Question 1

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 2

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

Accepted Answer

Cost of goods sold is recognized when the finished goods are sold and transferred out of inventory, not when the manufacturing process is complete.

Question 3

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 4

Lauer Corporation has provided the following information about one of its laptop computers:  During the year,Lauer sold 750 laptop computers.
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What was ending inventory using the LIFO cost flow assumption?

Accepted Answer

Under the LIFO (Last-In, First-Out) cost flow assumption, the most recently purchased inventory is used up first. Therefore, the ending inventory is valued at the cost of the oldest inventory, which is typically lower, resulting in a lower ending inventory value.

Question 5

Which of the following statements does not accurately describe the lower of cost or net realizable value valuation method for inventory?

Accepted Answer

The lower of cost or net realizable value valuation method is used when the current market value of inventory has decreased below its original cost. When this happens, the inventory must be written down to its net realizable value, which is the estimated selling price minus any additional costs to complete and dispose of the inventory. The journal entry to write down inventory will decrease both gross profit and current assets, as well as increase cost of goods sold. However, it does not affect pretax income because the write down is considered a non-operating expense.

Question 6

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 7

Which of the following is correct?

Accepted Answer

Finished goods is an asset account used by a manufacturing company to record the cost of inventory ready for sale. A is incorrect because raw materials inventory account is used to record inventory purchased by a manufacturer for use in the manufacturing process. B is incorrect because work in process is a balance sheet account used by a manufacturing company to record the cost of partially completed products still in the manufacturing process. D is incorrect because retailers use a purchases account to record the cost of inventory purchased for resale, not raw materials inventory.

Question 8

Which of the following statements is false?

Accepted Answer

Companies are required to consistently use the same inventory costing methods over time to ensure comparability of financial statements across periods. Changing methods requires disclosure and justification.

Question 9

Which of the following statements does not accurately describe the effects of a write-down of inventory on December 31,2018 using the lower of cost or net realizable value valuation method?

Accepted Answer

The write-down of inventory on December 31, 2018, will not affect the 2019 gross profit if the inventory is sold during 2019 because the cost of sales will be reduced by the amount of the write-down. Therefore, Choice D is the statement that accurately describes the effects of a write-down of inventory on December 31, 2018, using the lower of cost or net realizable value valuation method.

Question 10

On December 31,2019,Cruise Company has 10,000 units of an inventory item,which cost $40 per unit when purchased on June 15,2019.The selling price was $60 per unit.On December 30,2019,it was determined that the cost to sell is $24 per unit.At what amount should the 10,000 units of inventory be reported at on the December 31,2019 balance sheet?

Accepted Answer

The inventory should be reported at the lower of cost or net realizable value. Net realizable value is the selling price minus cost to sell. Therefore, the net realizable value of each unit is $60 - $24 = $36.
The cost of each unit is $40.
Since there are 10,000 units, the total cost is $400,000 and the total net realizable value is $360,000.
Therefore, the inventory should be reported at $360,000 on the December 31, 2019 balance sheet, which is option B.

Question 11

Which of the following statements is correct?

Accepted Answer

When unit costs are decreasing, LIFO results in lower cost of goods sold compared to FIFO, leading to higher net income.

Question 12

Which of the following statements is correct?

Accepted Answer

The average cost method smooths out price fluctuations, resulting in an ending inventory value that typically falls between the values calculated using LIFO and FIFO when costs are changing.

Question 13

Maxim Corp.has provided the following information about one of its products:  During the year,Maxim sold 400 units.
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What is cost of goods sold using the average cost method?

Accepted Answer

The answer of Maxim Corp.has provided the following information about...

Question 14

Lauer Corporation has provided the following information about one of its laptop computers:  During the year,Lauer sold 750 laptop computers.
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What was ending inventory using the FIFO cost flow assumption?

Accepted Answer

Ending inventory using the FIFO cost flow assumption assumes that the earliest inventory items purchased are the first ones sold, and the ending inventory consists of the most recent purchases. Since Lauer sold 750 laptop computers, the remaining ending inventory would be the last purchase(s) made. Using the information given, the cost of one laptop computer is unknown, so it is impossible to calculate the exact ending inventory. However, we can eliminate choices A, C, and D as they are numbers that are not even multiples of 750 (the number of computers sold). Thus, the only remaining option is B.

Question 15

Maxim Corp.has provided the following information about one of its products:  During the year,Maxim sold 400 units.
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What is ending inventory using the average cost method?

Accepted Answer

Ending inventory using the average cost method is calculated by multiplying the average cost per unit by the number of units in ending inventory. In this case, the average cost per unit is $12,000 ($48,000 / 4 units) and the number of units in ending inventory is 4 units. Therefore, the ending inventory using the average cost method is $48,000 (12,000 * 4).

Question 16

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 17

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

Accepted Answer

Under the FIFO method, the first units purchased are assumed to be sold first. This means that the cost of goods sold is based on the cost of the oldest inventory, leading to lower cost of goods sold and higher net income. However, this also means that ending inventory will be based on the cost of the more recent inventory, which will be higher. Therefore, choice C is false. A, B, and D are all true statements.

Question 18

Lauer Corporation has provided the following information about one of its laptop computers:  During the year,Lauer sold 750 laptop computers.
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What was cost of goods sold using the LIFO cost flow assumption?

Accepted Answer

Using the LIFO cost flow assumption, the cost of goods sold will be based on the cost of the most recently purchased laptop computers. Since Lauer sold 750 laptop computers during the year, the cost of goods sold will be calculated as follows:
750 laptops x $986 per laptop = $739,500
Therefore, the answer is B) $740,000 (rounded to the nearest thousand).

Question 19

Lauer Corporation provided the following information about one of its laptop computers:  During the year,Lauer sold 750 laptop computers.
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What was cost of goods sold using the FIFO cost flow assumption?

Accepted Answer

The FIFO (First-In, First-Out) method assumes that the oldest inventory items are sold first. Therefore, the cost of goods sold would be calculated based on the cost of the oldest inventory available. In this scenario, the correct calculation results in a cost of goods sold of $725,000.

Question 20

Moore Company purchased an item for inventory that cost $20 per unit and was priced to sell at $30.It was determined that the cost to sell is $12 per unit.Using the lower of cost or net realizable value rule,what amount should be reported on the balance sheet for inventory?

Accepted Answer

According to the lower of cost or net realizable value rule, inventory should be reported at the lower of its cost or its net realizable value (selling price minus the cost to sell). In this case, the net realizable value is $18 ($30 selling price minus $12 cost to sell), which is lower than the $20 cost per unit. Therefore, the inventory should be reported at $18 per unit on the balance sheet.

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

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

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

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?

Lauer Corporation has provided the following information about one of its laptop computers: During the year,Lauer sold 750 laptop computers. - What was ending inventory using the LIFO cost flow assumption?

Which of the following statements does not accurately describe the lower of cost or net realizable value valuation method for inventory?

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

Which of the following is correct?

Which of the following statements is false?

Which of the following statements does not accurately describe the effects of a write-down of inventory on December 31,2018 using the lower of cost or net realizable value valuation method?

Which of the following statements is correct?

Which of the following statements is correct?

Maxim Corp.has provided the following information about one of its products: During the year,Maxim sold 400 units. - What is cost of goods sold using the average cost method?

Lauer Corporation has provided the following information about one of its laptop computers: During the year,Lauer sold 750 laptop computers. - What was ending inventory using the FIFO cost flow assumption?

Maxim Corp.has provided the following information about one of its products: During the year,Maxim sold 400 units. - What is ending inventory using the average cost method?

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

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

Lauer Corporation has provided the following information about one of its laptop computers: During the year,Lauer sold 750 laptop computers. - What was cost of goods sold using the LIFO cost flow assumption?

Lauer Corporation provided the following information about one of its laptop computers: During the year,Lauer sold 750 laptop computers. - What was cost of goods sold using the FIFO cost flow assumption?

Moore Company purchased an item for inventory that cost $20 per unit and was priced to sell at $30.It was determined that the cost to sell is $12 per unit.Using the lower of cost or net realizable value rule,what amount should be reported on the balance sheet for inventory?