Exam 13: Accounting for Merchandise Inventory

The following data applies to a particular item of merchandise: On hand at start of period 300 \ 5.10 purchase 500 5.20 purchase 700 5.30 purchase 600 5.50 Number of units available for sale 2,100 On hand at end of period Number of units sold during period ? Of the 1,600 units sold during the period, 300 were from the beginning inventory; 500 from the first purchase; 600 from the second purchase; and 200 from the last purchase. Using the last-in, first-out costing method, the cost of goods sold would be

When cost is greater than market value, it is considered a loss due to holding inventory.

Match the terms with the definitions. -Counting the goods on hand at the end of the period to allocate merchandise costs between sold and unsold goods.

In the perpetual inventory system, no year-end adjusting entry is necessary, as long as the physical inventory agrees with the amount reported in the merchandise inventory account.

When perpetual inventory records are kept, the merchandise inventory account in the general ledger is usually a control account.

The retail method of inventory is preferred by businesses such as department and clothing stores because they compute inventory values at wholesale prices.

Smart Tech's beginning inventory and purchases for the month of August were as follows: ​ Required: Calculate the total amount to be assigned to cost of goods sold and ending inventory for August 31, using each of the following methods. a. First-in, first-out (FIFO) b. Last-in, first-out (LIFO) c. Weighted-average cost (round the unit price)

Accurate inventory amounts are not necessary for accounting purposes because an error in inventory will "wash out" over a two-year period.

The gross profit (inventory valuation) method is appropriate if a firm's normal gross profit on sales has been relatively stable over time and for estimating the cost of inventory that was destroyed by casualty.

Under the retail (inventory valuation) method, the amount of sales during the period is reduced by the normal profit percentage to determine the estimated cost of merchandise sold.

A method of allocating merchandise cost that is based on the average cost of identical units is called the

The specific identification method of inventory is generally practical only for businesses in which sales volume is relatively low and inventory unit value is relatively high.

A method of allocating merchandise cost that assumes the first merchandise bought was the first merchandise sold is called the

The term "LIFO" relates to the merchandise in inventory at the end of the accounting period, not to the merchandise sold during the period.

Match the terms with the definitions. -An inventory valuation method under which inventory is valued at cost or replacement cost, whichever is lower.

Match the terms with the definitions. -The principle that states that a business should use the same accounting methods from period to period. This improves the comparability of the financial statements over time.

Costs of goods sold may include all of the following EXCEPT

Match the terms with the definitions. -A method of allocating merchandise cost which assumes that the sales in the period were made from the most recently purchased goods. Therefore, the earliest goods purchased remain in inventory.

Match the terms with the definitions. -A method of allocating merchandise cost based on the average cost of identical units. The average cost of identical units is determined by dividing the total cost of units available for sale by the total number of units available for sale.

Last-in, first-out costing assigns the most recent purchase cost to the ending inventory shown on the balance sheet.