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

Question 1

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

Answer 1

False
Explanation: Cost of goods increases when inventory is written down.

Question 2

Factory overhead manufacturing costs are a component of the cost of the work-in process inventory.

Answer 2

True
Explanation: Work in process inventory includes direct materials, direct labor, and factory overhead.

Question 3

The LIFO inventory method allocates the most recent inventory purchase costs to cost of goods sold.

Answer 3

True
Explanation: LIFO cost of goods sold consists of the most recent inventory acquisitions.

Question 4

The lower-of-cost-or-market (LCM)rule is used because of the conservatism constraint,which allows a departure from the historical cost principle.

Question 5

A company can use the LIFO inventory method for income tax purposes and the FIFO inventory method for financial reporting purposes during a given year.

Question 6

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.

Question 7

Manufactured goods transferred out of work in process are reported as finished goods on the balance sheet.

Question 8

The use of raw materials in the manufacturing process is reported as an operating expense on the income statement.

Question 9

The FIFO inventory method allocates the most recent inventory purchase costs to ending inventory.

Question 10

A decrease in the merchandise inventory account occurs when inventory purchases are greater than cost of goods sold.

Question 11

During periods of decreasing prices,use of the FIFO inventory method results in lower gross profit than would use of the LIFO method.

Question 12

During periods of decreasing prices,use of the LIFO inventory method will result in a larger amount of inventory than will the use of the FIFO inventory method.

Question 13

Inventory inspection costs incurred at the time of purchase are reported as operating expenses on the income statement.

Question 14

During periods of increasing prices,use of the LIFO inventory method will result in a lower inventory amount on the balance sheet and a lower net income than will use of the FIFO inventory method.

Question 15

Costs of goods available for sale ends up being allocated to both ending inventory and cost of goods sold.

Question 16

Inventory turnover is calculated as cost of goods sold divided by average inventory.

Question 17

During periods of increasing prices,the LIFO inventory method results in lower income taxes.

Question 18

The LIFO inventory method will result in the highest gross margin when costs are increasing in comparison to the specific identification,FIFO and weighted average inventory methods.

Question 19

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

Question 20

Inventory turnover under LIFO is greater than inventory turnover under FIFO when prices are increasing.

Question 21

An increase in accounts payable is added to net income when determining operating activities cash flows.

Question 22

Which of the following statements is incorrect?

A)Ending inventory exceeds beginning inventory when purchases are greater than cost of goods sold.
B)Cost of goods sold exceeds purchases when ending inventory is less than beginning inventory.
C)Cost of goods available for sale will always be equal to or greater than cost of goods sold.
D)Ending inventory is greater than beginning inventory when purchases are less than cost of goods sold.

Question 23

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?

A)$10,000
B)$20,000
C)$15,000
D)$30,000

Question 24

A company provided the following data:
Sales,$500,000; beginning inventory,$40,000; ending inventory,$45,000; and gross margin,$150,000.What was the amount of inventory purchased during the year?

A)$370,000
B)$355,000
C)$348,000
D)$341,000

Question 25

Which of the following costs will not affect cost of goods sold?

A)Inventory inspection costs.
B)Inventory preparation costs.
C)Inventory related selling costs.
D)Freight charges incurred to acquire inventory.

Question 26

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?

A)$60,000
B)$52,500
C)$52,000
D)$40,000

Question 27

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

A)Inventory is transferred from work in process to finished goods.
B)Raw materials used are transferred to work in process.
C)Finished goods inventory eventually becomes cost of goods sold.
D)Cost of goods sold is recognized when the manufacturing process is complete.

Question 28

An overstatement of the 2011 ending inventory results in an overstatement of stockholders' equity as of the end of 2012.

Question 29

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?

A)$450,000
B)$410,000
C)$430,000
D)$420,000

Question 30

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

A)Raw materials currently being used in the manufacturing process.
B)Work in process.
C)Finished goods.
D)Storage costs for finished goods.

Question 31

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 cost of goods sold using the LIFO cost flow assumption?

A)$717,500
B)$730,000
C)$703,125
D)$725,500

Question 32

In a period of rising costs,the LIFO Reserve account would be deducted from the ending inventory under LIFO costing to convert it to ending inventory under FIFO costing.

