Deck 6: Inventory Cost of Goods Sold

Question 1

To document approval of returns of inventory,a purchasing company will issue a credit memorandum.

Answer 1

False

Question 2

Inventory is reported on the balance sheet at the selling price of the item.

Answer 2

False

Question 3

Since a perpetual inventory system continuously updates the inventory account,a physical inventory count is not necessary to prove the inventory records.

Answer 3

False

Question 4

Cost of Goods Sold is an operating expense on the income statement.

Question 5

A periodic inventory system:

A)is used for inexpensive goods.
B)is not expensive to maintain.
C)does not keep a running record of inventory on hand.
D)is all of the above.

Question 6

In a perpetual inventory system,a business maintains a continuous record of the number of units purchased,sold and on hand for each inventory item.

Question 7

Another term for gross profit is:

A)gross income.
B)gross sales.
C)gross margin.
D)gross operating income.

Question 8

Sales revenue is based on the ________ of the inventory,while cost of goods sold is based on the ________ of the inventory.

A)cost,selling price
B)cost,cost
C)selling price,retail price
D)selling price,cost

Question 9

The cost of the inventory that a business has sold to customers is called:

A)inventory.
B)cost of goods sold.
C)purchases.
D)gross profit.

Question 10

Which is the CORRECT order for items to appear on the income statement?

A)Sales revenue,operating expenses,gross profit,net income
B)Sales revenue,gross profit,net income,operating expenses
C)Sales revenue,gross profit,cost of goods sold,operating expenses
D)Sales revenue,cost of goods sold,gross profit,operating expenses

Question 11

The inventory system that uses computer software to keep a running record of inventory on hand is the:

A)cost of goods sold inventory system.
B)periodic inventory system.
C)perpetual inventory system.
D)hybrid inventory system.

Question 12

How do purchase returns and allowances and purchase discounts affect gross purchases?

A)Both are added to purchases.
B)Both are subtracted from purchases.
C)Purchase returns and allowances are added to purchases; purchase discounts are subtracted from purchases.
D)Purchase returns and allowances are subtracted from purchases; purchase discounts are added to purchases.

Question 13

Service entities report Cost of Goods Sold on the income statement.

Question 14

Under a perpetual inventory system,when a sale is made,the seller prepares:

A)no journal entry.
B)one journal entry only.
C)two journal entries.
D)three journal entries.

Question 15

A company will include goods out on consignment in their ending inventory.

Question 16

A purchase discount decreases the cost of the inventory.

Question 17

Roadway Company purchases inventory from Fedway Company with the shipping terms FOB destination.This means that:

A)Roadway Company owns the goods while they are in transit.
B)Legal title passes to Roadway Company when the goods leave Fedway's shipping dock.
C)Fedway Company will pay the freight on this transaction.
D)Roadway Company will include the goods in their inventory as soon as they leave Fedway's shipping dock.

Question 18

Two accounts that would appear on the financial statements of a merchandising company that are not needed by a service company are:

A)cost of goods sold and depreciation.
B)cost of goods sold and net income.
C)cost of goods sold and inventory.
D)inventory and depreciation.

Question 19

The financial statements of a merchandising company will show:

A)the same accounts as the financial statements of a service company.
B)gross profit after operating income on the income statement.
C)inventory as a current asset on the balance sheet.
D)cost of goods sold as an operating expense on the income statement.

Question 20

The cost of inventory that is still on hand is called:

A)cost of goods sold,an expense that appears on the balance sheet.
B)inventory,a long-term asset that appears on the balance sheet.
C)inventory,a current asset that appears on the balance sheet.
D)purchases,an asset that appears on the balance sheet.

Question 21

A company purchased inventory for $800 per unit.The company later sold one unit of the inventory for cash of $1,500.Under the perpetual inventory system,which accounts will be debited to record the sale?

A)Cash,$1,500; Inventory,$800
B)Cash,$1,500; Cost of Goods Sold,$800
C)Cash,$1,500; Cost of Goods Sold,$700
D)Cash,$1,500; Inventory,$700

Question 22

Grogan Company purchases inventory on account with a cost of $1,000 and a retail price of $2,000.Grogan Company uses the perpetual inventory method.What journal entry is required on the date of purchase?

