Question 1

The Wilburn Company's income statement for 20X2 reported the following: Cost of goods sold, $75,000; beginning inventory, $12,000; and ending inventory, $15,000. The amount of purchases during 20X2 was what amount?

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Question 2

The following statement of earnings is complete except for a few captions with solid lines on the left, and amounts with dotted lines on the right. You are to fill in the most likely captions and amounts: Smith Retail Company Statement of Earnings for the Y ear Ended December 31, 20X2 $\begin{array}{|l|r|r|}
\hline \text { Gross Sales Revenue } & &\$\underline{\quad\quad}\
\hline\underline{\quad\quad}&\$ 3,000\
\hline \text { Sales discounts } &\underline{\quad\quad}&5,000  \
\hline \underline{\quad\quad}&&\$101,000 \
\hline \text { Cost of goods sold: } & \
\hline\underline{\quad\quad} & \$ 12,000 \
\hline \underline{\quad\quad}&\underline{\quad\quad} \
\hline \underline{\quad\quad}& 77,000 \
\hline \text { Ending Inventory } &\underline{\quad\quad} \
\hline \underline{\quad\quad}& &\underline{\quad\quad}\
\hline \underline{\quad\quad}&&38,000\
\hline \text { Operating expenses }&&\underline{\quad\quad}\
\hline \underline{\quad\quad}&&\$16,000\
\hline

\end{array}$
 Smith Retail Company Income Statement For the Year Ended December 31, 20X2

Accepted Answer

The answer of The following statement of earnings is complete...

Question 3

Walker Corporation uses the periodic inventory method and had the following inventory information available:
 $$\begin{array} { | l | l | r | r | r | } 
\hline & & \text { Units } & \text { Unit Cost } & \text { Total Cost } \
\hline \text { Jan. 1 } & \text { Beginning inventory } & 15 & \$ 4.00 & \$ 60 \
\hline 20 & \text { Purchase } & 60 & 4.40 & 264 \
\hline \text { July 25 } & \text { Purchase } & 30 & 4.20 & 126 \
\hline \text { Oct. 20 } & \text { Purchase } & 45 & 4.80 & 216 \
\hline & & \underline { 150 } & & \$ 666 \
\hline
\end{array}$$ 
A physical count of inventory on December 31 revealed that there were 50 units on hand. Requirements: Answer the following independent questions and show calculations supporting your answers. 
1. Assume that the company uses FIFO. The value of the ending inventory at December 31 is $__________. 
2. Assume that the company uses average cost. The value of the ending inventory on December 31 is $__________. 
3. Assume that the company uses average cost. The value of cost of goods sold on December 31 is $__________. 
4. Assume that the company uses FIFO . The value of the cost of goods sold on December 31 is $__________

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Question 4

House Depot Company hired a new store manager in March 20X3, who determined the ending inventory on December 31, 20X3, to be $20,000. In March, 20X5 the company discovered that the 20X3 ending inventory should have been $28,000. The December 31, 20X4, inventory was correct. Ignore income taxes. Complete the following table to show the effects of the inventory error on the four amounts listed. Give the amount of the discrepancy and indicate whether it was overstated (O), understated (U), or had no effect (N).

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The answer of House Depot Company hired a new store...

Question 5

Dittner Inc. opened for business on July 1, 2013 selling unique jewelry purchased from local artisans. During the month the company made the following purchases: $$\begin{array} { | l | l | r | } 
\hline \text { Date } & \text { Inventory Tag Number } & \text { Cost } \
\hline \text { July 1 } & 001 & \$ 1,500 \
\hline \text { July 3 } & 002 & 600 \
\hline \text { July 5 } & 003 & 1,200 \
& 004 & 2,300 \
\hline \text { July 10 } & 005 & 400 \
\hline \text { July 13 } & 006 & 1,115 \
& 007 & 3,900 \
\hline \text { July 26 } & 008 & 900 \
& 009 & 1,700 \
\hline \text { July 31 } & 010 & 2,225 \
\hline
\end{array}$$ On July 31, only inventory items 006, 008, and 010 remained in inventory. Requirements:
 (a) Determine the cost of goods sold for Harris Inc. for the month of July using the specific identification cost determination method. 
(b) Discuss whether or not specific identification is an appropriate cost determination method for this company.

