Exam 9: Inventory and Cost of Goods Sold

Net realizable value can be defined as

Two reasons often advanced for the adoption of LIFO inventory costing for financial reporting are the improved matching of current costs with current revenue during periods of rising prices and the reduction of income tax payments.Nonetheless,the number of companies using LIFO has not increased over the last several years.Some companies actually have switched from LIFO to FIFO over the last several years. Identify reasons why a company would change from LIFO to FIFO for financial reporting purposes.

Following are the account balances from Canarsie Company's income statement: Given this information,the cost of goods sold during 2014 is

The use of the gross profit method assumes

The 2014 annual report of Arrowhead Manufacturing Company contained the following notes to the company's financial statements: Inventory Valuation The company uses the last-in,first-out (LIFO)cost method of inventory valuation for most domestic manufacturing inventories.Other manufacturing inventories are valued at the lower of standard costs (which approximate average costs),average costs,or market. Inventories If inventories valued on the LIFO basis had been valued at standard or average costs,which approximate current costs,consolidated inventories would be higher than reported by $21.0 million and $19.6 million at December 31,2014,and 2013,respectively. Inventories that are valued at the lower of standard costs (which approximate average costs),average costs,or market at December 31,2014 and 2013,were approximately $185.2 million and $125.7 million,respectively. Required: 1.Why does Arrowhead use LIFO only for domestic inventories? 2.What would have been the effect on the Arrowhead 2014 net income if the company had consistently used standard or average costs to value its inventories over time (assume a 34% tax rate)? 3.What would be the effect on retained earnings as of December 31,2014,if Arrowhead had consistently used standard or averages to value its inventories over time?

The following information is available for the Crystal Company for the three months ended June 30 of this year: The gross margin was 25 percent of sales.What is the estimated inventory balance at June 30?

The following information was available from the inventory records of the Dunn Company for January 2014: (1)Assuming that Dunn maintains perpetual inventory records,what should be the inventory at January 31,2014,using the FIFO inventory method,rounded to the nearest dollar? (2)Assuming that Dunn maintains perpetual inventory records,what should be the inventory at January 31,2014,using the LIFO inventory method,rounded to the nearest dollar? (3)Assuming that Dunn does not maintain perpetual inventory records,what should be the inventory at January 31,2014,using the average cost inventory method,rounded to the nearest dollar?

If the ending inventory balance is understated,net income of the same period

Which one of the following would cause a decrease in the cost ratio as used in the retail inventory method?

Goods on consignment are

Which of the inventory cost flow assumptions provides the best measure of earnings,where "best" means most appropriate for predicting future earnings,when prices have been declining?

The balance in Locksome Company's accounts payable account at December 31,2014,was $1,100,000 before considering the following information: •Goods shipped FOB shipping point on December 20,2014,from a vendor to Locksome were lost in transit.The invoice cost of $20,000 was not recorded by Locksome.On January 6,2015,Locksome filed a $20,000 claim against the common carrier. •On December 27,2014,a vendor authorized Locksome to return,for full credit,goods shipped and billed at $35,000 on December 2,2014.The returned goods were shipped by Locksome on December 27,2014.A $35,000 credit memo was received and recorded by Locksome on January 6,2015. What amount should Locksome report as accounts payable in its December 31,2014,balance sheet?

Commodity L sells for $12.00; selling expenses are $2.40; normal profit is $3.00.If the cost of Commodity L is $7.80 and the replacement cost is $6.00,the lower of cost or market is

The lower-of-cost-or-market inventory procedure would be expected to result in the lowest inventory valuation when applied to

A company sells four products: I, II, III, and IV. The company values all inventories using the lower-of-cost-or-market procedure. The company has consistently experienced a profit margin of 20 percent of sales and expects this rate to hold for the future. Additional information, shown below, is available for the most recent year as of December 31. -See information regarding the four products above.Using the lower-of-cost-or-market procedure,what is the reported inventory value at December 31 for one unit of Product I?

The following information applied to Michaels Company for 2014: Michaels' inventoriable cost for 2014 was

From the following information,determine the amount of ending inventory.

If goods shipped FOB destination are in transit at the end of the year,they should be included in the inventory balance of the

Entole Company began operations in 2014.During the first two years of operations,Entole made undiscovered errors in taking its year-end inventories that overstated 2014 ending inventory by $50,000 and understated 2015 ending inventory by $40,000.The combined effect of these errors on reported income is

The following note appeared in the 2014 annual report of Edison Company: Inventories Inventories valued at LIFO comprised approximately 44% and 42% of inventories at December 31,2014 and 2013,respectively. Required: 1.What basis do you believe Edison uses to account for its inventories internally? 2.Express your opinion as to why Edison reduces its inventories to LIFO cost. 3.If Edison did not adjust its inventories to LIFO cost,what would be the impact on Edison's a.Net income before tax for 2013? b.Retained earnings as of January 1,2014 (assuming a 34% tax rate)? Edison's reduction to LIFO cost in 2014 was $19.1 million.