Deck 8: Valuation of Inventories: a Cost-Basis Approach

Question 1

Use of LIFO provides a tax benefit in an industry where unit costs tend to decrease as production increases.

Answer 1

False

Question 2

If both purchases and ending inventory are overstated by the same amount, net income is not affected.

Answer 2

True

Question 3

LIFO liquidation often distorts net income, but usually leads to substantial tax savings.

Answer 3

False

Question 4

Both merchandising and manufacturing companies normally have multiple inventory accounts.

Question 5

Purchase Discounts Lost is a financial expense and is reported in the "other expenses and losses" section of the income statement.

Question 6

LIFO liquidations can occur frequently when using a specific-goods approach.

Question 7

The cost flow assumption adopted must be consistent with the physical movement of the goods.

Question 8

A disadvantage of LIFO is that it does not match more recent costs against current revenues as well as FIFO.

Question 9

Dollar-value LIFO techniques help protect LIFO layers from erosion.

Question 10

If ending inventory is understated, then net income is understated.

Question 11

The change in the LIFO Reserve from one period to the next is recorded as an adjustment to Cost of Goods Sold.

Question 12

A manufacturing concern would report the cost of units only partially processed as inventory in the balance sheet.

Question 13

Freight charges on goods purchased are considered a period cost and therefore are not part of the cost of the inventory.

Question 14

The dollar-value LIFO method measures any increases and decreases in a pool in terms of total dollar value and physical quantity of the goods.

Question 15

When using a perpetual inventory system, freight charges on goods purchased are debited to Freight-In.

Question 16

The LIFO conformity rule requires that if a company uses LIFO for tax purposes, it must also use LIFO for financial accounting purposes.

Question 17

If a supplier ships goods f.o.b.destination, title passes to the buyer when the supplier delivers the goods to the common carrier.

Question 18

LIFO is inappropriate where unit costs tend to decrease as production increases.

Question 19

In all cases when FIFO is used, the cost of goods sold would be the same whether a perpetual or periodic system is used.

Question 20

Many companies use LIFO for both tax and internal reporting purposes.

Question 21

If the beginning inventory for 2006 is overstated, the effects of this error on cost of goods sold for 2006, net income for 2006, and assets at December 31, 2007, respectively, are

A)overstatement, understatement, overstatement.
B)overstatement, understatement, no effect.
C)understatement, overstatement, overstatement.
D)understatement, overstatement, no effect.

Question 22

Valuation of inventories requires the deter?mination of all of the following except

A)the costs to be included in inventory.
B)the physical goods to be included in inventory.
C)the cost of goods held on consign?ment from other companies.
D)the cost flow assumption to be adopted.

Question 23

Eller Co.received merchandise on consignment.As of January 31, Eller included the goods in inventory, but did not record the transaction.The effect of this on its financial statements for January 31 would be

A)net income, current assets, and retained earnings were overstated.
B)net income was correct and current assets were understated.
C)net income and current assets were overstated and current liabilities were understated.
D)net income, current assets, and retained earnings were understated.

Question 24

Use the following information for questions
During 2007 Foley Corporation transferred inventory to Kline Corporation and agreed to repurchase the merchandise early in 2008.Kline then used the inventory as collateral to borrow from Norwalk Bank, remitting the proceeds to Foley.In 2008 when Foley repurchased the inventory, Kline used the proceeds to repay its bank loan.
This transaction is known as a(n)

A)consignment.
B)installment sale.
C)assignment for the benefit of creditors.
D)product financing arrangement.

Question 25

Cross Co.accepted delivery of merchandise which it purchased on account.As of December 31, Cross had recorded the transaction, but did not include the merchandise in its inventory.The effect of this on its financial statements for December 31 would be

A)net income, current assets, and retained earnings were understated.
B)net income was correct and current assets were understated.
C)net income was understated and current liabilities were overstated.
D)net income was overstated and current assets were understated.

Question 26

The failure to record a purchase of mer?chandise on account even though the goods are properly included in the physical inven?tory results in

A)an overstatement of assets and net income.
B)an understatement of assets and net income.
C)an understatement of cost of goods sold and liabilities and an overstatement of assets.
D)an understatement of liabilities and an overstatement of owners' equity.

Question 27

The accountant for the Orion Sales Company is preparing the income statement for 2007 and the balance sheet at December 31, 2007.Orion uses the periodic inventory system.The January 1, 2007 merchandise inventory balance will appear

A)only as an asset on the balance sheet.
B)only in the cost of goods sold section of the income statement.
C)as a deduction in the cost of goods sold section of the income statement and as a current asset on the balance sheet.
D)as an addition in the cost of goods sold section of the income statement and as a current asset on the balance sheet.

