Problem 1: The following lots of a particular commodity were available for sale during the year:
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Beginning inventory
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10 units at $61
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First purchase
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25 units at $63
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Second purchase
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30 units at $64
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Third purchase
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15 units at $73
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The firm uses the periodic system and there are 20 units of the commodity on hand at the end of the year. What is the amount of the inventory at the end of the year according to the average cost method?
- $1,300
- $1,305
- $1,415
- $1,236
Problem 2: If the cost of an item of inventory is $60 and the current replacement cost is $65, the amount included in inventory according to the lower of cost or market is ________.
Problem 3: During the taking of its physical inventory on December 31, 2008, Albert’s Bike Shop incorrectly counted its inventory as $210,000 instead of the correct amount of $180,000. The effect on the balance sheet and income statement would be as follows: _________.
- assets overstated by $30,000;retained earnings understated by $30,000; net income statement understated by $30,000
- assets overstated by $30,000;retained earnings understated by $30,000; no effect on the income statement
- assets and retained earnings overstated by $30,000; net income overstated by $30,000
- assets and retained earnings overstated by $30,000; net income understated by $30,000
Problem 4: If, while taking a physical inventory, the company counts their inventory figures more than the actual amount. How will the error affect their bottom line?
- No change to net income
- Net income will be overstated
- Net income will be understated
- Only gross profit will be affected