Exam 5: Accounting for Inventories

During a period of rising prices,the amount of ending inventory reported on the balance sheet will be lower using the LIFO cost flow method than with FIFO.

Iona Corporation's ending inventory as of December 31,2015,was overstated by $28,000.Indicate whether each of the following statements relating to the above error is true or false. _____ a)Cost of goods sold is overstated in 2015 by $28,000. _____ b)Net Income is overstated in 2015 by $14,000. _____ c)Retained Earnings at December 31,2015 is overstated by $28,000. _____ d)Beginning inventory will be understated in 2016 by $28,000. _____ e)Retained Earnings will not be affected by this error at the end of 2016.

Use the following information for questions Singleton Company's perpetual inventory records included the following information: -If Singleton uses the LIFO cost flow method,its ending inventory would be $1,260.

The Warren Company uses the perpetual inventory system and has computed the cost of its inventory to be $12,800 as follows: 200 units of Product A at a unit cost of $20;300 units of Product B at a unit cost of $24;and 100 units of Product C at a unit cost of $16.The current replacement cost of each of the above items is $25,$22 and $14,respectively.Warren's accountant is not sure yet whether to apply the lower-of-cost-or-market rule by individual items or by the entire stock in aggregate.Indicate whether each of the following statements pertaining to the Warren Company is true or false. _____ a)When referring to Product B,the "cost" totals $7,200. _____ b)If Warren selects to apply the lower-of-cost-or-market rule by individual items,Product A would be listed at $25 per unit. _____ c)Warren would record a write-down of inventory it is uses the individual items approach,but would not have a write-down if it uses the aggregate approach. _____ d)If Warren uses the individual items approach,$12,000 will be reported for inventory on the balance sheet. _____ e)For Product C,the lower of cost or market is $1,600.

On December 31,2015,Owings Corporation overstates the ending inventory account by $5,000.How will this affect Retained Earnings in the December 31,2016 balance sheet?

What accounting steps would a firm normally take when it discovers a material difference between a physical inventory count and the book inventory figure? Assume that the company uses a perpetual inventory system.

The specific identification inventory method is not practical for companies that sell many low-priced,high turnover items.

Stubbs Company uses the perpetual inventory method.On January 1,2016,Stubbs purchased 400 units of inventory that cost $8.00 each.On January 10,2016,the company purchased an additional 600 units of inventory that cost $9.00 each.If Stubbs uses a weighted average cost flow method and sells 700 units of inventory for $16.00 each,the amount of gross margin reported on the income statement will be:

One of the disadvantages of the specific identification inventory cost flow method is that it can allow managers of a business to manipulate the amount of income the business reports.

Rowan Company has four different categories of inventory.Quantity,cost,market value for each inventory category is shown below: The company carries inventory at lower-of-cost-or-market applied to the inventory in aggregate.The implementation of the lower-of-cost-or-market rule would:

Generally accepted accounting principles do not allow the cost flow pattern for merchandise inventory to differ from the physical flow of merchandise within the business.

Phipps Corporation overstated its ending inventory on December 31,2015.Which of the following answers correctly identifies the effect of the error on 2016 financial statements?

Taylor Co.had beginning inventory of $400 and ending inventory of $600.Taylor Co.had cost of goods sold amounting to $1,800.Based on this information,Taylor Co.must have purchased inventory amounting to:

Under the perpetual inventory system,the best estimate of the amount of inventory is:

Landis Company is preparing its financial statements.Gross margin is normally 40% of sales.Information taken from the company's records revealed sales of $25,000;beginning inventory of $2,500 and purchases of $17,500.The estimated amount of ending inventory would be:

Use the following information for questions Glasgow Enterprises started the period with 80 units in beginning inventory that cost $7.50 each.During the period,the company purchased inventory items as follows Glasgow sold 220 units after purchase 3 for $17.00 each. -Glasgow's cost of goods sold under FIFO would be:

International Financial Reporting Standards (IFRS)do not permit the use of the LIFO cost flow assumption.

At a time of declining prices,which cost flow assumption will result in the highest ending inventory?

Generally accepted accounting principles would allow a company to use FIFO for part of its inventory and the weighted-average cost flow assumption for the rest of its inventory.

Use the following information for questions 1-5: Indicate how each event affects the elements of financial statements.Use the following letters to record your answer in the box shown below each element.You do not need to enter amounts. Stan's Surf Shack purchased 5 surfboards for $200 each.Later it purchased 2 more surfboards for $250 each.Stan's uses the perpetual inventory system.Assume that 6 surfboards were sold during the period for $350 cash each. -Assume that Stan's Surf Shack purchased the first five surfboards on account.How would the purchase transaction affect its financial statements?