Match the type of inventory with the type of business in the following matrix:

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Elite Apparel purchased 90 new shirts and recorded a total cost of $2,620 determined as follows:

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Required:

Make the needed corrections in this calculation. Give the journal entry(ies) to record this purchase in the correct amount, assuming a perpetual inventory system. Show computations.

Operating costs incurred by a manufacturing company become either (1) part of the cost of inventory to be expensed as cost of goods sold at the time the finished goods are sold or (2) expenses at the time they are incurred. Indicate whether each of the following costs belongs in category 1 or 2.

____________ a. Wages of factory workers

____________ b. Sales salaries

____________ c. Costs of raw materials purchased

____________ d. Heat, light, and power for the factory building

____________ e. Heat, light, and power for the headquarters office building

JCPenney Company, Inc., is a major retailer with department stores in all 50 states. The dominant portion of the company’s business consists of providing merchandise and services to consumers through department stores that include catalog departments. In a recent annual report, JCPenney reported cost of goods sold of $10,969 million, ending inventory for the current year of $3,062 million, and ending inventory for the previous year of $2,969 million.

Required:

Is it possible to develop a reasonable estimate of the merchandise purchases for the year? If so, prepare the estimate; if not, explain why.

JCPenney

Indicate whether the FIFO or LIFO inventory costing method normally produces each of the following effects under the listed circumstances.

1. Rising costs

   Highest net income ____________

   Highest inventory ____________

2. Declining costs

   Highest net income ____________

   Highest inventory ____________

Indicate whether the FIFO or LIFO inventory costing method would normally be selected when inventory costs are rising. Explain why.

Kinney Company had the following inventory items on hand at the end of the year.

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Computing the lower of cost or market on an item-by-item basis, determine what amount would be reported on the balance sheet for inventory.

Indicate the most likely effect of the following changes in inventory management on the inventory turnover ratio (+ for increase, − for decrease, and NE for no effect).

____________ a. Parts inventory delivered daily by suppliers instead of weekly.

____________ b. Shorten production process from 10 days to 8 days.

____________ c. Extend payments for inventory purchases from 15 days to 30 days.

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Assume the 2009 ending inventory was understated by $100,000. Explain how this error would affect the 2009 and 2010 pretax income amounts. What would be the effects if the 2009 ending inventory were overstated by $100,000 instead of understated?