Question 1

Lauer Corporation uses the periodic inventory system and has provided the following information about one of its laptop computers: $\begin{array}{clrr}\text { Date }&\text { Transaction } &\text { Number of Units }&\text { Cost per Unit }\\hline
1 / 1 & \text { Beginning Inventory } & 100 & \$ 800 \
5 / 5 & \text { Purchase } & 200 & \$ 900 \
8 / 10 & \text { Purchase } & 300 & \$ 1,000 \
10 / 15 & \text { Purchase } & 200 & \$ 1,050
\end{array}$ During the year, Lauer sold 750 laptop computers. What was ending inventory using the LIFO cost flow assumption?

Accepted Answer

Under LIFO, the last items purchased are the first to be sold. The ending inventory consists of the oldest costs: 100 units at $800 each = $80,000. Total units available = 800; units sold = 750; ending inventory = 50 units. Ending inventory value = 50 units x $800 = $40,000.

Question 2

Under the LIFO cost flow assumption during a period of rising costs, which of the following is false?

Accepted Answer

Under the LIFO (Last In, First Out) cost flow assumption during a period of rising costs, the cost of goods sold (COGS) will be higher, not lower, under LIFO than under FIFO (First In, First Out). This is because the most recently acquired (and thus more expensive) inventory items are sold first under LIFO, leading to a higher COGS.

Question 3

Which of the following statements does not accurately describe the lower of cost or market (LCM) valuation method?

Accepted Answer

The journal entry to write-down inventory affects pretax income by increasing cost of goods sold, which reduces pretax income.

Question 4

Maxim Corp. has provided the following information about one of its products: $\begin{array}{clrr}\text { Date }&\text { Transaction } &\text { Number of Units }&\text { Cost per Unit }\\hline
1 / 1 & \text { Beginning Inventory } & 200 & \$ 140 \
6 / 5 & \text { Purchase } & 400 & \$ 160 \
11 / 10 & \text { Purchase } & 100 & \$ 200
\end{array}$ During the year, Maxim sold 400 units. What is ending inventory using the average cost method?

Accepted Answer

The average cost per unit is calculated as follows:Average cost per unit = Total cost of goods available for sale / Total number of units available for saleTotal cost of goods available for sale = Beginning inventory cost + Purchases costBeginning inventory cost = 200 units x $140 per unit = $28,000Purchases cost = 400 units x $160 per unit + 100 units x $200 per unit = $80,000Total cost of goods available for sale = $28,000 + $80,000 = $108,000Total number of units available for sale = 200 units + 400 units + 100 units = 700 unitsAverage cost per unit = $108,000 / 700 units = $154.29Ending inventory = 300 units x $154.29 per unit = $46,287Therefore, the ending inventory using the average cost method is $46,287.

Question 5

Under the FIFO cost flow assumption during a period of rising costs, which of the following is false?

Accepted Answer

Under FIFO, the cost of the most recent inventory purchases is matched with the revenue from the sales, resulting in a higher cost of goods sold and lower ending inventory compared to LIFO. This statement is true during rising costs. However, it is false to say that ending inventory will be lower under FIFO than under LIFO because ending inventory value depends on the level of inventory at the end of the period and not on the cost flow assumption used.

Question 6

Which of the following statements is correct when inventory unit costs are increasing?

Accepted Answer

When inventory unit costs are increasing, FIFO (First In, First Out) accounting will result in higher net income because the older, cheaper goods are recorded as sold first, leaving the more expensive, recent purchases in inventory. This leads to a higher ending inventory valuation and higher net income due to lower cost of goods sold compared to LIFO (Last In, First Out), where the most recently purchased, more expensive inventory is sold first, resulting in higher cost of goods sold and lower net income.

Question 7

Which of the following statements is false?

Accepted Answer

The statement "Companies do not have to consistently use the same inventory costing methods" is false. GAAP requires companies to consistently apply their inventory costing methods.

Question 8

Moore Company purchased an item for inventory that cost $20 per unit and was priced to sell at $30. It was determined that the replacement cost is $18 per unit. Using the lower of cost or market rule, what amount should be reported on the balance sheet for inventory?

