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principles financial accounting

Questions and Answers of Principles Financial Accounting

(2) Which cost flow method (FIFO or LIFO) produces the more meaningful net income?Why?
(1) Which cost flow method (FIFO or LIFO) produces the more meaningful inventory amount for the balance sheet? Why?
P6-4B The management of Groneman Inc. is reevaluating the appropriateness of using its present inventory cost flow method, which is average-cost. The company requests your help in determining the
P6-3B Shellankamp Company had a beginning inventory on January 1 of 100 units of Product WD-44 at a cost of $21 per unit. During the year, the following purchases were made.Mar. 15 300 units at $24
P6-2B Carrington Distribution markets CDs of the performing artist Christina Spears. At the beginning of October, Carrington had in beginning inventory 1,000 Spears CDs with a unit cost of $5. During
P6-1B Slaymakker Country Limited is trying to determine the value of its ending inventory as of February 29,2008, the company’s year-end. The following transactions occurred, and the ac¬countant
P6-11A Neer Department Store uses the retail inventory method to estimate its monthly ending inventories. The following information is available for two of its departments at August 31,2008.
P6-10A Saffordville Company lost 70% of its inventory in a fire on March 25, 2008. The accounting records showed the following gross profit data for February and March.
P6-9A Sandoval Appliance Mart began operations on May 1. It uses a perpetual inventory system. During May the company had the following purchases and sales for its Model 25 Sureshot camera.
P6-8A Vasquez Ltd. is a retailer operating in Edmonton, Alberta. Vasquez uses the perpetual inventory method. All sales returns from customers result in the goods being returned to inven¬tory; the
P6-7A The management of Utley Inc. asks your help in determining the comparative effects of the FIFO and LIFO inventory cost flow methods. For 2008 the accounting records show these data.
P6-6A You have the following information for Bernelli Diamonds. Bernelli Diamonds uses the periodic method of accounting for its inventory transactions. Bernelli only carries one brand and size of
P6-5A You are provided with the following information for Pavey Inc. for the month ended October 31,2008. Pavey uses a periodic method for inventory.
P6-4A The management of Morales Co. is reevaluating the appropriateness of using its pres¬ent inventory cost flow method, which is average-cost. They request your help in determining the results of
P6-3A Eddings Company had a beginning inventory of 400 units of Product XNA at a cost of$8.00 per unit. During the year, purchases were:
P6-2A Glanville Distribution markets CDs of the performing artist Harrilyn Clooney. At the beginning of March, Glanville had in beginning inventory 1,500 Clooney CDs with a unit cost of$7. During
P6-1A Heath Limited is trying to determine the value of its ending inventory at February 29, 2008, the company’s year end. The accountant counted everything that was in the warehouse as of February
E6-20 Quayle Shoe Store uses the retail inventory method for its two departments, Women’s Shoes and Men’s Shoes. The following information for each department is obtained.
E6-19 The inventory of Faber Company was destroyed by fire on March 1. From an examina¬tion of the accounting records, the following data for the first 2 months of the year are obtained:Sales
E6-18 Doc Gibbs Company reported the following information for November and December 2008.
E6-17 Information about Boarders is presented in E6-4. Additional data regarding Boarders’sales of Xpert snowboards are provided below. Assume that Boarders uses a perpetual inventory system.
E6-16 Yount Company reports the following for the month of June.Date Explanation Units Unit Cost Total Cost June 1 Inventory 200 $5 $1,000 12 Purchase 300 6 1,800 23 Purchase 500 7 3,500 30 Inventory
E6-15 Klugman Appliance uses a perpetual inventory system. For its flat-screen television sets, the January 1 inventory was 3 sets at $600 each. On January 10, Klugman purchased 6 units at $660 each.
E6-14 The cost of goods sold computations for O’Brien Company and Weinberg Company are shown below.
E6-13 This information is available for Santo’s Photo Corporation for 2007,2008, and 2009.
E6-12 StaleyWatch Company reported the following income statement data for a 2-year period.
E6-11 Lebo Hardware reported cost of goods sold as follows.2008 2009 Beginning inventory $ 20,000 $ 30,000 Cost of goods purchased 150,000 175,000 Cost of goods available for sale 170,000 205,000
E6-10 Conan Company applied FIFO to its inventory and got the following results for its end¬ing inventory.
E6-9 Americus Camera Shop uses the lower-of-cost-or-market basis for its inventory. The fol¬lowing data are available at December 31.
E6-8 Inventory data for Yount Company are presented in E6-6.Instructions(a) Compute the cost of the ending inventory and the cost of goods sold using the average-cost method.(b) Will the results in
E6-7 Jones Company had 100 units in beginning inventory at a total cost of $10,000. The com¬pany purchased 200 units at a total cost of $26,000. At the end of the year, Jones had 80 units in ending
E6-6 Yount Company reports the following for the month of June.
