Some Accounting for Inventories questions I have: 1. CAISCO Sales Inc. had a beg

Question

Some Accounting for Inventories questions I have:

1.

CAISCO Sales Inc. had a beginning inventory of May comprising of 700 units that had a cost of $80/unit. A summary of purchases and sales during the month of May are as follows:

If CAISCO Sales Inc. uses a periodic inventory system, which of the following statements is true?

CAISCO Sales Inc. must use the weighted average cost flow assumption since a perpetual inventory system is used.

CAISCO Sales Inc. must use the FIFO cost flow assumption since a periodic inventory system is used.

None of the other alternatives are correct

CAISCO Sales Inc.'s ending inventory will be higher if FIFO is used than if LIFO is used.

CAISCO Sales Inc.'s ending inventory consists of 1,200 units only if FIFO cost flow method IS assumed.

2.

Chime Inc. counted and valued its inventory using the first-in, first-out (FIFO) cost flow assumption at both December 31, 2004 and 2005 and reported these amounts on its financial statements. While there was no consignment inventory on hand at December 31, 2005, there was at December 31, 2004. If consignment inventory (inventory not belonging to Chime, but stored on its premises), had been inadvertently counted and included in the 2004 inventory valuation, the

inventory would have been understated at December 31, 2005

inventory would have been overstated at December 31, 2005

net income would have been understated in 2004

None of the other alternatives are correct

net income would have been understated in 2005

3.

Date Unit Cost Units Purchased Units sold May 2 400 May 6 $83 1,200 May 10 900 May 19 $85 800 May 23 500 May 30 $88 300

Explanation / Answer

Req 1. Answer is CAISCO sales inc ending inventory will be higher if FIFO is used than if LIFO is used. Q2. Answer is Net income would have been understated in 2005 As the beginning inventory will be refelcting at the higher value. Q3. Answer is $2200 STATEMENT SHOWING INVENTORY RECORD UNDER PERPETUAL LIFO METHOD RECIEPTS COST OF GOODS SOLD BALANCE DATE UNITS RATE AMOUNT $ UNITS RATE AMOUNT $ UNITS RATE AMOUNT $ 4-Dec 300 15 4500 10-Dec 100 18 1800 300 15 4500 100 18 1800 15-Dec 100 18 1800 220 15 3300 80 15 1200 20-Dec 150 20 3000 80 15 1200 150 20 3000 29-Dec 100 20 2000 80 15 1200 50 20 1000 TOTAL 250 4800 420 7100 130 2200 Q4. Answer is $1482 Explanation: Average cost per unit: Units Rate Total Amount 1-Nov 150 4 600 7-Nov 200 4.2 840 11-Nov 200 4.4 880 22-Nov 250 4.8 1200 TOTAL 800 3520 Average cost (3520/800)= 4.40 Sales (570@$7) 3990 Less: COGS (570 units @4.4) 2508 Gross Margin 1482

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