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Question 6

While preparing the first quarter 20X7 financial statements, the accounting staff of Melanson Flooring Inc. discovered an error in the December 31, 20X6 financial statements. Inventory costing $225,000 had been in transit and was not received until January 5 20X7. The accounts payable had recorded the purchase as an account payable on December 28 20X6. The inventory had been shipped on December 27 20X6 with the terms FOB shipper. Melanson uses a periodic inventory system. 
A What impact did the error have on Melanson's 20X6 financial statements? 
B When the error is discovered in the first quarter of 20X7, what correcting entry should Melanson 's accountants make?

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Question 7

Telly Company reported proﬁt in 20X1 of $22,000 and in 20X2 of $32,000. Later it was discovered that the 20X1 ending inventory was overstated by $5,000. Compute the amount of proﬁt (disregard income tax) for 20X1 and 20X2. 20X1 $____________________ 20X2 $__________________

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Question 8

Match the descriptions with inventory costing methods by entering the proper letter in the space to the left.
A. Specific identification
B. Weighted average
C. FIFO
D. None of the above is correct. $$\begin{array} { | c | l | } 
\hline 1 . & \text { Tends to match older costs with current revenue. } \
 \hline 2 . & \text { Cost of goods sold and inventory are costed at the oldest costs. } \
 \hline 3 . & \text { Inventory and cost of goods sold are valued at the same unit cost. } \
\hline \text { 4. } & \begin{array} { l } 
\text { Requires computation of an average cost for the entire period excluding beginning } \
\text { inventory. }
\end{array} \
 \hline 5 . & \text { Requires computation of a new unit cost after each purchase and after each sale. } \
 \hline \text { 6. } & \text { Subject to manipulation by arbitrary choice of unit costs when sold or issued. } \
\hline \text { 7. } & \text { Cost of goods sold is costed at the oldest unit costs. } \
 \hline8. & \text { Inventory is costed at the newest unit costs. } \
\hline
\end{array}$$

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Question 9

Supply the missing dollar amounts for the 20X2 statement of earnings of RDS Company by writing your answer in the table provided for you for each of the following independent cases. Show your computations below the table. $\begin{array}{|l|r|r|}
\hline&\text { Case A }&\text { Case B }\
\hline \text { Sales revenue } & \$ 8,000&\$6,000 \
\hline \text { Sales returns \& allowances } & 150&? \
\hline \text { Net sales revenue } & ?&?\
\hline \text { Beginning inventory } & 11,000&6,500 \
\hline \text { Purchases } &5,000&? \
\hline \text { Transportation-in } &?&120 \
\hline \text { Purchase returns } & 350&600 \
\hline \text { Goods available for sale } &?&14,790 \
\hline \text { Ending inventory } &10,000&10,470 \
\hline \text { Cost of goods sold } &?&?\
\hline \text { Gross margin } &?&1,450 \
\hline \text { Expenses } & 1,300&? \
\hline \text { Pre-tax profit } & \$800&\$(500) \
\hline
\end{array}$

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Question 10

Goofy Company reported proﬁt for 20X1 of $30,000, and in 20X2 $40,000 (both after income taxes at a 20% rate). It was discovered in 20X3 that the ending inventory for 20X1 was overstated by 8,000 (before any income tax effect). The correct proﬁt (after income tax of 20%) should be: 20X1 $_______________________ 20X2 $_______________________

Accepted Answer

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Question 11

Webber Company prepared income statements that reflected pretax profit of $21,000 for 20X1 and $30,000 for 20X2. An audit has determined that there were two errors in the inventory amounts as follows $$\begin{array} { | l | r | r | } 
\hline & \text { Amount Reported } & \text { Correct Amount } \
\hline \text { Ending inventory, 20X1 } & \$ 15,000 & \$ 14,000 \
\hline \text { Ending inventory, 20X2 } & 18,000 & 16,000 \
\hline
\end{array}$$ The correct pretax profit amount for each year is (show computations assuming the errors were not corrected): 20X1: $__________________ 20X2: $__________________

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Question 12

Match the appropriate letter regarding inventory systems with each of the following statements.
 
A. The perpetual inventory system.
B. The periodic inventory system. 
C. Both the perpetual and periodic inventory systems. 
D. Neither the perpetual nor the periodic inventory systems. 
1. Uses a separate account for recording purchases.
2. Requires that purchases be recorded at their cash equivalent cost. 
3. Requires that two concurrent journal entries be made to record a purchase.
4. Cost of goods sold cannot be determined until a physical count is taken. 
5. Inventory account is increased for each purchase and decreased for each sale.
6. Used to reveal any inventory shortages and shrinkage that occur during the period.

