8a9 $ost of merchandise sold, 6 units G E1" H E112

8b9 Inventory October & units G E12 H E6" 2 units G E1" H E26 7 units E112DIF, *oderate O-, (%)(3 /0+, 00$- 0nalytic 0I$0 F/)*easurement +O, '=ample '=ercise %)3

#. +he units of roduct NN2 available for sale during the year were as follows,

0pr 1 Inventory 1% units G E3(un 1% urchase 3( units G E33ep 26 urchase "# units G E3&


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+here are 1& units of the product in the physical inventory at *arch 31. +he periodicinventory system is used. Determine the inventory cost by 8a9 fifo 8b9 lifo and 8c9 averagecost methods.

5NS7

Fifo, 1& units G E3& H E%27

!ifo, 1% units G E3( H E"6( 1 unit G E33 H 33

+otal E#13

0verage, 1& units G E3"."# H #6#.%#

DIF, *oderate O-, (%)(# /0+, 00$- 0nalytic 0I$0 F/)*easurement +O, '=ample '=ercise %)"

%. +he units of roduct NN2 available for sale during the year were as follows,


+here are 1& units of the product in the physical inventory at *arch 31. +he periodicinventory system is used. Determine the difference in gross profit between the !ifo and Fifoinventory cost systems.

5NS7

Fifo $ost of *erchandise old H E2#(%

!ifo $ost of *erchandise old H E2%22Difference E 11%

DIF, Difficult O-, (%)(# /0+, 00$- 0nalytic 0I$0 F/)*easurement

&.


26/40


5NS7

Item uantity


27/40


28/40


5NS7

8a9 safeguarding the inventory to prevent theft8b9 separating responsibilities for related operations8c9 properly reporting inventory in the financial statements

DIF, 'asy O-, (%)(1 /0+, 00$- 0nalytic 0I$0 F/)*easurement

2. +he following data regarding purchases and sales of a commodity were ta4en from therelated perpetual inventory account,

*ay 1 -alance 2# units at E"( % ale 2( units 6 urchase 2( units at E"1 1% ale 1( units

2( urchase 2( units at E"2 23 ale 2# units 3( urchase 1# units at E"3

8a9 Determine the cost of the inventory balance at *ay 31 using 819 the first)in first)out method and 829 the last)in first)out method. Identify the 5uantity unit price andtotal cost of each lot in the inventory.

8b9 resent the journal entry to record a shortage 8shrin4age9 of E#3 discovered by the physical count on *ay 31.

5NS7

8a9819 *ay 2( 1( units at E"2 E "2( 3( 1# units at E"3 %"#

+otal E1(%#

829 *ay 1 # units at E"( E 2(( 6 # units at E"1 2(# 3( 1# units at E"3 %"#

+otal E1(#(

8b9Inventory hrin4age 8or $ost of *erchandise old9 #3 *erchandise Inventory #3



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3. -eginning inventory purchases and sales data for tennis rac4ets are as follows,



1" ale 16 units 21 urchase 7 units G E2(

2# ale 1( units

0ssuming the business maintains a perpetual inventory system calculate the cost ofmerchandise sold and ending inventory under the following assumptions,8a9 First)in first)out8b9 !ast)in first)out

5NS7

8a9 $ost of merchandise sold H E"%1 816(1(2117%(9 'nding Inventory H E12( 8% units G E2(9

2ur$hasesCost o%

0er$han9ise So9

Inventor&

Date Qt& Unit

Cost

Tota

Cost

Qt& Unit

Cost

Tota

Cost

Qt& Unit

Cost

Tota

Cost

Feb 3 12 1#.(( 16(.((

Feb11

13 1&.(( 221.(( 12 1#.(( 16(.((

13 1&.(( 221.((

Feb1"

12 1#.(( 16(.(( & 1&.(( 117.((

% 1&.(( 1(2.((

Feb21

7 2( 16(.(( & 1&.(( 117.((

7 2(.(( 16(.((

Feb2#

& 1&.(( 117.(( % 2(.(( 12(.((

3 2(.(( %(.((


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8b9 $ost of merchandise sold H E"71 822116(1#9'nding Inventory H E7( 8% units G E1#9

2ur$hases

Cost o%

0er$han9ise So9 Inventor&

Date Qt& Unit

Cost

Tota

Cost

Qt& Unit

Cost

Tota

Cost

Qt& Unit

Cost

Tota

CostFeb 3 12 1#.(( 16(.((

Feb11

13 1&.(( 221.(( 12 1#.(( 16(.((

13 1&.(( 221.((

Feb1"

13 1&.(( 221.(( & 1#.(( 1(#.((

# 1#.(( .((

Feb21

7 2( 16(.(( & 1#.(( 1(#.((

7 2(.(( 16(.((

Feb2#

7 2(.(( 16(.(( % 1#.(( 7(.((

1 1#.(( 1#.((

DIF, *oderate O-, (%)(3 /0+, 00$- 0nalytic 0I$0 F/)*easurement

". +he units of an item available for sale during the year were as follows,

an. 1 Inventory 2( units at E#(Feb. " urchase 1( units at E#2

uly & urchase 3( units at E##Oct. 1# urchase 1# units at E%(

+here are 3( units of the item in the physical inventory at December 31. +he periodicinventory system is used. Determine the inventory cost using the first)in first)out costingmethod.

5NS7

E1&2# 81# units at E%( and 1# units at E##9DIF, *oderate O-, (%)(" /0+, 00$- 0nalytic 0I$0 F/)*easurement

#. +he units of an item available for sale during the year were as follows,

an. 1 Inventory 2( units at E2#*ar. " urchase 1( units at E2"0ug. 2( urchase 3( units at E26 /ov. 3( urchase 2# units at E3(


31/40

Chapter 6/Inventories 3"(

+here are 2# units of the item in the physical inventory at December 31. +he periodicinventory system is used. Determine the inventory cost by the last)in first)out method.

5NS7

E%2( 82( units at E2# and # units at E2"9

DIF, *oderate O-, (%)(" /0+, 00$- 0nalytic 0I$0 F/)*easurement

%. +he beginning inventory and purchases of an item for the period were as follows,

-eginning inventory % units at E&3 eachFirst purchase 1( units at E&2 eachecond purchase 16 units at E&" each+hird purchase 1( units at E each

+he company uses the periodic system and there were 1# units in the inventory at the end of

the period. Determine the cost of the 1# units in the inventory by each of the followingmethods presenting details of your computations, 8a9 first)in first)out 8b9 last)in first)out8c9 average cost.

5NS7

8a91( units G E E (# units G E&" 3&(+otal E112(

8b9% units G E&3 E "36

7 units G E&2 %"6+otal E1(6%

8c90verage unit cost H E &3.%" E32"(:""1# units G E&3.%" H E11(".%(

DIF, Difficult O-, (%)(" /0+, 00$- 0nalytic 0I$0 F/)*easurement&. -eginning inventory purchases and sales data for tennis rac4ets are as follows,

Feb 3 Inventory 12 units G E1# 11 urchase 13 units G E1& 1" ale 16 units 21 urchase 7 units G E2( 2# ale 1( units


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0ssuming the business maintains a periodic inventory system calculate the cost ofmerchandise sold and ending inventory under the following assumptions,8a9 First)in first)out8b9 !ast)in first)out

5NS78a9 $ost of *erchandise old H E"%1.(('nding Inventory H E12( 8% units G E2(9

Feb 3 Inventory 12 units G 1# E16(.((

Feb 11 urchase 13 units G 1& 221.((

Feb 21 urchase 7 units G 2( 16(.((

0vailable for ale 3" E#61.((

Feb " ale 12 units G 1# E16(.((

% units G 1& 1(2.((

Feb 2# ale & units G 1& 117.((

3 units G 2( %(.(($ost of *erchandiseold

26 E"%1.((

'nding Inventory % units G 2( E12(.((

8b9 $ost of *erchandise old H E"71.(( 'nding Inventory H E7( 8% units G E1#9

Feb 3 Inventory 12 units G 1# E16(.((

Feb 11 urchase 13 units G 1& 221.((

Feb 21 urchase 7 units G 2( 16(.((

0vailable for ale 3" E#61.((

Feb " ale 7 units G 2( E16(.((

7 units G 1& 1#3.((

Feb 2# ale " units G 1& %6.((

% units G 2( 7(.((

$ost of *erchandiseold

26 E"71.((

'nding Inventory % units G 1# E7(.((

DIF, *oderate O-, (%)("



33/40

Chapter 6/Inventories 3"2

6. Dynamic ales which uses periodic inventory has a beginning balance in men@s shirts of 1"at E1". each. Dynamic ales purchases men@s shirts in the order of,

an &th 2" shirts at E1#.(( each an 12th 2" shirts at E1#.#( each

an 16th 2" shirts at E1%.(( each and an 2"th 2" shirts at E1%.(( each.Dynamic@s sales are in the order of,

for the wee4 ending anuary &th % at E27.#( for the wee4 ending anuary 1"th 1# at E27.#(

for the wee4 ending anuary 21st 12 at E27.#(For the wee4 ending anuary 26th 1" at E22.#( andfor the partial wee4 ending anuary 31st % at E27.#(.8a9 For the month of anuary compute the 5uantity and value of inventory

available for sale.8b9 For the month of anuary compute the 5uantity and value of sales assume that

all sales are cash journali>e that value as of anuary 31st.8c9 For the month of anuary compute the cost of merchandise sold using !IFOand journali>e that value as of anuary 31st.

