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Exam 6: Inventory and Cost of Goods Sold

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Question 1

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Given the information in the table below,what is the company's gross profit? $\begin{array} { | l | r | } \hline \text { Sales revenue } & \$ 360,000 \\\hline \text { Accounts receivable } & \$ 280,000 \\\hline \text { Ending inventory } & \$ 230,000 \\\hline \text { Cost of goods sold } & \$ 180,000 \\\hline \text { Sales returns } & \$ 50,000 \\\hline \text { Sales discount } & \$ 20,000 \\\hline\end{array}$

A) $280,000.
B) $170,000.
C) $50,000.
D) $100,000.

E) C) and D)
F) B) and D)

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D

Question 2

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Good Inc. ,sold inventory for $1,200 that was purchased for $700.Good records which of the following when it sells inventory using a periodic inventory system?

A) No entry is required for cost of goods sold and inventory.
B) Debit Cost of Goods Sold $700;credit Inventory $700.
C) Debit Cost of Goods Sold $1,200;credit Inventory $1,200.

D) All of the above
E) None of the above

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Question 3

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Using LIFO,the amount reported for ending inventory does not differ depending on whether a company uses a periodic system or a perpetual system.The amount reported for ending inventory (or cost of goods sold)will differ.

Kelton Inc.purchases inventory for $2,000 and incurs shipping costs of $100 for the goods to be delivered.To record this transaction,the company debits Inventory for $2,000,debits Selling Expenses for $100,and credits Cash for $2,100.Which of the following statements is correct?

LeGrand Corporation reported the following amounts in its income statement: What was LeGrand's net income? $\begin{array} { | l | r | } \hline \text { Sales revenue } & \$ 440,000 \\\hline \text { Advertising expense } & 60,000 \\\hline \text { Interest expense } & 10,000 \\\hline \text { Salaries expense } & 55,000 \\\text { Utilities expense } & 25,000 \\\hline \text { Income tax expense } & 45,000 \\\hline \text { Cost of goods sold } & 180,000 \\\hline\end{array}$

Tyler Toys has beginning inventory for the year of $18,000.During the year,Tyler purchases inventory for $230,000 and has cost of goods sold equal to $233,000.Tyler's ending inventory equals:

A company that has average inventory of $500 and cost of goods sold of $2,000 would have an inventory turnover ratio of 0.25.The inventory turnover ratio equals cost of goods sold ($2,000)divided by average inventory ($500),which equals 4.0 in this example.

The primary reason for the popularity of LIFO is that it gives:

Overstating ending inventory in the current year causes net income in the current year to be overstated.

Company A is identical to Company B in every regard except that Company A uses FIFO and Company B uses LIFO.In an extended period of rising inventory costs,which of the following is true of Company A compared to Company B?

For inventory that is shipped FOB destination,title transfers from the seller to the buyer once the seller ships the inventory.For FOB destination,title transfers once the inventory reaches the buyer (destination).

LIFO is considered an income statement approach for reporting inventory because it:

Nu Company reported the following data for its first year of operations: What is Nu's gross profit ratio? $\begin{array} { | l | r | } \hline \text { Net sales } & \$ 2,800 \\\hline \text { Cost of goods sold } & 1,680 \\\hline \text { Operating expenses } & 880 \\\hline \text { Ending inventories } & 820 \\\hline\end{array}$

Which of the following is true regarding LIFO and FIFO?

The gross profit ratio will typically be higher for companies that:

Given the information below,what is the gross profit? $\begin{array} { | l | r | } \hline \text { Sales revenue } & \$ 320,000 \\\hline \text { Accounts receivable } & 50,000 \\\hline \text { Ending inventory } & 100,000 \\\hline \text { Cost of goods sold } & 250,000 \\\hline \text { Sales Returns } & 20,000 \\\hline\end{array}$

Anthony Corporation reported the following amounts for the year: Anthony's average days in inventory is (round to the nearest whole day) : $\begin{array} { | l | r | } \hline \text { Net sales } & \$ 296,000 \\\hline \text { Cost of goods sold } & 138,000 \\\text { Average inventory } & 50,000 \\\hline\end{array}$

In accounting for inventory,net realizable value equals:

In a perpetual inventory system,the entry at the time of a sale to record the cost of the inventory sold includes a:

Beginning inventory is $30,000.Purchases of inventory during the year are $50,000.Cost of goods sold is $60,000.What is ending inventory?