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Question 13

Match the inventory system with the statement by entering the appropriate letters to the left:
A. Perpetual inventory system.
B. Periodic inventory system.
C. Neither of the above is correct.
D. Both A and B are correct. $$\begin{array} { | r | l | } 
\hline 1 . & \text { The inventory system that provides more control features. } \
\hline 2 . & \begin{array} { l } 
\text { The inventory system that requires adjusting (or closing) entries for the beginning and } \
\text { ending inventories. }
\end{array} \
\hline3 . & \text { A purchase requires two journal entries. } \
\hline4 . & \text { A sale requires one journal entry. } \
\hline5 . & \text { Merchandise inventory is debited when goods are purchased. } \
\hline  \text { 6. } & \text { A return of a purchase requires two journal entries. } \
\hline  \text { 7. } & \text { A physical inventory count is never taken. } \
\hline  \text { 8. } & \text { A sale requires two journal entries. } \
\hline  \text {9. } & \text {  Cost of goods sold is computed as a residual amount after an inventory count. }\
\hline 
\end{array}$$

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Question 14

Libby Company uses the periodic inventory system and applied FIFO inventory costing. At the end of the annual accounting period, December 31, 20X4, the accounting records for the best-selling item in inventory showed: $$\begin{array}{l}
\begin{array} { | l | r | r | } 
\hline \text { Transaction } & \text { Units } & \text { Unit Cost } \
\hline \text { Beginning Inventory, Jan. 1, 20X4 } & 200 & \$ 11 \
\hline \text { 1. Purchase, Feb. 1 } & 400 & 12 \
\hline \text { 2. Sale, March 15, (sold at \$20 each) } & ( 300 ) & \
\hline \text { 3. Purchase, May 15 } & 350 &14 \
\hline \text { Sale, July 31 (sold at \$25 each) } & ( 500 ) & \
\hline
\end{array}\\
\text { Determine the following (show computations and round to the nearest dollar): }\\
\begin{array} { | l | l | } 
\hline \text { Goods available for sale: } & \$\underline{\quad\quad} \
\hline \text { Ending inventory: } & \$\underline{\quad\quad} \
\hline \text { Cost of goods sold: } & \$\underline{\quad\quad} \
\hline
\end{array}
\end{array}$$

Accepted Answer

The answer of Libby Company uses the periodic inventory system...

Question 15

The records of Tea Time Company show 20X2 purchases of $9,000. An actual count revealed a 20X2 ending inventory of $4,000. The 20X2 beginning inventory was $5,000. What was the cost of goods sold for 20X2?

Accepted Answer

The answer of The records of Tea Time Company show...

Question 16

Taste Best Company uses the periodic inventory system. It has compiled the following information in order to prepare the financial statements at the end of 20X2:
$$\begin{array}{l}
\begin{array} { | l | r | } 
\hline \text { Gross sales during 20X2 } & \$ 1,400,000 \
\hline \text { Sales returns and allowances during 20X2 } & 20,000 \
\hline \text { Beginning inventory, January 1, 20X2 } & 70,000 \
\hline \text { Ending inventory, December 31, 20X2 } & 60,000 \
\hline \text { Purchases during 20X2 } & 730,000 \
\hline & \
\hline
\end{array}\
\text { Calculate the following amounts: }\\
\begin{array} { | l | l | } 
\hline \text { A. Goods available for sale } & \$\underline{\quad\quad} \
\hline \text { B. Cost of goods sold } & \$\underline{\quad\quad} \
\hline \text { C. Gross margin on sales } & \$\underline{\quad\quad} \
\hline
\end{array}
\end{array}$$

Accepted Answer

The answer of Taste Best Company uses the periodic inventory...

Question 17

Astro Corporation uses the periodic inventory system. Information related to Astro's inventory at October 31 is given below: $$\begin{array} { | l | l | l | r | } 
\hline \text { October } 1 & \text { Beginning inventory } & 400 \text { units @ } \$ 10.00 & = \$ 4,000 \
\hline 8 & \text { Purchase } & 800 \text { units @ } \$ 10.40 & = 8,320 \
\hline 16 & \text { Purchase } & 600 \text { units @ } \$ 10.80 & = 6,480 \
\hline 24 & \text { Purchase } & 200 \text { units @ } \$ 11.60 & = \underline { 2,320 } \
\hline & & 2.000 \text { units } & \$ 21,120 \
\hline
\end{array}$$ Requirements: 1. Show calculations to determine the ending inventory using the FIFO cost formula if 400 units remain on hand at October 31 2. Show calculations to determine the ending inventory using the average cost formula if 400 units remain on hand at October 31.

