Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

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

Accepted Answer

A) FIFO's cost of goods sold will be the largest among the inventory costing methods. 
B) LIFO's income tax will be the lowest among the inventory costing methods. 
C) Ending inventory using the average cost method will be greater than the ending inventory when the LIFO method is used. 
D) Cost of goods sold using the average cost method will be less than cost of goods sold when the LIFO method is used.

Question 3

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

Accepted Answer

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 4

Boulder,Inc.is computing its inventory at December 31,2010.The following information relates to the five major inventory items regularly stocked for resale $$\begin{array}{l}
\begin{array} { cc} 
\
\
\text { Item}& \text { Item Ouantity on Hand }\
\mathrm{A} & 100 \
\mathrm{~B} & 150 \
\mathrm{C} & 25 \
\mathrm{D} & 300 \
\mathrm{E} & 700
\end{array}
\begin{array} { cc } 
\text { December 31,2009 } & \text { Replacement Cost } \
\text { Unit Cost when } & \text { (Market) at December 31. } \
\text { Acquired (FIFO) } & 2009\
\$ 40 & \$ 35\
\$ 50 & \$ 52 \
\$ 100 & \$ 80 \
\$ 60 & \$ 62 \
\$ 15 & \$ 12
\end{array}
\end{array}$$

Using the lower-of-cost-or-market rule,compute the total valuation for each inventory item at December 31,2010,and the total inventory valuation.

Accepted Answer

The answer of Boulder,Inc.is computing its inventory at December 31,2010.The...

Question 5

Assume Webster Company buys compact disks at a unit cost of $20 and sells them at a unit price of $26.There was no beginning inventory.
Provide the journal entries required below by entering the account code of the appropriate account and the amount for each debit and credit:
 $\begin{array} { l c } \text { Account Name } & \text { Account Code } \ \text { Inventory } & \text { A } \ \text { Purchases } & \text { B } \ \text { Cost of goods sold } & \text { C } \ \text { Sales revenue } & \text { D } \ \text { Cash } & \text { E } \end{array}$

$\begin{array} { c c c } & \text { Transactions } &&&&&&&&&&& \text { Debits } && &&&&\text {Credits} \
 \end{array}$
$\begin{array} { c c c } &&\text { Codes } & \text { Amounts } & \text { Codes } & \text { Amounts }\

\text { A. Purchased 100 units for cash }\
\text { assuming the perpetual }\
\text { inventory system is used. }\
\text { B. Purchased 100 units for cash }\
\text { assuming the periodic }\
\text { inventory system is used.}\
\text { C. Sold 100 units for cash }\
\text { assuming the perpetual }\
\text { inventory system is used.}\
\text { D. Sold 100 units for cash}\
\text { assuming the periodic}\
\text { inventory system is used.}\

\end{array}$

Accepted Answer

The answer of Assume Webster Company buys compact disks at...

Question 6

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?

Accepted Answer

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

Question 7

Compute the missing amounts for the income statement for each independent case. $$\begin{array} { l r c r } 
& \text { Case A } & \text { Case B } & \text { Case C } \
\text { Sales revenue } & \$ 800 & \$ 800 & \
\text { Beginning inventory } & 100 & & \$ 90 \
\text { Purchases } & 500 & 420 & \
\text { Total goods available } & & & \
\text { for sale } & & & \
\text { Ending inventory } & 150 & 110 & 160 \
\text { Cost of goods sold } & & & 340 \
\text { Gross margin } & & & \
\text { Expenses } & 300 & 400 & 420 \
\text { Net Income } & & ( 50 ) & 60
\end{array}$$

Accepted Answer

The answer of Compute the missing amounts for the income...

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

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

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