Question

1. Minun Company uses a periodic inventory method. At December 31,2017, Minun Company took a physical count of inventory but erroneously forgot to include inventory that they consigned to another company for sale. In the following year end, the company correctly counted their inventory. This error will:

1. increase net income in 2017 and decrease net income in 2018.
2. decrease net income in 2017 and increase net income in 2018.
3. increase net income in both 2017 and 2018.
4. decrease net income in both 2017 and 2018.

1. Data related to the inventories of Ace Medical Supply are presented below: (Ace uses FIFO for their inventory)

		Surgical				Rehab
		Supplies				Equipment
Selling price		$	100			$	340
Cost			90				250
Costs to sell			15				25

In applying the lower of cost or net realizable value rule, the inventory of rehab equipment would be valued at:

1. $315.
2. $340.
3. $225.
4. $250.

Answer 1

1.

At December 31,2017, Minun Company took a physical count of inventory but erroneously forgot to include inventory that they consigned to another company for sale.

The above error will decrease the ending inventory for 2017 and the beginning inventory for 2018. This will result in a decrease in the net income for 2017 and an increase in the net income for 2018.

Therefore, correct answer is b. decrease net income in 2017 and increase net income in 2018.

2.

Under the lower of cost or net realizable value rule, inventory is valued at lower of cost or net realizable value that is selling price less selling cost.

Cost of inventory = 250

Net realizable value of inventory = selling price - cost to sell = 340 - 25 = 315

Because the cost is less than net realizable value, inventory will be valued at cost.

Therefore,

The correct answer is d. 250