Deck 6: Inventory and Cost of Goods Sold

Question 1

Merchandising companies purchase inventories that are primarily in finished form for resale to customers.

Answer 1

True

Question 2

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

Answer 2

True

Question 3

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

Answer 3

True

Question 4

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

Question 5

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

Question 6

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

Question 7

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

Question 8

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

Question 9

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

Question 10

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.

Question 11

Inventory is usually reported as a long-term asset in the balance sheet.

Question 12

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

Question 13

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

Question 14

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

Question 15

If a company has beginning inventory of $15,000,purchases during the year of $75,000,and ending inventory of $20,000,cost of goods sold equals $70,000.

Question 16

Companies are not allowed to report inventory costs by assuming which units of inventory are sold and which units still remain on hand.

Question 17

Using the weighted-average cost method,the average cost of inventory is calculated as the average unit cost of inventory purchased during the year.

Question 18

Income before income taxes equals operating income plus nonoperating revenues less nonoperating expenses.

Question 19

For most companies,actual physical flow of their inventory follows LIFO.

Question 20

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

Question 21

At the time inventory is sold,cost of goods sold is recorded under the perpetual inventory system.

Question 22

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

Question 23

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

Question 24

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

Question 25

When the market value of inventory falls below its cost,no adjustment to the accounting records is needed.

Question 26

The use of the lower-of-cost-or-market method to report inventory is an example of conservatism in financial reporting.

Question 27

One of the primary benefits of using FIFO when inventory costs are rising is that it results in greater tax savings.

Question 28

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.

Question 29

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

Question 30

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.

Question 31

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.

Question 32

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

Question 33

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

Question 34

Overstating ending inventory in the current year causes net income in the current year to be overstated.

Question 35

Freight-in is included in the cost of inventory.

Question 36

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

Question 37

A company that has average inventory of $500 and cost of goods sold of $2,000 would have an inventory turnover ratio of 0.25.

Question 38

Generally,a higher inventory turnover ratio reflects positively on a company's ability to manage its inventory.

Question 39

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

Question 40

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

Question 41

Wildwood,an outdoors clothing store,reports the following information for June: What is Wildwood's gross profit for June?

A)$18,000.
B)$39,000.
C)$104,000.
D)$17,000.

Question 42

The cost of the goods that a company sold during a period is shown in its financial statements as ___________ and the cost of the goods that a company still has on hand at the end of the year is shown in the financial statements as ____________.

A)Cost of goods sold;inventory.
B)Goods on hand;inventory expense.
C)Inventory;cost of goods sold.
D)Sales revenue;cost of goods sold.

Question 43

The following information relates to inventory for Shoeless Joe Inc. At what amount would Shoeless report gross profit using LIFO cost flow assumptions?

A)$105.
B)$80.
C)$175.
D)$120.

Question 44

Given the information below,what is the gross profit?

A)$250,000.
B)$70,000.
C)$220,000.
D)$50,000.

Question 45

Cost of Goods Sold is:

A)An asset account.
B)A revenue account.
C)An expense account.
D)A permanent equity account.

Question 46

Baker Fine Foods has beginning inventory for the year of $12,000.During the year,Baker purchases inventory for $150,000 and ends the year with $20,000 of inventory.Baker will report cost of goods sold equal to:

A)$150,000.
B)$158,000.
C)$142,000.
D)$170,000.

Question 47

Inventory records for Dunbar Incorporated revealed the following:
Dunbar sold 700 units of inventory during the month.Ending inventory assuming LIFO would be:

A)$500.
B)$490.
C)$470.
D)$480.

Question 48

The distinction between operating and nonoperating income relates to:

A)Continuity of income.
B)Principal activities of the reporting entity.
C)Consistency of income stream.
D)Reliability of measurements.

Question 49

LeGrand Corporation reported the following amounts in its income statement: What was LeGrand's gross profit?

A)$260,000.
B)$180,000.
C)$220,000.
D)$120,000.

Question 50

The largest expense on a retailer's income statement is typically:

A)Salaries.
B)Cost of goods sold.
C)Income tax expense.
D)Depreciation expense.

Question 51

The following information relates to inventory for Shoeless Joe Inc. At what amount would Shoeless report ending inventory using FIFO cost flow assumptions?

A)$55.
B)$170.
C)$110.
D)$70.

Question 52

LeGrand Corporation reported the following amounts in its income statement: What was LeGrand's operating income?

A)$120,000.
B)$260,000.
C)$110,000.
D)$65,000.

Question 53

Inventory does not include:

A)Materials used in the production of goods to be sold.
B)Assets intended to be sold in the normal course of business.
C)Equipment used in the manufacturing of assets for sale.
D)Assets currently in production for normal sales.

