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Exam 8: Inventories: Measurement

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Question 61

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Modern Day Appliances, Inc. is a wholesaler of kitchen appliances. The company uses a periodic inventory system and the LIFO cost method. Modern Day's December 31, 2009, fiscal year-end inventory of its main product, double-door, stainless steel refrigerators, consisted of the following (listed in chronological order of acquisition): The replacement cost of the refrigerators throughout 2010 was $900. Modern Day sold 5,000 of these refrigerators during 2010. The company's selling price throughout 2010 was $1,200. Required: 1. Compute the gross profit (sales minus cost of goods sold) and the gross profit ratio for 2010 assuming that Modern Day purchased 5,200 units during the year. 2. Repeat requirement 1 assuming that Modern Day purchased only 4,500 units. 3. For requirements 1 and 2, what amount of before-tax LIFO liquidation profit or loss would Modern Day report in its 2010 disclosure notes, if any, assuming any calculated amount is material? $\begin{array} { l c } \text { Units } & \text { Unit cost } \\\hline 100 & \$ 750 \\200 & 800 \\300 & 850\end{array}$

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3. In requirement 1, there would be no L...

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Question 62

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Udon Inc. adopted dollar-value LIFO (DVL) as of January 1, 2009, when it had an inventory of $700,000. Its inventory as of December 31, 2009, was $777, 000 at year-end costs and the cost index was 1.05. What was DVL inventory on December 31, 2009?

A) $735,000.
B) $740,000.
C) $742,000.
D) $777,000.

E) A) and B)
F) A) and C)

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Question 63

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Physical counts of inventory are never done with perpetual inventory systems.

Bettencourt Clothing Corporation uses a periodic inventory system and the LIFO cost method. The company began 2009 with the following inventory layers (listed in chronological order of acquisition): During 2009, 20,000 units were purchased for $15 per unit. Sales for the year totaled 30,000 units at various prices, leaving 3,000 units in ending inventory. Required: 1. Calculate cost of goods sold for 2009. 2. Determine the amount of LIFO liquidation profit that the company must report in a disclosure note to its 2009 financial statements, assuming the amount is material. Assume an income tax rate of 40%. $\begin{array} { c r } 5,000 \text { units @ } \$ 10 & \$ 50,000 \\8,000 \text { units @ } \$ 12 & 96,000 \\\text { Beginning inventory } & \$ 146,000 \\\hline\end{array}$

Ending inventory using the average cost method is:

Required: Compute the ending inventory and cost of goods sold assuming Denver uses FIFO.

The use of LIFO during a long inflationary period can result in:

On January 1, 2009, the National Furniture Company adopted the dollar-value LIFO method of computing inventory. An internal cost index is used to convert ending inventory to base year. Inventory on January 1 was $200,000. Year-end inventories at year-end costs and cost indexes for its one inventory pool were as follows: Required: Compute inventory amounts at the end of each year. $\begin{array} { c c c } \begin{array} { c } \text { Year Ended } \\\text { December } 31\end{array} & \begin{array} { c } \text { Inventory at } \\\text { Year-end } \\\text { Costs }\end{array} & \begin{array} { c } \text { Cost Index } \\\text { (Relative to } \\\text { Base Year) }\end{array} \\\hline 2009 & \$ 259,200 & 1.08 \\2010 & 296,800 & 1.12 \\2011 & 299,000 & 1.15\end{array}$

Briefly explain how companies that use LIFO can both increase and decrease reported earnings by "managing" ending inventories.

ATC's gross profit ratio in 2009 is:

The following information is taken from the accounting records of Madeline Inc. for the year 2009. Missing information has been left blank. Inventory is the only supply that Madeline purchases on credit. Required: Compute the missing amounts. -

Required: Compute the ending inventory and cost of goods sold assuming Denver uses LIFO and a perpetual inventory system.

Cost of goods on consignment is included in the consignee's inventory until sold.

The main difference between perpetual and periodic inventory systems is the timing of the allocation of costs between inventory and cost of goods sold.

LIFO always provides a better match of revenue and expense than does FIFO.

Slinky Company purchased merchandise on June 10, 2009, at a price of $20,000, subject to credit terms of 2/10, n30. Slinky uses the net method for recording purchases and uses a perpetual inventory system. Required: 1. Prepare the journal entry to record the purchase. 2. Prepare the journal entry to record the appropriate payment if the entire invoice is paid on June 18, 2009. 3. Prepare the journal entry to record the appropriate payment if the entire invoice is paid on July 8, 2009.

Tiger Inc. adopted dollar-value LIFO on January 1, 2009, when the inventory value was $360,000 and the cost index was 1.25. On December 31, 2009, the inventory was valued at year-end cost of $395,000 and the cost index was 1.30. Tiger would report a LIFO inventory of:

What is ending inventory assuming Northwest uses the gross method to record purchases?

Liquidated Corporation had a DVL inventory of $800,000 at the beginning of the current year when it adopted DVL. Its year-end inventory at year-end prices was $850,000. The index for the current year was 1.08. Required: Compute the DVL inventory to be reported at the end of the year.

During periods when costs are rising and inventory quantities are stable, ending inventory will be: