At December 31, Moore Company's inventory records indicated a balance of $400,Upon further investigation it was determined that this amount included the following:(1) $56,000 in inventory purchases made by Moore shipped from the seller December 27 terms FOB shipping point, but not due to be received until January 3.(2) $23,000 in inventory purchases made by Moore shipped from the seller December 27 terms FOB destination, but not due to be received until January 2.(3) $6,000 in goods sold by Moore with terms FOB destination on DecemberThe goods are not expected to reach their destination until January 6.(4) $8,000 in goods sold by Moore with terms FOB shipping point on DecemberThe goods are not expected to reach their destination until January 4.(5) $13,000 of goods received on consignment from Dollywood Company.What is Moore's correct ending inventory balance at December 31?
  • 7.0 timesCost of goods sold is the difference between sales revenue and gross profit: $2,400,000 - $1,000,000 = $1,400,000. Inventory turnover ratio = Cost of goods sold divided by average inventory: $1,400,000/[($150,000 + $250,000)/2] = 7.0.
  • $113,000Ending inventory under FIFO uses the most recent costs of inventory to compute ending inventory. Ending inventory = (5,000 x $13) + (4,000 x $12) = $113,000.
  • 80,000Beginning inventory + Purchases - Ending inventory = Cost of goods sold40,000 + 480,000 - Ending inventory = 440,000Ending inventory = 40,000 + 480,000 + 440,000 = 80,000
  • $356,000Do not include the following in inventory: --FOB destination purchases not yet received (i.e., $23,000)--FOB shipping point goods sold and shipped (i.e., $8,000)--Goods held on consignment (i.e., $13,000)Ending inventory = $400,000 - 23,000 - 8,000 - 13,000 = $356,000
Inventory costing methods place primary reliance on assumptions about the flow of
  • costs
  • Net income will be overstated and the stockholders' equity will be overstated.
  • 64,000
  • Goods held on consignment from another company
Parrish Company has the following inventory units and costs: Units Unit CostInventory, Jan. 1 8,000 $11Purchase, June 19 13,000 12Purchase, Nov. 8 5,000 13If 9,000 units are on hand at December 31, what is the cost of the ending inventory under FIFO using a periodic inventory system?
  • $356,000Do not include the following in inventory: --FOB destination purchases not yet received (i.e., $23,000)--FOB shipping point goods sold and shipped (i.e., $8,000)--Goods held on consignment (i.e., $13,000)Ending inventory = $400,000 - 23,000 - 8,000 - 13,000 = $356,000
  • 80,000Beginning inventory + Purchases - Ending inventory = Cost of goods sold40,000 + 480,000 - Ending inventory = 440,000Ending inventory = 40,000 + 480,000 + 440,000 = 80,000
  • 81.1 days Days in inventory equals 365 days ÷ inventory turnover (cost of goods sold ÷ average inventory) = 365 ÷ ($405,000 ÷ [($75,000 + $105,000) ÷ 2]) = 81.1 days
  • $113,000Ending inventory under FIFO uses the most recent costs of inventory to compute ending inventory. Ending inventory = (5,000 x $13) + (4,000 x $12) = $113,000.
Carlos Company had beginning inventory of $75,000, ending inventory of $105,000, cost of goods sold of $405,000, and sales revenue of $515,What is Carlos' days in inventory?
  • Days' sales in inventory is calculated as 365 days divided by inventory turnover.Inventory turnover = $1,260,000/$40,000 = 31.5 times Days' sales in inventory = 365/31.5 = 11.6 days
  • $113,000Ending inventory under FIFO uses the most recent costs of inventory to compute ending inventory. Ending inventory = (5,000 x $13) + (4,000 x $12) = $113,000.
  • 80,000Beginning inventory + Purchases - Ending inventory = Cost of goods sold40,000 + 480,000 - Ending inventory = 440,000Ending inventory = 40,000 + 480,000 + 440,000 = 80,000
  • 81.1 days Days in inventory equals 365 days ÷ inventory turnover (cost of goods sold ÷ average inventory) = 365 ÷ ($405,000 ÷ [($75,000 + $105,000) ÷ 2]) = 81.1 days
The following information came from the income statement of the Wilkens Company: sales revenue $2,400,000; beginning inventory $150,000; ending inventory $250,000; and gross profit $1,000,What is Wilkens' inventory turnover ratio?
  • Days' sales in inventory is calculated as 365 days divided by inventory turnover.Inventory turnover = $1,260,000/$40,000 = 31.5 times Days' sales in inventory = 365/31.5 = 11.6 days
  • 81.1 days Days in inventory equals 365 days ÷ inventory turnover (cost of goods sold ÷ average inventory) = 365 ÷ ($405,000 ÷ [($75,000 + $105,000) ÷ 2]) = 81.1 days
  • $113,000Ending inventory under FIFO uses the most recent costs of inventory to compute ending inventory. Ending inventory = (5,000 x $13) + (4,000 x $12) = $113,000.
