Explore BrainMass
Share

Valuation of inventories

This content was STOLEN from BrainMass.com - View the original, and get the already-completed solution here!

1. During 2007, which was the first year of operations, Luther Company had merchandise purchases of $985,000 before cash discounts. All purchases were made on terms of 2/10, n/30. Three-fourths of the items purchased were paid for within 10 days of purchase. All of the goods available had been sold at year end.

Which of the following recording procedures would result in the highest cost of goods sold for 2007?

1. Recording purchases at gross amounts
2. Recording purchases at net amounts, with the amount of discounts not taken shown under "other expenses" in the income statement

a. 1
b. 2
c. Either 1 or 2 will result in the same cost of goods sold.
d. Cannot be determined from the information provided.

2. During 2007, which was the first year of operations, Luther Company had merchandise purchases of $985,000 before cash discounts. All purchases were made on terms of 2/10, n/30. Three-fourths of the items purchased were paid for within 10 days of purchase. All of the goods available had been sold at year end.
Which of the following recording procedures would result in the highest net income for 2007?

1. Recording purchases at gross amounts
2. Recording purchases at net amounts, with the amount of discounts not taken shown under "other expenses" in the income statement

a. 1
b. 2
c. Either 1 or 2 will result in the same net income.
d. Cannot be determined from the information provided.

3. When using the periodic inventory system, which of the following generally would not be separately accounted for in the computation of cost of goods sold?
a. Trade discounts applicable to purchases during the period
b. Cash (purchase) discounts taken during the period
c. Purchase returns and allowances of merchandise during the period
d. Cost of transportation-in for merchandise purchased during the period

4. Costs which are inventoriable include all of the following except
a. costs that are directly connected with the bringing of goods to the place of business of the buyer.
b. costs that are directly connected with the converting of goods to a salable condition.
c. buying costs of a purchasing department.
d. selling costs of a sales department.

5. Which inventory costing method most closely approximates current cost for each of the following:

Ending Inventory Cost of Goods Sold

a. FIFO FIFO
b. FIFO LIFO
c. LIFO FIFO
d. LIFO LIFO

© BrainMass Inc. brainmass.com October 24, 2018, 11:47 pm ad1c9bdddf
https://brainmass.com/business/inventory/valuation-of-inventories-205666

Solution Preview

1. During 2007, which was the first year of operations, Luther Company had merchandise purchases of $985,000 before cash discounts. All purchases were made on terms of 2/10, n/30. Three-fourths of the items purchased were paid for within 10 days of purchase. All of the goods available had been sold at year end.

Which of the following recording procedures would result in the highest cost of goods sold for 2007?
1. Recording purchases at gross ...

Solution Summary

This posting answers 5 multiple choice questions on valuation of inventories.

$2.19
See Also This Related BrainMass Solution

Cost Valuation Systems: Inventory and Costs of Goods Sold

Please help to analyze the questions. In addition I need the formula to for the FIFO method and LIFO along with the cost of good sold.

See the attached file.

1. The Beautifully Fabulous Beauty Salon (BFBS) purchases its inventory from a manufacturer in California. BFBS has a high selling product called "Beauty Gloss". During the year BFBS disclosed the following information concerning the inventory:

January 1, 2009
Beginning Inventory
245 units
$27.00 per unit

March 31, 2009
Purchase of Inventory
360 units
$29.00 per unit

June 30, 2009
Purchase of Inventory
1000 units
$32.00 per unit

September 30, 2009
Sales of Inventory
1447 units

2. Analyze the above data using the LIFO an FIFO methods. What are the Inventory and Cost of Good Sold (COGS) ?

a. In addition to the above data, suppose the number of units available at the beginning of January was 545 and the cost of the March purchase was $31.00 per unit; what would COGS be for September? What would the ending Inventory be for September?

4. Discuss the measurements used to recognize the amounts recorded in the Inventory and Cost of Goods Sold and the impact of Net Income.

View Full Posting Details