Question 33

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

Question 34

An overstatement of the 2011 ending inventory results in an understatement of net income during 2012.

Question 35

When a company using the LIFO inventory method reduces its inventory levels at the end of the year,it can lead to LIFO liquidation.

Question 36

The average days to sell inventory decreases as inventory turnover increases.

Question 37

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 cost of goods sold using the FIFO cost flow assumption?

A)$717,500
B)$730,000
C)$703,125
D)$725,500

Question 38

Cash flow from operations increases by $1,000,000 when there is a $3,000,000 decrease in inventory and a $2,000,000 decrease in accounts payable.

Question 39

An understatement of ending inventory results in an overstatement of net income.

Question 40

The LIFO Reserve is a contra-asset account which represents the excess of FIFO inventory costs over LIFO inventory costs.

Question 41

Which of the following statements does not accurately describe the lower of cost or market (LCM)valuation method?

A)The journal entry to write-down inventory decreases gross profit.
B)The journal entry to write-down inventory decreases current assets.
C)The journal entry to write-down inventory does not affect income from operations.
D)The journal entry to write-down inventory increases cost of goods sold.

Question 42

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 2010 financial statements?

A)Current assets were overstated and net income was understated.
B)Current assets were understated and net income was understated.
C)Current assets were overstated and net income was overstated.
D)Current assets were understated and net income was overstated.

Question 43

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 the 2010 LIFO cost of goods sold?

A)$22.2 billion
B)$19.8 billion
C)$22.8 billion
D)$19.2 billion

Question 44

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

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

Question 45

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?

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

Question 46

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

A)Income tax expense will be higher than under LIFO.
B)Gross margin will be higher than under LIFO.
C)Ending inventory will be lower than under LIFO.
D)Cost of goods sold will be lower than under LIFO.

Question 47

Which of the following statements is correct?

A)The choice of an inventory costing method is dependent upon the actual physical flow of the inventory.
B)LIFO should be used during a period of increasing prices when the objective is to maximize the ending inventory value on the balance sheet.
C)FIFO should be used during a period of decreasing prices when the objective is to maximize the gross profit reported on the balance sheet.
D)The average cost method will result in an ending inventory balance which is somewhere between LIFO and FIFO when inventory prices are changing.

Question 48

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 LIFO cost flow assumption?

A)$40,000
B)$52,500
C)$60,000
D)$55,000

Question 49

Tinker's 2011 cost of goods sold was $750,000 and 2010 cost of goods sold was $770,000.The inventory at the end of 2011 was $188,000 and $208,000 at the end of 2010.What is Tinker's average number of days to sell their inventory during 2011?

A)96.3
B)91.5
C)95.1
D)93.8

Question 50

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

A)LIFO will result in lower net income and a higher inventory valuation than will FIFO.
B)LIFO will result in higher net income and lower inventory valuation than will FIFO.
C)FIFO will result in lower net income and a lower inventory valuation than will LIFO.
D)FIFO will result in higher net income and a higher inventory valuation than will LIFO.

Question 51

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 ending inventory using the average cost method?

A)$48,000
B)$64,000
C)$50,000
D)$62,000

Question 52

Tinker's 2011 cost of goods sold was $750,000 and 2010 cost of goods sold was $770,000.The inventory at the end of 2011 was $188,000 and $208,000 at the end of 2010.What was Tinker's inventory turnover during 2011?

A)3.79
B)3.99
C)3.84
D)3.89

Question 53

Which of the following statements is correct?

A)FIFO reports lower income amounts than LIFO when prices are increasing.
B)LIFO reports a higher income amount than FIFO when prices are increasing.
C)LIFO reports a higher income amount than FIFO when prices are decreasing.
D)LIFO reports the same amount of income as FIFO when prices are increasing.

Question 54

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)$18
B)$20
C)$12
D)$30

Question 55

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

A)LIFO will result in lower net income and a higher inventory valuation than will FIFO.
B)LIFO will result in higher net income and a higher inventory valuation than will FIFO.
C)FIFO will result in higher net income and a higher inventory valuation than will LIFO.
D)FIFO will result in higher net income and a lower inventory valuation than will LIFO.

