Exam 6: Merchandise Inventory

A way to estimate the cost of ending merchandise inventory on the basis of the ratio of the goods available for sale at cost to the goods available for sale at retail is called the gross profit method.

When a company uses the last-in, first-out (LIFO)method, the cost of goods sold correlates to the most recently purchased goods, and the ending inventory correlates to the oldest goods in stock.

Better Buy has six CD players in inventory on December 31. The players were purchased in November for $150. The price lists from Better Buy's supplier indicate that the same CD player would now cost the company $155. What would be the amount reported as Ending Merchandise Inventory on the balance sheet?

Better Buy has six CD players in inventory on December 31. The players were purchased in November for $170. The price lists from suppliers indicate the current replacement cost of a CD player to be $168. What is the effect on gross profit if Better Buy values its ending merchandise inventory using the lower-of-cost-or-market rule?

A company is uncertain whether a complex transaction should result in an asset being recorded at $100,000 or at $150,000. Under the conservatism principle, they should choose to show it at $100,000.

The Merchandise Inventory account is debited to write down the inventory as per the lower-of-cost-or-market rule.

An overstatement of ending merchandise inventory in the current period results in an overstatement of net income in the current period.

When a company uses the first-in, first-out (FIFO)method the cost of goods sold correlates to the most recently purchased goods and the value of ending inventory correlates to the oldest goods in stock.

The ending merchandise inventory for the current accounting period is overstated by $3,500. What will be the effect of this error?

Ending inventory for the current accounting period is overstated by $2,700. What effect will this error have on Cost of Goods Sold and Net Income?

The estimated ending merchandise inventory can be computed by subtracting cost of goods sold from the cost of goods available for sale.

The lower-of-cost-or-market rule demonstrates accounting conservatism in action.

Harris Company had the following balances and transactions during 2014: What would the Cost of Goods Sold be as reported on the income statement for the year ending December 31, 2014 if the perpetual, last-in, first-out costing method is used? Round your answer to two decimal places.

The following data is available: Using the gross profit method, the cost of goods sold would be:

Best Deals has six CD players in ending merchandise inventory on December 31. The players were purchased in November for $170. The price lists from suppliers indicate the current replacement cost of a CD player to be $168. Which of the following statements is true of the effects of the adjustments to ending merchandise inventory on the cost of goods sold?

A company purchased 100 units for $30 each on January 31. It purchased 150 units for $25 on February 28. It sold a total of 150 units for $50 each from March 1 through December 31. If the company uses the weighted-average inventory costing method, calculate the amount of ending inventory on December 31. (Assume that the company uses a perpetual inventory system.)

Which of the following principles states that a business's financial statements must report enough information for outsiders to make knowledgeable decisions about the company?

A company reports in its financial statements that it uses the FIFO method of inventory costing. This is an example of the disclosure principle.

A company that uses the periodic inventory method provided the following information: 1. Beginning inventory $4,000 2. Purchases $120,000 3. Purchase discounts $2,400 4. Purchase returns and allowances $800 At the end of the period, the company does an inventory count and finds $18,000 worth of inventory on hand. What is the amount of Cost of goods sold?

Sandra Company had 200 units of inventory on hand at the end of the year. These were recorded at a cost of $12 each using the last-in, first-out (LIFO)method. The current replacement cost is $10 per unit. The selling price charged by Sandra Company for each finished product is $15. In order to record the adjusting entry needed under the lower-of-cost-or-market rule, the Merchandise Inventory will be: