Inventory Flashcards
(5 cards)
A company that uses the periodic inventory system had the following information regarding its inventory:
Description Units Unit price Total
January 1 5 $7 $35
Purchase 1 4 $9 $36
Purchase 2 6 $10 $60
Purchase 3 3 $12 $36
Available 18 $167
The company has 8 units remaining in inventory at year end and uses the FIFO method to account for its inventory. What amount of cost of goods sold should be reported for its year end?
$81.00
Under the FIFO method with a periodic Inventory System, inventory sold is assumed to be from the earliest (First-In) purchases, and ending inventory consists of the most recent (Last-In) purchases.
Description Units Unit price Total
January 1 5 $7 $35
Purchase 1 4 $9 $36
Purchase 2 1 $10 $10
$81
Herc Co.’s inventory at December 31 of the previous year was $1,500,000, based on a physical count priced at cost, and before any necessary adjustment for the following:
Merchandise costing $90,000, shipped FOB shipping point from a vendor on December 30 of the previous year was received and recorded on January 5 of the current year.
Goods in the shipping area were excluded from inventory although shipment was not made until January 4 of the current year. The goods, billed to the customer FOB shipping point on December 30 had a cost of $120,000.
What amount should Herc report as inventory in its December 31, previous year balance sheet?
$1,590,000
Goods should be included in the purchaser’s inventory when legal title passes to the purchaser. Therefore, Herc should include the $90,000 cost of goods shipped to it FOB shipping point in inventory at 12/31 of the previous year because title to these goods passed to Herc when the goods were picked up by the common carrier on 12/30. Herc should also include the $120,000 cost of goods in its shipping area in inventory at 12/31 of the previous year. These goods should be included in inventory because shipment of these goods to the customer was not made until the current year.
On January 1 of the current year, Card Corp. signed a three-year, noncancelable purchase contract, which allows Card to purchase up to 500,000 units of a computer part annually from Hart Supply Co. at $.10 per unit and guarantees a minimum annual purchase of 100,000 units. During the year, the parts unexpectedly became obsolete. Card had 250,000 units of this inventory at December 31 and believes these parts can be sold as scrap for $.02 per unit. What amount of probable loss from the purchase commitment should Card report in its year-end income statement?
$16,000
A loss on the purchase commitment should be calculated based only on the minimum unit purchase requirement for the remaining years on the contract. Therefore, Card should calculate its loss at 12/31 based on the two years remaining on the purchase contract.
Seafood Trading Co. commenced operations during the year as a large importer and exporter of seafood. The imports were all from one country overseas. The export sales were conducted as drop shipments and were merely transshipped at Seattle. Seafood Trading reported the following data:
Purchases during the year $12M
Shipping costs from overseas 1.5M million
Shipping costs to export customers 1M
Inventory at year end 3M
What amount of shipping costs should be included in Seafood Trading’s year-end inventory valuation?
375,000
$12M/3M = 4m 11.5m/4 = 375,000
Merchandise inventory should include freight-in, taxes, insurance while in transit, warehousing costs, and similar charges paid by the purchaser to bring the merchandise to its existing condition and location. Thus, the $1.5 million in shipping costs from overseas should be included in the inventory valuation. The shipping costs to export customers are a selling expense and should not be included in the cost of inventory. Seafood purchased $12 million in inventory during the year and has $3 million remaining in inventory at year end. The $12 million divided by $3 million means one-quarter of the inventory is still remaining. Thus, one-quarter of the $1.5 million, or $375,000, in shipping costs from overseas should be included in the year-end inventory valuation.
Generally, which inventory costing method approximates most closely the current cost for each of the following? for COGS and Ending Inventory – LIFO or FIFO
COGS is LIFO and EI is FIFO
In using LIFO, the cost of the last goods in are used in pricing the cost of goods sold. Therefore, the LIFO method will result in having cost of goods sold most closely approximate current cost. In using FIFO, the cost of the last goods are used in pricing the ending inventory. Thus, the FIFO method will result in having ending inventory most closely approximate current cost.
