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Exam 5: Inventory and Cost of Goods Sold

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Question 1

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Note disclosure relating to inventory requires that management prepare financial reports thatdisclose all of the following types of information except:

A) forecasts of expected future earnings to help investors decide whether to invest in the company
B) information that facilitates comparison with other companies' financial reports
C) information that is relevant to decision making
D) the method of inventory costing used

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Question 2

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Consider the following data: $\begin{array} { l r } \text { Ending inventory at cost } & \$ 115,000 \\\text { Ending inventory at market } & 119,000 \\\text { Cost of goods sold (before consideration of LCNRV rule) } & 165,000\end{array}$

A) Ending Inventory balance will be $115,000.
B) Ending Inventory balance will be $119,000.
C) Cost of Goods Sold will be $161,000.
D) Cost of Goods Sold will be $169,000.

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Question 3

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A company may use more than one type of inventory method. For example it may use specific identification for one type of inventory and FIFO for another.

If a company is using a perpetual inventory system, the balance in its inventory account three-quarters of the way through an accounting period would be equal to:

A purchase allowance is a decrease in the cost of purchases because the purchaser returned goods to the supplier.

King Size International buys beds from a manufacturer for sale overseas. A shipment of beds to King Size was received slightly damaged. The manufacturer agreed to take an extra 10% off of its invoice price to King Size if it will keep and sell the beds to its customers. In this situation, King Size has received a:

The gross profit percentage is one of the most closely watched profitability measures. It can be calculated by:

FIFO uses "old" inventory costs for revenue.

If year-end inventory is reduced from cost to a lower net realizable value, which of the following accurately depicts the results?

An error in the valuation of beginning inventory in the current period will affect the following year's net income.

FIFO tends to increase cost of goods sold when:

Ending inventory under FIFO reflects the cost of goods most recently acquired.

Perpetual inventory records provide information helpful in making all the following decisions except:

If ending inventory is overstated, then:

If a company makes an error when counting ending inventory in 2019, the effect of the error will cancel out at the end of 2020.

When using the weighted-average cost method to determine the cost of inventory sold, the weighted-average cost per unit is calculated as the cost of goods available for sale divided by the number of units available for sale.

If a company uses a periodic inventory system, it will maintain all of the following accounts except:

Given the following data, calculate the cost of ending inventory using the FIFO costing method: $\begin{array} { l l l } 1 / 1 & \text { Beginning inventory } & 45 \text { units at } \$ 10 \text { per unit } \\2 / 25 & \text { Purchases } & 40 \text { units at } \$ 12 \text { per unit } \\6 / 15 & \text { Purchases } & 30 \text { units at } \$ 13 \text { per unit } \\9 / 20 & \text { Purchases } & 25 \text { units at } \$ 14 \text { per unit } \\12 / 31 & \text { Ending inventory } & 40 \text { units }\end{array}$

Understating ending inventory in the current period will understate cost of goods sold in the following period.

The following data are for Upholstery Limited for January 2020: $\begin{array} { l r } \text { Beginning inventory } & \$ 25,000 \\\text { Net sales revenue } & 85,000 \\\text { Net purchases } & 35,000 \\\text { Gross profit percentage } & 30 \%\end{array}$