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Exam 7: Inventory and Cost of Goods Sold

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Question 1

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Your company buys 500 pairs of socks at $3 each (including other purchasing costs such as transportation) and sells them for $5 each. Which of the following statements is true?

A) The sales revenue is $1,500.
B) The gross profit is $1,500.
C) The cost of goods sold is $1,500.
D) The net income is $1,500.

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Question 2

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Given the following information for Maynor Company in 2018,calculate the company's ending inventory,cost of goods sold and gross profit,using the following inventory costing methods,assuming the company uses the periodic system: a)Weighted Average b)FIFO c)LIFO d)Specific Identification.(The ending inventory consisted of 15 @ $66; 10 @ $70; and 5 @ $76.)

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a)Weighted Average:
Average Cost $5,220/...

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Question 3

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Which is the most useful way to analyze the inventory turnover ratio?

Meanmocha Hardware has a periodic inventory system and uses the weighted average method.The company began the month of November with 150 large brass switch plates on hand at a cost of $4.00 each.These switch plates sell for $7.00 each.The following schedule sets forth the purchases of switch plates during November: $\begin{array} { | r | r | r | } \hline \text { Date of Transaction } & \text { Quantity Received } & \text { Unit Cost } \\\hline \text { Novernber } 7 & 200 & \$ 4.20 \\\hline \text { Novernber } 11 & 200 & \$ 4.40 \\\hline \text { Novernber } 22 & 250 & \$ 4.80 \\\hline\end{array}$ If Meanmocha sells 570 switch plates for $7.00 each during November,what is the company's gross profit for November (rounded to the nearest dollar) ?

Your company buys 500 pairs of socks at $3 each (including other purchasing costs such as transportation) and sells them for $5 each. Which of the following statements is true?

An adjustment to ending inventory under the lower of cost and net realizable value (LC&NRV) rule would be least likely to be recorded by a company that sells:

The specific identification method would probably be most appropriate for which of the following goods?

A merchandise company's beginning inventory plus merchandise purchases minus ending inventory equals:

The failure to follow LC&NRV rules when writing down the inventory is one of the most common types of financial statement misstatements.

Investors and analysts view a LC&NRV inventory write-down

Beginning Inventory - Ending Inventory = Cost of Goods Sold - Purchases

Inventory levels regularly rise and fall as the company buys and sells merchandise.

For a manufacturer,inventory turnover refers to how many times:

The Lower of cost and net realizable value (LC&NRV)rule sometimes causes the book value of inventory to be lowered below cost but will never cause the book value of inventory to be raised above cost.

A one-time error in the application of the lower of cost and net realizable value (LC&NRV) rule in the current period distorts financial results for the current accounting period

Maxell Company uses the periodic FIFO method to assign costs to inventory and cost of goods sold.Given the following information,what would be reported as the cost of goods sold and ending inventory balances for the period? $\begin{array} { | c | r | r | } \hline \text { Date}& \text {Transaction } & \text { of units } & \text { Cost per unit } \\\hline \text { Jaruary 1}& \text {Begirning balance } & 100 & \$ 5 \\\hline \text { Jaruary2} &\text { Purchase } & 75 & \$ 4 \\\hline \text { Jaruaary 5} &\text{Sale } & 75 & \\\hline \text { Jaruary 6 } &\text { Sale } & 50 & \\\hline\end{array}$

In which of the following companies tend to use the specific identification method?

Alphabet Company,which uses the periodic inventory method,buys different letters for resale.It buys A through G in January at $4 per letter.It buys H through L at $6 per letter.It buys M through R in March at $7 per letter.It sells A,D,E,H,J and N in April. If the company uses the FIFO method,what is the cost of its ending inventory (rounded to the nearest dollar) ?

A new textbook is published in the spring of 2018.Your campus bookstore buys 400 copies at $70 each in June,an additional 1,000 copies in August at $72 each,and 600 copies in December at $75 each.At the end of December 2018,the bookstore has sold 1,900 copies of the text. Find the cost of goods sold and the cost of ending inventory: a)under the weighted average cost method. b)under the FIFO method. c)under the LIFO method. Using your calculations as a guide,explain how different inventory costing methods affect the numerator and denominator of the inventory turnover ratio when unit costs are increasing.Conclude your explanation by identifying the method that produces the highest (and lowest)inventory turnover ratio.

Companies that are both manufacturers and merchandisers must list their finished goods inventory and merchandise inventory separately.