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Exam 9: Inventories: Additional Issues

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Question 21

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In the following questions, inventory errors are noted for 2009. Assume that the errors are not discovered until 2010, and that the company uses a periodic inventory system. Indicate the effect of the error, if any, on the accounts noted in the columns, using the following code: U = understated; O = Overstated; NE = No effect - $\begin{array} { | l | l | l | } \hline { \text { Error } } & \text { Cost of goods sold } & \text { Retained earnings } \\\hline \begin{array} { l } \text { Ignored items purchased and owned } \\\text { that were still in transit. }\end{array} & & \\\hline\end{array}$

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Question 22

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Prunedale Co. uses a periodic inventory system. Beginning inventory on January 1 was understated by $30,000, and its ending inventory on December 31 was understated by $17,000. In addition, a purchase of merchandise costing $20,000 was incorrectly recorded as a $2,000 purchase. None of these errors were discovered until the following year. As a result, Prunedale's cost of goods sold for this year was:

A) Overstated by $31,000.
B) Overstated by $5,000.
C) Understated by $31,000.
D) Understated by $48,000.Understatement of beginning inventory understates ( ) cost of goods sold and the understatement of ending inventory overstates (+) cost of goods sold.Also, the understatement of purchases understates ( ) cost of goods sold: $30,000 + 17,000 18,000 ($20,000 2,000) = $31,000 understatement of cost of goods sold

E) C) and D)
F) B) and C)

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Question 23

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Portman Inc. uses the conventional retail inventory method. Expressed in millions of dollars, information about Portman's 2009 inventory account is expressed in the table below: At what amount would Portman record its inventory on its 12/31/09 balance sheet?

Briefly explain the financial reporting required when a company changes to or from the LIFO inventory method.

In applying the LCM rule, the inventory of surgical equipment would be valued at:

The primary motivation behind LCM is consistency.

In applying the LCM rule, the inventory of skis would be valued at:

Manila Bread Company uses the average cost retail method to estimate its ending inventories. The following data has been summarized for the year 2009: Required: Estimate the ending inventory as of December 31, 2009. $\begin{array} { l c r } & \text { Cost } & \text { Retail } \\\text { Inventory, January 1 } & \$ 54,205 & \$ 78,000 \\\text { Purchases } & 326,000 & 466,000 \\\text { Net markups } & & 8,200 \\\text { Net markdowns } & & 16,700 \\\text { Net sales } & & 412,000\end{array}$

Briefly explain what is meant by "market" in the lower-of-cost-or-market (LCM) approach.

How much loss on purchase commitment will Johnson recognize in 2009?

Howard's Supply Co. suffered a fire loss on April 20, 2009. The company's last physical inventory was taken on January 30, 2009, at which time the inventory totaled $220,000. Sales from January 30 to April 20 were $600,000 and purchases during that time were $450,000. Howard's consistently reports a 30% gross profit. The estimated inventory loss is:

When using the gross profit method to estimate ending inventory, it is not necessary to know:

To determine the value of a LIFO layer, using dollar-value LIFO retail:

Estimated ending inventory at retail is:

Under the LIFO retail method, which of the following are not included in the denominator of the cost-to-retail conversion percentage?

In the following questions, inventory errors are noted for 2009. Assume that the errors are not discovered until 2010, and that the company uses a periodic inventory system. Indicate the effect of the error, if any, on the accounts noted in the columns, using the following code: U = understated; O = Overstated; NE = No effect - $\begin{array} { | c | c | c | } \hline \text { Error } & \text { Cost of goods sold } & \text { Retained earnings } \\\hline \text { Understated beginning inventory } & & \\\hline\end{array}$

To the nearest thousand, estimated ending inventory is:

Penfold's Paints uses the average cost retail method to estimate its ending inventories. The following data has been summarized for the year 2009: Required: Compute the cost-to-retail percentage used by Penfold's Paints. $\begin{array}{lr}& \text { Cost } & \text { Retail } \\\text { Inventory, January 1 } && \$ 65,000 \\\text { Purchases } && 270,000 \\\text { Net markups } && 3,600 \\\text { Net markdowns } && 2,100 \\\text { Net sales } && 260,000\\\text { Inventory, December } 31& \$ 55,080\end{array}$

To the nearest thousand, estimated ending inventory using the conventional retail method is:

In applying the LCM rule, the inventory of boots would be valued at: