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Exam 6: Inventory and Cost of Goods Sold

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Question 41

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Sales revenue minus cost of goods sold is referred to as operating income.

A) True
B) False

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Question 42

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Ace Bonding Company purchased inventory on account. The inventory costs $2,000 and is expected to sell for $3,000. How should Ace record the purchase using a periodic inventory system?

A) Purchases $\quad 2,000$
Accounts Payable $\quad 2,000$
B) Cost of Goods Sold $\quad 2,000$
Unearned Revenue $\quad 1,000$
Sales Revenue $\quad 3,000$
C) Cost of Goods Sold $\quad 2,000$
Accounts Payable $\quad 2,000$
D) Cost of Goods Sold $\quad 2,000$
Gain $\quad 1,000$
Accounts Payable $\quad 3,000$

E) C) and D)
F) None of the above

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Question 43

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Using the first-in, first-out method (FIFO), the first units purchased are assumed to be the first ones sold.

Inventory does not include:

At the beginning of 2012, Calston Incorporated reports inventory of $9,000. During 2012, the company purchases additional inventory for $25,000. At the end of 2012, the cost of inventory remaining is $8,000. Calculate cost of goods sold for 2012.

If a company understates its ending balance of inventory in year 1 and it records inventory correctly in year 2, which one of the following is true?

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

Merchandising companies purchase inventories that are primarily in finished form for resale to customers.

Inventory records for Dunbar Incorporated revealed the following: $\begin{array} { l l c r } \text { Date } &{ \text { Transaction } } & \text { Number } & \text { Unit Cost} \\\text { Apr. 1 } & \text { Beginning inventory } & 500 & \text { \$2.40 } \\\text { Apr. 20 } & \text { Purchase } & 400 & 2.50\end{array}$ Dunbar sold 700 units of inventory during the month. Ending inventory assuming weighted-average cost would be (round weighted-average unit cost to four decimals if necessary) :

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

A company that has average inventory of $500 and cost of goods sold of $2,000 would have an inventory turnover ratio of 0.25.

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

The primary reason for the popularity of LIFO is that it gives:

During 2012, a company sells 500 units of inventory for $90 each. The company has the following inventory purchase transactions for 2012: $\begin{array} { c l c c c } \text { Date } & { \begin{array} { c } \text { Transaction }\end{array} } & \begin{array} { c } \text { Number } \\\text { of Units }\end{array} & \begin{array} { r } \text { Unit } \\\text { Cost }\end{array} & { \begin{array} { c } \text { Total } \\\text { Cost }\end{array} } \\\text { Jan. 1 } & \text { Beginning inventory } & 80 & \$ 79 & \$ 6,320 \\\text { May 5 } & \text { Purchase } & 270 & 80 & 21,600 \\\text { Nov. 3 } & \text { Purchase } & 190 & 82 & 15,580 \\\hline & & 540 & & \$ 43,500 \\& & & &\end{array}$ Calculate cost of goods sold and ending inventory for 2012 assuming the company uses weighted-average cost with a periodic inventory system (round weighted-average unit cost to four decimals if necessary).

A company uses a perpetual system to record inventory transactions. The company purchases inventory on account on February 9, 2012, for $50,000 and then sells this inventory on account on March 7, 2012, for $70,000. Record the transactions for the purchase and sale of the inventory.

Tyler Toys has beginning inventory for the year of $18,000. During the year, Tyler purchases inventory for $230,000 and has cost of goods sold equal to $233,000. Tyler's ending inventory equals:

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

Northwest Fur Co. started the year with $94,000 of merchandise inventory on hand. During the year, $400,000 in merchandise was purchased on account with credit terms of 1/15, n/45. All discounts were taken. Northwest paid freight-in charges of $7,500. Merchandise with an invoice amount of $5,000 was returned for credit. Cost of goods sold for the year was $380,000. What is ending inventory?

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

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