Question 1

The total cost spent on inventory that was available to be sold during a period is called the cost of goods sold.

Accepted Answer

The total cost spent on inventory that was available to be sold during a period is called the cost of goods available for sale.

Question 2

Which of the following statements regarding FIFO is incorrect?

Accepted Answer

The statement "FIFO is a specific identification costing method because companies sell their oldest inventory first" is incorrect. Specific identification involves identifying and tracking the cost of each individual item, whereas FIFO assumes that the first items purchased are the first items sold regardless of their specific cost.

Question 3

When a company uses the first-in, first-out (FIFO) method, the cost of goods sold represents the cost of the most recently purchased goods and the value of ending inventory represents the cost of the oldest goods in stock.

Accepted Answer

When a company uses the FIFO method, the cost of goods sold represents the cost of the oldest goods in stock and the value of ending inventory represents the cost of the most recently purchased goods.

Question 4

A company purchased 90 units for $20 each on January 31. It purchased 180 units for $25 each on February 28. It sold 180 units for $60 each from March 1 through December 31. If the company uses the first-in, first-out inventory costing method, what is the amount of Cost of Goods Sold on the income statement for the year ending December 31? (Assume that the company uses a perpetual inventory system.)

Accepted Answer

Under the first-in, first-out (FIFO) method, the cost of goods sold is based on the cost of the oldest inventory. The company sold 180 units, so the first 90 units sold would be at the January 31 purchase price of $20 each, and the next 90 units would be at the February 28 purchase price of $25 each. Therefore, the cost of goods sold is (90 units * $20) + (90 units * $25) = $1,800 + $2,250 = $4,050.

Question 5

Which of the following inventory costing methods uses the cost of the oldest purchases to compute the cost of goods sold?

Accepted Answer

First-in, first-out (FIFO) uses the cost of the oldest purchases to compute the cost of goods sold, meaning it assumes that the first items purchased are the first ones sold.

Question 6

Countrywide Sales sold 400 units of product to a customer on account. The selling price was $28 per unit, and the cost, according to the company's inventory records, was $14 per unit. Prepare the journal entry to record the cost of goods sold. (Assume a perpetual inventory system and the FIFO inventory costing method.) Omit explanation.

Accepted Answer

The answer of Countrywide Sales sold 400 units of product...

Question 7

Modern Lifestyle Furniture began June with merchandise inventory of 45 sofas that cost a total of $31,500. During the month, Modern purchased and sold merchandise on account as follows:
 $\begin{array}{|r|l|l|}
\hline\text { June 7} & \text { Purchase } & 25 \text { sofas } @ \$ 750 \text { each } \
\hline 14 & \text { Sale } & 30 \text { sofas } @ \$ 1,150 \text { each } \
\hline 18 & \text { Purchase } & \text { 50 sofas } @ \$ 775 \text { each } \
\hline 27 & \text { Sale } & 35 \text { sofas } @ \$ 1,200 \text { each }\
\hline
\end{array}$
 Prepare a perpetual inventory record, using the FIFO inventory costing method, and determine the company's cost of goods sold, ending merchandise inventory, and gross profit.
| Purchases | Cost of Goods Sold | Inventory on Hand |

Accepted Answer

The answer of Modern Lifestyle Furniture began June with merchandise...

Question 8

A company that uses the perpetual inventory system purchased 500 pallets of industrial soap for $10,000 and paid $950 for the freight-in. The company sold the whole lot to a supermarket chain for $13,000 on account. Which of the following entries correctly records the sale?

Accepted Answer

The correct entries include recording the sale by increasing Accounts Receivable and Sales Revenue by $13,000, and recognizing the cost of goods sold (COGS) by increasing COGS and decreasing Merchandise Inventory by $10,950, which includes the purchase cost of $10,000 plus freight-in costs of $950.

Question 9

First Street Merchandisers has total cost of goods sold of $54,500, total beginning inventory of $18,500, and total ending inventory of $22,100. Cost of goods available for sale is $73,000.

Accepted Answer

Cost of goods available for sale is calculated by adding beginning inventory to cost of goods purchased. Therefore, the correct calculation for cost of goods available for sale in this scenario would be:

Beginning inventory + Cost of goods purchased = Cost of goods available for sale
$18,500 + X = $73,000
X (cost of goods purchased) = $54,500

Since total cost of goods sold is $54,500 and total beginning inventory is $18,500, the cost of goods purchased would be $54,500 - $18,500 = $36,000.

However, the question incorrectly states that cost of goods available for sale is $73,000. Therefore, the answer is false.

Question 10

James Sales sold 450 units of product to a customer on account. The company uses the perpetual inventory system and the FIFO inventory costing method. The selling price was $28 per unit, and the cost, according to the company's inventory records, was $12 per unit. Prepare the journal entries to record the sale. Omit explanations.

Accepted Answer

The answer of James Sales sold 450 units of product...

Question 11

Under which of the following inventory costing methods is the ending inventory based on the costs of the most recent purchases?

Accepted Answer

The first-in, first-out (FIFO) method assumes that the first items added to inventory are the first sold, so the ending inventory is based on the costs of the most recent purchases.

Question 12

A company that uses the perpetual inventory system sold goods to a customer for cash for $4,200. The cost of the goods sold was $1,000. Which of the following journal entries correctly records this transaction?

Accepted Answer

The journal entry to record the sale of goods under the perpetual inventory system is:
Debit Cash for the selling price of goods - $4,200
Credit Sales Revenue for the selling price of goods - $4,200
Debit Cost of Goods Sold for the cost of goods sold - $1,000
Credit Inventory for the cost of goods sold - $1,000

Option B correctly records this transaction in accordance with the perpetual inventory system.

Question 13

Meadows, Inc. sold 500 units of inventory at $25 per unit on account. The company uses the perpetual inventory system and the FIFO inventory costing method. The beginning inventory included 400 units at $15 per unit. The most recent purchases include 600 units at $18 per unit. Prepare the journal entries to record the sale. Omit explanations.

Accepted Answer

The answer of Meadows, Inc. sold 500 units of inventory...

Question 14

A company purchased 500 units for $30 each on January 31. It purchased 550 units for $33 each on February 28. It sold a total of 650 units for $45 each from March 1 through December 31. What is the cost of ending inventory on December 31 if the company uses the first-in, first-out (FIFO) inventory costing method? (Assume that the company uses a perpetual inventory system.)

Accepted Answer

Under the FIFO method, the first items purchased are the first ones to be sold. The company purchased 500 units at $30 each and then 550 units at $33 each. It sold 650 units, so all 500 of the first batch and 150 of the second batch were sold. The ending inventory consists of the remaining 400 units from the second purchase at $33 each, totaling $13,200 (400 units * $33/unit).

Question 15

Nichols, Inc. had the following balances and transactions during 2018: $$\begin{array} { | l | l | } 
\hline \text { Beginning Merchandise Inventory as of January 1,2018 } & 300 \text { units at } \$ 80 \
\hline \text { March } 10 & \text { Sold } 80 \text { units } \
\hline \text { June } 10 & \text { Purchased } 600 \text { units at } \$ 85 \
\hline \text { October } 30 & \text { Sold } 380 \text { units } \
\hline
\end{array}$$ What would be reported for Ending Merchandise Inventory on the balance sheet at December 31, 2018 if the perpetual inventory system and the first-in, first-out inventory costing method are used?

Accepted Answer

Using the first-in, first-out (FIFO) inventory costing method, the cost of goods sold is calculated by assuming that the first goods purchased are the first goods sold. 
Therefore, we can calculate the cost of goods sold as: 
Beginning inventory + Purchases - Ending inventory = Cost of goods sold 
$19,600 + $166,400 - Ending inventory = $166,000 
Ending inventory = $19,600 + $166,400 - $166,000 = $20,000 
Thus, the ending merchandise inventory on the balance sheet at December 31, 2018 if the perpetual inventory system and the FIFO inventory costing method are used would be $20,000.

Question 16

Baldwin, Inc. had the following balances and transactions during 2019: $$\begin{array} { | l | l | } 
\hline \text { Beginning Merchandise Inventory as of January 1,2019 } & 125 \text { units at } \$ 81 \
\hline \text { March } 10 & \text { Sold } 50 \text { units } \
\hline \text { June } 10 & \text { Purchased } 225 \text { units at } \$ 86 \
\hline \text { October } 30 & \text { Sold } 175 \text { units } \
\hline
\end{array}$$ What would be reported as Cost of Goods Sold on the income statement for the year ending December 31, 2019 if the perpetual inventory system and the first-in, first-out inventory costing method are used?

Accepted Answer

Under the FIFO method, the earliest costs are assigned to the cost of goods sold. The calculation is as follows: - First sale of 50 units from beginning inventory: 50 units * $81 = $4,050 - Second sale of 175 units involves the remaining 75 units from beginning inventory and 100 units from the June purchase: 75 units * $81 + 100 units * $86 = $6,075 + $8,600 = $14,675. Adding both sales: $4,050 + $14,675 = $18,725.

Question 17

A company that uses the perpetual inventory system sold goods for $2,600 to a customer on account. The company had purchased the inventory for $500. Which of the following journal entries correctly records the cost of goods sold?

Accepted Answer

Option C correctly records the cost of goods sold by debiting Cost of Goods Sold and crediting Merchandise Inventory, reflecting the reduction in inventory due to the sale.

Question 18

Western Sky, Inc. sold 500 units of inventory at $25 per unit for cash. The company uses the perpetual inventory system and the FIFO inventory costing method. The beginning inventory included 550 units at a cost of $15 per unit. The cost of the most recent purchases is $10 per unit. Prepare the journal entries to record the sale. Omit explanations.

Accepted Answer

The answer of Western Sky, Inc. sold 500 units of...

Question 19

A company that uses the perpetual inventory system sold goods to a customer on account for $4,000. The cost of the goods sold was $2,000. Which of the following journal entries correctly records this transaction?

Accepted Answer

Option D correctly records the sale on account by debiting Accounts Receivable and crediting Sales Revenue for $4,000, and it accurately records the cost of goods sold by debiting Cost of Goods Sold and crediting Merchandise Inventory for $2,000.

Question 20

Costas, Inc. purchased inventory on account for $6,500. Prepare the journal entry to record the purchase of inventory on account. (Assume a perpetual inventory system.) Omit explanation.

Accepted Answer

The answer of Costas, Inc. purchased inventory on account for...

Quiz 6: Merchandise Inventory