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Exam 7: Reporting and Interpreting Cost of Goods Sold and Inventory

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Question 1

Multiple Choice

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Coleman Company has provided the following information: beginning inventory, $100,000; cost of goods sold, $450,000; and ending inventory, $80,000. How much were Coleman's inventory purchases?

A) $450,000.
B) $410,000.
C) $430,000.
D) $420,000.

E) None of the above
F) All of the above

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Question 2

Multiple Choice

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When a company uses the periodic inventory system, which of the following is true?

A) Purchases are recorded in the cost of goods sold account.
B) The inventory account is updated after each sale.
C) Cost of goods sold is computed at the end of the accounting period rather than at each sale date.
D) The inventory account is updated throughout the year as purchases are made.

E) All of the above
F) None of the above

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Question 3

Multiple Choice

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Maxim Corp. has provided the following information about one of its products: $\begin{array}{clrr}\text { Date }&\text { Transaction } &\text { Number of Units }&\text { Cost per Unit }\\\hline1 / 1 & \text { Beginning Inventory } & 200 & \$ 140 \\6 / 5 & \text { Purchase } & 400 & \$ 160 \\11 / 10 & \text { Purchase } & 100 & \$ 200\end{array}$ During the year, Maxim sold 400 units. What is ending inventory using the average cost method?

Which of the following businesses would not be as likely to use the specific identification method of inventory valuation?

Which of the following journal entries is not consistent with the use of a perpetual inventory system? A. Inventory $\quad$ Accounts payable B. Cost of goods sold $\quad$ Inventory C. Purchases $\quad$ Accounts payable D. Accounts receivable $\quad$ Sales revenue

For each independent situation given below, determine the effect on pretax income for each. Enter "O" to indicate pretax income is overstated, "U" to indicate pretax income is understated, or "NA" to indicate that pretax income is not affected.

The inventory records of Martin Corporation reflected the following information for the month of August: Required: A. Determine the amount of the ending inventory and cost of goods sold under each of the following methods assuming the periodic inventory system. B. Why would cash flow considerations relate to the choice of an inventory method?

Lauer Corporation uses the periodic inventory system and has provided the following information about one of its laptop computers: $\begin{array}{clrr}\text { Date }&\text { Transaction } &\text { Number of Units }&\text { Cost per Unit }\\\hline1 / 1 & \text { Beginning Inventory } & 100 & \$ 800 \\5 / 5 & \text { Purchase } & 200 & \$ 900 \\8 / 10 & \text { Purchase } & 300 & \$ 1,000 \\10 / 15 & \text { Purchase } & 200 & \$ 1,050\end{array}$ During the year, Lauer sold 750 laptop computers. What was ending inventory using the LIFO cost flow assumption?

Which of the following statements is incorrect?

Which of the following statements is correct?

Redford Company hired a new store manager in October 2013, who determined the ending inventory on December 31, 2013, to be $50,000. In March, 2014, the company discovered that the December 31, 2013 ending inventory should have been $58,000. The December 31, 2014, inventory was correct. Ignore income taxes. Required: Complete the following table to show the effects of the inventory error on the four amounts listed. Give the amount of the discrepancy and indicate whether it was overstated (O), understated (U), or had no effect (N).

In the year of an overstatement of ending inventory, cost of goods sold will be understated and net income will be overstated.

Carp Corporation has provided the following information for its most recent month of operation: sales $16,000; ending inventory $4,000, purchases $8,000 and gross profit $10,000. How much was Carp's beginning inventory?

Manufactured goods transferred out of work in process are reported as finished goods on the balance sheet.

Which of the following is correct?

An overstatement of the 2013 ending inventory results in an overstatement of stockholders' equity as of the end of 2013.

The journal entry to write-down inventory under the lower of cost or market (LCM) rule results in a decrease in both ending inventory and cost of goods sold.

Hollander Company hired some students to help count inventory during their semester break. Unfortunately, the students added incorrectly and the 2014 ending inventory was overstated by $5,000. What would be the effect of this error in ending inventory?

Atomic Company did not record a December 2013 purchase of inventory on credit until January 2014. Assuming that the December 31, 2013 ending inventory was correctly determined, what is the effect of this error on the financial statements for the year ended December 31, 2014?

QV-TV, Inc. provided the following items in its notes to the financial statements for the year-end 2014: Cost of goods sold was $22 billion under FIFO costing and the inventory value under FIFO costing was $2.1 billion. The LIFO Reserve for year-end 2014 was $0.6 billion and at year-end 2014 it had increased to $0.8 billion. How much is the 2014 LIFO cost of goods sold?