Exam 9: Inventories: Additional Valuation Issues

Use the following information for questions Sloan Company, a wholesaler, budgeted the following sales for the indicated months: June July Auqust Sales on account \ 1,800,000 \ 1,840,000 \ 1,900,000 Cash sales 180,000 200,000 260,000 Total sales \ 1,980,000 \ 2,040,000 \ 2,160,000 All merchandise is marked up to sell at its invoice cost plus 20%.Merchandise inventories at the beginning of each month are at 30% of that month's projected cost of goods sold. -Merchandise purchases for July are anticipated to be

During 2006, Reese Co., a manufacturer of chocolate candies, contracted to purchase 100,000 pounds of cocoa beans at $4.00 per pound, delivery to be made in the spring of 2007.Because a record harvest is predicted for 2007, the price per pound for cocoa beans had fallen to $3.10 by December 31, 2006. Of the following journal entries, the one which would properly reflect in 2006 the effect of the commitment of Reese Co.to purchase the 100,000 pounds of cocoa is a. Cocoa lnventory 400,000 Accounts Payable 400,000 b. Cocoa Inventory 310,000 Loss on Purchase Commitments 90,000 Accounts Payable 400,000 c. Estimated Loss on Purchase Commitments. 90,000 Estimated Liability on Purchase Commitments. 90,000 d. No entrywould be necessary in 2006

The average days to sell inventory is computed by dividing

Joe Crede Corporation sells its product, a rare metal, in a controlled market with a quoted price applicable to all quantities.The total cost of 5,000 pounds of the metal now held in inventory is $250,000.The total selling price is $600,000, and estimated costs of disposal are $10,000.At what amount should the inventory of 5,000 pounds be reported in the balance sheet?

Use the following information for questions Trent Co.uses the retail inventory method.The following information is available for the current year. Cost Retail Beginning inventory \ 78,000 \ 122,000 Purchases 295,000 415,000 Freight-in 5,000 - Employee discounts - 2,000 Net markups - 15,000 Net Markdowns - 20,000 Sales - 390,000 -If the ending inventory is to be valued at approximately LIFO cost, the calculation of the cost ratio should be based on cost and retail of

An inventory method which is designed to approximate inventory valuation at the lower of cost or market is

Use the following information for questions Trent Co.uses the retail inventory method.The following information is available for the current year. Cost Retail Beginning inventory \ 78,000 \ 122,000 Purchases 295,000 415,000 Freight-in 5,000 - Employee discounts - 2,000 Net markups - 15,000 Net Markdowns - 20,000 Sales - 390,000 -The ending inventory at retail should be

The purpose of the "floor" in lower-of-cost-or-market considerations is to avoid overstating inventory.

To produce an inventory valuation which approximates the lower of cost or market using the conventional retail inventory method, the computation of the ratio of cost to retail should

On January 1, 2007, the merchandise inventory of Colaw, Inc.was $800,000.During 2007 Colaw purchased $1,600,000 of merchandise and recorded sales of $2,000,000.The gross profit rate on these sales was 25%.What is the merchandise inventory of Colaw at December 31, 2007?

When the conventional retail method includes both net markups and net markdowns in the cost-to-retail ratio, it approximates a lower-of-cost-or-market valuation.

When the direct method is used to record inventory at market

A reason for valuing inventory at net realizable value is that sometimes it is too difficult to obtain the cost figures.

In 2006, Lucas Manufacturing signed a contract with a supplier to purchase raw materials in 2007 for $700,000.Before the December 31, 2006 balance sheet date, the market price for these materials dropped to $510,000.The journal entry to record this situation at December 31, 2006 will result in a credit that should be reported

Use the following information for questions The following data concerning the retail inventory method are taken from the financial records of Stone Company. Cost Retail Beginning inventory \ 49,000 \ 70,000 Purchases 224,000 320,000 Freight-in 6,000 - Net markups - 20,000 Net markdowns - 14,000 Sales - 336,000 -If the foregoing figures are verified and a count of the ending inventory reveals that merchandise actually on hand amounts to $54,000 at retail, the business has

The credit balance that arises when a net loss on a purchase commitment is recognized should be

In the retail inventory method, abnormal shortages are deducted from both the cost and retail amounts and reported as a loss.

The inventory turnover ratio is computed by dividing the cost of goods sold by the ending inventory on hand.

When a buyer enters into a formal, noncancelable purchase contract, an asset and a liability are recorded at the inception of the contract.

On April 15 of the current year, a fire destroyed the entire uninsured inventory of a retail store.The following data are available: Sales, January 1 through April 15 \ 300,000 Inventory, January 1 50,000 Purchases, January 1 through April 15 250,000 Markup on cost 25\% The amount of the inventory loss is estimated to be