E6-5 Catlet Co. uses a periodic inventory system. Its records show the following for the month of May, in which 65 units were sold.
E6-4 Boarders sells a snowboard, Xpert, that is popular with snowboard enthusiasts. Below is information relating to Boarders’s purchases of Xpert snowboards during September. During the same
E6-3 On December 1, Bargain Electronics Ltd. has three DVD players left in stock. All are identical, all are priced to sell at $150. One of the three DVD players left in stock, with serial#1012, was
2. The physical count did not include goods purchased by Strawser with a cost of $40,000 that were shipped FOB destination on December 28 and did not arrive at Strawser’s warehouse until January 3.
1. Included in the company’s count were goods with a cost of $250,000 that the company is hold¬ing on consignment. The goods belong to Superior Corporation.
E6-2 Kale Thompson, an auditor with Sneed CPAs, is performing a review of Strawser Determine the correct Company’s inventory account. Strawser did not have a good year and top management is under
5. Lima received goods costing $44,000 on January 2 that were shipped FOB destination on December 29. The shipment was a rush order that was supposed to arrive December 31. This purchase was included
4. Lima sold goods costing $35,000 to Emerick Co., FOB destination, on December 30. The goods were received at Emerick on January 8. They were not included in Lima’s physical inventory.
3. Lima received goods costing $22,000 on January 2. The goods were shipped FOB shipping point on December 26 by Galant Co. The goods were not included in the physical count.
2. The physical count of the inventory did not include goods costing $95,000 that were shipped to Lima FOB destination on December 27 and were still in transit at year-end.
1. Lima sold goods costing $38,000 to Comerica Company, FOB shipping point, on December 28. The goods are not expected to arrive at Comerica until January 12. The goods were not in¬cluded in the
E6-1 Premier Bank and Trust is considering giving Lima Company a loan. Before doing so, Determine the correct they decide that further discussions with Lima’s accountant may be desirable. One area
BE6-12 On June 30, Fabre Fabrics has the following data pertaining to the retail inventory Apply the retail inventory method: Goods available for sale: at cost $35,000, at retail $50,000; net sales
BE6-10 Jensen’s Department Store uses a perpetual inventory system. Data for product E2-D2 include the following purchases.Number Unit Date of Units Price May 7 50 $10 July 28 30 13 On June 1
BE6-9 At December 31,2008, the following information was available for J. Graff Company: Compute inventory turnover ending inventory $40,000, beginning inventory $60,000, cost of goods sold $270,000,
BE6-8 Cody Company reports net income of $90,000 in 2008. However, ending inventory was Determine correct income understated $10,000. What is the correct net income for 2008? What effect, if any,
BE6-7 Alou Appliance Center accumulates the following cost and market data at December 31.Inventory Cost Market Categories Data Data Cameras $12,000 $12,100 Camcorders 9,500 9,700 VCRs 14,000 12,800
BE6-6 In its first month of operation, Gulletson Company purchased 100 units of inventory for$6, then 200 units for $7, and finally 150 units for $8. At the end of the month, 180 units
BE6-4 Data for Quirk Company are presented in BE6-3. Compute the cost of the ending in¬ventory under the average-cost method, assuming there are 360 units on hand.BE6-5 The management of Hoyt Corp.
BE6-3 In its first month of operations. Quirk Company made three purchases of merchandise in the following sequence: (1) 300 units at $6, (2) 400 units at $7, and (3) 200 units at $8. Assuming there
BE6-2 The ledger of Gomez Company includes the following items: (a) Freight-in, (b)Purchase Returns and Allowances, (c) Purchases, (d) Sales Discounts, (e) Purchase Discounts.Identify which items are
BE6-1 Smart Company identifies the following items for possible inclusion in the taking of a phys¬ical inventory. Indicate whether each item should be included or excluded from the inventory
24. Milo Shoe Shop had goods available for sale in 2008 with a retail price of $120,000. The cost of these goods was$84,000. If sales during the period were $80,000, what is the ending inventory at
23. Maureen Company has net sales of $400,000 and cost of goods available for sale of $300,000. If the gross profit rate is 35%, what is the estimated cost of the ending in¬ventory? Show
22. Both the gross profit method and the retail inventory method are based on averages. For each method, indicate the average used, how it is determined, and how it is applied.
21. When is it necessary to estimate inventories?
20. How does the average-cost method of inventory costing differ between a perpetual inventory system and a peri¬odic inventory system?
19. “When perpetual inventory records are kept, the results under the FIFO and LIFO methods are the same as they would be in a periodic inventory system.” Do you agree?Explain.
18. Under what circumstances might inventory turnover be too high? That is, what possible negative consequences might occur?