  • 7.0 timesCost of goods sold is the difference between sales revenue and gross profit: $2,400,000 - $1,000,000 = $1,400,000. Inventory turnover ratio = Cost of goods sold divided by average inventory: $1,400,000/[($150,000 + $250,000)/2] = 7.0.
A company started business in August and it made the following purchases of inventory:(1) on August 1, it purchased 100 units for $1,500;(2) on August 12, it purchased 100 units for $1,550; and(3) on August 24, it purchased 100 units for $1,A physical count of the inventory on August 31 reveals that there are 500 units on hand. What inventory method produces the lowest gross profit for August?
  • LIFOwhy:On August 1, it spent $15 per unit; on Aug. 12, it spent $15.50 per unit; and on Aug. 24, it spent $15.750 per unit. This company is experiencing inflation. Low gross profit (i.e., low gross margin) occurs with higher cost of goods sold. During periods of inflation, the inventory costing method that considers the most expensive inventory to be sold is LIFO (i.e., last-in, first-out). The LIFO method will produce the lowest gross profit because LIFO results in the highest cost goods sold in periods of rising prices. The choice of a periodic versus perpetual inventory system does not change whether LIFO or FIFO produces the highest or lowest cost of goods sold or gross profit.
  • $113,000Ending inventory under FIFO uses the most recent costs of inventory to compute ending inventory. Ending inventory = (5,000 x $13) + (4,000 x $12) = $113,000.
  • 2,036Using periodic LIFO, cost of goods sold includes the last inventory purchased (i.e., the newest inventory).Sales revenue = 100 x $80 = $8,000Cost of goods sold = (55 x $43) + [(100 - 55) x $42] = $2,365 + 1,890 = $4,255Gross profit = Sales revenue - cost of goods sold = $8,000- $4,255 = $3,745Net income before taxes = 8,000 - 4,255 - 1,200 = 2,545Net income = 2,545 x (100% - 20%) = 2,036
  • 81.1 days Days in inventory equals 365 days ÷ inventory turnover (cost of goods sold ÷ average inventory) = 365 ÷ ($405,000 ÷ [($75,000 + $105,000) ÷ 2]) = 81.1 days
Ray's Sounds has accumulated the following cost and market data on March 31: Cost Data Market DataiPods $24,000 $20,400Cell phones $18,000 $19,000DVDs $28,000 $25,600Using the lower-of-cost-or-market, how much is the value of the ending inventory?
  • 64,000
  • costs
  • 80,000Beginning inventory + Purchases - Ending inventory = Cost of goods sold40,000 + 480,000 - Ending inventory = 440,000Ending inventory = 40,000 + 480,000 + 440,000 = 80,000
  • $113,000Ending inventory under FIFO uses the most recent costs of inventory to compute ending inventory. Ending inventory = (5,000 x $13) + (4,000 x $12) = $113,000.
Howe Industries had the following inventory transactions occur during the current year: Units Cost/unit Feb. 1 Purchase 40 $41 Mar. 14 Purchase 60 $42 May 1 Purchase 55 $43The company sold 100 units at $80 each and has a tax rate of 20%. Assuming that a periodic inventory system is used and operating expenses are $1,200, what is the company's after tax net income using LIFO? (rounded to whole dollars)
  • LIFOwhy:On August 1, it spent $15 per unit; on Aug. 12, it spent $15.50 per unit; and on Aug. 24, it spent $15.750 per unit. This company is experiencing inflation. Low gross profit (i.e., low gross margin) occurs with higher cost of goods sold. During periods of inflation, the inventory costing method that considers the most expensive inventory to be sold is LIFO (i.e., last-in, first-out). The LIFO method will produce the lowest gross profit because LIFO results in the highest cost goods sold in periods of rising prices. The choice of a periodic versus perpetual inventory system does not change whether LIFO or FIFO produces the highest or lowest cost of goods sold or gross profit.
  • 80,000Beginning inventory + Purchases - Ending inventory = Cost of goods sold40,000 + 480,000 - Ending inventory = 440,000Ending inventory = 40,000 + 480,000 + 440,000 = 80,000
  • 7.0 timesCost of goods sold is the difference between sales revenue and gross profit: $2,400,000 - $1,000,000 = $1,400,000. Inventory turnover ratio = Cost of goods sold divided by average inventory: $1,400,000/[($150,000 + $250,000)/2] = 7.0.
  • 2,036Using periodic LIFO, cost of goods sold includes the last inventory purchased (i.e., the newest inventory).Sales revenue = 100 x $80 = $8,000Cost of goods sold = (55 x $43) + [(100 - 55) x $42] = $2,365 + 1,890 = $4,255Gross profit = Sales revenue - cost of goods sold = $8,000- $4,255 = $3,745Net income before taxes = 8,000 - 4,255 - 1,200 = 2,545Net income = 2,545 x (100% - 20%) = 2,036
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