Inventory Questions PDF

Preview

Summary

More practice questions for the inventory topic...

Description

Winter 13 Accounting for Inventory and Cost of Sales Miller Corp. sells chairs. Miller reported the following information (all transactions are on account) for the quarter ending March 31, 2013:

Required (Round the results to two decimal places): In requirements 1-3, Miller uses a periodic inventory system. 1. Calculate the cost of ending inventory, cost of goods sold, gross profit, and gross profit percentage for the quarter ending March 31, 2013, assuming the FIFO inventory costing method is used (4 marks) 2. Would Miller’s gross profit increase or decrease if it uses the weighted-average cost method instead of FIFO? You simply need to explain the direction of the change in gross profit. No calculations are required. (1.5 marks) 3. Miller reports its ending inventory at the Lower of Cost and Net Realizable Value (LCNRV); the net realizable value of chairs declined to $66 per unit on March 31, 2013. Prepare journal entries for March 31, 2013, assuming the FIFO inventory costing method is used. If no journal entry is required, indicate “no entry required” and briefly explain the reason. (2 marks) In requirements 4-5, Miller uses a perpetual inventory system. 4. Prepare journal entries to record the sale on January 29, assuming the FIFO inventory costing method is used. (3.5 marks) 5. Calculate the cost of the 67 chairs sold on March 21, assuming the weighted-average cost method is used? Show your detailed calculations. Journal entries are not required. (4 marks)

1

Fall13 Inventories and Cost of Goods Sold Hurley Inc. is a wholesaler of motorcycle parts. The company uses a perpetual inventory system, and its fiscal year ends on December 31. Hurley had the following transactions during 2012.

Transactions

Units

Unit Cost

(a) Inventory, December 31, 2011

10,000

$8

For the year 2012: (b) Purchase, March 21 (c) Sale, June 20 ($13 each) (d) Purchase, August 19 (e) Sale, November 20 ($10 each)

30,000 35,000 15,000 12,000

6 5.5

Required (Round all your calculations to two decimal points): 1. Compute the gross profit, assuming the company uses the following inventory costing method: (10 marks) a. FIFO. b. Weighted average. 2. Would your answer above be different under a periodic inventory system, assuming the company continues to use: a. the FIFO inventory costing method? b. the weighted average inventory costing method? Explain your answers. Calculations are not necessary to answer this requirement. (3 marks) 3. In the most recent annual report, Hurley stated that its inventories are carried at the lower of cost and net realizable value (LCNRV). What effects would this rule have on the company’s financial statements if the net realizable value of Hurley’s ending inventory drops below cost? (2 marks)

2

Winter 14 Inventory and Cost of Sales Vins Inc. is an online wine club promoting Canadian wines. All sales are in cash. During the first quarter of 2014, the company had the following transactions:

Additional information: Vins had 150 bottles of wine at a cost of $ 3,600 as at January 1, the beginning of its fiscal year 2014. Vins uses a perpetual inventory system and the weighted average costing method.

Required: (Show detailed calculations and round to two decimal points) 1. Calculate the cost of sales and the ending balance of inventory as at March 31, 2014. (5 marks) 2. Suppose Vins used a periodic inventory system and the weighted average costing method, instead. What would be the impact on the company’s inventory turnover ratio and gross profit margin? Be specific in your answers, and no calculation is required. (3.5 marks) 3. Vins found on April 5, 2014 that 10 bottles of wine from the March 15 shipment had gone bad due to faulty corks. Assuming nothing can be recovered from these bottles, should the company record this information (if yes, prepare journal entries; if no, briefly explain why)? (1.5 marks) 4. For this requirement only, suppose Vins used a perpetual inventory system and the FIFO costing method, instead. How would your answers in requirement 1 change? Be specific in your answers, and no calculation is required. (2 marks)

3...