Essay Questions 1. Identify the items that are included in merchandise inventory

Question

Essay Questions

1. Identify the items that are included in merchandise inventory. (In your answer address the special situations of goods in transit, consigned goods and damaged goods.)

2. Identify and describe the four inventory valuation methods.

3. Discuss how the principles of internal controls apply to cash receipts.

                                                                                                                                                           Short Answer Questions

1. A company reported the following data:

Year 1

Year 2

Year 3

Cost of goods sold

$347,600

$379,650

$443,900

Average inventory

85,000

91,050

98,350

Required:
1. Calculate the company's merchandise inventory turnover for each year.
2. Comment on the company's efficiency in managing its inventory.

2. A company that uses a perpetual inventory system made the following cash purchases and sales. There was no beginning inventory.

January 1:

Purchased 100 units at $10 per unit

February 5:

Purchased 60 units at $12 per unit

March 16:

Sold 40 Units for $16 per unit

Prepare general journal entries to record the March 16 sale using the FIFO inventory valuation method.

3. Following are seven items a through g that would cause Xavier Company's book balance of cash to differ from its bank statement balance of cash.
a. A service charge imposed by the bank.
b. A check listed as outstanding on the previous period's reconciliation and still outstanding at the end of this month.
c. A customer's check returned by the bank is marked "Not Sufficient Funds. (NSF)"
d. A deposit that was mailed to the bank on the last day of the current month and is unrecorded on this month's bank statement.
e. A check paid by the bank at its correct $190 amount was recorded in error in the company's Check Register at $109.
f. An unrecorded credit memorandum indicated that bank had collected a note receivable for Xavier Company and deposited the proceeds in the company's account.
g. A check was written in the current period that is not yet paid or returned by the bank.

Indicate where each item a through g would appear on Xavier Company's bank reconciliation by placing its identifying letter in the parentheses in the proper section of the form below.

Bank statement cash balance

Book balance of cash

Add:

( )

Add:

( )

( )

( )

( )

( )

( )

( )

Deduct:

( )

Deduct:

( )

( )

( )

( )

( )

( )

( )

Reconciled balance

Reconciled balance

Year 1

Year 2

Year 3

Cost of goods sold

$347,600

$379,650

$443,900

Average inventory

85,000

91,050

98,350

Explanation / Answer

Answer to the question 1:

Merchandise inventory consists of goods that are usually owned by distributor, wholesaler, or retailer from suppliers, holds it for resale to others.
Goods in transit are included in the inventory of the distributor, wholesaler, or retailer that has ownership on these goods.
Consigned goods are included in the inventory of the consignor, who has sent th goods on consignment.
Finally Damaged goods are included in merchandise inventory at net realizable value of the inventory for reporting.

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