Exam 9: Inventory and Cost of Goods Sold

The following data relate to the first three years of operation for the Clarke Company: Compute the ending inventory under LIFO for each year.(Ignore income taxes.)

Alana's Clothing Store sells jeans. During January 2014, its inventory records for one brand of designer jeans were as follows: -See information for Alana's Clothing Store above.Using this information,periodic LIFO cost of goods sold is

Management of the Singer Company is currently considering the possibility of changing from the FIFO method to the LIFO method of inventory valuation for income tax and financial reporting purposes.The company's president,Diane Singer,is concerned that using LIFO will tend to distort the company's balance sheet over time.She believes that the difference between the current cost of the company's inventory and the reported LIFO valuation will tend to grow larger each year,and that the company's reported LIFO inventory valuation will be progressively understated in relation to current cost.Singer Company relies heavily on short-term bank credit,and Ms.Singer feels that the company's bankers will tend to downgrade the company's short-term debt-paying ability if a switch to LIFO is made. Required: 1.Discuss the major factors that,over time,will affect the magnitude of the difference between the current cost of the company's inventory and the reported LIFO amount. 2.Evaluate the merit of Ms.Singer's concern that bankers may be misled by the company's balance sheet if LIFO is used.

An example of an inventory accounting policy that should be disclosed is the

If ending inventory on December 31,2014,is overstated by $40,000,what is the effect on net income for 2015?

A company using a periodic inventory system neglected to record a purchase of merchandise on account at year-end.This merchandise was omitted from the year-end physical count.How will these errors affect inventory at year-end and cost of goods sold for the year?

Goods in transit at year-end purchased FOB shipping point were appropriately recorded in the purchases account but were incorrectly excluded from the ending inventory.What effect will this omission have on the company's assets,liabilities,and retained earnings at year-end?

The Pistons Company had its entire inventory destroyed when a fire swept through the company's warehouse.Fortunately,the accounting records were locked in a fireproof safe and were not damaged.The following information for the period up to the date of the fire was taken from the accounting records: (1)Assuming that the gross profit has averaged 28 percent of selling price,what is the estimated value of the inventory destroyed in the fire? Show all calculations in good form. (2)Assuming that the markup percentage on cost is 36 percent,what is the estimated value of the inventory destroyed in the fire? Show all calculations in good form.

The Kidde Corporation uses the lower-of-cost-or-market method to value inventory. Data regarding the items in work-in-process inventory are presented below. -See information regarding the Kidde Corporation above.When valuing the pens,the market value to be used in the lower-of-cost-or- market comparison is

Knitness Menswear,Inc.maintains a markup of 60 percent based on cost.The company's selling and administrative expenses average 30 percent of sales.Annual sales were $1,440,000.Petersen's cost of goods sold and operating profit for the year are

Purchases and sales during a recent period for Lantern, Inc. were: Beginning inventory was 100 units at $1 each. -See information for Lantern,Inc.above.Given this information,what is the ending inventory if the periodic FIFO costing alternative is used?

The Narrows Company makes the following entry in its accounting records: This entry would be made when

Which inventory costing method would NOT be appropriate for a manufacturer using a perpetual inventory system?

The use of a discounts lost account implies that the recorded cost of a purchased inventory item is its

Highlight Manufacturing Company uses a perpetual inventory system for its raw materials.The inventory records reflect a raw materials balance of $478,500 at December 31.A physical inventory taken on that date revealed raw materials of $475,750.How will the $2,750 difference affect raw materials inventory and cost of goods sold,assuming it is attributed to normal shrinkage?

When would the replacement cost of inventory be used as the market value under the lower-of-cost-or-market method?

Flash Company's inventory at June 30,2014,was $75,000 based on a physical count of goods priced at cost,and before any necessary year-end adjustment relating to the following: •Included in the physical count were goods billed to a customer FOB shipping point on June 30,2014.These goods had a cost of $1,500 and were picked up by the carrier on July 10,2014. •Goods shipped FOB destination on June 28,2014,from a vendor to Flash were received on July 3,2014.The invoice cost was $2,500. What amount should Flash report as inventory on its June 30,2014,balance sheet?

Digipro Inc. is a wholesaler of photography equipment. The activity for the VTC cameras during July is shown below: -See information for Digipro Inc.above.If Digipro Inc.uses a moving average perpetual inventory system,the ending inventory of the VTC cameras at July 31 is reported as

Budson Company needs an estimate of its ending inventory balance.The following information is available: Given this information,when using the gross margin estimation method,ending inventory is approximately

Selected information from the accounting records of Espy Company is as follows: Espy's inventory turnover for 2014 is