5NS7

8a9 For the month of anuary compute the 5uantity and value of inventory available for sale.-eginning balance 1" shirts at E1". each H 2(%.#(an &th 2" shirts at E1#.(( each H 3%(.((an 12th 2" shirts at E1#.#( each H 3&2.((an 16th 2" shirts at E1%.(( each H 36".((an 2"th 2" shirts at E1%.(( each H 36".((

$ost of goods available for sale 11( shirts &(%.#(

8b9 For the month of anuary compute the 5uantity and value of sales assume that all sales arecash journali>e that value as of anuary 31st.

For the wee4 ending anuary &th % at E27.#( H E1&&.((For the wee4 ending anuary 1"th 1# at E27.#( H ""2.#(For the wee4 ending anuary 21st 12 at E27.#( H 3#".((For the wee4 ending anuary 26th 1" at E22.#( H 31#.((For the partial wee4 ending anuary 31st % at E27.#( H 1&&.((+otal of #3 men@s shirts at a value of sales foranuary

E1"%#.#(

an 31 $ash 1"%#.#( ales 1"%#.((


34/40


8c9 For the month of anuary compute the cost of goods sold using !IFO and journali>e thatvalue as of anuary 31st.

+otal number of men@s shirts available for sale H 11(+otal number of men@s shirts sold H #3+otal number of men@s shirts remaining in inventory H #&

+hese #& shirts are the first #& shirts purchased ) !IFO

an 2"th 2" shirts at E1%.(( eachH36".((

an 16th 2" shirts at E1%.(( eachH36".((

an 12th # shirts at E1#.#( each H&&.#(

+otal of #3 shirts sold $ost of merchandisesold H E6"#.#(

an 31 $ost of *erchandise old 6"#.#( Inventory 6"#.#(


7. +he units of roduct NN2 available for sale during the year were as follows,


+here are 1& units of the product in the physical inventory at *arch 31. +he periodicinventory system is used. Determine the cost of merchandise sold by 8a9 fifo 8b9 lifo and 8c9average cost methods.

5NS7

Fifo 1% units G E3( H E"6(

3( units G E33 H E77(

26 units G E3& H E1(3%

+otal E2#(%

!ifo "# units G E3& H E1%%#

27 units G E33 H E7#&+otal E2%22

0verage &" units G E3"."# H E2#"7.3(



35/40

Chapter 6/Inventories 3""

1(. -asic inventory data for une 3( are presented below for a business that employs the lowerof cost or mar4et basis of inventory valuation.


36/40


11. 0N $o. too4 a physical count of its inventory on December 31. In addition it had to decidewhether or not the following items should be added to this count.

8a9 *erchandise on hand had been sold earlier in the year but had been returned by

customers for various warranty repairs.8b9 0N $o. sent merchandise on a consignment basis on December 31 just prior to the physical count.

8c9 On December 22 0N $o. ordered merchandise on FO- destination terms. +hemerchandise was shipped by the supplier on December 3( but had not been received by December 31.

8d9 On December 2& 0N $o. ordered merchandise on FO- shipping point terms. +hemerchandise was shipped on December 27 but had not been received by December31.

8e9 *erchandise sold FO- shipping point on December 31 was pic4ed up by the freightcompany just before closing on December 31.

8f9 *erchandise shipped to a customer FO- shipping point was pic4ed up by thefreight company on December 26 but had not arrived at its destination as ofDecember 31.

Indicate which items should be added to 8answer, yes9 and which items should not be addedto 8answer, no9 the December 31 inventory count.

5NS7

8a9 no8b9 yes8c9 no8d9 yes

8e9 no8f9 no

DIF, *oderate O-, (%)(% /0+, 00$- 0nalytic 0I$0 F/)*easurement


37/40

Chapter 6/Inventories 3"%

12. On December 31st *ega ales conducts a wall)to)wall inventory. +he *erchandiseInventory account has a debit balance of E%2#(((.((. +hey determine that they haveE1"#(((.(( in their inventory count. $ost of merchandise sold indicate E"&%(((.((. +hereare two sheets at the service des4 of interest. One sheet indicates the items removed from

*erchandise Inventory for use within the store these items should be part of the toreupplies account. +his sheet shows a value of E2#((.((. +he other sheet shows 4nownshrin4ages identified during the period. +his sheet shows E12#(.((. /either of these sheetshas been journali>ed.

