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Exam 6: Inventories

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Question 71

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Marina Sailboats reports income before income taxes of $80,000 during 2010.If beginning inventory was overstated by $7,000 and ending inventory was understated by $8,000,calculate corrected income before income taxes for the year.(Show your work.)

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$95,000 ($...

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Question 72

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Use this information to answer the following question. $\begin{array}{ll}\text { Beginning inventory } & 100 \text { units @\$8.00 } \\\text { Purchase-Oct. } & 200 \text { units } @ \$ 6.00 \\\text { Purchase-Dec. } & 100 \text { units } @ \$ 12.00\end{array}$ A periodic inventory system is used; ending inventory is 147 units. What is cost of goods sold under LIFO?

A) $1,118
B) $3,118
C) $2,118
D) $4,118

E) A) and D)
F) A) and B)

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Question 73

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Given equal circumstances,which inventory method probably would be the most time consuming?

Use this inventory information for the month of September to answer the following question. $\begin{array}{rlll}\text { Sept. } &1& \text { Beginning inventory } & 10 \text { units @ } \$ 120 \\&5 & \text { Purchase } & 60 \text { units @ } \$ 112 \\&14 & \text { Sale } & 40 \text { units } \\&21 & \text { Purchase } & 30 \text { units @ } \$ 116 \\&30 & \text { Sale } & 28 \text { units }\end{array}$ Assuming that a perpetual inventory system is used,what is ending inventory (rounded) under the average-cost method?

Which of the following methods generally is used to determine the loss when inventory is destroyed or stolen?

During periods of consistently falling prices,the FIFO inventory method will produce the highest possible amount of net income.

Which of the following terms best describes the assumption made in applying the four inventory methods?

Use this information to answer the following question. $\begin{array}{ll}\text { Beginning inventory } & 100 \text { units @\$8.00 } \\\text { Purchase-Oct. } & 200 \text { units } @ \$ 6.00 \\\text { Purchase-Dec. } & 100 \text { units } @ \$ 12.00\end{array}$ A periodic inventory system is used; ending inventory is 151 units. What is ending inventory under FIFO?

Which inventory method generally results in the most realistic ending inventory figure?

What is a LIFO liquidation,and what is its effect on income before income taxes?

Ending merchandise inventory for LIFO will be the same dollar amount under a periodic inventory system as under a perpetual inventory system.

Use this inventory information for the month of May to answer the following question. $\begin{array}{rlll}\text { May } &1& \text { Beginning inventory } & 20 \text { units @ } \$ 76 \\&7 & \text { Purchase } & 70 \text { units @ } \$ 80 \\&18 & \text { Sale } & 25 \text { units } \\&22 & \text { Purchase } & 10 \text { units @ } \$ 88 \\&29 & \text { Sale } & 40 \text { units }\end{array}$ What is ending inventory under the specific identification method?

The determination of the balance sheet cost of merchandise inventory is important to the determination of net income.

Despite its advantages,the just-in-time operating environment produces increased carrying costs for inventory.

Emil Hinkel owns and operates a large antique shop.He uses the specific identification method to account for transactions that affect inventory.Hinkel recently completed a physical inventory of the merchandise in his shop as part of his year-end work.Today,his accountant called to inform him that it would be necessary to adjust the inventory figure shown on the balance sheet,which will increase Hinkel's tax liability.Hinkel argued that the inventory had to be correct,because he counted it twice and matched every item to an invoice.Cite reasons why the accountant would find it necessary to adjust the inventory even if Hinkel's count is accurate.

Applying the lower-of-cost-or-market rule follows which of the following accounting conventions?

Assume that during the physical count of the inventory of a large corporation for this year,$900,000 of merchandise was counted twice.The error was not detected,and the financial statements were prepared.Identify the individual statements that would be affected and explain the effect the count error would have on each.(Omit income tax consideration.)

Given the following information about purchases and sales during the year,compute the cost to be assigned to ending inventory under each of three methods: (a)average-cost,(b)FIFO,and (c)LIFO.Assume the periodic inventory system is used.(Show your work.) $\begin{array}{lrlll}\text { Jan. } & 1 & \text { Beginning inventory } &150 \text { items }@\$3=&\$450 \\\text { May } & 1 & \text { Purchases }&450 \text { items }@\$16=&2,700 \\& & \text { Totals } &600 \text { items }&\$3,150\\& & \text { Total sales } &300 \text { items }\\\text { Dec. } & 31 & \text { Ending inventory }&300 \text { items }\end{array}$

Merchandise inventory is valued on the balance sheet at the expected resale price.

In a period of rising prices,the liquidation of base-layer inventory will result in an unusually high income tax liability under which of the following methods?