15 The gross margin percentage is calculated as follows 16 Inventory turnover

15 the gross margin percentage is calculated as

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15.The gross margin percentage is calculated as follows: ______________________________________. 16.Inventory turnover is calculated by _____________________________________________________. IV. True/False For each of the following statements, circle Tfor true or Ffor false.1. T F The LIFO Reserve will show an increase when inventory costs have been rising. 2. T F If a company uses FIFO, the notes to the financial statements will contain information
Accounting for Merchandise Inventory, Cost of Goods Sold, and the Gross Margin155about a LIFO Reserve. 3. T F The accounts Inventory and Cost of Goods Sold are used in the periodic inventory system. 4. T F Quantity discounts are used to encourage prompt payment. 5. T F The calculation for cost of goods sold is beginning inventory plus net purchases less ending inventory. 6. T F The gross margin rate is determined by dividing gross profit by cost of goods sold. 7. T F When goods are shipped FOB destination, the buyer has the responsibility for freight charges. 8. T F The cash discount term “3/10, eom” means the buyer has until the 10th of the following month to earn the discount. 9. T F Inventory-related transactions appear in the investing activities section of the cash flows statement. 10. T F A high rate of inventory turnover is preferable to a low rate of inventory turnover. 11. T F An error in ending inventory will cause errors in both the current income statement and the next period’s income statement. 12. T F When inventory costs are rising, LIFO results in the highest value for ending inventory. 13. T F LIFO liquidations occur when units on hand fall below the number of units in the beginning inventory. 14. T F LIFO reports the most realistic value for inventory on the balance sheet. 15. T F The specific cost method is an appropriate one for a large grocery store. V. Exercises 1. The following information is given for Teressa’s Tile Co. for the month of August: Lbs. of tiles Unit Cost 8/1 Inventory 600 $1.00 8/7 Purchase 800 1.10 8/13 Purchase 1,400 1.20 8/22 Purchase 1,400 1.25 8/29 Purchase 400 1.15 During the month, 3,800 pounds of tiles were sold. A. How many tiles should be in the inventory at the end of August? B. Using the weighted-average cost method, what are the cost of ending inventory and cost of goods sold?
Chapter 6 156 C. Using the FIFO method, what are the cost of ending inventory and cost of goods sold?
Accounting for Merchandise Inventory, Cost of Goods Sold, and the Gross Margin157D. Using the LIFO method, what are the cost of ending inventory and cost of goods sold? 2. The Brunnel Co.’s inventory was destroyed by a fire. The company’s records show net sales of $360,000, beginning inventory of $80,000, net purchase of $300,000, and a gross margin rate of 40%. What is the estimated value of ending inventory? 3. Assume the following: X1 X2 X3 Beginning Inventory $8,000 $15,000 $12,000 Net Purchases 45,000 50,000 55,000 Goods Available for Sale 53,000 65,000 67,000 Ending Inventory 15,000 12,000 8,000 Cost of Goods Sold 38,000 53,000 59,000 You discover the following errors: a. Ending inventory X1 was overstated by $6,000 b. Ending inventory X2 was understated by $4,000 Considering these errors, recalculate cost of goods sold for all three years.
Chapter 6 158 4. The following information is available for Gearty Co. for 19X9:

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