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Exam 6: Inventory and Cost of Goods Sold

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Question 61

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Inventory records for Marvin Company revealed the following: $\begin{array} { l l c r } \text { Date } & { \text { Transaction } } & \begin{array} { c } \text { Number } \\\text { of Units }\end{array} & \begin{array} { r } \text { Unit } \\\text { Cost }\end{array} \\\text { Mar. 1 } & \text { Beginning inventory } & 1,000 & \$ 7.20 \\\text { Mar. 10 } & \text { Purchase } & 600 & 7.25 \\\text { Mar. 16 } & \text { Purchase } & 800 & 7.30 \\\text { Mar. 23 } & \text { Purchase } & 600 & 7.35\end{array}$ Marvin sold 2,300 units of inventory during the month.Cost of goods sold assuming LIFO would be:

A) $16,800.
B) $16,760.
C) $16,540.
D) $16,660.

E) C) and D)
F) A) and C)

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Question 62

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A periodic inventory system does not continually modify inventory amounts,but instead adjusts for purchases and sales of inventory at the end of the reporting period based on a physical count of inventory on hand.

A) True
B) False

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Question 63

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What does the balance of cost of goods sold in the income statement represent? What does the balance of inventory in the balance sheet represent?

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 operating income?

A company reports inventory using the lower-of-cost-or-market method.Below is information related to its year-end inventory: $\begin{array} { l c c c } \text { Inventory } & \text { Quantity } & \text { Cost } & \text { Market } \\\text { Item A } & 100 & \$ 25 & \$ 30 \\\text { Item B } & 50 & 30 & 20\end{array}$ Calculate ending inventory under lower-of-cost-or-market and record any necessary adjustment to inventory.

Inventory records for Marvin Company revealed the following: $\begin{array} { l l c r } \text { Date } & { \text { Transaction } } & \begin{array} { c } \text { Number } \\\text { of Units }\end{array} & \begin{array} { r } \text { Unit } \\\text { Cost }\end{array} \\\text { Mar. 1 } & \text { Beginning inventory } & 1,000 & \$ 7.20 \\\text { Mar. 10 } & \text { Purchase } & 600 & 7.25 \\\text { Mar. 16 } & \text { Purchase } & 800 & 7.30 \\\text { Mar. 23 } & \text { Purchase } & 600 & 7.35\end{array}$ Marvin sold 2,300 units of inventory during the month.Ending inventory assuming FIFO would be:

The following information pertains to Julia & Company: March 1 Beginning inventory $=30$ units $@ \$ 5$ March 3 Purchased 15 units @ \$4 March 9 Sold 25 units $@ \$ 8$ What's the ending balance of inventory for Julia & Company assuming that it uses FIFO?

When inventory costs are declining,__________ generally results in a lower amount of reported inventory.

A company reports inventory using lower-of-cost-or-market.Below is information related to its year-end inventory.Calculate the amount to be reported for ending inventory. $\begin{array} { l c c c } \text { Inventory } & \text { Quantity } & \text { Cost } & \text { Market } \\\text { Ski jackets } & 10 & \$ 130 & \$ 110 \\\text { Skis } & 25 & \$ 250 & \$ 300\end{array}$

Given the information below,what is the gross profit? $\begin{array} { l r } \text { Sales revenue } & \$ 320,000 \\\text { Accounts receivable } & 50,000 \\\text { Ending inventory } & 100,000 \\\text { Cost of goods sold } & 250,000 \\\text { Sales Returns } & 20,000\end{array}$

The LIFO conformity rule requires a company that uses LIFO for tax reporting to use FIFO for financial reporting.

A company reports the following amounts at the end of the year: Sales revenue Cost of goods sold Net income $\$ 300,000$ 225,000 50,000 Compute the company's gross profit ratio.

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

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

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.

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

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

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?

Inventory records for Marvin Company revealed the following: $\begin{array} { l l c r } \text { Date } & { \text { Transaction } } & \begin{array} { c } \text { Number } \\\text { of Units }\end{array} & \begin{array} { r } \text { Unit } \\\text { Cost }\end{array} \\\text { Mar. 1 } & \text { Beginning inventory } & 1,000 & \$ 7.20 \\\text { Mar. 10 } & \text { Purchase } & 600 & 7.25 \\\text { Mar. 16 } & \text { Purchase } & 800 & 7.30 \\\text { Mar. 23 } & \text { Purchase } & 600 & 7.35\end{array}$ Marvin sold 2,300 units of inventory during the month.Ending inventory assuming weighted-average cost would be (round weighted-average unit cost to four decimals if necessary) :

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