Question 28

Costs which are inventoriable include all of the following except

A)costs that are directly connected with the bringing of goods to the place of business of the buyer.
B)costs that are directly connected with the converting of goods to a salable condition.
C)buying costs of a purchasing department.
D)selling costs of a sales department.

Question 29

Which of the following is correct?

A)Selling costs are product costs.
B)Manufacturing overhead costs are product costs.
C)Interest costs for routine inventories are product costs.
D)All of these.

Question 30

Belle Co.received merchandise on consignment.As of March 31, Belle had recorded the transaction as a purchase and included the goods in inventory.The effect of this on its financial statements for March 31 would be

A)no effect.
B)net income was correct and current assets and current liabilities were overstated.
C)net income, current assets, and current liabilities were overstated.
D)net income and current liabilities were overstated.

Question 31

On June 15, 2007, Tolon Corporation accepted delivery of merchandise which it pur-chased on account.As of June 30, Tolon had not recorded the transaction or included the merchandise in its inventory.The effect of this on its balance sheet for June 30, 2007 would be

A)assets and stockholders' equity were overstated but liabilities were not affected.
B)stockholders' equity was the only item affected by the omission.
C)assets, liabilities, and stockholders' equity were understated.
D)none of these.

Question 32

Which inventory costing method most closely approximates current cost for each of the following:

Question 33

When using the periodic inventory system, which of the following generally would not be separately accounted for in the computation of cost of goods sold?

A)Trade discounts applicable to purchases during the period
B)Cash (purchase) discounts taken during the period
C)Purchase returns and allowances of merchandise during the period
D)Cost of transportation-in for merchandise purchased during the period

Question 34

When using a perpetual inventory system,

A)no Purchases account is used.
B)a Cost of Goods Sold account is used.
C)two entries are required to record a sale.
D)all of these.

Question 35

Which of the following types of interest cost incurred in connection with the purchase or manufacture of inventory should be capitalized as a product cost?

A)Purchase discounts lost
B)Interest incurred during the production of discrete projects such as ships or real estate projects
C)Interest incurred on notes payable to vendors for routine purchases made on a repetitive basis
D)All of these should be capitalized.

Question 36

The use of a Discounts Lost account implies that the recorded cost of a purchased inventory item is its

A)invoice price.
B)invoice price plus the purchase discount lost.
C)invoice price less the purchase discount taken.
D)invoice price less the purchase discount allowable whether taken or not.

Question 37

Goods on consignment are

A)included in the consignee's inventory.
B)recorded in a Consignment Out account which is an inventory account.
C)recorded in a Consignment In account which is an inventory account.
D)all of these

Question 38

The use of a Purchase Discounts account implies that the recorded cost of a purchased inventory item is its

A)invoice price.
B)invoice price plus any purchase discount lost.
C)invoice price less the purchase discount taken.
D)invoice price less the purchase discount allowable whether taken or not.

Question 39

Use the following information for questions
During 2007 Foley Corporation transferred inventory to Kline Corporation and agreed to repurchase the merchandise early in 2008.Kline then used the inventory as collateral to borrow from Norwalk Bank, remitting the proceeds to Foley.In 2008 when Foley repurchased the inventory, Kline used the proceeds to repay its bank loan.
On whose books should the cost of the inventory appear at the December 31, 2007 balance sheet date?

A)Foley Corporation
B)Kline Corporation
C)Norwalk Bank
D)Kline Corporation, with Foley making appropriate note disclosure of the transaction

Question 40

All of the following costs should be charged against revenue in the period in which costs are incurred except for

A)manufacturing overhead costs for a product manufactured and sold in the same accounting period.
B)costs which will not benefit any future period.
C)costs from idle manufacturing capacity resulting from an unexpected plant shutdown.
D)costs of normal shrinkage and scrap incurred for the manufacture of a product in ending inventory.

Question 41

Which of the following is not considered an advantage of LIFO when prices are rising?

A)The inventory will be overstated.
B)The more recent costs are matched against current revenues.
C)There will be a deferral of income tax.
D)A company's future reported earnings will not be affected substantially by future price declines.

Question 42

An inventory pricing procedure in which the oldest costs incurred rarely have an effect on the ending inventory valuation is

A)FIFO.
B)LIFO.
C)base stock.
D)weighted-average.

