The cost of materials has risen steadily over the year. Which of the following methods of estimating the ending balance of the materials inventory account will result in the highest profit. assuming all other variables remain constant?
Answer(s): B
Profit will be higher when cost of goods sold is lower. other factors held constant. Cost of goods sold equals beginning inventory. plus purchases. minus ending inventory_ Accordingly, cost of goods sold will be lowest when the ending inventory is highest. Ending inventory is highest under FIFO because the older, less expensive items are deemed to have been sold, leaving the more expensive items in the ending !inventory.
A physical inventory count showed an entity had inventory costing US $1.000.000 on hand at December 31 Year 1 Excluded from this amount were the following:· Goods costing US $82, 000. shipped to a customer free on boardFOB) shipping point on December 28. Year 1 They were expected to be received by the customer on January 4.Year 2.· Goods costing US $122.000. shipped to a customer free on boardF B) 1. ;ti nation December 30, Year 1 They were expected to be received by the customer on January 5, Year 2.Compute the correct ending inventory to be reported on the shipper's balance sheet at December 31, Year I .
Answer(s): C
The goods shipped FOB shipping point should be counted in the buyer's, not the seller's, inventory because title and risk of loss pass at the time and place of shipment. These goods were properly excluded from ending inventory. The goods shipped FOB destination were improperly excluded form the seller's ending inventory. The title and risk of loss did not pass until the time and place where the goods reached their destination and were daily tendered. Thus, the correct ending inventor is US $1, 22, 000$1, 000, 000 beginning balance + 122, 000 good shipped FOB destination.
When a perpetual inventory system is used and a difference exists between the perpetual inventory amount balance and the physical inventory count. a separate entry is needed to adjust the perpetual inventory amount. Which of the following demonstrates that adjusting entry?
Answer(s): A
The entry to record a write-down is a debit to inventory over and short and a credit to inventory_ This amount is reported as an adjustment of cost of goods sold or as an other expense on the income statement.
An entity had the following selected per-unit data relating to work-in-process:Selling price US $100Comparison cost 10Historical cost 91Replacement cost 108Normal gross profit 20Selling cost 5In comparison with historical cost, what will be the per-unit impact on gross profit of measuring ending inventory.
Inventories are measured at the lower of cost or net realizable valueNRV). NRV equals selling price minus completion and selling costs. Given that historical cost is US $91 and NRV is US $84price of $100 $100 $10 completion cost $5 selling cost, the effect on per-unit gross profit is a reduction of US $6. This amount is the writedown expensed.
An entity started in Year 1 with 200 scent. 1 3ndles on hand at a cost of US $3.50 each. These candles sell Lich. The following schedule represents the purchases and sales of candles during Year 1:If the entity uses periodic FIFO inventory pricing, the gross profit for Year 1 would be
The FIFO method assumes that the first goods purchased are the first goods sold and that ending inventory consists of the latest purchases. Moreover, whether the inventory system is periodic or perpetual does not affect FIFO valuation. The cost of goods sold is US $2.445 {beginning inventory200 units x $3.50) - purchases [(250 units x $3.30)200 units x $3.10) -350 units x $3.00)] - ending inventory250 units x $3.00)}_ Thus, the gross profit for Year 1 using FIFO is US $2.805 [sales750 units x $7.00) - cost of goods sold of $2 445].
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