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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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During the audit of Montane Company's 2010 financial statements,the auditors discovered that the 2010 ending inventory had been overstated by $8,000 and that the 2010 beginning inventory was overstated by $5,000.Before the effect of these errors,2010 pretax income had been computed as $100,000.What should be reported as the correct 2010 pretax income before taxes?

A) $113,000
B) $87,000
C) $105,000
D) $97,000

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Question 2

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Hopkins Company reported the following information related to inventory and sales: $\begin{array} { l r r } & \text { Units } & \text { Unit Cost } \\\text { Beginning inventory } & 6,000 & \$ 30,000 \\\text { Purchase No.1 } & 32,000 & 192,000 \\\text {Purchase No.2 } & 28,000 & 280,000\end{array}$ Sales-8,000 units at $35 per unit. Compute the following amounts assuming a periodic inventory system: $\begin{array}{lcccccl}\text { Inventory Costing } & & \text { Cost of Goods } & \text { Gross } & \text { Balance Sheet } \\\text { Method } & \text { Revenue } & \text { Sold } & \text { Margin } & \text { Inventory }\\\text { FIFO }\\\text { LIFO}\\\end{array}$

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To compute the Cost of Goods Sold (COGS)...

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Question 3

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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?

Give the journal entries for the transactions listed below under each of the two inventory systems. A.Purchased merchandise for cash, $1,000. B.Sold merchandise for $600 cash that had cost $480 (cost is 80% of the sales price. C.Accepted a sales return from a customer: sales price $30.A cash refund was given to the customer.The goods were returned to regular inventory. D.Returned goods to the vendor because they did not meet our specification; $50 cash refund was received.

An increase in inventory is deducted from net income when determining operating activities cash flows.

William Company uses the periodic inventory system and has provided the following data: $\begin{array} { l r r } & \text { Units } & \text { Amount } \\\text { Beginning inventory } & 6,000 & \$ 30,000 \\\text { Purchases } & 32,000 & 192,000 \\\text { Sales } & 28,000 & 280,000\end{array}$ Requirement 1: Calculate the following using both FIFO and LIFO inventory methods. $\begin{array}{ll} & \$ \text { FIFO } & \$ \text { LIFO } \\\text { A. Ending inventory }& \$----& \$----\\\text { B. Cost of Goods Sold }& \$----& \$----\\\text { C. Gross margin }& \$----& \$----\\\end{array}$ Requirement 2: Conceptually,how does pretax income using FIFO (in times of rising prices)compare to LIFO pretax income? Explain your answer.

A large retail department store probably would use the specific identification inventory costing method for most of the items in its inventory.

A corporation has provided the following information about one of their products: $\begin{array}{ll}\begin{array} { ll } \text { Date } & \text { Transaction } \\1 / 1 & \text { Beginning Inventory } \\6 / 5 & \text { Purchase } \\11 / 10 & \text { Purchase } \\\end{array}\begin{array} { l l} \text { Number of Units } & \text { Cost per Unit } \\200& \$ 140 \\400 & \$ 160 \\100 & \$ 200 \\\end{array}\end{array}$ During the year,400 units were sold. What is cost of goods sold using the average cost method?

RJ Corporation has provided the following information about one of their inventory items: $\begin{array}{ll}\begin{array} { ll } \text { Date } & \text { Transaction } \\1 / 1 & \text { Beginning Inventory } \\6 /6& \text { Purchase } \\9 / 10 & \text { Purchase } \\11/ 15 & \text { Purchase }\end{array}\begin{array} { l l} \text { Number of Units } & \text { Cost per Unit } \\400& \$ 3,200 \\800 & \$ 3,600 \\1,200 & \$ 4,000 \\800 & \$ 4,200\end{array}\end{array}$ During the year,3,000 units were sold. What was cost of goods sold using the FIFO cost flow assumption?

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

Which of the following statements is correct with respect to the determination of operating cash flows?

Which of the following statements is incorrect?

When a company uses the periodic inventory system,which of the following is true?

Quest Inc.provided the following footnote in their annual report: Inventories are stated at the lower of cost or market.The cost of inventories has been determined using last in first out (LIFO)method.Cost of goods sold under LIFO costing were $22.2 billion for 2011 and ending inventory under LIFO was $1.3 billion.Inventory in 2010 under LIFO costing was $1.2 billion.The LIFO Reserve account carried a credit balance of $0.8 billion in 2011 and $0.6 billion in 2010. Compute the following: 1. FIFO ending inventory balance at year end 2010 $\quad$ ------- 2. FIFO ending inventory balance at year end 2011 $\quad$ ------- 3. FIFO cost of goods sold for year end 2011 $\quad$ $\quad$ $\quad$ ------- 4. Inventory turnover under LIFO costing for 2011 $\quad$ ------- 5. Inventory turnover under FIFO costing for 2011 $\quad$ -------

Moore Company purchased an item for inventory that cost $20 per unit and was priced to sell at $30.It was determined that the replacement cost is $18 per unit.Using the lower-of-cost-or- market rule,what amount should be reported on the balance sheet for inventory?

A $25,000 overstatement of the 2010 ending inventory was discovered after the financial statements for 2010 were prepared.Which of the following describes the effect of the inventory error on the 2011 financial statements?

Lauer Corporation uses the periodic inventory system and has provided the following information about one of their laptop computers: $\begin{array}{ll}\begin{array} { ll } \text { Date } & \text { Transaction } \\1 / 1 & \text { Beginning Inventory } \\5 / 5 & \text { Purchase } \\8 / 10 & \text { Purchase } \\10 / 15 & \text { Purchase }\end{array}\begin{array} { l l} \text { Number of Units } & \text { Cost per Unit } \\100& \$ 800 \\200 & \$ 900 \\300 & \$ 1,000 \\200 & \$ 1,050\end{array}\end{array}$ During the year,750 laptop computers were sold. What was ending inventory using the FIFO cost flow assumption?

The journal entry to write-down inventory under the lower-of-cost-or-market (LCM)rule results in a debit to cost of goods sold and a credit to inventory.

Which of the following statements is false?

QV-TV,Inc.provided the following items in their footnotes for the year-end 2010: Cost of goods sold was $22 billion under FIFO costing and their inventory value under FIFO costing was $2.1 billion.The LIFO Reserve for year-end 2009 was a $0.6 billion credit balance and at year-end 2010 it had increased to a credit balance of $0.8 billion.How much is LIFO inventory value at year-end 2010?