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Exam 6: Inventories

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Question 21

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Match each description to the appropriate inventory system a or b) . -This system can be costly and time consuming if not computerized.

A) Perpetual
B) Periodic

C) A) and B)
D) undefined

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Question 22

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If the revenues are correctly reported and the gross profit of a company is understated, what is the effect on stockholders' equity?

A) understated
B) overstated
C) correctly stated
D) none of these

E) A) and B)
F) All of the above

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Question 23

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Match each description to the appropriate cost flow assumption a-c) . -Produces the same cost of merchandise sold under both the periodic and the perpetual inventory systems

One negative effect of carrying too much inventory is risk that customers will change their buying habits.

Safeguarding inventory from damage or theft is a primary objective for the control of inventory. If you were running a clothing store, name three specific controls you would implement to guard inventory from theft.

When merchandise sold is assumed to be in the order in which the purchases were made, the company is using

Beginning inventory, purchases, and sales for an inventory item are as follows: Assuming a perpetual inventory system and the first-in, first-out method, determine a) the cost of the merchandise sold for the September 30 sale and b) the inventory on September 30.

The following data were taken from the annual reports of Big Bang Inc., a manufacturer of fireworks, and Orange Inc., a manufacturer of computers. a) Determine the 1) inventory turnover and 2) number of days' sales in inventory for Big Bang and Orange. Round your answers to two decimal places. b) How would you expect these measures to compare between the companies? Why?

During periods of increasing costs, the use of the FIFO method of costing inventory will yield an inventory amount for the balance sheet that is higher than LIFO would produce.

Ending inventory is made up of the oldest purchases when a company uses

Assume that three identical units of merchandise were purchased during October, as follows: $\begin{array} { | l | l | l | l | l | } \hline & & & \text { Units } & \text { Cost } \\\hline \text { October } & 5 & \text { Purchase } & 1 & \$ 5 \\\hline & 12 & \text { Purchase } & 1 & 13 \\\hline & 28 & \text { Purchase } & 1 & 15 \\\hline \text { Total } & & & 3 & \$ 33 \\\hline\end{array}$ Assume one unit is sold on October 31 for $28. Determine cost of merchandise sold, gross profit, and ending inventory under the LIFO method.

Match each description to the appropriate document used for inventory control a-c) . -authorizes the purchase of inventory from an approved vendor

Which of the following methods is appropriate for a business whose inventory consists of a relatively small number of unique, high-cost items?

If a company mistakenly counts more items during a physical inventory than actually exist, how will the error affect their bottom line?

On the basis of the following data for Sanford Industries as of December 31, determine the value of the inventory at the lower of cost or market. Also, show how the merchandise inventory would appear on the balance sheet assume that the cost was determined by the FIFO method). Apply lower of cost or market to each inventory item. $\begin{array} { | l | l | l | l | } \hline \multicolumn{1}{|c|} { \text { Commodity } } & \text { Inventory Quantity } & { \text { Cost per Unit } } & \text { Market Value per Unit } \\\hline \text { Size 4 } & 9 & \$ 17 & \$ 19 \\\hline \text { Size 5 } & 10 & 17 & 14 \\\hline \text { Size 6 } & 14 & 20 & 22 \\\hline \text { Size } 7 & 12 & 13 & 15 \\\hline\end{array}$

If a fire destroys the merchandise inventory, the gross profit method can be used to estimate the cost of merchandise destroyed.

Direct disposal costs do not include special advertising or sales commissions.

Inventory turnover measures the length of time it takes to acquire, sell, and replace the inventory.

Which of the following measures the length of time it takes to acquire, sell, and replace inventory?

List three different security measures taken to safeguard inventory.