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

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Question 41

True/False

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The use of raw materials in the manufacturing process is reported as an operating expense on the income statement.

A) True
B) False

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Question 42

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Which of the following would not be a component of the year-end inventory balance?

A) Freight-in costs.
B) Inventory inspection costs.
C) Inventory preparation costs.
D) Inventory-related selling costs.

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

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Question 43

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Sideline Company reported net income for 2013 of $70,000 and in 2014 of $84,000 (both after income taxes at a 30% rate). It was discovered in 2014 that the ending inventory for 2013 was understated by $2,000 (before any income tax effect). Required: Calculate the correct net income (after income tax of 30%) for 2013 and 2014

Which of the following costs does not become a part of inventory of a manufacturer?

The LIFO inventory method will result in the lowest gross profit in comparison with the FIFO method when unit costs are decreasing.

Which of the following statements is correct when inventory unit costs are decreasing?

An overstatement of the 2013 ending inventory results in an overstatement of stockholders' equity as of the end of 2014.

Direct material costs are a component of the cost of the work-in process inventory.

The following income statement is complete except for a few missing titles (bold lines on the left), and amounts (dotted lines on the right). Required: Prepare a complete income statement using the format and amounts provided. Fill in all items that are missing titles and amounts (ignore income taxes).

RJ Corporation has provided the following information about one of its inventory items: $\begin{array}{clrr}\text { Date }&\text { Transaction } &\text { Number of Units }&\text { Cost per Unit }\\\hline1 / 1 & \text { Beginning Inventory } & 400 & \$ 3,200 \\6 / 6 & \text { Purchase } & 800 & \$ 3,600 \\9 / 10 & \text { Purchase } & 1,200 & \$ 4,000 \\11 / 15 & \text { Purchase } & 800 & \$ 4,200\end{array}$ During the year, RJ sold 3,000 units. What was cost of goods sold using the LIFO cost flow assumption under a periodic inventory system?

A company provided the following data: sales, $500,000; beginning inventory, $40,000; ending inventory, $45,000; and gross profit, $150,000. What was the amount of inventory purchased during the year?

The LIFO Reserve represents the excess of FIFO inventory costs over LIFO inventory costs.

How much was ending inventory when sales revenue was $500,000, purchases were $310,000, beginning inventory was $22,000, and gross profit was $200,000.

Under the LIFO cost flow assumption during a period of rising costs, which of the following is false?

Assume Webster Company buys bicycle helmets at a unit cost of $30 and sells them at a unit price of $52. There was no beginning inventory. Required: Provide the journal entries required below by entering the account code of the appropriate account and the amount for each debit and credit: $\begin{array} { l c } \text { Account Name } & \text { Account Code } \\\text { Inventory } & \text { A } \\\text { Purchases } & \text { B } \\\text { Cost of goods sold } & \text { C } \\\text { Sales revenue } & \text { D } \\\text { Cash } & \text { E }\end{array}$

At the end of 2014, a $5,000 understatement was discovered in the amount of the 2014 ending inventory as reflected in the inventory records. What were the 2014 effects of the $5,000 inventory error (before correction) ?

On March 15, 2014, Ryan Company purchased $10,000 of merchandise on credit subject to terms of 2/10, n/30. Ryan Company records its purchases using the gross amount. The periodic inventory system is used. Which of the following journal entries is correct when Ryan Company pays for these goods on March 20, 2014?

An understatement of the ending inventory in Year 1, if not corrected, will cause which of the following?

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

Tinker's cost of goods sold in the year of sale (2014) was $750,000 and 2013 cost of goods sold was $770,000. The inventory at the end of 2014 was $188,000 and $208,000 at the end of 2013. Tinker's inventory turnover during 2014 was closest to: