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Exam 8: Valuation of Inventories: a Cost-Basis Approach

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Question 21

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Use the following information for questions During 2007 Foley Corporation transferred inventory to Kline Corporation and agreed to repurchase the merchandise early in 2008.Kline then used the inventory as collateral to borrow from Norwalk Bank, remitting the proceeds to Foley.In 2008 when Foley repurchased the inventory, Kline used the proceeds to repay its bank loan. -This transaction is known as a(n)

A) consignment.
B) installment sale.
C) assignment for the benefit of creditors.
D) product financing arrangement.

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Question 22

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LIFO liquidations can occur frequently when using a specific-goods approach.

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Question 23

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Brown Corporation uses the FIFO method for internal reporting purposes and LIFO for external reporting purposes.The balance in the LIFO Reserve account at the end of 2007 was $60,000.The balance in the same account at the end of 2008 is $90,000.Brown's Cost of Goods Sold account has a balance of $450,000 from sales transactions recorded during the year.What amount should Brown report as Cost of Goods Sold in the 2008 income statement?

Many companies use LIFO for both tax and internal reporting purposes.

Freight charges on goods purchased are considered a period cost and therefore are not part of the cost of the inventory.

Costs which are inventoriable include all of the following except

Tysen Retailers purchased merchandise with a list price of $50,000, subject to trade discounts of 20% and 10%, with no cash discounts allowable.Tysen should record the cost of this merchandise as

Harder Corporation uses the perpetual inventory method.On March 1, it purchased $30,000 of inventory, terms 2/10, n/30.On March 3, Harder returned goods that cost $3,000.On March 9, Harder paid the supplier.On March 9, Harder should credit

In all cases when FIFO is used, the cost of goods sold would be the same whether a perpetual or periodic system is used.

Cross Co.accepted delivery of merchandise which it purchased on account.As of December 31, Cross had recorded the transaction, but did not include the merchandise in its inventory.The effect of this on its financial statements for December 31 would be

Use the following information for questions Dolan Corporation adopted the dollar-value LIFO method of inventory valuation on December 31, 2005.Its inventory at that date was $220,000 and the relevant price index was 100.Information regarding inventory for subsequent years is as follows: $\begin{array}{lrr}& \text { Inventory at } & \text { Current } \\\text { Date } & \text { Current Prices } & \text { Price Index }\\\text { December 31, 2006 } & \$ 256,800 & 107 \\\text { December 31, 2007 } & 290,000 & 125 \\\text { December 31,2008 } & 325,000 & 130\end{array}$ -What is the cost of the ending inventory at December 31, 2006 under dollar-value LIFO?

Dark Co.recorded the following data pertaining to raw material X during January 2007: $\begin{array}{lllll}&\text { Units }\\\text { Date } && \text { Received } & \text { Cost } & \text { Issued } & \text {On Hand }\\1 / 1 / 07 & \text { Inventory } && \$ 8.00 & & 3,200 \\1 / 11 / 07 & \text { Issue } & && 1,600 & 1,600\\1/22/07&\text { purchase }&4,000&\$9.40&&5,600\end{array}$ The moving-average unit cost of X inventory at January 31, 2007 is

Use the following information for Ely Company had January 1 inventory of $100,000 when it adopted dollar-value LIFO.During the year, purchases were $600,000 and sales were $1,000,000.December 31 inventory at year-end prices was $126,500, and the price index was 110. -What is Ely Company's gross profit?

Which inventory costing method most closely approximates current cost for each of the following: $\begin{array}{lcc} & \text { Ending Inventory } & \text { Cost of Goods Sold } \\\text { a. } & \text { FIFO } & \text { FIFO } \\\text { b. } & \text { FIFO } & \text { LIFO } \\\text { c. } & \text { LIFO } & \text { FIFO } \\\text { d. } & \text { LIFO } & \text { LIFO }\end{array}$

Use the following information for AJ Company had January 1 inventory of $100,000 when it adopted dollar-value LIFO.During the year, purchases were $600,000 and sales were $1,000,000.December 31 inventory at year-end prices was $143,360, and the price index was 112. -What is AJ Company's ending inventory?

The dollar-value LIFO method measures any increases and decreases in a pool in terms of total dollar value and physical quantity of the goods.

Use the following information for questions Transactions for the month of June were: $\begin{array} { r r r r r r } { \text { Purchases } } && { \text { Sales } } \\\hline \text { June } 1 & \text { (balance) } 800 @ \$ 3.20 & \text { June } 2 & 600 @ \$ 5.50 \\3 & 2,200 @ 3.10 & 6 & 1,600 @ 5.50 \\7 & 1,200 @ 3.30 & 9 & 1,000 @ 5.50 \\15 & 1,800 @ 3.40 & 10 & 400 @ 6.00 \\22 & 500 @ 3.50 & 18 & 1,400 @ 6.00 \\& & 25 & 200 @ 6.00\end{array}$ -Assuming that perpetual inventory records are kept in units only, the ending inventory on an average-cost basis, rounded to the nearest dollar, is

Both merchandising and manufacturing companies normally have multiple inventory accounts.

The failure to record a purchase of mer?chandise on account even though the goods are properly included in the physical inven?tory results in

The cost flow assumption adopted must be consistent with the physical movement of the goods.