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Exam 6: Inventory and Cost of Goods Sold

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Question 31

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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. Cost of goods sold assuming FIFO would be:

A) $1,730.
B) $1,700.
C) $1,720.
D) $1,710.

E) A) and B)
F) A) and C)

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Question 32

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Inventory records for Marvin Company revealed the following: $\begin{array} { c l c r } \text { Date } & { \text { Transaction } } & \begin{array} { c } \text { Number } \\\text { of Units }\end{array} & \begin{array} { r } \text { Unit } \\\text { Cost }\end{array} \\\text { Mar. 1 } & \text { Beginning inventory } & 1,000 & \$ 7.20 \\\text { Mar. 10 } & \text { Purchase } & 600 & 7.25 \\\text { Mar. 16 } & \text { Purchase } & 800 & 7.30 \\\text { Mar. 23 } & \text { Purchase } & 600 & 7.35\end{array}$ 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) A) and B)
F) B) and D)

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Question 33

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Given the information below, what is the gross profit? Sales revenue $\quad \$ 320,000$ Accounts receivable $\quad 50,000$ Ending inventory $\quad 100,000$ Cost of goods sold $\quad 250,000$ Sales Returns $\quad 20,000$

For inventory that is shipped FOB shipping point, title transfers from the seller to the buyer once the seller ships the inventory.

Which inventory cost flow assumption generally results in the highest reported amount for cost of goods sold when inventory costs are falling?

During 2012, a company sells 400 units of inventory for $85 each. The company has the following inventory purchase transactions for 2012: $\begin{array} { l l r r r } \text { Date } & { \text { Transaction } } & \begin{array} { c } \text { Number } \\\text { of Units }\end{array} & \begin{array} { c } \text { Unit } \\\text { Cost }\end{array} & \begin{array} { c } \text { Total } \\\text { Cost }\end{array} \\\text { Jan. 1 } & \text { Beginning inventory } & 60 & \$ 70 & \$ 4,200 \\\text { May 5 } & \text { Purchase } & 180 & 72 & 12,960 \\\text { Nov. 3 } & \text { Purchase } & 190 & 75 & 14,250 \\\hline & & 430 & & \$ 31,410 \\\hline\end{array}$ Calculate ending inventory and cost of goods sold for 2012 assuming the company uses LIFO with a periodic inventory system.

Cost of Goods Sold is:

Accountants often call FIFO the balance sheet approach because the amount it reports for ending inventory better approximates the current cost of inventory.

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. Cost of goods sold assuming weighted-average cost would be (round weighted-average unit cost to four decimals if necessary) :

Gross profit equals net sales of inventory less cost of goods sold.

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

When the value of inventory falls below its cost, companies have the option of recording the inventory at cost or the lower market value.

Generally, a lower gross profit ratio reflects positively on a company's ability to manage its inventory.

When inventory costs are rising, __________ generally results in a lower income tax obligation.

Merchandise sold FOB destination indicates that:

The LIFO conformity rule states that if LIFO is used for:

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

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 weighted-average cost with a periodic inventory system.

What effect would an adjustment to record inventory at the lower-of-cost-or-market have on the company's financial statements?

When inventory costs are declining, __________ generally results in a higher amount of reported net income.