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Exam 6: Inventory and Cost of Goods Sold

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Question 1

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During 2012, a company sells 20 units of inventory. The company has the following inventory purchase transactions for 2012: Calculate ending inventory and cost of goods sold for 2012 assuming the company uses FIFO with a periodic inventory system.

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Question 2

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The following information relates to inventory for Shoeless Joe Inc. $\begin{array} { l l c c } \text { Date } & & \text { Quantity } & \text { Price } \\\text { March 1 } & \text { Beginning Inventory } & 20 & \$ 2 \\\text { March 7 } & \text { Purchase } & 15 & 3 \\\text { March 11 } & \text { Sale } & 30 & 7 \\\text { March 12 } & \text { Purchase } & 15 & 6\end{array}$ At what amount would Shoeless report cost of goods sold using the weighted-average cost flow assumption? (Round your answer to the nearest dollar)

A) $110.
B) $73.
C) $70.
D) $105.

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

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Question 3

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

A company reports inventory using lower-of-cost-or-market. Below is information related to its year-end inventory: Calculate ending inventory under lower-of-cost-or-market and record any necessary adjustment to inventory.

The distinction between operating and nonoperating income relates to:

Cost of goods sold is an asset reported in the balance sheet and inventory is an expense reported in the income statement.

If a company has ending inventory of $25,000, purchases during the year of $95,000, and beginning inventory of $30,000, cost of goods sold equals $90,000.

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?

What is meant by the assertion that the lower-of-cost-or-market method is an example of conservatism in accounting?

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

Freight-in is included in the cost of inventory.

During periods of rising costs, LIFO generally results in a higher ending inventory balance.

Listed below are five terms followed by a list of phrases that describe or characterize the terms. Match each phrase with the best term placing the letter designating the term in the space provided. Terms: -_____ Equals income before income taxes less income taxes.

If a company understates its count of ending inventory in Year 1, which of the following is true?

Understating ending inventory in the current year causes cost of goods sold in the current year to be understated.

During periods of rising costs, LIFO generally results in a higher cost of goods sold.

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

Listed below are five terms followed by a list of phrases that describe or characterize the terms. Match each phrase with the best term placing the letter designating the term in the space provided. Terms: -_____ Equals gross profit less operating expenses.

For each item below, indicate whether FIFO or LIFO will generally result in a higher reported amount when inventory costs are rising versus falling.

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?