Question 56

Which of the following statements is false?

A)Companies do not have to use the same inventory method for all items of inventory.
B)Companies do not have to consistently use the same inventory costing methods.
C)Use of the LIFO inventory method during a period of increasing prices may create a conflict of interest between the owners and managers.
D)A company choosing to maximize stockholders' equity during a period of increasing prices should use the FIFO inventory method.

Question 57

Which of the following statements does not accurately describe the effects of a write-down of inventory on December 31,2010 using the lower of cost or market (LCM)valuation method?

A)The 2010 gross profit decreases.
B)The 2011 cost of goods sold is effectively decreased if the inventory was sold during 2011.
C)The 2010 ending inventory is decreased.
D)The 2011 gross profit is not affected when the inventory was sold during 2011.

Question 58

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?

A)$48,000
B)$64,000
C)$50,000
D)$62,000

Question 59

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?

A)Net income and stockholders' equity are both understated.
B)Net income is understated and stockholders' equity is not affected.
C)Net income and stockholders' equity are both overstated.
D)Net income and stockholders' equity are both unaffected.

Question 60

On December 31,2010,Cruise Company has 10,000 units of an inventory item which cost $40 per unit when purchased on June 15,2010.The selling price was $70 per unit.On December 30,2010,the replacement cost was $38 per unit.At what amount should the 10,000 units of inventory be reported at on the December 31,2010 balance sheet?

A)$100,000
B)$120,000
C)$350,000
D)$380,000

Question 61

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 ending inventory using the FIFO cost flow assumption?

A)$640,000
B)$840,000
C)$960,000
D)$880,000

Question 62

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?

A)$11,680,000
B)$11,590,000
C)$11,480,000
D)$11,550,000

Question 63

Which of the following journal entries is not consistent with the use of a perpetual inventory system?

A) Inventory
$\quad$ Accounts payable
B) Cost of goods sold
$\quad$ Inventory
C) Purchases
$\quad$ Accounts payable
D) Accounts receivable
$\quad$ Sales revenue

Question 64

Which of the following journal entries is not consistent with the use of a periodic inventory system?

A) Purchases
$\quad$ Accounts payable
B) Inventory
$\quad$ Accounts payable
C) Accounts payable
$\quad$ Cash
D) Accounts receivable
$\quad$ Sales revenue

Question 65

Hollander Company hired some students to help count inventory during their semester break.Unfortunately,the students added incorrectly and the 2010 ending inventory was overstated by $5,000.What would be the effect of this error in ending inventory?

A)2010 net income would be overstated.
B)2010 net income would be understated.
C)2010 ending retained earnings would be understated.
D)2010 cost of goods sold would be overstated.

Question 66

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

Question 67

At the end of 2010,a $5,000 understatement was discovered in the amount of the 2010 ending inventory as reflected in the perpetual inventory records.What were the 2010 effects of the $5,000 inventory error (before correction)?

A)Assets were understated by $5,000 and pretax income was understated by $5,000.
B)Assets were understated by $5,000 and pretax income was overstated by $5,000.
C)Cost of goods sold was understated by $5,000 and pretax income was understated by $5,000.
D)Cost of goods sold was overstated by $5,000 and pretax income was overstated by $5,000.

Question 68

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

A)Purchases are recorded in the cost of goods sold account.
B)The inventory account is updated after each sale.
C)Cost of goods sold is computed at the end of the accounting period rather than at each sale date.
D)The inventory account is updated throughout the year as purchases are made.

Question 69

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 average cost flow assumption?

A)$11,680,000
B)$11,590,000
C)$11,480,000
D)$11,550,000

Question 70

An understatement of the ending inventory in Year 1,if not corrected,will cause which of the following?

A)The year 1 net income to be understated and Year 2 net income to be overstated.
B)The year 1 net income to be overstated and Year 2 net income to be overstated.
C)The year 1 net income to be overstated and Year 2 net income will be correct.
D)The year 1 net income to be overstated and Year 2 net income to be understated.