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Question 18

Compute the missing amounts for the statement of earnings for each independent case. $\begin{array}{|l|r|r|r|}
\hline&\text { Case A } & \text { Case B } & \text { Case C } \
\hline \text { Sales revenue } & \$ 800 & \$ 800 & \
\hline \text { Beginning inventory } & 100 & &90 \
\hline \text { Purchases } & 500 & 420 & \
\hline \text { Total available for sale } & & & \
\hline \text { Ending inventory } & 150 & 110 & 160 \
\hline \text { Cost of goods sold } & & & 340\
\hline \text { Gross margin } &  \
\hline \text { Expenses } &300 & 400 & 420 \
\hline \text { Profit } & & (50) & 60 \
\hline
\end{array}$

Accepted Answer

The answer of Compute the missing amounts for the statement...

Question 19

For each independent situation given below, determine the effect on pretax profit for each. Enter "+" to indicate pretax profit is overstated, "-" to indicate pretax profit is understated, or "NA" to indicate that pretax profit is not affected. $\quad $$\quad $$ \text { Independent Situations } $ $\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $ $\text { Effect on Pre-tax Profit }$$\begin{array} { | l | l | l | l | } 
\hline && 20 X1 & 20X 2 \
\hline \text { A. } & 20 \times 1 \text { ending inventory overstated } & & \
\hline \text { B. } & 20 \times 1 \text { ending inventory understated } & & \
\hline \text { C. } & 20 \times 2 \text { ending inventory overstated } & & \
\hline \text { D. } & 20 \times 2 \text { beginning inventory overstated } & & \
\hline \text { E. } & 20 \times 1 \text { beginning inventory understated } & & \
\hline \text { F. } & \begin{array} { l } 
20 \times 2 \text { beginning inventory understated and 20X2 } \
\text { ending inventory understated by the same amount }
\end{array} & & \
\hline
\end{array}$

Accepted Answer

The answer of For each independent situation given below, determine...

Question 20

Miller Corporation uses the periodic inventory method and had the following inventory information available: $$\begin{array} { | l | l | r | r | r | } 
\hline & & \text { Units } & \text { Unit Cost } & \text { Total Cost } \
\hline \text { Jan 1. } & \text { Beginning inventory } & 100 & \$ 4 & \$ 400 \
\hline \text { Jan 20 } & \text { Purchase } & 500 & \$ 5 & 2,500 \
\hline \text { July 25 } & \text { Purchase } & 100 & \$ 6 & 600 \
\hline \text { Nov. 20 } & \text { Purchase } & 300 & \$ 7 & 2,100 \
\hline & & 1,000 & & \$ 5,600 \
\hline
\end{array}$$ A physical count of inventory on December 31 revealed that there were 350 units on hand. Requirements: Answer the following independent questions and show calculations supporting your answers. 
1. Assume that the company uses FIFO. The value of the ending inventory at December 31 is $__________. 
2. Assume that the company uses average cost. The value of the ending inventory on December 31 is $__________. 
3. Determine the difference in the amount of profit that the company would have reported if it had used FIFO instead of average cost. Would profit have been greater or less?

Accepted Answer

The answer of Miller Corporation uses the periodic inventory method...

Quiz 7: Inventory and Cost of Goods Sold

The Wilburn Company's income statement for 20X2 reported the following: Cost of goods sold, $75,000; beginning inventory, $12,000; and ending inventory, $15,000. The amount of purchases during 20X2 was what amount?

Telly Company reported proﬁt in 20X1 of $22,000 and in 20X2 of $32,000. Later it was discovered that the 20X1 ending inventory was overstated by $5,000. Compute the amount of proﬁt (disregard income tax) for 20X1 and 20X2. 20X1 $__ 20X2 $

The records of Tea Time Company show 20X2 purchases of $9,000. An actual count revealed a 20X2 ending inventory of $4,000. The 20X2 beginning inventory was $5,000. What was the cost of goods sold for 20X2?