A)debit Purchases for $1,000 and credit Accounts Payable for $1,000
B)debit Purchases for $2,000 and credit Cash for $2,000
C)debit Inventory for $1,000 and credit Accounts Payable for $1,000
D)debit Accounts Receivable for $2,000 and credit Purchases for $2,000

Question 23

Steve's Hardware Store uses the perpetual inventory system.The company incurred the following transactions:
a.On November 1,the owner,Steven Moore,purchased 10 snow blowers on account at $1,000 each.Credit terms were 2/10,net 30.
b.On November 2,Steven returned two snow blowers due to damage incurred in shipping.
c.On November 3,the supplier granted Steven an allowance of $100 on the snow blowers because one of the snow blowers was missing an attachment.
d.On November 10,Steven sold three of the snow blowers on account at $1,500 each.The credit terms were 2/10,net 30.
e.On November 12,Steven paid for the snow blowers.
f.On November 13,one customer returned a snow blower because it did not start.
g.On November 30,Steven paid wages of $2,000 for his assistant.
Required:
1.Journalize the above transactions for Steve's Hardware Store.Explanations are not required.

Question 24

On June 1,Nicholson Company purchased inventory on account with a cost of $1,000.Credit terms were 2/10,net 30.On June 2,Nicholson Company returned 50 percent of the inventory.Nicholson Company uses the perpetual inventory system.What journal entry did Nicholson Company prepare on June 2?

A)debit Purchase Returns for $1,000 and credit Accounts Payable for $1,000
B)debit Cash for $1,000 and credit Accounts Payable for $1,000
C)debit Purchase Returns for $500 and credit Accounts Payable for $500
D)debit Accounts Payable for $500 and credit Inventory for $500

Question 25

On June 1,Neighbor Company purchased inventory on account with a cost of $5,000.The credit terms were 2/10,net 30.On June 2,Neighbor Company returned 50 percent of the inventory.Neighbor Company uses the perpetual inventory system.On June 8,Neighbor Company paid for the inventory.What journal entry did Neighbor Company prepare on June 8?

A)debit Purchase Discount for $50,debit Cash for $2,450 and credit Accounts Payable for $2,500
B)debit Accounts Payable for $2,500 and credit Cash for $2,500
C)debit Accounts Payable for $2,500,credit Purchase Discount for $50 and credit Cash for $2,450
D)debit Accounts Payable for $2,500,credit Inventory for $50 and credit Cash for $2,450

Question 26

Using a perpetual inventory system,what journal entry(ies)is(are)prepared when two units of merchandise are sold on account?

A)debit Accounts Receivable and credit Sales Revenue only
B)debit Cash and credit Sales Revenue only
C)debit Accounts Receivable and credit Sales Revenue; debit Cost of Goods Sold and credit Inventory
D)debit Accounts Receivable and credit Sales Revenue; debit Inventory and credit Cost of Goods Sold

Question 27

On August 1,the Savage Company purchased $2,000 of inventory on account with credit terms of 2/10,net 30.Savage Company uses the perpetual inventory system.On August 15,the Savage Company paid the amount due.What journal entry did they prepare on August 15?

A)debit Inventory for $2,000 and credit Accounts Payable for $2,000
B)debit Accounts Payable for $2,000,credit Purchase Discounts for $40 and credit Cash for $1,960
C)debit Accounts Payable for $2,000 and credit Cash for $2,000
D)debit Accounts Payable for $1,960 and credit Cash for $1,960

Question 28

To determine the Cost of Goods Sold to report on the income statement,we take:

A)the number of units of inventory sold times the retail price per unit.
B)the number of units of inventory sold times the cost per unit.
C)the number of units of inventory purchased times the retail price per unit.
D)the number of units of inventory purchased times the cost per unit.

Question 29

Company A has inventory out on consignment and held for sale by Company B.Which Company will include the goods in their inventory?

A)Company A
B)Company B
C)Either Company A or Company B
D)Cannot be determined from the facts

Question 30

Which statement is TRUE?

A)Most companies use the perpetual inventory system.
B)Most companies use the periodic inventory system.
C)Most companies use the specific identification method.
D)Most companies in the United States follow International Financial Reporting Standards.

