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Exam 6: Inventory and Cost of Goods Sold

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Question 21

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Which inventory method is better described as having an income statement focus and why is it considered as such?

A) FIFO; better approximates the value of ending inventory.
B) LIFO; better approximates the value of ending inventory.
C) LIFO; better approximates inventory cost necessary to generate revenue.
D) FIFO; better approximates inventory cost necessary to generate revenue.

E) All of the above
F) A) and C)

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Question 22

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If a company has beginning inventory of $15,000,purchases during the year of $75,000,and ending inventory of $20,000,cost of goods sold equals $70,000.

A) True
B) False

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Question 23

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Which inventory cost flow assumption generally results in the highest reported amount for cost of goods sold when inventory costs are falling?

Using LIFO,the amount reported for ending inventory does not differ depending on whether a company uses a periodic system or a perpetual system.

The largest expense on a retailer's income statement is typically:

When the value of inventory falls below its cost,companies have the option of recording the inventory at cost or the lower market value.

During 2012,a company sells 200 units of inventory for $50 each.The company has the following inventory purchase transactions for 2012: $\begin{array} { l l c r r } \text { Date } & { \begin{array} { c } \text { Transaction }\end{array} } & \begin{array} { c } \text { Number } \\\text { of Units }\end{array} & \begin{array} { r } \text { Unit } \\\text { Cost }\end{array} & \begin{array} { c } \text { Total } \\\text { Cost }\end{array} \\\text { Jan. 1 } & \text { Beginning inventory } & 50 & \$ 39 & \$ 1,950 \\\text { May 5 } & \text { Purchase } & 100 & 38 & 3,800 \\\text { Nov. 3 } & \text { Purchase } & 80 & 37 & 2,960 \\\hline& & 230 & & \$ 8,710 \\\hline\end{array}$ Actual sales by the company include its entire beginning inventory,80 units of inventory from the May 5 purchase,and 70 units from the November 3 purchase.Calculate cost of goods sold and ending inventory for 2012 assuming the company uses specific identification.

The LIFO reserve is the additional amount of inventory a company would report if it used FIFO instead of LIFO.

Consider the following inventory data for two companies: Which of these companies had the higher inventory turnover ratio?

If A sells to B,and B obtains title while goods are in transit,the goods were shipped.If C sells to D,and C maintains title until the goods arrive at D's door then the goods were shipped.

Which inventory method is better described as having a balance sheet focus and why is it considered as such?

The primary difference between the periodic and perpetual inventory systems is:

Baker Fine Foods has beginning inventory for the year of $12,000.During the year,Baker purchases inventory for $150,000 and ends the year with $20,000 of inventory.Baker will report cost of goods sold equal to:

Generally,a higher inventory turnover ratio reflects positively on a company's ability to manage its inventory.

During 2012,a company sells 20 units of inventory.The company has the following inventory purchase transactions for 2012: $\begin{array} { l l c c c } \text { Date } & { \begin{array} { c } \text { Transaction }\end{array} } & \begin{array} { c } \text { Number } \\\text { of Units }\end{array} & \begin{array} { c } \text { Unit } \\\text { Cost }\end{array} & \begin{array} { l } \text { Total } \\\text { Cost }\end{array} \\\text { Jan. 1 } & \text { Beginning inventory } & 15 & \$ 60 & \$ 900 \\\text { Sep. 8 } & \text { Purchase } & 10 & 62 & 620 \\\hline & & 25 & & \$ 1,520 \\\hline\end{array}$ Calculate ending inventory and cost of goods sold for 2012 assuming the company uses LIFO with a periodic inventory system.

Consider the following inventory transactions for September: $\begin{array}{lll}\text { Beginning inventory } & 15 \text { units @ \$3.00 } \\\text { Purchase on September 12 } & 20 \text { units @ \$3.50 } \\\text { Purchased on September 23 } & 10 \text { units @ \$4.00 }\end{array}$ 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) ?

LeGrand Corporation reported the following amounts in its income statement: $\begin{array} { l r } \text { Sales revenue } & \$ 440,000 \\\text { Advertising expense } & 60,000 \\\text { Interest expense } & 10,000 \\\text { Salaries expense } & 55,000 \\\text { Utilities expense } & 25,000 \\\text { Income tax expense } & 45,000 \\\text { Cost of goods sold } & 180,000\end{array}$ What was LeGrand's gross profit?

In a perpetual inventory system,at the time of a sale the cost of inventory sold is:

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?

Inventory is usually reported as a long-term asset in the balance sheet.