Name ____________________ Initials: ____ (Work below is my own, and will not be/has not been shared with

others) ACC 301, Quiz 4, Fall 2013

1. Saul Company determined inventory on December 31 and concluded that goods with a cost of $250,000 were either on hand or in transit. Included were $20,000 of goods in transit purchased from CIA Corp., f.o.b. shipping point, and $30,000 of goods in transit sold to NSA Company for $40,000, f.o.b. destination. What amount should Saul report as its December 31 inventory? (3 points) $250,000. Neither should be subtracted because Saul still has title. 2. Inventory information for Bipolar Corp. discloses the following information for the month of December. Determine cost of goods sold and ending inventory assuming a perpetual inventory system and that Bipolar uses the last-in-first out cost flow assumption (3 points). June Beg. Inventory June 11 Purchase June 15 Sale June 20 Purchase June 27 Sale June End. Inventory 375 units at $14/each ($5,250) 225 units at $16/each ($3,600) 500 units at $36/each 525 units at $18/each ($9,450) 250 units at $38/each Confirmed to be 325 375 units

Using the perpetual system and LIFO cost flow assumption, for the June 15 sale the cost-of-goods sold would be $7,450 (225*16 + 275*14), and for the June 27 sale the cost-of-goods sold would be $4,500 (250*18). Thus, costof-goods sold is $11,950 (7450+4500). Ending inventory can be determined as BI + Purchases EI, which is 5250 + (3600+9450) 11950, or $6,350.

3. In 2012, AbuNazir Company reported ending inventory of $350,000 and began using dollar-value LIFO. In 2013, AbuNazirs purchases were $653,460 and its inventory at current cost (e.g., in 2013 dollars) was $353,940. If the price index in 2012 was 1.00 and the price index in 2013 was 1.02, what would AbuNazirs reported ending inventory be in 2013? (2 points) Ending 2013 inventory in base year $ = 353,940/1.02 = $347,000. Because this is a decrease from 2012 inventory, no new layer is added, so 2013 inventory = $347,000 4. How do perpetual and periodic inventory systems differ? (2 points)

In a periodic system, ending inventory is determined by a physical inventory account. Cost of goods sold is debit (and inventory is credited) based on what is needed to reduce the ending inventory to the correct amount at the end of the period. Using the perpetual inventory system, a journal entry to record cost of goods sold and credit inventory would be necessary after each sale. 003

Name ____________________ Initials: ____ (Work below is my own, and will not be/has not been shared with others) ACC 301, Quiz 4, Fall 2013

1. Carrie Company determined inventory on December 31 and concluded that goods with a cost of $250,000 were on hand. However, not included were $20,000 of goods in transit purchased from CIA Corp., f.o.b. destination, and $30,000 of goods held on consignment from NSA Company, with a resale value of $40,000. What amount should Carrie report as its December 31 inventory? (3 points) $250,000. Neither should be added because Carrie does have title to either. 2. Inventory information for Bipolar Corp. discloses the following information for the month of December. Determine cost of goods sold and ending inventory assuming a perpetual inventory system and that Bipolar uses the last-in-first out cost flow assumption (3 points). June Beg. Inventory June 11 Purchase June 15 Sale June 20 Purchase June 27 Sale June End. Inventory 375 units at $14/each ($5,250) 225 units at $16/each ($3,600) 550 units at $36/each 525 units at $18/each ($9,450) 250 units at $38/each Confirmed to be 325 units

Using the perpetual system and LIFO cost flow assumption, for the June 15 sale the cost-of-goods sold would be $8,150 (225*16 + 325*14), and for the June 27 sale the cost-of-goods sold would be $4,500 (250*18). Thus, costof-goods sold is $12,650 (8150+4500). Ending inventory can be determined as BI + Purchases EI, which is 5250 + (3600+9450) 12650, or $5,650.

3. In 2012, AbuNazir Company reported ending inventory of $350,000 and began using dollar-value LIFO. In 2013, AbuNazirs purchases were $653,460 and its inventory at current cost (e.g., in 2013 dollars) was $353,940. If the price index in 2012 was 1.00 and the price index in 2013 was 1.02, what would AbuNazirs reported ending inventory be in 2013? (2 points) Ending 2013 inventory in base year $ = 353,940/1.02 = $347,000. Because this is a decrease from 2012 inventory, no new layer is added, so 2013 inventory = $347,000 4. What is the purpose of the lower-of-cost-or market rule for inventory? If determining that market for inventory was $5,000 lower than inventorys cost, what journal entry would be made? (2 points) The purpose of this rule is to prevent overstatement of inventory and record a loss in the period in which it is incurred rather than waiting until inventory is sold. Dr. Impairment or COGS $5000 Cr. Inventory $5000

004

Name ____________________ Initials: ____ (Work below is my own, and will not be/has not been shared with others) ACC 301, Quiz 4, Fall 2013

1. Brody Company determined inventory on December 31 and concluded that goods with a cost of $250,000 were either on hand or in transit. Included were $20,000 of goods in transit purchased from CIA Corp., f.o.b. destination, and $30,000 of goods sold to NSA Company for $40,000, for which Brody and NSA Company had agreed that buyback a would occur in February. What amount should Brody report as its December 31 inventory? (3 points) $230,000 [250,000 20,000]. Appropriate to include sales with a buyback agreement in inventory. 2. Inventory information for TurnedPOW Corp. discloses the following information for the month of December. Determine cost of goods sold and ending inventory assuming a perpetual inventory system and that TurnedPOW uses the average cost cost flow assumption (3 points). June Beg. Inventory 375 units at $14/each ($5,250) June 11 Purchase 225 units at $16/each ($3,600) June 15 Sale 500 units at $36/each June 20 Purchase 525 units at $18/each ($9,450) June 27 Sale 250 units at $38/each June End. Inventory Confirmed to be 375 units (Note: round any average per-unit calculations to the nearest penny) Using the perpetual system and average cost flow assumption, for the June 15 sale the cost-of-goods sold would be $7,375 (14.75 * 500) based on an average cost of $14.75 per unit [($5250+3600)/(375+225)], and for the June 27 sale cost of goods sold would be $4,370 (17.48 * 250) based on an average cost of $17.48 per unit [($5250+3600-7375+9450)/(375+225-500+525)]. Thus, cost-of-goods sold is $11,745 (7375+4370). Ending inventory can be determined as BI + Purchases EI, which is 5250 + (3600+9450) 11745, or $6,555.

3. In 2012, AbuNazir Company reported ending inventory of $350,000 and began using dollar-value LIFO. In 2013, AbuNazirs purchases were $653,460 and its inventory at current cost (e.g., in 2013 dollars) was $353,940. If the price index in 2012 was 1.00 and the price index in 2013 was 1.02, what would AbuNazirs reported ending inventory be in 2013? (2 points) Ending 2013 inventory in base year $ = 353,940/1.02 = $347,000. Because this is a decrease from 2012 inventory, no new layer is added, so 2013 inventory = $347,000 4. Which assumption (FIFO or LIFO) generally results in higher earning quality? (1 point) LIFO 5. Which assumption (FIFO or LIFO) results in greater relevance for ending inventory? (1 point) FIFO

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