Exam 17: Merchandise Inventory

On July 1, a tornado destroyed the warehouse where The Brooks Boys Sports Equipment Company stored their inventory. The inventory was, for the most part, destroyed by the force of the storm. The usual gross profit rate for the company was 30%. The beginning inventory of $220,000 was recorded on the prior year's financial reports. The net sales to date are known to be $886,450, and net purchases (including freight-in charges and purchases returns)were $580,000. Using the gross profit method of inventory valuation, determine the value of the inventory that was destroyed.

Net Sales minus Gross Profit equals--------- .

A business is required to apply the lower of cost or net realizable value rule by comparing and reporting inventory values on an item-by-item basis.

The-------- method of estimating inventory requires the use of data about both cost and selling prices.

Explain the following terms-markon, markup, and markdown.

What is RFID? What is the benefit to RFID?

For each of the following statements, determine which method of inventory valuation (FIFO or LIFO)it depicts. 1. The ending inventory is higher when using this method when costs are rising. 2. The cost of goods sold is higher when using this method when costs are rising. 3. When prices are rising, this method results in higher net income. 4. If this method is used for federal tax purposes, it must also be adopted for it financial accounting. 5. This method is not accepted in some countries. 6. When prices are rising, the average cost method will result in an ending inventory tha is higher than which method?

Adams Company uses the specific identification method. At the end of the year, it had 24 units of its giant floating tricycles that are sold for use by tourists in the ocean or on large lakes. Explain how the physical count of inventory and the cost of ending inventory will be calculated.

The gross profit method of estimating inventory enables managers to prepare budgets and pro-forma (forecast or anticipated)financial statements.

The price a business would pay for its inventory is

The following information concerns several of the inventory items at DC's. Determine the amount of inventory to be reported on the financial statements using the lower of cos or net realizable value method of valuation under each of the following options. 1. Lower of cost or net realizable value for each item separately 2. Lower of total cost or total net realizable value 3. Lower of total cost or total net realizable value by department

Inventory costing methods are influenced by industry practice and the types of merchandise available for sale.

In applying the lower of cost or net realizable value rule, "net realizable value" is defined as the price at which the last unit was purchased.

The inventory valuation used will affect the net income or net loss reported on the income statement.

The use of the FIFO method of inventory valuation

When the replacement cost of an item is below its original purchase cost, it is necessary to value the inventory at net realizable value in order to reflect the lower current value in the firm's financial records.

In highly competitive businesses where inventory is subject to price fluctuations and model or style upgrades, it is desirable to utilize the weighted average method costing method.

The average cost method of inventory valuation will always result in the lowest reported net income.

Which of the following is NOT a way to apply the lower of cost or net realizable value rule?

What is inventory shrinkage? What could cause inventory shrinkage?