Question 31

When inventory is shipped from the seller to the buyer with shipping terms of FOB destination:

A)title passes from the seller to the buyer when the goods leave the seller's shipping dock.
B)the goods will be included in the inventory of the buyer while in transit.
C)the seller has title to the goods while they are in transit.
D)the buyer will pay the transportation costs associated with the purchase.

Question 32

Boston Company sells twenty items for $1,000 per unit,and has a cost of goods sold percentage of 70%.The gross profit to be reported for selling 20 items is:

A)$300.
B)$6,000.
C)$14,000.
D)$20,000.

Question 33

An auto dealer uses a perpetual inventory system.The dealer incurred the following transactions during the month of May:
1.On May 1,a dealer purchased 10 vehicles on account at $20,000 each,with credit terms of 2/10,net 30.
2.On May 2,the dealer returned one vehicle due to a product defect.
3.On May 3,the dealer sold 5 vehicles for $25,000 each on account to a local town.The credit terms were 3/10,net 30.
4.On May 9,the dealer paid for the vehicles purchased less the return on May 2.
5.On May 31,the dealer collected one-half of the amount due from the May 3 sale.
6.On May 31,the dealer paid the rent for the next month of $2,500.
Required:
Prepare the journal entries for the dealer during the month of May.Explanations are not required.

Question 34

On July 1,the Corrao Company purchased $1,000 of inventory on account with credit terms of 2/10,net 30.Corrao Company uses the perpetual inventory system.On July 5,the Corrao Company paid the amount due.What journal entry did they prepare on July 5?

A)debit Accounts Receivable for $1,000 and credit Cash for $1,000
B)debit Accounts Payable for $1,000,credit Inventory for $20 and credit Cash for $980
C)debit Purchase Discount for $20,debit Accounts Payable for $960 and credit Cash for $980
D)debit Accounts Payable for $980 and credit Cash for $980

Question 35

Under a perpetual inventory system,the journal entry to record the purchase of inventory on account will include a:

A)debit to Inventory and a credit to Cash.
B)debit to Inventory and a credit to Accounts Payable.
C)debit to Accounts Payable and a credit to Inventory.
D)debit to Purchases and a credit to Accounts Payable.

Question 36

Which of the following is NOT used to determine the cost of net purchases?

A)Freight-out
B)Freight-in
C)Purchase returns
D)Purchase discounts

Question 37

On May 1,the Santelle Company purchased $700 of inventory on account with credit terms of 2/10,net 30.Santelle Company uses the perpetual inventory system.On May 2,the seller gave Santelle Company a $100 allowance due to a product defect.What journal entry did Santelle Company prepare on May 2?

A)debit Accounts Payable for $100 and credit Purchase Returns and Allowances for $100
B)debit Accounts Payable for $100 and credit Purchase Discounts for $100
C)debit Cash for $100 and credit Accounts Payable for $100
D)debit Accounts Payable for $100 and credit Inventory for $100

Question 38

The following transactions occurred for Marjorie's Jewelry Store during the month:
a.On May 1,the owner,Marjorie,purchased 10 rings on account at $6,000 each.Credit terms were 2/10,net 30.
b.On May 2,Marjorie returned one ring due to a defect in cut.
c.On May 3,Marjorie's Jewelry Store sold three of the rings on account at $8,000 each to one customer.The credit terms were 2/10,net 30.
d.On May 9,Marjorie paid off the accounts payable.
e.On May 10,the customer paid for one ring sold on May 3.
f.On May 31,Marjorie paid rent of $4,000 for the month of May and wages of $5,000.
Required:
1.Journalize the above transactions for Marjorie's Jewelry Store.The store uses the perpetual inventory system.Explanations are not required.
2.Prepare the income statement for the month ending May 31,2014.Use the multiple-step format and ignore taxes.

Question 39

The selling price of a television is $1,000 and the cost to the retailer is $725.What is the retailer's gross profit from the sale of the television?