Question 43

The pricing of issues from inventory must be deferred until the end of the accounting period under the following method of inventory valuation:

A)moving average.
B)weighted-average.
C)LIFO perpetual.
D)FIFO.

Question 44

TJones Manufacturing Company has the following account balances at year end: $\begin{array}{lr}\text { Office supplies } & \$ 4,000 \\\text { Raw materials } & 27,000 \\\text { Work-in-process } & 59,000 \\\text { Finished goods } & 72,000 \\\text { Prepaid insurance } & 6,000\end{array}$ What amount should TJones report as inventories in its balance sheet?

A)$72,000.
B)$76,000.
C)$158,000.
D)$162,000.

Question 45

In a period of rising prices, the inventory method which tends to give the highest reported inventory is

A)FIFO.
B)moving average.
C)LIFO.
D)weighted-average.

Question 46

Which of the following is true regarding the use of LIFO for inventory valuation?

A)If LIFO is used for external financial reporting, then it must also be used for internal reports.
B)For purposes of external financial reporting, LIFO may not be used with the lower of cost or market approach.
C)If LIFO is used for external financial reporting, then it cannot be used for tax purposes.
D)None of these.

Question 47

In situations where there is a rapid turnover, an inventory method which produces a balance sheet valuation similar to the first-in, first-out method is

A)average cost.
B)base stock.
C)joint cost.
D)prime cost.

Question 48

Which of the following statements is not true as it relates to the dollar-value LIFO inven?tory method?

A)It is easier to erode LIFO layers using dollar-value LIFO techniques than it is with specific goods pooled LIFO.
B)Under the dollar-value LIFO method, it is possible to have the entire inventory in only one pool.
C)Several pools are commonly employed in using the dollar-value LIFO inventory method.
D)Under dollar-value LIFO, increases and decreases in a pool are determined and measured in terms of total dollar value, not physical quantity.

Question 49

Assuming no beginning inventory, what can be said about the trend of inventory prices if cost of goods sold computed when inventory is valued using the FIFO method exceeds cost of goods sold when inventory is valued using the LIFO method?

A)Prices decreased.
B)Prices remained unchanged.
C)Prices increased.
D)Price trend cannot be determined from information given.

Question 50

In a period of rising prices, the inventory method which tends to give the highest reported net income is

A)base stock.
B)first-in, first-out.
C)last-in, first-out.
D)weighted-average.

Question 51

In a period of rising prices, the inventory method which tends to give the highest reported cost of goods sold is

A)FIFO.
B)average cost.
C)LIFO.
D)none of these.

Question 52

The acquisition cost of a certain raw material changes frequently.The book value of the inventory of this material at year end will be the same if perpetual records are kept as it would be under a periodic inventory method only if the book value is computed under the

A)weighted-average method.
B)moving average method.
C)LIFO method.
D)FIFO method.

Question 53

Quayle Corporation's inventory cost on its balance sheet was lower using first-in, first-out than it would have been using last-in, first-out.Assuming no beginning inventory, in what direction did the cost of purchases move during the period?

A)Up
B)Down
C)Steady
D)Cannot be determined

Question 54

Which method of inventory pricing best approximates specific identification of the actual flow of costs and units in most manufacturing situations?

A)Average cost
B)First-in, first-out
C)Last-in, first-out
D)Base stock

Question 55

Which of the following statements is not valid as it applies to inventory costing methods?

A)If inventory quantities are to be maintained, part of the earnings must be invested (plowed back) in inventories when FIFO is used during a period of rising prices.
B)LIFO tends to smooth out the net income pattern by matching current cost of goods sold with current revenue, when inventories remain at constant quantities.
C)When a firm using the LIFO method fails to maintain its usual inventory position (reduces stock on hand below customary levels), there may be a matching of old costs with current revenue.
D)The use of FIFO permits some control by management over the amount of net income for a period through controlled purchases, which is not true with LIFO.

Question 56

Use the following information for questions
Dexter, Inc.is a calendar-year corporation.Its financial statements for the years 2007 and 2006 contained errors as follows: $$\begin{array} { l l l } &{ 2007 } & { 2006 }\\\text { Ending inventory } &{ \$ 3,000 \text { overstated } } & { \$ 8,000 \text { overstated } } \\\text { Depreciation expense } & \$ 2,000 \text { understated } & \$ 6,000 \text { overstated }\end{array}$$

-Assume that the proper correcting entries were made at December 31, 2006.By how much will 2007 income before taxes be overstated or understated?

A)$1,000 understated
B)$1,000 overstated
C)$2,000 overstated
D)$5,000 overstated

Question 57

Harder Corporation uses the perpetual inventory method.On March 1, it purchased $30,000 of inventory, terms 2/10, n/30.On March 3, Harder returned goods that cost $3,000.On March 9, Harder paid the supplier.On March 9, Harder should credit

A)purchase discounts for $600.
B)inventory for $600.
C)purchase discounts for $540.
D)inventory for $540.

Question 58

JSmith Manufacturing Company has the following account balances at year end: $\begin{array}{lr}\text { Office supplies } & 4,000 \\\text { Raw materials } & 27,000 \\\text { Work-in-process } & 59,000 \\\text { Finished goods } & 92,000 \\\text { Prepaid insurance } & 6,000\end{array}$ What amount should JSmith report as inventories in its balance sheet?

A)$92,000.
B)$96,000.
C)$178,000.
D)$182,000.

Question 59

Briggs Corporation uses the perpetual inventory method.On March 1, it purchased $10,000 of inventory, terms 2/10, n/30.On March 3, Briggs returned goods that cost $1,000.On March 9, Briggs paid the supplier.On March 9, Briggs should credit

A)purchase discounts for $200.
B)inventory for $200.
C)purchase discounts for $180.
D)inventory for $180.

Question 60

When a company uses LIFO for external reporting purposes and FIFO for internal reporting purposes, an Allowance to Reduce Inventory to LIFO account is used.This account should be reported

A)on the income statement in the Other Revenues and Gains section.
B)on the income statement in the Cost of Goods Sold section.
C)on the income statement in the Other Expenses and Losses section.
D)on the balance sheet in the Current Assets section.

Question 61

Use the following information for questions
Transactions for the month of June were: $$\begin{array} { r r r r r r } { \text { Purchases } } && { \text { Sales } } \\\hline \text { June } 1 & \text { (balance) } 800 @ \$ 3.20 & \text { June } 2 & 600 @ \$ 5.50 \\3 & 2,200 @ 3.10 & 6 & 1,600 @ 5.50 \\7 & 1,200 @ 3.30 & 9 & 1,000 @ 5.50 \\15 & 1,800 @ 3.40 & 10 & 400 @ 6.00 \\22 & 500 @ 3.50 & 18 & 1,400 @ 6.00 \\& & 25 & 200 @ 6.00\end{array}$$

-Assuming that perpetual inventory records are kept in units only, the ending inventory on an average-cost basis, rounded to the nearest dollar, is

A)$4,096.
B)$4,238.
C)$4,290.
D)$4,322.

Question 62

Kingman Company had 500 units of "Dink" in its inventory at a cost of $5 each.It purchased, for $2,400, 300 more units of "Dink".Kingman then sold 600 units at a selling price of $10 each, resulting in a gross profit of $2,100.The cost flow assumption used by Kingman

A)is FIFO.
B)is LIFO.
C)is weighted average.
D)cannot be determined from the information given.

Question 63

Use the following information for questions
The following information was available from the inventory records of Neer Company for January: $\begin{array}{lcr}&\text { Units }&\text {Unit Cost }&\text {Total Cost }\\\text { Balance at January } 1&3,000 &\$ 9.77 & \$ 29,310 \\\text { Purchases: }\\\text { January } 6&2,000 & 10.30 & 20,600 \\\text { January } 26&2,700 & 10.71 & 28,917\\\\\text { Sales: } & \\\quad \text { January } 7 & (2,500) \\\text { January } 31 & {(4,000)}\\\text { Balance at January } 31&1,200\end{array}$

-Assuming that Neer does not maintain perpetual inventory records, what should be the inventory at January 31, using the weighted-average inventory method, rounded to the nearest dollar?

A)$12,606.
B)$12,284.
C)$12,312.
D)$12,432.

Question 64

Use the following information for questions
Kiner Co.has the following data related to an item of inventory: $\begin{array}{lc}\text { Inventory, March } 1 & 100 \text { units } @ \$ 4.20 \\\text { Purchase, March } 7 & 350 \text { units } @ \$ 4.40 \\\text { Purchase, March } 16 & 70 \text { units } @\$ 4.50 \\\text { Inventory, March } 31 & 130 \text { units }\end{array}$

-The value assigned to ending inventory if Kiner uses LIFO is

A)$579.
B)$552.
C)$546.
D)$585.

