Question

If prices are rising, which inventory cost flow method will produce the lowest amount of cost of goods sold?

FIFO

Weighted average

LIFO

LIFO, FIFO, and the weighted-average inventory cost flow methods will all produce equal amounts of cost of goods sold.

1 points   

QUESTION 7

West Corporation's Year 1 ending inventory was overstated by $20,000; however, ending inventory for Year 2 was correct. Which of the following statements is correct?

Cost of goods sold for Year 1 is overstated.

Net income for Year 1 is understated.

Cost of goods sold for Year 2 is overstated.

Retained earnings at the end of Year 2 is overstated.

1 points   

QUESTION 8

Which of the following general journal entries would be used to recognize $7,500 of bad debts expense under the direct write-off method?

Bad debts expense 7,500

Allowance for doubtful accounts 7,500

Bad debts expense 7,500

Accounts receivable 7,500

Allowance for doubtful accounts 7,500

Bad debts expense 7,500

Accounts receivable 7,500

Bad debts expense 7,500

1 points   

QUESTION 9

The following information relates to Halloran Co.'s accounts receivable for 2018:

Accounts receivable balance, 1/1/2018 $ 854,000

Credit sales for 2018 3,420,000

Accounts receivable written off during 2018 68,000

Collections from customers during 2018 2,970,000

Allowance for doubtful accounts balance, 12/31/2018 204,000

What amount should Halloran report for accounts receivable, before allowances, at December 31, 2018?

$1,304,000.

$1,236,000.

$1,032,000.

None of these answer choices are correct.

1 points   

QUESTION 10

Hoover Company purchased two identical inventory items. The item purchased first cost $32.50. The item purchased second cost $36.00. Then Hoover sold one of the inventory items for $65. Based on this information, which of the following statements is true?

The cost of goods sold is $36.00 if Hoover uses the FIFO cost flow method.

The cost of goods sold is $32.50 if Hoover uses the LIFO cost flow method.

The gross margin is $30.75 if Hoover uses the weighted-average cost flow method.

The ending inventory is $36.00 if Hoover uses the LIFO cost flow method.

Answer 1

Solution:

Question:6 The answer is FIFO

If prices are rising, inventory purchased in the beginning are of less cost than compared with purchases made later. Under FIFO Method, We use inventory purchased in the beginning for production purpose which will leads to less cost of goods sold when compared with remaining methods.

So, remaining options are not correct.

Question:7 The answer is Cost of goods sold for Year 2 is overstated.

Reason: In question, it is given that year 1 ending inventory is overstated by $20,000. So, year 1 remaining account balances will not be affected except Profit and retained earnings. But for the year 2 cost of goods sold calculation purpose ending inventory of previous year is taken into consideration. So year 1 ending inventory will impact the year 2 Cost of goods sold.

So, remaining options are not correct because there will no impact on year 1 and in question it is given that year 2 ending inventory is correct which leads to correct retained earnings in year 2

Question:8 The answer is

Bad debts expense 7,500

Accounts receivable 7,500

Reason: Under Direct write off method, bad debts are recognised at the time of credit sales itself , So we can directly written off the bad debts from the account receivables itself rather than creating Allowance for doubtful accounts.

So, remaining options are not correct.

Question:9 The answer is $1,236,000.

Reason: Account Receivables before allowances = Opening Balance + Credit Sales during 2018 - Accounts receivable written off during 2018 - Collections from customers during 2018

= $854,000 + $3,420,000 - $68,000 - $2,970,000 = $1,236,000

So, remaining options are not correct.

Question:10 The answer is, The gross margin is $30.75 if Hoover uses the weighted-average cost flow method.

Reason: Under weighted-average cost flow method, Cost of goods sold = Total Cost / Total Units = ($32.5 + $36) / 2 = $34.25

Gross Margin = Selling Price - Cost of goods sold = $65 - $34.25 = $ 30.75.

Option. The cost of goods sold is $36.00 if Hoover uses the FIFO cost flow method is not correct because under FIFO Method the goods purchased first are used/sold first. So, as per that cost of goods sold should be $ 32.50 but not $36.00.

Option. The cost of goods sold is $32.50 if Hoover uses the LIFO cost flow method is not correct because under LIFO Method the goods purchased latter are used/sold first. So, as per that cost of goods sold should be $ 36 but not $32.50.

Option. The ending inventory is $36.00 if Hoover uses the LIFO cost flow method is not correct. Under LIFO Method the ending inventory will be goods purchased in the beginning because goods purchased latter in the year will be used/sold first. So, as per that ending inventory will be goods purchased in the beginning i.e., $ 32.50 but not $36.00.