A)$0
B)$275
C)$725
D)$1,000

Question 40

Sanfran Company purchased inventory for $100,000.In addition they had purchase returns of $7,000 and paid freight-in of $8,000.Sanfran Company's net cost of purchases would be:

A)$ 85,000.
B)$ 99,000.
C)$101,000.
D)$115,000.

Question 41

The weighted-average cost per unit is calculated as the cost of goods available for sale divided by the number of units sold.

Question 42

If inventory costs are rising and a company is using LIFO,large purchases of inventory near the end of the year will:

A)increase income taxes paid.
B)decrease income taxes paid.
C)not change the amount of income taxes paid.
D)cannot be determined.

Question 43

Under the average-cost inventory method,to determine the average cost per unit:

A)the cost of beginning inventory is divided by the number of units available.
B)the cost of beginning inventory plus the cost of purchases is divided by the number of units sold.
C)the cost of purchases for the period are divided by the number of units available.
D)the cost of beginning inventory plus the cost of purchases is divided by the number of units available.

Question 44

When inventory costs are increasing,the FIFO costing method will generally yield a cost of goods sold that is:

A)higher than cost of goods sold under the LIFO method.
B)lower than cost of goods sold under the LIFO method.
C)equal to the gross profit under the LIFO method.
D)equal to cost of goods sold under the LIFO method.

Question 45

ABC Furniture Unlimited sells antique furniture.ABC will most likely use the ________ method to cost its ending inventory.

A)First-in,first-out
B)Last-in,first-out
C)Specific-unit-cost
D)Weighted-average

Question 46

The inventory cost under the average cost per unit method will generally fall in between the inventory cost using the LIFO and FIFO methods.

Question 47

The use of the FIFO method generally increases taxable income:

A)when inventory costs are constant.
B)when inventory costs are declining.
C)when inventory costs are increasing.
D)under all circumstances.

Question 48

When comparing the results of LIFO and FIFO when inventory costs are decreasing:

A)cost of goods sold will be the lowest using FIFO.
B)ending inventory will be the highest using FIFO.
C)cost of goods sold will be the highest using LIFO.
D)ending inventory will be the highest using LIFO.

Question 49

Under the ________ method,ending inventory is based on the costs of the most recent purchases.

A)average-cost
B)FIFO
C)LIFO
D)specific-identification

Question 50

The choice of an inventory costing method does not impact a company's balance sheet.

Question 51

When comparing the FIFO and LIFO inventory methods:

A)LIFO reports inventory at net realizable value.
B)LIFO reports the most up-to-date inventory cost on the balance sheet.
C)FIFO results in the most realistic net income figure.
D)FIFO matches old inventory costs against revenue.

Question 52

The LIFO method assigns the most recent inventory cost to Cost of Goods Sold.

Question 53

All of the following costs would be included in the cost of inventory EXCEPT for:

A)insurance while in transit from seller.
B)costs to get inventory ready for sale.
C)taxes paid on the purchase price.
D)sales commission given to salesperson when the inventory is sold.

Question 54

When inventory costs are rising,FIFO allows managers to manipulate net income by timing the purchases of inventory.

Question 55

To determine the cost of ending inventory under the LIFO method:

A)the latest purchase costs are used.
B)the specific unit cost of the inventory is used.
C)the average cost of the inventory is used.
D)the beginning inventory and earliest purchase costs are used.

Question 56

When inventory costs are falling,the LIFO costing method will generally result in:

A)a higher gross profit than under FIFO.
B)a lower gross profit than under FIFO.
C)a lower inventory value than under FIFO.
D)the same inventory value as FIFO.

Question 57

If a company uses LIFO for tax purposes,they must use LIFO for financial reporting purposes.

Question 58

A LIFO liquidation occurs when ________ fall(s)below the ending inventory quantities in the previous period.

A)beginning inventory quantities
B)ending inventory quantities
C)beginning inventory costs
D)beginning inventory retail value

Question 59

The inventory method used by a company affects:

A)net income on the income statement.
B)the income taxes to be paid.
C)the ending inventory on the balance sheet.
D)all of the above.

Question 60

When inventory costs are rising,a company using the LIFO costing method will generally pay less taxes than if the company had been using the FIFO method.

Question 61

Given the following data,by how much would taxable income change if LIFO is used rather than FIFO?

