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Exam Review Chapters 8 & 9 Fall 1 2021 1. Bell Inc. took a physical inventory at the end of the year and determined that $830,000 of goods were on hand. In addition, Bell, Inc. determined that $60,000 of purchases were in transit that were shipped f.o.b. shipping point were received two days after the inventory count. Bell also had $90,000 of goods out on consignment. What amount should Bell report as inventory at the end of the year? a.$830,000. b.$890,000. c.$920,000. d.$980,000. 2 .The following information is available for Naab Company for 2021: Freight-in$ 30,000 Purchase returns75,000 Selling expenses230,000 Ending inventory260,000 The cost of goods sold is equal to 400% of selling expenses. What is the cost of goods available for sale? a.$ 920,000. b.$1,150,000. c.$1,135,000. d.$1,180,000. June Corp. sells one product and uses a perpetual inventory system. The beginning inventory consisted of 40 units that cost $20 per unit. During the current month, the company purchased 240 units at $30 each. Sales during the month totaled 180 units for $43 each. 3.What is the number of units in the ending inventory? 4.What is the Cost of Goods Sold under LIFO 5. What is the Cost of Goods Sold under FIFO 6. Checkers uses the periodic inventory system. For the current month, the beginning inventory consisted of 4,800 units that cost $12 each. During the month, the company made two purchases: 2,000 units at $13 each and 8,000 units at $13.50 each. Checkers also sold 8,600 units during the month. Using the FIFO method, what is the ending inventory? a.$80,292. b.$74,400. c.$83,700. d.$75,800. RF Company had January 1 inventory of $200,000 when it adopted dollar-value LIFO. During the year, purchases were $1,200,000 and sales were $2,000,000. December 31 inventory at year-end prices was $286,720, and the price index was 112. 7. What is RF Company’s ending inventory? a.$200,000. b.$256,000. c.$262,720. d.$286,720. 8.What is RF Company’s gross profit? a.$856,000. b.$862,720. c.$886,920. d.$1,737,280. 9..Oslo Corporation has two products in its ending inventory, each accounted for at the lower of cost or market. A profit margin of 30% on selling price is considered normal for each product. Specific data with respect to each product follows: Product #1Product #2 Historical cost$20.00$ 35.00 Replacement cost22.5027.00 Estimated cost to dispose5.0013.00 Estimated selling price40.0065.00 In pricing its ending inventory using the lower-of-cost-or-market, what unit values should Oslo use for products #1 and #2, respectively? a.$20.00 and $32.50. b.$23.00 and $32.50. c.$23.00 and $30.00. d.$22.50 and $27.00. 10.Muckenthaler Company sells product X for $40 per unit. The cost of one unit of X is $36, and the replacement cost is $35. The estimated cost to dispose of a unit is $8, and the normal profit is 40%. At what amount per unit should product X be reported, applying lower-of-cost-or-market? a.$16. b.$32. c.$35. d.$36. 11. On January 1, 2021, the merchandise inventory of Glaus, Inc. was $1,200,000. During 2021 Glaus purchased $2,400,000 of merchandise and recorded sales of $3,000,000. The gross profit rate on these sales was 25%. What is the estimated merchandise inventory of Glaus on December 31, 2021? a.$600,000. b.$750,000. c.$1,350,000. d.$2,250,000. 12. Fry Corporation’s computation of cost of goods sold is: Beginning inventory$ 60,000 Add: Cost of goods purchased 530,000 Cost of goods available for sale 590,000 Ending inventory 80,000 Cost of goods sold$510,000 The average days to sell inventory for Fry are a.42.9 days. b.43.5 days. c.50.0 days. d.57.0 days. 13 . A fire destroys all the merchandise of Assante Company on February 10, 2021. Presented below is information compiled up to the date of the fire. Inventory, January 1, 2021 $ 400,000 Sales revenue to February 10, 2021 1,950,000 Purchases to February 10, 2021 1,140,000 Freight-in to February 10, 2021 60,000 Rate of gross profit on selling price 40% What is the approximate inventory on February 10, 2021? 14. Bond Company adopted the dollar-value LIFO inventory method on January 1, 2020. In applying the LIFO method, Bond uses internal cost indexes and the multiple-pools approach. The following data were available for Inventory Pool No. 3 for the two years following the adoption of LIFO: Ending Inventory Year At Current Cost At Base Year Cost Cost Index 1/1/2020 $ 300,000 $ 300,000 1.00 12/31/2020 345,600 320,000 1.08 12/31/2021 420,000 350,000 1.20 Under the dollar-value LIFO method, the inventory on December 31, 2020, should be Under the dollar-value LIFO method, the inventory on December 31, 2021, should be 15) Marilee's Electronics uses a periodic inventory system and the average cost retail method to estimate ending inventory and cost of goods sold. The following data is available from the company records for the month of June 2021: Cost Retail Beginning inventory $ 80,000 $ 130,000 Net purchases 261,000 500,000 Net markups 25,000 Net markdowns 35,000 Net sales 520,000 The average cost-to-retail percentage is: A) 52.2%. B) 61.5%. C) 56.8%. D) 55%. To the nearest thousand, estimated ending inventory is: A) $55,000. B) $52,000. C) $57,000. D) None of these answer choices are correct. To the nearest thousand, estimated ending inventory is: A) $55,000. B) $52,000. C) $57,000. D) None of these answer choices are correct. Chapter 8 Chapter 8 Inventories: Measurement Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without prior written consent of McGraw-Hill Education. Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without prior written consent of McGraw-Hill Education. The next two chapters continue our study of assets by investigating the measurement and reporting issues involving inventories and the related expense—cost of goods sold. 1 Inventory Overview Inventory refers to the assets a company: Intends to sell in the normal course of business Has in production for future sale or Uses currently in production of goods to be sold Cost of goods sold is the expense related to inventory Overview 08-02 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without prior written consent of McGraw-Hill Education. Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without prior written consent of McGraw-Hill Education. Inventory refers to the assets a company (1) intends to sell in the normal course of business, (2) has in production for future sale (work in process), or (3) uses currently in the production of goods to be sold (raw materials). The computers produced by Hewlett-Packard (HP) that are intended for sale to customers are inventory, as are partially completed components, the computer chips, and memory modules that will go into computers produced later. The computers used by HP’s employees to maintain its accounting system and other company operations, however, are not available for sale to customers and therefore are classified and accounted for as equipment. Similarly, the stocks and bonds a securities dealer holds for sale are inventory, whereas HP would classify the securities it holds as investments. Cost of goods sold is the expense related to inventory. Inventory usually is one of the largest assets listed in the balance sheet for manufacturing, wholesale, and retail companies (enterprises that produce revenue by selling goods). Similarly, cost of goods sold typically is the largest expense in the income statement of these companies. 2 Goods that are purchased primarily in finished form from wholesalers and retailers Cost of merchandise inventory includes: Purchase price plus Any other costs necessary to get goods in condition and location for sale Goods that are produced by a manufacturing company to be sold to wholesalers, retailers, other manufacturers, or consumers Consists of: Raw materials Work-in-process Finished goods Inventory Merchandising Inventory Manufacturing Inventory Types of Inventory LO8-1 08-03 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without prior written consent of McGraw-Hill Education. Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without prior written consent of McGraw-Hill Education. Merchandising Inventory: Wholesale and retail companies purchase goods that are primarily in finished form. These companies are intermediaries in the process of moving goods from the manufacturer to the end-user. They often are referred to as merchandising companies and their inventory as merchandise inventory. The cost of merchandise inventory includes the purchase price plus any other costs necessary to get the goods in condition and location for sale. Manufacturing Inventories: Unlike merchandising companies, manufacturing companies produce the goods they sell to wholesalers, retailers, other manufacturers, or consumers. Inventory for a manufacturer consists of (1) raw materials, (2) work in process, and (3) finished goods. 3 Inventory for a Manufacturer Consists of: Represent the cost of components purchased from suppliers that will become part of the finished product Example: Computer chips and memory modules that will go into computers produced by HP Refers to the products that are not yet complete The cost of work in process includes: Example: Partially completed components in the assembly lines of HP Cost of goods that have been completed in the manufacturing process but have not been sold Example: Computers produced by HP that are intended for sale to customers The cost of raw materials The cost of labor that can be directly traced Manufacturing overhead LO8-1 Raw materials Work-in-process Finished goods 08-04 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without prior written consent of McGraw-Hill Education. Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without prior written consent of McGraw-Hill Education. Raw materials represent the cost of components purchased from suppliers that will become part