Accepted Answer

According to the lower of cost or market (LCM) rule, inventory should be valued at the lower of its cost or market value. In this case, the cost of the item is $20, but the market value (replacement cost) is $18, which is lower. Therefore, the inventory should be reported on the balance sheet at $18 per unit. Answer A) is correct. Answers B), C), and D) are all incorrect.

Question 9

A company provided the following data: sales, $500,000; beginning inventory, $40,000; ending inventory, $45,000; and gross profit, $150,000. What was the amount of inventory purchased during the year?

Accepted Answer

To find the amount of inventory purchased during the year, we first calculate the cost of goods sold (COGS). COGS = Beginning Inventory + Purchases - Ending Inventory. We know the sales and gross profit, so we can find COGS by subtracting gross profit from sales: $500,000 - $150,000 = $350,000. Then, we solve for Purchases: $350,000 = $40,000 + Purchases - $45,000. Thus, Purchases = $350,000 - $40,000 + $45,000 = $355,000.

Question 10

Lauer Corporation uses the periodic inventory system and has provided the following information about one of its laptop computers: $\begin{array}{clrr}\text { Date }&\text { Transaction } &\text { Number of Units }&\text { Cost per Unit }\\hline
1 / 1 & \text { Beginning Inventory } & 100 & \$ 800 \
5 / 5 & \text { Purchase } & 200 & \$ 900 \
8 / 10 & \text { Purchase } & 300 & \$ 1,000 \
10 / 15 & \text { Purchase } & 200 & \$ 1,100
\end{array}$ During the year, Lauer sold 750 laptop computers. What was cost of goods sold using the LIFO cost flow assumption?

Accepted Answer

The answer of Lauer Corporation uses the periodic inventory system...

Question 11

Lauer Corporation uses the periodic inventory system and has provided the following information about one of its laptop computers: $\begin{array}{clrr}\text { Date }&\text { Transaction } &\text { Number of Units }&\text { Cost per Unit }\\hline
1 / 1 & \text { Beginning Inventory } & 100 & \$ 800 \
5 / 5 & \text { Purchase } & 200 & \$ 900 \
8 / 10 & \text { Purchase } & 300 & \$ 1,000 \
10 / 15 & \text { Purchase } & 200 & \$ 1,100
\end{array}$ During the year, Lauer sold 750 laptop computers. What was cost of goods sold using the FIFO cost flow assumption?

Accepted Answer

Under FIFO, the oldest inventory costs are used first. The cost of goods sold is calculated as: (100 units x $800) + (200 units x $900) + (300 units x $1,000) + (150 units x $1,100) = $725,000.

Question 12

Maxim Corp. has provided the following information about one of its products: $\begin{array}{clrr}\text { Date }&\text { Transaction } &\text { Number of Units }&\text { Cost per Unit }\\hline
1 / 1 & \text { Beginning Inventory } & 200 & \$ 140 \
6 / 5 & \text { Purchase } & 400 & \$ 160 \
11 / 10 & \text { Purchase } & 100 & \$ 200
\end{array}$ During the year, Maxim sold 400 units. What is cost of goods sold using the average cost method?

Accepted Answer

To calculate the cost of goods sold using the average cost method, first find the average cost per unit: Total cost of inventory = (200 units * $140) + (400 units * $160) + (100 units * $200) = $28,000 + $64,000 + $20,000 = $112,000. Total units = 200 + 400 + 100 = 700 units. Average cost per unit = $112,000 / 700 units = $160. Cost of goods sold = 400 units * $160 = $64,000.

Question 13

Which of the following statements does not accurately describe the effects of a write-down of inventory on December 31, 2014 using the lower of cost or market (LCM) valuation method?

Accepted Answer

The 2014 gross profit is not affected when the inventory was sold during 2014 because the write-down is recognized in the current period, not the period of sale.

Question 14

Which of the following statements is correct?

Accepted Answer

The answer of Which of the following statements is correct?
...

