|ACCT 201 Principles of Financial Accounting
Practice Exam - Chapter 5
Reporting & Analyzing Inventories
Dr. Fred Barbee
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Short Problem #1
Evaluate each (separate) inventory error and determine whether it overstates or understates each item.
|Inventory Error||Cost of Goods Sold||Net Income|
|Understates beginning inventory|
|Understates ending inventory|
|Overstates beginning inventory|
|Overstates ending inventory|
A company reported the following data related to its ending inventory::
Calculate the lower-of-cost-or-market on the: (a) Inventory as a whole; and (b) Inventory applied separately to each product.
A company uses the retail inventory method and has the following information available concerning its most recent accounting period:
Smith Company reported the following current-year data for its only product:
|Jan. 1||Beginning Inventory||
|Units @ $10||
|Units @ $15||
|Units @ $20||
|Units @ $25||
|Cost of Goods Available for Sale||
Smith resold its products at $40 per unit on the following dates:
Smith uses a perpetual inventory system. Determine the costs assigned to cost of goods sold and ending inventory using (a) FIFO and (b) LIFO. Compute the gross margin for each method.
Last Modified October 4, 2002