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Exam 6: Inventory and Cost of Goods Sold

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Question 81

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Consider the following inventory transactions for September: Beginning inventory $\quad 15$ units @ $3.00 Purchase on September $12 \quad 20$ units @ $3.50 Purchased on September $23 \quad 10$ units $@ \$ 4.00$ For the month of September, the company sold 35 units. What is the cost of good sold under the weighted-average cost method (round the weighted-average unit cost to four decimals if necessary) ?

A) $121.
B) $116.
C) $124.
D) $131.

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Question 82

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In a period when inventory costs are falling, the lowest taxable income is most likely reported by using the inventory method of:

A) Weighted average.
B) LIFO.
C) Moving average.
D) FIFO.

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Question 83

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LeGrand Corporation reported the following amounts in its income statement: $\text { Sales revenue }$ What was LeGrand's net income?

Which of the following is true concerning inventory cost flow assumptions?

Listed below are five terms followed by a list of phrases that describe or characterize the terms. Match each phrase with the best term placing the letter designating the term in the space provided. Terms: -_____ Inventory items for which the manufacturing process is complete.

Cost of goods sold is an expense reported in the income statement and represents the cost of inventory sold during the period.

Wildwood, an outdoors clothing store, reports the following information for June: $\begin{array} { l r l r } \text { Sales revenue } & \$ 104,000 & \text { Income tax expense } & \$ 11,000 \\\text { Operating expenses } & 22,000 & \text { Cost of goods sold } & 65,000 \\\text { Unearned revenues } & \$ 15,000 & \text { Nonoperating revenues } & 12,000\end{array}$ What is Wildwood's gross profit for June?

Nu Company reported the following data for its first year of operations: $\begin{array} { l r } \text { Net sales } & \$ 2,800 \\\text { Cost of goods sold } & 1,680 \\\text { Operating expenses } & 880 \\\text { Ending inventories } & 820\end{array}$ What is Nu's gross profit ratio?

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

Listed below are four terms followed by a list of phrases that describe or characterize the terms. Match each phrase with the best term placing the letter designating the term in the space provided. Terms: -_____ Indicates that title to inventory transfers from the seller to the buyer at the point it is shipped.

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?

What are the three primary cost flow assumptions? How does the specific identification method differ from these three primary cost flow assumptions?

Inventory records for Dunbar Incorporated revealed the following: $\begin{array} { l l c r } \text { Date } &{ \text { Transaction } } & \text { Number } & \text { Unit } \\&&\text { of Units } & \text { Cost } \\\text { Apr. 1 } & \text { Beginning inventory } & 500 & \$ 2.40 \\\text { Apr. 20 } & \text { Purchase } & 400 & 2.50\end{array}$ Dunbar sold 700 units of inventory during the month. Ending inventory assuming LIFO would be:

Listed below are ten terms followed by a list of phrases that describe or characterize five of the terms. Match each phrase with the best term placing the letter designating the term in the space provided. Terms: -_____ LIFO must be used for financial reporting if elected for taxes.

Companies are free to choose FIFO, LIFO, or weighted-average cost to report inventory and cost of goods sold.

Using a perpetual inventory system, the purchase of inventory is recorded with a debit to the Purchases account, which is a temporary account closed to cost of goods sold at the end of the period.

What does it mean that FIFO has a balance sheet focus and LIFO has an income statement focus?

The use of the lower-of-cost-or-market method to report inventory is an example of conservatism in financial reporting.

On May 1, Ace Bonding Company purchased inventory costing $2,000 on account with terms 2/10, n/30. On May 8, Ace pays for this inventory and records which of the following using a perpetual inventory system?

For each company, calculate the missing amount. $\begin{array}{l}\begin{array} { l c c r r r } &&\text { Cost of }\\\text { Company } & \text { Sales } & \begin{array} { c } \text { Goods } \\\text { Sold }\end{array} & \begin{array} { l } \text { Gross } \\\text { Profit }\end{array} & \begin{array} { r } \text { Operating } \\\text { Expenses }\end{array} & \begin{array} { c } \text { Net } \\\text { Income }\end{array} \\\text { Lennon } & \$ 8,000 & ( \text { a) } & \$ 4,000 & \$ 3,000 & \$ 1,000 \\\text { Harrison } & 9,000 & 3,000 & \text { (b) } & 2,000 & 4,000 \\\text { MeCartney } & 8,000 & 3,000 & 5,000 & \text { (c) } & 2,000 \\\text { Starr } & 7,000 & 3,000 & 5,000 & 3,000 & \text { (d) }\end{array}\end{array}$