Exam 8: Cost-Based Inventories and Cost of Sales

The harmonization of the provincial sales tax and GST effectively results in a value-added tax (VAT).

Sales taxes are subject to input tax credits while value-added (VAT) taxes are not.

Furniture Stores Ltd. uses the retail method to value its inventory. The following information is available for 2005: Cost Retail Freight-in \ 5,000 Merchandise Inventory, January 1, 2005 \ 5,500 \ 20,000 Net Additional Mark-ups 11,742 Net Markdowns 2,542 Net Sales 120,000 Purchases 82,500 125,000 Purchase returns 3,000 4,200 Required: Calculate the December 31, 2005 inventory cost under the retail method-average cost (LCM) basis (conventional retail).

A company uses the retail method of inventory. Data for the year 2013 follows. Compute the ending inventory at cost, assuming FIFO, LCM. Beginning inventory (cost $19,840, retail $30,000) Purchases (net cost $53,360, retail $86,000) Mark-up (net, $6,000) Markdowns (net, $2,000)

Unit costs of the principle product sold by Big Auto Parts Ltd. at the end of several successive accounting periods are shown in the top line of amounts below. Different units are in stock each period (none carried over). Beneath the actual cost figures are the anticipated selling prices and replacement costs of the product. Distribution costs average $12 per unit and sales commissions have averaged 10 percent of sales prices. Applying "lower-of-cost-or-NRV" determine unit inventory values for each period. Period 1 2 3 4 5 Actual cost \ 130 \ 150 \ 146 \ 152 \ 160 Sales prices 160 160 180 180 190 Replacement cost 150 150 154 146 162 Disposal cost NRV value Market Inventory value

During Year 1, ABC Inc.'s ending inventory was overstated by $10,000. During Year 2, ABC Inc.'s ending inventory was understated by $20,000. Assuming that the Year 2 books have not yet been closed, the adjustment to Cost of Goods sold would be:

When inventory declines in value below original cost, and the decline is considered other than temporary, what is the maximum amount that the inventory can be valued at?

The allocation of the cost of goods available for sale during a reporting period involves the flow of costs rather than the flow of units.

Inventory cost includes the total outlay required to acquire goods plus the cost to prepare the goods for sale.

Lost Discounts indicates that the recorded cost of an item purchased for inventory is its:

The records at the end of the period for a department store reflected the following: Beginning inventory (retail, \ 26,000) \ 22,800 Sales 120,000 Sales returns 4,000 Purchases (retail, \ 152,000) 103,800 Purchase returns (retail, \ 500 ) 400 Freight-in 1,600 Additional mark-ups 3,200 Mark-up cancellations 700 Markdowns 8,000 Markdown cancellations 6,000 Employee discounts 2,000 Compute the ending inventory at approximate lower-of-cost-or-market (average) using the retail inventory method. Show all computations.

Complete the following schedule based on the data given below: Unit Transaction Order Unit Cost 1. Beginning inventory 8,000 \ 2.00 2. Purchase 12,000 1.10 3. Sale (@ \ 4.00) 14,000 4. Purchase 4,000 1.30 Ending Inventory Cost of Goods Sold (a) FIFO \ \ (b) Weighted average \ \

The primary basis of accounting for inventories is cost. A departure from the cost basis of pricing the inventory is required when:

A company uses a periodic inventory system. At the end of 2013 a purchase on credit of $5,000 was not recorded. Also, it was incorrectly excluded from the 2013 ending inventory. What effect, will these errors have on the 2013 financial statements of the company if they are undetected?

A small toy store uses the retail method FIFO, LCM to value its inventory. The following information is available for 2005: Cost Retail Purchases \ 82,500 \ 125,000 Net Sales 120,000 Merchandise Inventory, January 1, 2005 \ 5,500 20,000 Net Additional Mark-ups 11,742 Freight-in \ 5,000 4,200 Purchase returns 3,000 2,542 Net Markdowns Required: Determine the December 31, 2005 inventory cost under the retail method-FIFO basis.

The retail inventory method may be used for all of the following except:

All of the following correctly describe the average cost inventory cost flow method except:

The following data concerning the retail inventory method are taken from the financial records of a small company. Cost Retail Beginning inventory \ 37,200 \ 60,000 Purchases 182,000 308,000 Freight-in 2,800 -\@cdots Net mark-ups -\@cdots 2,000 Net markdowns -\@cdots 3,480 Sales -\@cdots 313,520 (a) The ending inventory at retail should be: $_______________. (b) If the ending inventory is to be valued at approximately the lower-of-cost-or-market, FIFO basis, the calculation of the cost to retail ratio should be based on goods available for sale at (1) cost and (2) retail, respectively, of: $________________ and $_________________.

Complete the following schedule based on the data given below: Transaction Units Unit Cost 1. Beginning Inventory 4,000 \ 1.00 2. Purchase 6,000 \ 1.10 3. Sale (@ \ 4.00) 7,000 4. Purchase 2,000 \ 1.30 Ending Inventory Cost of Goods Sold a. FIFO \ \ b. Annual weighted average

Raw materials inventories are recorded at the lower of laid-down cost and net realizable value (NRV).