Question 54

Consider the following year-end information for Spitzer Corporation:
What amount will Spitzer report for operating income?

A)$200,000.
B)$210,000.
C)$380,000.
D)$120,000.

Question 55

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:

A)$15,000.
B)$18,000.
C)$21,000.
D)$19,000.

Question 56

The following information relates to inventory for Shoeless Joe Inc. 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.

Question 57

LeGrand Corporation reported the following amounts in its income statement: What was LeGrand's net income?

A)$120,000.
B)$60,000.
C)$110,000.
D)$65,000.

Question 58

Cost of goods sold equals:

A)Beginning inventory − net purchases + ending inventory.
B)Beginning inventory + accounts payable − net purchases.
C)Net purchases + ending inventory − beginning inventory.
D)Beginning inventory + net purchases − ending inventory.

Question 59

Given the information in the table below,what is the company's gross profit?

A)$280,000.
B)$170,000.
C)$50,000.
D)$100,000.

Question 60

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

Question 61

Inventory records for Marvin Company revealed the following: Marvin sold 2,300 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):

A)$16,733.
B)$17,408.
C)$16,713.
D)$16,089.

Question 62

Inventory records for Marvin Company revealed the following: Marvin sold 2,300 units of inventory during the month.Ending inventory assuming LIFO would be:

A)$5,040.
B)$5,055.
C)$5,075.
D)$5,135.

Question 63

During periods when inventory costs are rising,cost of goods sold will most likely be:

A)Higher under FIFO than LIFO.
B)Higher under FIFO than average cost.
C)Lower under average cost than LIFO.
D)Lower under LIFO than FIFO.

Question 64

Which of the following is true regarding LIFO and FIFO?

A)In a period of decreasing costs,LIFO results in lower total assets than FIFO.
B)In a period of decreasing costs,LIFO results in lower net income than FIFO.
C)In a period of rising costs,LIFO results in lower net income than FIFO.
D)The amount reported for COGS is based on market value of inventory if LIFO is used.

Question 65

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 is the ending inventory balance for Julia & Company assuming that it uses FIFO?

A)$125.
B)$100.
C)$110.
D)$85.

Question 66

Inventory records for Marvin Company revealed the following: Marvin sold 2,300 units of inventory during the month.Ending inventory assuming FIFO would be:

A)$5,140.
B)$5,080.
C)$5,060.
D)$5,050.

Question 67

Inventory records for Marvin Company revealed the following: 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.

Question 68

In a period of rising costs,which inventory valuation method would a company likely choose if they want to have the highest possible balance of inventory on the balance sheet?

A)Weighted-average cost.
B)FIFO.
C)LIFO.
D)Periodic.

Question 69

Inventory records for Dunbar Incorporated revealed the following:
Dunbar sold 700 units of inventory during the month.Cost of goods sold assuming LIFO would be:

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

Question 70

Inventory records for Dunbar Incorporated revealed the following:
Dunbar sold 700 units of inventory during the month.Ending inventory assuming FIFO would be:

A)$500.
B)$490.
C)$470.
D)$480.

Question 71

Consider the following inventory transactions for September: For the month of September,the company sold 35 units.What is cost of good sold under the weighted-average cost method (round the weighted-average unit cost to four decimals if necessary)?

A)$121.
B)$116.
C)$124.
D)$131.

Question 72

Inventory records for Marvin Company revealed the following: Marvin sold 2,300 units of inventory during the month.Cost of goods sold assuming FIFO would be:

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

Question 73

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 is the cost of goods sold for Julia & Company assuming it uses LIFO?

A)$125.
B)$100.
C)$110.
D)$85.

Question 74

In a period when inventory costs are rising,the inventory method that most likely results in the highest ending inventory is:

A)Lower-of-cost-or-market method.
B)Weighted-average cost.
C)FIFO.
D)LIFO.

Question 75

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

A)Greater under LIFO than FIFO.
B)Less under average cost than LIFO.
C)Greater under average cost than FIFO.
D)Greater under FIFO than LIFO.

Question 76

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

A)Weighted-average.
B)LIFO.
C)Moving-average.
D)FIFO.

Question 77

Inventory records for Dunbar Incorporated revealed the following:
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.

Question 78

Inventory records for Dunbar Incorporated revealed the following:
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):

A)$1,711.
B)$1,700.
C)$1,720.
D)$1,708.

Question 79

Inventory records for Dunbar Incorporated revealed the following:
Dunbar sold 700 units of inventory during the month.Ending inventory assuming weighted-average cost would be (round weighted-average unit cost to four decimals if necessary):

A)$502.
B)$490.
C)$489.
D)$480.

Question 80

Inventory records for Marvin Company revealed the following: 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):

A)$5,087.
B)$5,107.
C)$5,077.
D)$5,005.