Exam 17: Merchandise Inventory

The steps and proper order for estimating EI cost using the gross profit method are as follows:

The inventory on November 1 of the Ray Adams Company had a cost of $29,750. Its retail value was $48,000. During the month of November, purchases in the amount of $41,734 (including freight in of $234)were made and priced at retail for $79,650. Sales for the month of November amounted to $88,000. What is the November cost of goods sold and the ending inventory at cost and at retail?

In periods of rising prices, the LIFO method of inventory valuation gives a lower taxable income and thus provides a tax advantage.

The lower of cost or net realizable value rule requires a business to report inventory at original cost or its current replacement cost, whichever is lower.

The difference between the cost and the initial retail price of merchandise is

A price reduction below the original markon is a------------ .

Which inventory valuation method most closely matches the actual flow of goods for most businesses?

The FIFO method of inventory valuation focuses on the balance sheet as the most current costs are in ending inventory.

Under a periodic inventory system, the--------- account is the one account that appears on both the balance sheet and the income statement.

An increase above the initial retail price of merchandise is

The price the business would have to pay to buy an item of inventory through usual channels in usual quantities is defined as--------- cost.

When inventory is valued at the lower of cost or net realizable value, the accountant is applying the principle or convention called----------- .

The firm had a beginning inventory of 50 units with a unit cost of $12. Purchases during the year were as follows: March-65 units with a unit cost of $13; July-60 units with a unit cost of $16. Assuming a periodic inventory system and the average cost method is used, the value of the ending inventory of 55 units is: (Round to two decimal places.)

Under the gross profit method of estimating inventory, the ending inventory is determined by subtracting the estimated cost of goods sold from the cost of goods available for sale.