Question 65

Use the following information for questions
Richey Co.records purchases at net amounts.On May 5 Richey purchased merchandise on account, $16,000, terms 2/10, n/30.Richey returned $1,200 of the May 5 purchase and received credit on account.At May 31 the balance had not been paid.
By how much should the account payable be adjusted on May 31?

A)$0.
B)$344.
C)$320.
D)$296.

Question 66

Kingman Company had 400 units of "Dink" in its inventory at a cost of $6 each.It purchased 600 more units of "Dink" at a cost of $9 each.Kingman then sold 700 units at a selling price of $15 each.The LIFO liquidation overstated normal gross profit by

A)$ -0-
B)$300.
C)$600.
D)$900.

Question 67

Use the following information for questions
Dexter, Inc.is a calendar-year corporation.Its financial statements for the years 2007 and 2006 contained errors as follows: $$\begin{array} { l l l } &{ 2007 } & { 2006 }\\\text { Ending inventory } &{ \$ 3,000 \text { overstated } } & { \$ 8,000 \text { overstated } } \\\text { Depreciation expense } & \$ 2,000 \text { understated } & \$ 6,000 \text { overstated }\end{array}$$

-Assume that no correcting entries were made at December 31, 2006.Ignoring income taxes, by how much will retained earnings at December 31, 2007 be overstated or understated?

A)$1,000 understated
B)$5,000 overstated
C)$5,000 understated
D)$9,000 understated

Question 68

Brown Corporation uses the FIFO method for internal reporting purposes and LIFO for external reporting purposes.The balance in the LIFO Reserve account at the end of 2007 was $60,000.The balance in the same account at the end of 2008 is $90,000.Brown's Cost of Goods Sold account has a balance of $450,000 from sales transactions recorded during the year.What amount should Brown report as Cost of Goods Sold in the 2008 income statement?

A)$420,000.
B)$450,000.
C)$480,000.
D)$540,000.

Question 69

Use the following information for questions
Kiner Co.has the following data related to an item of inventory: $\begin{array}{lc}\text { Inventory, March } 1 & 100 \text { units } @ \$ 4.20 \\\text { Purchase, March } 7 & 350 \text { units } @ \$ 4.40 \\\text { Purchase, March } 16 & 70 \text { units } @\$ 4.50 \\\text { Inventory, March } 31 & 130 \text { units }\end{array}$

-The value assigned to cost of goods sold if Kiner uses FIFO is

A)$579.
B)$552.
C)$1,723.
D)$1,696.

Question 70

Use the following information for questions
Transactions for the month of June were: $$\begin{array} { r r r r r r } { \text { Purchases } } && { \text { Sales } } \\\hline \text { June } 1 & \text { (balance) } 800 @ \$ 3.20 & \text { June } 2 & 600 @ \$ 5.50 \\3 & 2,200 @ 3.10 & 6 & 1,600 @ 5.50 \\7 & 1,200 @ 3.30 & 9 & 1,000 @ 5.50 \\15 & 1,800 @ 3.40 & 10 & 400 @ 6.00 \\22 & 500 @ 3.50 & 18 & 1,400 @ 6.00 \\& & 25 & 200 @ 6.00\end{array}$$

-Assuming that perpetual inventory records are kept in units only, the ending inventory on a LIFO basis is

A)$4,110.
B)$4,160.
C)$4,290.
D)$4,470.

Question 71

Johnson Company had 400 units of "Tank" in its inventory at a cost of $4 each.It purchased 600 more units of "Tank" at a cost of $6 each.Johnson then sold 700 units at a selling price of $10 each.The LIFO liquidation overstated normal gross profit by

A)$ -0-
B)$200.
C)$400.
D)$600.

Question 72

Use the following information for questions
Transactions for the month of June were: $$\begin{array} { r r r r r r } { \text { Purchases } } && { \text { Sales } } \\\hline \text { June } 1 & \text { (balance) } 800 @ \$ 3.20 & \text { June } 2 & 600 @ \$ 5.50 \\3 & 2,200 @ 3.10 & 6 & 1,600 @ 5.50 \\7 & 1,200 @ 3.30 & 9 & 1,000 @ 5.50 \\15 & 1,800 @ 3.40 & 10 & 400 @ 6.00 \\22 & 500 @ 3.50 & 18 & 1,400 @ 6.00 \\& & 25 & 200 @ 6.00\end{array}$$

-Assuming that perpetual inventory records are kept in dollars, the ending inventory on a FIFO basis is

A)$4,110.
B)$4,160.
C)$4,290.
D)$4,470.