Identify the un4nown and previously unidentified shrin4age value. ournali>e the transfer totore upplies and the recognition of all shrin4ages 84nown and un4nown9.

5NS7

$alculation of un4nown and previously unidentified shrin4age,

*erchandise beginning balance E%2#(((

!ess cost of merchandise sold "&%(((1"7(((

!ess items transferred to store supplies 2#((

1"%#((

!ess 4nown shrin4age 12#(

$alculated ending balance 1"#2#(

0ctual inventor y 1"#(((

reviously unidentified shrin4age E2#(

+ransfer to office supplies,Dec 31 Office upplies 2#((.((

*erchandise Inventory 2#((.((

Dec 31 $ost of *erch. old 8hrin4age9 1#((.(( *erchandise Inventory 1#((.((

DIF, Difficult O-, (%)(% /0+, 00$- 0nalytic 0I$0 F/)*easurement

13. On the basis of the following data for -/B *otors as of December 31 2((% determine thevalue of the inventory at the lower of cost or mar4et. 0lso show how the merchandiseinventory would appear on the balance sheet 8assume that the cost was determined by theFIFO method9.

Co33o9it& Inventor&

Quantit&

Unit Cost

2ri$e

Unit 0ar>et

2ri$e

i>e " 6 E1# E1&

i>e # 12 1& 1(

i>e % 1" 2# 2(

i>e & % 26 33


38/40


5NS7

Inventory valuation H E%66

Co33o9it&

Inventor&

Quantit&

Unit

Cost2ri$e

Unit

0ar>et2ri$e

Cost 0ar>et

o?er

o% C or 0

i>e " 6 E1# E1& E12( E13% E12(

i>e # 12 1& 1( 2(" 12( 12(

i>e % 1" 2# 2( 3#( 26( 26(

i>e & % 26 33 1%6 176 1%6

E6"2 E&3" E%66

BNG 0otors

Baan$e Sheet

De$e3"er +'@ ),,6

5ssets

$urrent assets,*erchandise inventory ) at lower of cost 8first)infirst)out9 or mar4et E%66.((

DIF, *oderate O-, (%)(% /0+, 00$- 0nalytic 0I$0 F/)*easurement

1". During uly the first month of the fiscal year sales totaled E7((((( and the cost ofmerchandise available for sale totaled E6(((((. 'stimate the cost of the merchandise

inventory as of uly 31 based on an estimated gross profit rate of "(K.5NS7

*erchandise available for sale in uly E6(((((ales in uly E7(((((!ess estimated gross profit

8E7((((( × "(K9 3%((((

'stimated cost of merchandise sold #"(((('stimated merchandise inventory E2%((((

DIF, Difficult O-, (%)(& /0+, 00$- 0nalytic 0I$0 F/)*easurement

1#. -ased on the following information, compute 8a9 Inventory turnover 8b9 0verage daily costof merchandise sold and 8c9 /umber of days? sales in inventory.


39/40


40/40


5NS7

$ost etail*erchandise inventory Feb. 1 E3((((( E"#((((urchases in February 8net9 32&2#( #1#(((

*erchandise available for sale E%2&2#( E7%#(((

atio of cost to retail price, E%2&2#( R E7%#((( H %#Kales in February 8net9 3#((((*erchandise inventory February 26 at retail price E%1#(((*erchandise inventory February 26 at

estimated cost price 8E%1#((( × %#K9 E377(

DIF, Difficult O-, (%)(&


16. +he following data were ta4en from -LB Inc.

),,6

$ost of *erchandise old E"32(((Inventory end of year %&(((Inventory beginning of the year 62(((

Determine the inventory turnover ratio and the number of days’ sales in inventory for -LBInc. ound to two decimal places.

5NS7Inventory turnover H $ost of merchandise sold : 0verage inventoryInventory turnover H "32((( : 88%&((( 62(((929Inventory turnover H "32((( : &"#((Inventory turnover H #.6(

/umber of days@ sales in inventory H Inventory end of year : 0ve daily cost of merch sold /umber of days@ sales in inventory H %&((( : 8"32(((:3%#9 /umber of days@ sales in inventory H %&((( : 1163.#% /umber of days@ sales in inventory H #%.%1 daysDIF, *oderate O-, (%)(&


ch06 inventories

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