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Exam 6: Inventory and Cost of Goods Sold

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Question 71

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Good,Inc.sold inventory for $1,200 that was purchased for $700.Good records which of the following when it sells inventory using a perpetual inventory system?

A) No entry is required for cost of goods sold and inventory.
B) Debit Cost of Goods Sold $700; credit Inventory $700.
C) Debit Cost of Goods Sold $1,200; credit Inventory $1,200.
D) Debit Inventory $700; credit Cost of Goods Sold $700.

E) A) and B)
F) B) and D)

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Question 72

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Companies are free to choose FIFO,LIFO,or weighted-average cost to report inventory and cost of goods sold.

A) True
B) False

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Question 73

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The gross profit ratio measures the amount by which the sale price of inventory exceeds its cost per dollar of sales.

The inventory turnover ratio equals cost of goods sold divided by average inventory.

During periods when inventory costs are rising,ending inventory will most likely be:

Suppose that Hastings Corporation overstates its ending inventory for 2012.What effect will this have on the reported amount of cost of goods sold for 2012?

Merchandise sold FOB destination indicates that:

Cost of goods sold is an expense reported in the income statement and represents the cost of inventory sold during the period.

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

A multiple-step income statement reports multiple levels of profitability,such as gross profit,operating income,income before income taxes,and net income.

Cost of Goods Sold is:

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:

Inventory does not include:

Beasley,Inc.reports the following amounts in its December 31,2012,income statement. Prepare a multiple-step income statement. $\begin{array} { l r l r } \text { Sales revenue } & \$ 300,000 & \text { Income tax expense } & \$ 38,000 \\\text { Interest expense } & 12,000 & \text { Cost of goods sold } & 125,000 \\\text { Salaries expense } & 35,000 & \text { Advertising expense } & 24,000 \\\text { Utilities expense } & 41,000 & &\end{array}$

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?

Suppose Company A places an order with Company B on May 12.On May 14,Company B ships the ordered goods to Company A with terms FOB destination.The goods arrive at Company A on May 17.Company A begins selling the goods to customers on May 19 and pays Company B on May 20.When would Company B record the sale of goods to Company A?

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

During 2012,a company sells 500 units of inventory for $90 each.The company has the following inventory purchase transactions for 2012: $\begin{array} { l l c r c } \text { Date } & { \begin{array} { c } \text { Transaction }\end{array} } & \begin{array} { c } \text { Number } \\\text { of Units }\end{array} & \begin{array} { r } \text { Unit } \\\text { Cost }\end{array} & \begin{array} { c } \text { Total } \\\text { Cost }\end{array} \\\text { Jan. 1 } & \text { Beginning inventory } & 80 & \$ 79 & \$ 6,320 \\\text { May 5 } & \text { Purchase } & 270 & 80 & 21,600 \\\text { Nov. 3 } & \text { Purchase } & 190 & 82 & 15,580 \\\hline& & 540 & & \$ 43,500 \\\hline\end{array}$ 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).

The adjustment to write down inventory from cost to its lower market value includes a debit to Cost of Goods Sold and a credit to Inventory.

Ending inventory is equal to the cost of items on hand plus: