Question

1. ​Picasso's Paints had the following inventory​ data:

Date		Quantity	Unit Cost
July 1	Beginning inventory	5	​$50
July 4	Purchase	10	​$53
July 7	Sale	12
July 11	Purchase	9	​$59
July 14	Sale	8

Assuming​ FIFO, what is the cost of goods sold for the July 7​ sale?

A.​$624

B.​$621

C.​$600

D.​$630

2. ​Illusion, Inc. had the following inventory​ data:

Date		Quantity	Unit Cost
July 1	Beginning inventory	5	​$55
July 4	Purchase	10	​$56
July 7	Sale	12
July 11	Purchase	9	​$61
July 14	Sale	8

Assuming​ LIFO, what is the cost of goods sold for the July 7​ sale? (Round your final answer to the nearest​ dollar.)

A.​$672

B.​$667

C.​$670

D.$668

3. If the ending inventory in Year 1 is​ understated, gross profit for Year 1​ is:

A.overstated.

B.understated.

C.not affected.

D.determined by beginning inventory.

Answer 1

Question 1

Correct answer-----------(B) $621

Working

FIFO
Total Units Available for sale		15
Units Sold		12
Closing Stock in Units		3
Valuation
Ending Inventory	3	@	$             53.00	$ 159
Value Of Ending Inventory				$ 159
Cost of Goods sold [780-159]				$ 621

.

	Units	Cost per unit	value
Beginning Balance	5	$                   50.00	$ 250
Purchases
	10	$                   53.00	$ 530
Total	15		$ 780

.

Question 2

Correct answer-----------B.​$667

Working

	Units	Cost per unit	value
Beginning Balance	5	$                   55.00	$ 275
Purchases
	10	$                   56.00	$ 560
Total	15		$ 835

.

FIFO
Total Units Available for sale		15
Units Sold		12
Closing Stock in Units		3
Valuation
Ending Inventory	3	@	$             56.00	$ 168
Value Of Ending Inventory				$ 168
Cost of Goods sold [835-168]				$ 667

.

Question 3

Correct answer-------------B.understated.

If ending inventory is understated then cost of goods sold will be Overstated hence gross profit and net profit will be understated.