17. Willingham Company’s balance sheet shows Inventories$162,800. What additional disclosures should be made?
16. Mintz Company discovers in 2008 that its ending inventory at December 31,2007, was $7,000 understated. What effect will this error have on (a) 2007 net income, (b) 2008 net in¬come, and (c) the
15. Ruthie Stores has 20 toasters on hand at the balance sheet data. Each cost $27.The current replacement cost is $30 per unit. Under the lower-of-cost-or-market basis of accounting for inventories,
14. Garitson Music Center has 5 CD players on hand at the balance sheet date. Each cost $400. The current replace¬ment cost is $380 per unit. Under the lower-of-cost-ormarket basis of accounting for
13. Peter Lunde is studying for the next accounting mid-term examination. What should Peter know about (a) departing from the cost basis of accounting for inventories and (b)the meaning of
12. Casey Company has been using the FIFO cost flow method during a prolonged period of rising prices.During the same time period, Casey has been paying out all of its net income as dividends. What
11. In a period of rising prices, the inventory reported in Plato Company’s balance sheet is close to the current cost of the inventory. Cecil Company’s inventory is consider¬ably below its
10. Which assumed inventory cost flow method:(a) usually parallels the actual physical flow of mer¬chandise?(b) assumes that goods available for sale during an ac¬counting period are identical?(c)
9. “The selection of an inventory cost flow method is a de¬cision made by accountants.” Do you agree? Explain.Once a method has been selected, what accounting re¬quirement applies?
8. What is a major advantage and a major disadvantage of the specific identification method of inventory costing?
6. Identify the distinguishing features of an income state¬ment for a merchandiser.7. David Shannon believes that the allocation of inventoriable costs should be based on the actual physical flow of
5. Jim’s Hat Shop received a shipment of hats for which it paid the wholesaler $2,970. The price of the hats was$3,000 but Jim’s was given a $30 cash discount and required to pay freight charges
4. (a) Reeves Company ships merchandise to Cox Company on December 30. The merchandise reaches the buyer on January 6. Indicate the terms ofsale that will result in the goods being included in (1)
3. Your friend Tom Witt has been hired to help take the physical inventory in Hawkeye Hardware Store. Explain to Tom Witt what this job will entail.
2. An item must possess two characteristics to be classified as inventory by a merchandiser. What are these two char¬acteristics?
1. “The key to successful business operations is effective in¬ventory management.” Do you agree? Explain.
11. In a perpetual inventory system,a. LIFO cost of goods sold will be the same as in a peri¬odic inventory system.b. average costs are based entirely on unit cost averages.c. a new average is
10. Songbird Company has sales of $150,000 and cost of (SO 8)goods available for sale of $135,000. If the gross profit rate is 30%, the estimated cost of the ending inventory under the gross profit
9. Which of these would cause the inventory turnover ratio to increase the most?a. Increasing the amount of inventory on hand.b. Keeping the amount of inventory on hand constant but increasing
8. Atlantis Company’s ending inventory is understated$4,000. The effects of this error on the current year’s cost of goods sold and net income, respectively, are:a. understated, overstated.b.
7. Rickety Company purchased 1,000 widgets and has 200 widgets in its ending inventory at a cost of $91 each and a current replacement cost of $80 each. The ending inven¬tory under lower of cost or
6. Factors that affect the selection of an inventory costing (SO 3)method do not include:a. tax effects.b. balance sheet effects.c. income statement effects.d. perpetual vs. periodic inventory system.
5. In periods of rising prices, LIFO will produce: (SO 3)a. higher net income than FIFO.b. the same net income as FIFO.c. lower net income than FIFO.d. higher net income than average costing.
4. Using the data in (3) above, the cost of the ending inven- (SO 2)tory under LIFO is:a. $113,000.c. $99,000.b. $108,000.d. $100,000.
3. Tinker Bell Company has the following:Units Unit Cost Inventory, Jan. 1 8,000 $11 Purchase, June 19 13,000 12 Purchase, Nov. 8 5,000 13 If Tinker Bell has 9,000 units on hand at December 31, the
2. Cost of goods available for sale consist of two elements:beginning inventory anda. ending inventory.b. cost of goods purchased.c. cost of goods sold.d. all of the above.
1. Which of the following should not be included in the physical inventory of a company?a. Goods held on consignment from another company.b. Goods shipped on consignment to another company.c. Goods
3. What is the relationship between the inventory turnover ratio and average days in inventory?
2. What is the purpose of the inventory turnover ratio?
1. How do inventory errors affect financial statements?
5. If Samsung isn't successful in selling the units, what steps will it have to take, and how will this show up in its financial statements?
4. When should inventory be reported at a value other than cost?
3. Which inventory cost flow method produces the highest net income in a period of rising prices? Which results in the lowest income taxes?
2. What inventory cost flow method does PepsiCo use for its inventories?(Hint: You will need to examine the notes for PepsiCo’s financial statements.)The answer to this question appears on page 291.
1. What factors should management consider in selecting an inventory cost flow method?
3. Who has title to consigned goods?
2. How is ownership determined for goods in transit at the balance sheet date?
1. What steps are involved in determining inventory quantities?
Why is inventory control important to managers such as those at Wal-Mart?

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