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Exam 6: Inventory and Cost of Goods Sold

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Question 31

True/False

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Understating ending inventory in the current year causes cost of goods sold in the current year to be understated.

A) True
B) False

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Question 32

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Good,Inc.sold inventory for $1,200 that was purchased for $700.Good records which of the following when it sells inventory using a periodic inventory system?

A) No entry is required for cost of goods sold and inventory.
B) Debit Cost of Goods Sold $700; credit Inventory $700.
C) Debit Cost of Goods Sold $1,200; credit Inventory $1,200.
D) Debit Inventory $700; credit Cost of Goods Sold $700.

E) A) and C)
F) B) and C)

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Question 33

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When inventory costs are rising,__________ generally results in a lower amount of reported cost of goods sold.

One of the primary benefits of using FIFO when inventory costs are rising is that it results in greater tax savings.

Wildwood,an outdoors clothing store,reports the following information for June: $\begin{array} { l r l } \text { Sales revenue } & \$ 104,000 & \text { Income tax expense } \\\text { Operating expenses } & 22,000 & \text { Cost of goods sold } \\\text { Unearned revenues } & \$ 15,000 & \text { Nonoperating revenues }\end{array}$ What is Wildwood's gross profit for June?

Inventory records for Marvin Company revealed the following: $\begin{array} { c l c r } \text { Date } & { \text { Transaction } } & \begin{array} { c } \text { Number } \\\text { of Units }\end{array} & \begin{array} { r } \text { Unit } \\\text { Cost }\end{array} \\\text { Mar. 1 } & \text { Beginning inventory } & 1,000 & \$ 7.20 \\\text { Mar. 10 } & \text { Purchase } & 600 & 7.25 \\\text { Mar. 16 } & \text { Purchase } & 800 & 7.30 \\\text { Mar. 23 } & \text { Purchase } & 600 & 7.35\end{array}$ Marvin sold 2,300 units of inventory during the month.Cost of goods sold assuming FIFO would be:

In a period when inventory costs are rising,the inventory method that most likely results in the highest ending inventory is:

During periods of rising costs,FIFO generally results in a higher ending inventory balance.

Gross profit equals net sales of inventory less cost of goods sold.

Merchandise sold FOB shipping point indicates that:

For inventory that is shipped FOB shipping point,title transfers from the seller to the buyer once the seller ships the inventory.

Anthony Corporation reported the following amounts for the year: $\begin{array}{lr}\text { Net sales } & \$ 296,000 \\\text { Cost of goods sold } & 138,000 \\\text { Average inventory } & 50,000\end{array}$ Anthony's inventory turnover ratio is:

Cost of goods sold equals:

During 2012,a company sells 300 units of inventory for $85 each.The company has the following inventory purchase transactions for 2012: $\begin{array} { l l c r c } \text { Date } & { \begin{array} { c } \text { Transaction }\end{array} } & \begin{array} { c } \text { Number } \\\text { of Units }\end{array} & \begin{array} { c } \text { Unit } \\\text { Cost }\end{array} & \begin{array} { c } \text { Total } \\\text { Cost }\end{array} \\\text { Jan. 1 } & \text { Beginning inventory } & 60 & \$ 71 & \$ 4,260 \\\text { May 5 } & \text { Purchase } & 170 & 72 & 12,240 \\\text { Nov. 3 } & \text { Purchase } & 180 & 74 & 13,320 \\\hline & & 410 & & \$ 29,820 \\\hline\end{array}$ Calculate ending inventory and cost of goods sold for 2012 assuming the company uses FIFO with a periodic inventory system.

Companies are not allowed to report inventory costs by assuming which units of inventory are sold and which units still remain on hand.

Inventory records for Marvin Company revealed the following: $\begin{array} { l l c r } \text { Date } & { \text { Transaction } } & \begin{array} { c } \text { Number } \\\text { of Units }\end{array} & \begin{array} { r } \text { Unit } \\\text { Cost }\end{array} \\\text { Mar. 1 } & \text { Beginning inventory } & 1,000 & \$ 7.20 \\\text { Mar. 10 } & \text { Purchase } & 600 & 7.25 \\\text { Mar. 16 } & \text { Purchase } & 800 & 7.30 \\\text { Mar. 23 } & \text { Purchase } & 600 & 7.35\end{array}$ Marvin sold 2,300 units of inventory during the month.Cost of goods sold assuming weighted-average cost would be (round weighted-average unit cost to four decimals if necessary) :

A company reports inventory using lower-of-cost-or-market.Below is information related to its year-end inventory: $\begin{array} { r c c c } \text { Inventory } & \text { Quantity } & \text { Cost } & \text { Market } \\\text { Unit A } & 10 & \$ 30 & \$ 32 \\\text { Unit B } & 18 & 43 & 40 \\\text { Unit C } & 12 & 23 & 27 \\\text { Unit D } & 15 & 18 & 17\end{array}$ Calculate ending inventory under lower-of-cost-or-market and record any necessary adjustment to inventory.

What is a multiple-step income statement? What information does it provide beyond "bottom-line" net income?

In a periodic inventory system,the purchase of inventory is debited to:

In a period of rising prices,which inventory valuation method would a company likely choose if they want to have the highest possible balance of inventory on the balance sheet?