Question

1a Which inventory cost flow assumption generally results in the lowest reported amount for inventory when inventory costs are rising?

		Specific identification.
		First-in, first-out (FIFO).
		Last-in, first-out (LIFO).
		Average cost.

1 points   

1b At the beginning of the year, Johnson Supply has inventory of $5,200. During the year, the company purchases an additional $20,000 of inventory. An inventory count at the end of the year reveals remaining inventory of $3,000. What amount will Bennett report for cost of goods sold?

		$8,200
		$17,800
		$20,000
		$22,200

1 points   

1c Under a perpetual inventory system:

		Cost of good sold is recorded with a period-end adjusting entry.
		Purchase discounts are not recorded.
		Inventory purchases are recorded only at the end of the period.
		Cost of goods sold is recorded with each sale.

1 points   

1d For the year, Sealy Incorporated reports net sales of $50,000, cost of goods sold of $40,000, and an average inventory balance of $5,000. What is Sealy’s gross profit ratio?

		20%
		10%
		25%
		30%

1 points   

1e Using a periodic inventory system, the sale of inventory on account would be recorded as:

		Debit Cost of Goods Sold; credit Inventory.
		Debit Inventory; credit Sales Revenue.
		Debit Sales Revenue; credit Accounts Receivable.
		Debit Inventory; credit Accounts Receivable.

1 points   

1f Katie Malls has the following inventory transactions for the year:

Date		Transaction		Number of units		Unit cost		Total cost
Jan. 1		Beginning inventory		20		$35		$   700
Apr. 8		Purchase		50		40		2,000
								$2,700
Jan. 1 – Dec. 31		Total sales to customers		60

What amount would Madison report for cost of goods sold using LIFO under a periodic inventory system?

		$2,100
		$2,350
		$2,300
		$2,400

1 points   

Which of the following levels of profitability in a multiple-step income statement represents all revenues less all expenses?

		Gross profit.
		Operating income.
		Income before income taxes.
		Net income.

1 points   

1. At the end of a reporting period, Gaston Corporation determines that its ending inventory has a cost of $6,500 and a market value of $5,800. The adjustment to write down inventory to market value would include:

   		A debit to inventory for $5,800.
   		A credit to inventory for $700.
   		A debit to cost of goods sold for $5,800.
   		A credit to cost of goods sold for $700.

1 points   

1h Suppose Windell Corporation understates its ending inventory amount. What effect will this have on the reported amount of net income in the year of the error?

		Overstate net income.
		Understate net income.
		Have no effect on net income.
		Not possible to determine with information given.

1 points   

1i Which of following best describes a merchandising company?

		A company whose revenues exceed expenses.
		A company that produces products from raw materials, labor, and overhead.
		A company that provides services to its customers.
		A company that purchases products that are primarily in finished form for resale to customers.

Answer 1

1a

Which inventory cost flow assumption generally results in the lowest reported amount for inventory when inventory costs are rising?

Last-in, first-out (LIFO)

1b

At the beginning of the year, Johnson Supply has inventory of $5,200. During the year, the company purchases an additional $20,000 of inventory. An inventory count at the end of the year reveals remaining inventory of $3,000. What amount will Bennett report for cost of goods sold?

Cost of goods sold = Beginning inventory + Purchases - Ending inventory = $5,200 + $20,000 - $3,000 = $22,200

1c

Under a perpetual inventory system:

Cost of goods sold is recorded with each sale

1d

For the year, Sealy Incorporated reports net sales of $50,000, cost of goods sold of $40,000, and an average inventory balance of $5,000. What is Sealy’s gross profit ratio?

Gross profit ratio = (Sales - Cost of goods sold) / Sales = ($50,000 - $40,000) / $50,000 = 20%