Question 73

Johnson Company had 500 units of "Tank" in its inventory at a cost of $4 each.It purchased, for $2,800, 300 more units of "Tank".Johnson then sold 400 units at a selling price of $10 each, resulting in a gross profit of $1,600.The cost flow assumption used by Johnson

A)is FIFO.
B)is LIFO.
C)is weighted average.
D)cannot be determined from the information given.

Question 74

Green Corporation uses the FIFO method for internal reporting purposes and LIFO for external reporting purposes.The balance in the LIFO Reserve account at the end of 2007 was $80,000.The balance in the same account at the end of 2008 is $120,000.Green's Cost of Goods Sold account has a balance of $600,000 from sales transactions recorded during the year.What amount should Green report as Cost of Goods Sold in the 2008 income statement?

A)$560,000.
B)$600,000.
C)$640,000.
D)$720,000.

Question 75

Baker Company has been using the LIFO method of inventory valuation for 10 years, since it began operations.Its 2007 ending inventory was $40,000, but it would have been $60,000 if FIFO had been used.Thus, if FIFO had been used, Baker's income before income taxes would have been

A)$20,000 greater over the 10-year period.
B)$20,000 less over the 10-year period.
C)$20,000 greater in 2007.
D)$20,000 less in 2007.

Question 76

Use the following information for questions
Richey Co.records purchases at net amounts.On May 5 Richey purchased merchandise on account, $16,000, terms 2/10, n/30.Richey returned $1,200 of the May 5 purchase and received credit on account.At May 31 the balance had not been paid.
The amount to be recorded as a purchase return is

A)$1,080.
B)$1,224.
C)$1,200.
D)$1,176.

Question 77

Use the following information for questions
Transactions for the month of June were: $$\begin{array} { r r r r r r } { \text { Purchases } } && { \text { Sales } } \\\hline \text { June } 1 & \text { (balance) } 800 @ \$ 3.20 & \text { June } 2 & 600 @ \$ 5.50 \\3 & 2,200 @ 3.10 & 6 & 1,600 @ 5.50 \\7 & 1,200 @ 3.30 & 9 & 1,000 @ 5.50 \\15 & 1,800 @ 3.40 & 10 & 400 @ 6.00 \\22 & 500 @ 3.50 & 18 & 1,400 @ 6.00 \\& & 25 & 200 @ 6.00\end{array}$$

-Assuming that perpetual inventory records are kept in dollars, the ending inventory on a LIFO basis is

A)$4,110.
B)$4,160.
C)$4,290.
D)$4,470.

Question 78

Use the following information for questions
The following information was available from the inventory records of Neer Company for January: $\begin{array}{lcr}&\text { Units }&\text {Unit Cost }&\text {Total Cost }\\\text { Balance at January } 1&3,000 &\$ 9.77 & \$ 29,310 \\\text { Purchases: }\\\text { January } 6&2,000 & 10.30 & 20,600 \\\text { January } 26&2,700 & 10.71 & 28,917\\\\\text { Sales: } & \\\quad \text { January } 7 & (2,500) \\\text { January } 31 & {(4,000)}\\\text { Balance at January } 31&1,200\end{array}$

-Assuming that Neer maintains perpetual inventory records, what should be the inventory at January 31, using the moving-average inventory method, rounded to the nearest dollar?

A)$12,606.
B)$12,284.
C)$12,312.
D)$12,432.

Question 79

The following information is available for Kerr Company for 2007: $$\begin{array} { l r } \text { Freight-in } & \$ 30,000 \\\text { Purchase returns } & 75,000 \\\text { Selling expenses } & 150,000 \\\text { Ending inventory } & 260,000\end{array}$$ The cost of goods sold is equal to 400% of selling expenses.What is the cost of goods available for sale?

A)$600,000.
B)$890,000.
C)$815,000.
D)$860,000.

Question 80

Use the following information for questions
Dexter, Inc.is a calendar-year corporation.Its financial statements for the years 2007 and 2006 contained errors as follows: $$\begin{array} { l l l } &{ 2007 } & { 2006 }\\\text { Ending inventory } &{ \$ 3,000 \text { overstated } } & { \$ 8,000 \text { overstated } } \\\text { Depreciation expense } & \$ 2,000 \text { understated } & \$ 6,000 \text { overstated }\end{array}$$

-Assume that no correcting entries were made at December 31, 2006, or December 31, 2007 and that no additional errors occurred in 2008.Ignoring income taxes, by how much will working capital at December 31, 2008 be overstated or understated?

A)$0
B)$2,000 overstated
C)$2,000 understated
D)$5,000 understated