Exam 6: Inventories

Connect has been selling cellular phones for the last five years.Its best-selling model is the E-PHONE.The following information pertains to the E-PHONE inventory for August 2017: Required: a.If Connect uses the FIFO method under a periodic inventory system,what would be the cost of ending inventory for August 2017? b.If Connect uses the weighted-average method under a periodic inventory system,what would be the cost of goods sold for August 2017? c.If Connect uses the weighted-average method under a perpetual inventory system,what would be the cost of ending inventory for August 2017?

On January 1,2017,Franchisor Inc.sold the rights to open a new franchise location to Franchisee Corp.The franchise lasts for ten years.The terms of the contract include the following: • A one-time fee of $50,000,due upon contract signing and an annual payment of $25,000 due on December 31 each year for the duration of the franchise agreement (ten annual payments of $25,000 first due December 31,2017).These payments are for equipment (delivered at time of contract signing)and a commitment by Franchisor Inc.'s to provide technical support on an ongoing basis. • 4% of gross franchisee sales is payable monthly by Franchisee Corp.to Franchisor Inc. ,to cover marketing and advertising costs for the franchise. Other information • The stand-alone sales price for the equipment and technical support are $160,000 and $9,000 per annum respectively.Franchisor Inc.has determined that a 5% discount rate appropriately reflects the credit risk rate associated with Franchisee Corp. • Franchisor Inc.delivered the equipment at time of the contract signing.It was carrying these items in its inventory at a cost of $135,000. • Franchisee Corp.pays both the upfront fee and the first payment on the instalment contract on the stipulated payment dates. • Franchisee Corp.'s gross franchise sales for 2017 totalled $1,000,000 but due to an oversight,Franchisor Inc.has not yet invoiced Franchisee Corp.for any marketing and advertising fees. Required: a.Identify the distinct performance obligations in this contract. b.Determine the transaction price. c.Allocate the transaction price to the performance obligations. d.Prepare Franchisor Inc.'s journal entries for 2017.Assume that it only accrues revenue at year-end.

A retailer has a standard mark-up of 25% on cost.For the month of June,the company recorded sales of $200,000 and purchases of $170,000.Inventory at the beginning of June was estimated to be $240,000. Required: Using the gross margin method,estimate the cost of goods sold for the month of June and the cost of inventory at the end of June.

ABHAY Co.prepares monthly income statements.Inventory is counted only at year end;thus,month-end inventories must be estimated.All sales are made on account.The rate of mark-up on cost is 25%.The following information relates to the month of June. Instructions Calculate the estimated cost of the inventory on June 30.

Consider the following inventory information for last year: The company uses a periodic inventory system.The year-end inventory count indicated 5,300 units left in inventory. Required: Using the first-in,first-out (FIFO)method,calculate the ending inventory value and the cost of goods sold for the year.

Which transaction would be included in the year end inventory?

Using the following cost information regarding finished goods,what would be the ending value of the finished goods inventory if the market value of the goods is $200,000?

Which statement is correct about cost allocation methods under GAAP?

Which goods in transit would not be recorded in the seller's inventory at year end?

Which statement is correct about inventory errors?

Assume that a purchase invoice for $1,000 was appropriately recorded in fiscal 2016,but the inventory was excluded in error during the ending inventory count.What impact will this have on fiscal 2017 financial reporting?

Explain how a manufacturing company can manipulate earnings by including non-production costs in inventories.What does an auditor or financial statement user do to detect this type of manipulation?

What journal entry is required when inventory is sold during the year under the perpetual inventory system?

What journal entry is required when inventory is sold during the year under the periodic inventory system?

When can inventory be overstated under the absorption costing method? Explain the precautions within GAAP to prevent a potential overstatement of inventory under the absorption costing method.

Muscle Concrete mixes concrete and trucks it to construction sites.The company uses a standard costing system for the batches of concrete produced.The company has a fleet of 10 mixing trucks,each of which goes on three runs per day,350 days per year under normal circumstances.The standard costs are as follows: During 2017,the company received an unusually large order for a big construction project.As a result,Muscle Concrete had to extend its operating hours and days,temporarily increasing output to 1,250 batches for the year.The company used the first-in,first-out cost flow assumption.Actual variable costs approximated standard costs per batch.Depreciation rates established at the beginning of the year remain valid for the year. Required: Determine the amount of cost of goods sold for 2017.

Which goods in transit would be recorded in inventory at year end?

A company has fixed production overhead costs totalling $20,000.The normal production level is 2,000 units per year,yielding a standard fixed overhead rate of $10.00 per unit.If the actual production level is 3,200 units,how much would be the amount of fixed overhead per unit and the amount of total fixed overhead included in inventory? Select the letter for the best answer:

Which goods in transit would be recorded in inventory at year end?

Explain what problems are created for the auditor by the use of the absorption costing method under GAAP.