Question 15

Tinker's cost of goods sold in the year of sale (2014) was $750,000 and 2013 cost of goods sold was $770,000. The inventory at the end of 2014 was $188,000 and $208,000 at the end of 2013. Tinker's inventory turnover during 2014 was closest to:

Accepted Answer

Inventory turnover = Cost of goods sold / Average inventoryAverage inventory = (Beginning inventory + Ending inventory) / 2Average inventory = ($208,000 + $188,000) / 2 = $198,000Inventory turnover = $750,000 / $198,000 = 3.79

Question 16

On December 31, 2014, Cruise Company has 10,000 units of an inventory item, which cost $40 per unit when purchased on June 15, 2014. The selling price was $60 per unit. On December 30, 2014, the replacement cost was $36 per unit. At what amount should the 10,000 units of inventory be reported at on the December 31, 2014 balance sheet?

Accepted Answer

The inventory should be reported at the lower of cost or market. 
Cost = 10,000 units x $40 per unit = $400,000.
Market = 10,000 units x $36 per unit = $360,000.
Since the market value ($360,000) is lower than the cost ($400,000), the inventory should be reported at $360,000 on the December 31, 2014 balance sheet. Choice C is the correct answer.

Question 17

Which of the following statements is correct when inventory unit costs are decreasing?

Accepted Answer

The answer of Which of the following statements is correct...

Question 18

Lauer Corporation uses the periodic inventory system and has provided the following information about one of its laptop computers: $\begin{array}{clrr}\text { Date }&\text { Transaction } &\text { Number of Units }&\text { Cost per Unit }\\hline
1 / 1 & \text { Beginning Inventory } & 100 & \$ 800 \
5 / 5 & \text { Purchase } & 200 & \$ 900 \
8 / 10 & \text { Purchase } & 300 & \$ 1,000 \
10 / 15 & \text { Purchase } & 200 & \$ 1,100
\end{array}$ During the year, Lauer sold 750 laptop computers. What was ending inventory using the FIFO cost flow assumption?

Accepted Answer

The answer of Lauer Corporation uses the periodic inventory system...

Question 19

Which of the following statements is correct?

Accepted Answer

The average cost method assigns a weighted average cost to each unit of inventory, therefore resulting in an ending inventory balance that falls somewhere between the values calculated using LIFO and FIFO methods. The choice of inventory costing method can be influenced by several factors, including tax considerations and financial reporting objectives, but it is not necessarily dependent upon the actual physical flow of the goods in inventory. LIFO is typically used during a period of increasing unit costs to minimize taxable income, not to maximize ending inventory value. Similarly, FIFO is used during a period of increasing unit costs to maximize gross profit.

Question 20

Which of the following statements is incorrect for a manufacturing entity?

Accepted Answer

Cost of goods sold is recognized when the goods are sold, not when the manufacturing process is complete.

Quiz 7: Reporting and Interpreting Cost of Goods Sold and Inventory

Under the LIFO cost flow assumption during a period of rising costs, which of the following is false?

Which of the following statements does not accurately describe the lower of cost or market (LCM) valuation method?

Under the FIFO cost flow assumption during a period of rising costs, which of the following is false?

Which of the following statements is correct when inventory unit costs are increasing?

Which of the following statements is false?

Moore Company purchased an item for inventory that cost $20 per unit and was priced to sell at $30. It was determined that the replacement cost is $18 per unit. Using the lower of cost or market rule, what amount should be reported on the balance sheet for inventory?

A company provided the following data: sales, $500,000; beginning inventory, $40,000; ending inventory, $45,000; and gross profit, $150,000. What was the amount of inventory purchased during the year?

Which of the following statements does not accurately describe the effects of a write-down of inventory on December 31, 2014 using the lower of cost or market (LCM) valuation method?

Which of the following statements is correct?

Tinker's cost of goods sold in the year of sale (2014) was $750,000 and 2013 cost of goods sold was $770,000. The inventory at the end of 2014 was $188,000 and $208,000 at the end of 2013. Tinker's inventory turnover during 2014 was closest to:

Which of the following statements is correct when inventory unit costs are decreasing?

Which of the following statements is correct?

Which of the following statements is incorrect for a manufacturing entity?