A)There is no difference.
B)Increase by $30,000
C)Decrease by $30,000
D)Decrease by $40,000

Question 62

The following data was extracted from the records of Today Company: What is the gross profit using the LIFO method?

A)$6,000
B)$7,600
C)$8,000
D)$14,000

Question 63

Given the following data,calculate Cost of Goods Sold using the FIFO costing method.

A)$525
B)$705
C)$740
D)$920

Question 64

If inventory costs are increasing over time,the income taxes paid using FIFO will ________ the income taxes paid using LIFO.

A)exceed
B)equal
C)be less than
D)none of the above

Question 65

If inventory costs are decreasing over time,the income taxes paid using FIFO will ________ the income taxes paid using LIFO.

A)exceed
B)equal
C)be less than
D)none of the above

Question 66

Given the following data,calculate the cost of goods sold using the average-cost method.Round your calculations to two decimal places.

A)$420.
B)$651.
C)$840.
D)$924.

Question 67

Thelen's inventory records show the following data at January 31: At January 31,210 units are still on hand.What is the cost of the ending inventory at January 31 if Thelen uses the LIFO method?

A)$1,680
B)$1,900
C)$2,210
D)$3,000

Question 68

Which inventory costing method provides the most current,up-to-date cost of inventory on the balance sheet?

A)FIFO
B)LIFO
C)average cost
D)specific identification

Question 69

Given the following data,calculate the cost of ending inventory using the average cost method.Round all calculations to the nearest two decimal places.

A)$200
B)$310
C)$400
D)$440

Question 70

Which statement is FALSE?

A)LIFO is not allowed in several countries outside the United States.
B)IFRS does not permit the use of LIFO.
C)FIFO and average cost are allowed in Australia and the United Kingdom.
D)If LIFO is no longer allowed to be used in the United States,the tax burden on many companies will be lower.

Question 71

Given the following data,what is Cost of Goods Sold as determined by the FIFO method?

A)$1,400
B)$1,460
C)$1,724
D)$2,240

Question 72

Tomasino's inventory records show the following data at January 31: At January 31,210 units are still on hand.What is the cost of the ending inventory at January 31 if Tomasino uses the FIFO method?

A)$1,680
B)$2,500
C)$2,210
D)$3,000

Question 73

A company has a beginning inventory of $40,000 and purchases during the year of $120,000.The beginning inventory consisted of 3,000 units and 7,000 units were purchased during the year.3,480 units remain in ending inventory.The cost of the ending inventory using the average-cost method will be:

A)$13,920.
B)$46,400.
C)$55,680.
D)$59,657.

Question 74

The following data was obtained from the records of Ivanovich Artists,Inc.,for the current year.Round all calculations to two decimal places.Sales during the year were 400 units.
Required:
1.Calculate the cost of the ending inventory using:
a.FIFO.
b.LIFO.
c.Average-cost.
2.Calculate the Cost of goods sold by:
a.FIFO.
b.LIFO.
c.Average-cost.

Question 75

Given the following data,calculate the Cost of Goods Sold using the LIFO costing method.

A)$720
B)$800
C)$990
D)$1,000

Question 76

When inventory costs are falling,which inventory costing method minimizes the taxes paid?

A)FIFO
B)LIFO
C)average cost
D)specific identification

Question 77

Which inventory costing method provides the most realistic measure of net income?

A)FIFO
B)LIFO
C)average cost
D)specific identification

Question 78

Summertime had the following data for the month of March: At March 31,300 units are still on hand.Determine the cost of goods sold for March if Summertime uses the FIFO method.

A)$6,020
B)$7,525
C)$8,804
D)$10,434

Question 79

Given the following data,by how much would taxable income change if FIFO is used rather than LIFO?

A)Decrease by $20,000
B)Decrease by $19,000
C)Increase by $20,000
D)Increase by $19,000

Question 80

A company has a beginning inventory of $40,000 and purchases during the year of $110,000.The beginning inventory consisted of 3,000 units and 7,000 units were purchased during the year.The company has 4,000 units left at year-end.Under average-cost,what is Cost of Goods Sold?

A)$60,000
B)$90,000
C)$110,000
D)$150,000