Question 71

On March 15,2010,Ryan Company purchased $10,000 of merchandise on credit subject to terms of 2/10,n/30.Ryan Company records its purchases using the gross amount.The periodic inventory system is used.Which of the following journal entries is correct when Ryan Company pays for these goods on March 30,2010?

A) Accounts payable $\quad$ 9,800
$\quad$ Cash $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ 9,800
B) Accounts payable $\quad$$\quad$ 10,000
$\quad$ Cash $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ 10,000
C) Accounts payable $\quad$ 10,000
$\quad$ Cash $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ 9,800
$\quad$ Purchase discounts $\quad$$\quad$$\quad$ 200
D) Accounts payable $\quad$ 9,800
Purchase discounts $\quad$ 200
$\quad$$\quad$ Cash $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ 10,000

Question 72

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?

A)An understatement of both net income and assets.
B)An overstatement of inventory, purchases, and accounts payable.
C)An understatement of inventory, purchases, and accounts payable.
D)An overstatement of net income and assets.

Question 73

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 LIFO cost flow assumption?

A)$11,680,000
B)$11,590,000
C)$11,480,000
D)$11,550,000

Question 74

Wilmington Company reported pretax income of $25,000 during 2010 and $30,000 during 2011.Later it was discovered that the ending inventory for 2010 was understated by $2,000 (and not corrected in 2011).What is the correct pretax income for each year? $$\begin{array} { l c c } & \underline { 2010 } & \underline { 2011 } \\\text { A. } & \$ 23,000 & \$ 32,000 \\\text { B. } & \$ 27,000 & \$ 32,000 \\\text { C. } & \$ 27,000 & \$ 28,000 \\\text { D. } & \$ 23,000 & \$ 28,000\end{array}$$

A)Option A
B)Option B
C)Option C
D)Option D

Question 75

Which of the following statements is correct regarding either the perpetual or periodic inventory systems?

A)In a perpetual inventory system, the inventory account is not changed for each purchase during the accounting period.
B)In a perpetual inventory system, cost of goods sold is recorded at the time of each sale during the accounting period.
C)In a periodic inventory system, cost of goods sold is developed from a comparison of beginning inventory and ending inventory only.
D)In a periodic inventory system, the inventory account is increased for each purchase during the accounting period.

Question 76

On December 15,2010,Transport Company accepted delivery of merchandise which it purchased on credit.As of December 31,2010,the company had neither recorded the transaction nor included the merchandise in its ending inventory amount because the seller's invoice had not been received.The effect of this omission on its balance sheet at December 31,2010,(end of the accounting period)was that

A)assets and stockholder's equity were overstated but liabilities were not affected.
B)stockholder's equity was the only item affected by the omission.
C)assets and liabilities were understated but stockholders' equity was not affected.
D)assets and stockholders' equity were understated but liabilities were not affected.

Question 77

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 ending inventory using the average cost flow assumption?

A)$640,000
B)$840,000
C)$770,000
D)$880,000

Question 78

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 ending inventory using the LIFO cost flow assumption?

A)$640,000
B)$840,000
C)$770,000
D)$880,000

Question 79

Which of the following is correct when beginning inventory is understated by $1,300 and ending inventory is understated by $700?

A)Net income is understated by $600.
B)Net income is understated by $2,000.
C)Net income is overstated by $600.
D)Net income is overstated by $2,000.

Question 80

On March 15,2010,Ryan Company purchased $10,000 of merchandise on credit subject to terms of 2/10,n/30.Ryan Company records its purchases using the gross amount.The periodic inventory system is used.Which of the following journal entries is correct when Ryan Company pays for these goods on March 20,2010?

A) Accounts payable $\quad$ 9,800
$\quad$ Cash $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ 9,800
B) Accounts payable $\quad$ 10,000
$\quad$ Cash $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ 10,000
C) Accounts payable $\quad$ $\quad$ $\quad$ 10,000
$\quad$ Cash $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ 9,800
$\quad$ Purchase discounts $\quad$ $\quad$ $\quad$ 200
D) Accounts payable $\quad 9,800$
Purchase discounts $\quad$ 200
$\quad$ Cash $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ 10,000