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Exam 6: Inventory and Cost of Goods Sold

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Question 21

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At the end of a reporting period,Gamble Corporation determines that its ending inventory has a cost of $300,000 and a net realizable value of $230,000.What would be the effect(s) of the adjustment to write down inventory to net realizable value?

A) Decrease total assets.
B) Decrease net income.
C) Increase retained earnings.
D) Decrease total assets and net income.

E) A) and B)
F) None of the above

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Question 22

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The inventory turnover ratio equals cost of goods sold divided by average inventory.

A) True
B) False

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Question 23

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A company is most likely to utilize the specific identification method if its inventory consists of:

Understating ending inventory in the current year causes cost of goods sold in the current year to be understated.Understating ending inventory in the current year will cause cost of goods sold in the current year to be overstated.

Suppose Company A places an order with Company B on May 12.On May 14,Company B ships the ordered goods to Company A with terms FOB destination.The goods arrive at Company A on May 17.Company A begins selling the goods to customers on May 19 and pays Company B on May 20.When would Company B record the sale of goods to Company A?

The largest expense on a retailer's income statement is typically:

Under the principle of lower of cost and net realizable value,when a company has 10 units of inventory A with net realizable value of $50 and a cost of $60,what is the adjustment?

Inventory records for Marvin Company revealed the following: Marvin sold 2,300 units of inventory during the month.Ending inventory assuming weighted-average cost would be (round weighted-average unit cost to four decimals and final answer to the nearest whole dollar) : $\begin{array} { | l | l | c | r | } \hline \text { Date } & \text { Transaction } & \text { Number of Units } & \text { Unit Cost } \\\hline \text { Mar. 1 } & \text { Beginning inventory } & 1,000 & \$ 7.20 \\\hline \text { Mar. 10 } & \text { Purchase } & 600 & 7.25 \\\hline \text { Mar. 16 } & \text { Purchase } & 800 & 7.30 \\\hline \text { Mar. 23 } & \text { Purchase } & 600 & 7.35 \\\hline\end{array}$

Cost of goods sold is an expense reported in the income statement and represents the cost of inventory sold during the period.

Inventory records for Marvin Company revealed the following: Marvin sold 2,300 units of inventory during the month.Cost of goods sold assuming weighted-average cost would be (round weighted-average unit cost to four decimals and final answer to the nearest whole dollar) : $\begin{array} { | l | l | c | r | } \hline \text { Date } & \text { Transaction } & \text { Number of Units } & \text { Unit Cost } \\\hline \text { Mar. 1 } & \text { Beginning inventory } & 1,000 & \$ 7.20 \\\hline \text { Mar. 10 } & \text { Purchase } & 600 & 7.25 \\\hline \text { Mar. 16 } & \text { Purchase } & 800 & 7.30 \\\hline \text { Mar. 23 } & \text { Purchase } & 600 & 7.35 \\\hline\end{array}$

During periods of rising costs,LIFO generally results in a higher ending inventory balance.During periods of rising costs,LIFO generally results in a lower ending inventory balance.

Martha Inc.'s sales equal $60,000 and cost of goods sold equals $20,000.Its beginning inventory was $1,600 and its ending inventory is $2,400.Martha's inventory turnover ratio equals:

The gross profit ratio measures:

The following information pertains to Julia & Company: March 1 Beginning inventory = 30 units @ $5 March 3 Purchased 15 units @ $4 March 9 Sold 25 units @ $8 What is the ending inventory balance for Julia & Company assuming that it uses FIFO?

Accountants often call FIFO the balance sheet approach because the amount it reports for ending inventory better approximates the current cost of inventory.

What type of company purchases raw materials and makes goods to sell?

The LIFO conformity rule states that if LIFO is used for:

The balance of the Cost of Goods Sold account at the end of the year represents:

A periodic inventory system does not continually modify inventory amounts,but instead adjusts for purchases and sales of inventory at the end of the reporting period based on a physical count of inventory on hand.

What effect would an adjustment to record inventory at the lower of cost and net realizable value have on the company's financial statements?