Exam 5: The Purchase and Sale of Inventory

Horse Creek Company had beginning inventory of $900,000,purchases of $2,000,000,purchase returns of $50,000,ending inventory of $800,000,beginning accounts payable of $200,000 and ending accounts payable of $100,000.What was the cost of goods sold?

Divide the class into teams of three or four people.Each team member should work the following problem separately outside of class.Then give the students time in class to compare answers with their teammates and put together a final,correct copy of the problem.Each team should turn in only one copy of the problem for grading.All team members will receive the same grade. Phillo,Inc.had the following sales and purchases during its first month of business. Part A: Record the effect of the following transactions on the accounting equation,assuming a LIFO perpetual inventory system.Fill in both the correct dollar amounts and account titles.Use a plus for increases and a minus for decreases. Part B: Record the effect of the following transactions on the accounting equation assuming a FIFO perpetual inventory system.Fill in both the correct dollar amounts and account titles.Use a plus for increases and a minus for decreases. Part C: Put an X in the appropriate box to select the method that gives the result shown by choosing either LIFO,FIFO,or Same (if both methods result in the same amount).

Over the Top,Inc.sells hats to upscale retailers around the world.Information about inventory is contained in the table below.The company uses a FIFO perpetual inventory system. Determine the gross profit.

Which of the following is an advantage of a perpetual inventory system over a periodic system?

If a company uses a periodic inventory system,it most likely updates its inventory records at the time of every ________.

Vango,Inc.sells part number 86Z to auto parts stores around the world.Information about part number 86Z is contained in the table below.Vango uses a FIFO periodic inventory system. Determine the cost of goods sold and ending inventory value of part 86Z,if 4,000 units remain unsold in inventory at the end of the accounting period.

LIFO is the cost flow method that attaches the last-in costs to the units sold.

With a perpetual inventory system,cost of goods sold is calculated only when the firm is ready to prepare financial statements.

Ace Company sells goods FOB destination.The shipping costs ________.

Inventory data for Henderson Enterprises are below.Twenty units were sold during the period. Required: Fill in the missing amounts for (A),(B),and (C)in the income statement below.Use the inventory method that will give the highest possible net income.

Explain the lower of cost or market (LCM)rule.

Gross profit is calculated by deducting ________.

Good Health,LLP,completed the following inventory transactions during the month of August: a.used cash to purchase $620,000 of merchandise b.purchased $190,000 of merchandise on account c.paid freight costs of $33,000 on merchandise purchased FOB shipping point d.returned $12,000 of defective merchandise to the supplier e.used cash to purchase $210,000 of merchandise f.paid the purchasing manager's monthly salary of $11,000 g.purchased $45,000 of merchandise on account h.paid the sales staff's $22,000 salary for the month i.paid freight costs of $9,000 on merchandise purchased FOB shipping point j.paid the $17,000 utility bill for the month Required: Determine the cost of merchandise purchased for the month.

On November 27,Acme,Inc.ordered merchandise from Zenith Company.Zenith shipped the merchandise to Acme on November 29,FOB shipping point.The merchandise arrived at Acme's warehouse on December 1.Acme paid for the merchandise on January 2.When should Zenith recognize revenue?

Shubart Apparel Company purchased 1,000 shirts from Blue Parrot,FOB shipping point.Each shirt had an invoice cost of $18,which includes $1 of tariff paid to import the shirts from Belize.Shubart also paid FedEx $2,000 to have the shirts shipped to its warehouse in Florida,and another $500 to insure the shirts while they were in transit. Required: a.Determine the inventory cost that Shubart should record. b.Explain when the costs described above will become expenses.

An example of an internal control procedure to protect inventory is to prevent the person who records inventory purchases from having access to the inventory.

In times of rising prices,a lower-of-cost-or-market write down is more likely if FIFO is used.

Head on Straight,Inc.sells hats to fine retailers across the world.It uses a FIFO perpetual inventory system.Inventory data is presented in the table below. Determine the operating income for the period,assuming that 1,000 units were sold for $170 each.Operating expenses excluding cost of goods sold totaled $40,000.

A company that uses a perpetual inventory system must calculate cost of goods sold each time it records a sale.

Newcastle Company has the following inventory data for the current period: Assume that the ending inventory is understated by $5,000.What is the effect on the current period's net income?