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

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Question 1

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

A) Cost of goods sold will be lower under LIFO than under FIFO.
B) Net income will be lower under LIFO than under FIFO.
C) Income tax expense will be lower under LIFO than under FIFO.
D) Ending inventory will be lower under LIFO than under FIFO.

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Question 2

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QV-TV,Inc.provided the following items in its notes to the financial statements for the year-end 2019: Cost of goods sold was $22 billion under FIFO costing and the inventory value under FIFO costing was $2.1 billion.The LIFO Reserve for year-end 2018 was $0.6 billion and at year-end 2019 it had increased to $0.8 billion. -What is the LIFO inventory value at year-end 2019?

A) $1.9 billion.
B) $2.9 billion.
C) $2.3 billion.
D) $1.3 billion.

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Question 3

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Of the following,which is not a control for safeguarding inventories?

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?

The journal entry to write down inventory under the lower of cost or net realizable value rule results in a debit to cost of goods sold and a credit to inventory.

Wilmington Company reported pretax income of $25,000 during 2018 and $30,000 during 2019.Later it was discovered that the ending inventory for 2018 was understated by $2,000 (and not corrected in 2018) .What is the correct pretax income for each year?

Goods available for sale are allocated to both ending inventory and cost of goods sold.

A company reported the following information for its most recent year of operation: purchases,$100,000;beginning inventory,$20,000;and cost of goods sold,$110,000.How much was the company's ending inventory?

During the audit of Montane Company's 2019 financial statements,the auditors discovered that the 2019 ending inventory had been overstated by $8,000 and that the 2019 beginning inventory was overstated by $5,000.Before the effect of these errors,2019 pretax income had been computed as $100,000.What should be reported as the correct 2019 pretax income before taxes?

Dows Company prepared income statements that reflected pretax income of $21,000 for 2018 and $30,000 for 2019.An audit has determined that there were two errors in the inventory amounts as follows: Determine the correct pretax income amount for each year (show computations;assume the errors were not corrected):

A company provided the following disclosure note to the financial statements in its newest annual report: During the current and prior year,the company reduced certain inventory quantities that were valued at lower LIFO costs prevailing in prior years.The effect of these physical reductions was to increase after-tax earnings this year by $90 million,$.30 per share,and $98 million,or $.327 per share last year. 1.Explain why the reduction in inventory quantity increased after-tax earnings for this company. 2.If the company had been using FIFO costing,would the reductions in inventory quantity during the two years have increased after-tax earnings? Explain.

Coleman Company has provided the following information: beginning inventory,$100,000;cost of goods sold,$450,000;and ending inventory,$80,000.How much were Coleman's inventory purchases?

Atomic Company did not record a December 2019 purchase of inventory on credit until January 2020.Assume that the December 31,2019 ending inventory was correctly determined. - What is the effect of this error on the financial statements for the year ended December 31,2020?

A $25,000 overstatement of the 2019 ending inventory was discovered after the financial statements for 2019 were prepared.Which of the following describes the effect of the inventory error on the 2019 financial statements?

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?

For each independent situation given below,determine the effect on pretax income for each.Enter "O" to indicate pretax income is overstated,"U" to indicate pretax income is understated,or "NA" to indicate that pretax income is not affected.

Which of the following costs is not included as inventory on the balance sheet?

A company using the periodic inventory system correctly recorded a purchase of merchandise,but the merchandise was not included in the physical inventory count at the end of the accounting period.The error caused which of the following?

An increase in inventory is subtracted from net income when determining cash flow from operating activities.

Which of the following statements is incorrect?