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Exam 6: Inventory and Cost of Goods Sold

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Question 21

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On May 1, Ace Bonding Company purchased inventory costing $2,000 on account with terms 2/10, n/30. On May 18, Ace pays for this inventory and records which of the following using a perpetual inventory system?

A) Accounts Payable $\quad 2,000$
Cash $\quad 2,000$
B) $\begin{array} { l l } \text { Accounts Payable } & 1,960 \end{array}$
Inventory $\quad 40$
Cash $\quad 2,000$
C) Accounts Payable $\quad 2,000$
Inventory $\quad 40$
Cash $\quad 1,960$
D) Cash $\quad 2,000$
Accounts Payable $\quad 2,000$

E) None of the above
F) A) and B)

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Question 22

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For inventory that is shipped FOB destination, title transfers from the seller to the buyer once the seller ships the inventory.

A) True
B) False

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Question 23

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During 2012, a company sells 200 units of inventory for $50 each. The company has the following inventory purchase transactions for 2012: $\begin{array}{llrrr}&& \text { Number }& \text { Unit } & \text { Total } \\\text { Date } & \text { Transaction } &\text { of Units } &\text { Cost } & \text { Cost } \\\text { Jan. 1 } & \text { Beginning inventory } & 50 & \$ 39 & \$ 1,950 \\\text { May 5 } & \text { Purchase } & 100 & 38 & 3,800 \\\text { Nov. 3 } & \text { Purchase } & 80 & 37 & 2,960\end{array}$ Actual sales by the company include its entire beginning inventory, 80 units of inventory from the May 5 purchase, and 70 units from the November 3 purchase. Calculate cost of goods sold and ending inventory for 2012 assuming the company uses specific identification.

Inventory records for Dunbar Incorporated revealed the following: $\begin{array} { l l c r } \text { Date } &{ \text { Transaction } } & \text { Number } & \text { Unit Cost} \\\text { Apr. 1 } & \text { Beginning inventory } & 500 & \text { \$2.40 } \\\text { Apr. 20 } & \text { Purchase } & 400 & 2.50\end{array}$ Dunbar sold 700 units of inventory during the month. Ending inventory assuming FIFO would be:

Listed below are ten terms followed by a list of phrases that describe or characterize five of the terms. Match each phrase with the best term placing the letter designating the term in the space provided. Terms: -_____ Cost of freight not included in inventory.

During 2012, a company sells 300 units of inventory for $85 each. The company has the following inventory purchase transactions for 2012: $\begin{array} { l l c c c } \text { Date } & { \text { Transaction } } & \begin{array} { c } \text { Number } \\\text { of Units }\end{array} & \begin{array} { c } \text { Unit } \\\text { Cost }\end{array} & \begin{array} { c } \text { Total } \\\text { Cost }\end{array} \\\text { Jan. 1 } & \text { Beginning inventory } & 60 & \$ 71 & \$ 4,260 \\\text { May 5 } & \text { Purchase } & 170 & 72 & 12,240 \\\text { Nov. 3 } & \text { Purchase } & 180 & 74 & 13,320 \\\hline & & 410 && \$ 29,820 \\\hline\end{array}$ Calculate ending inventory and cost of goods sold for 2012 assuming the company uses FIFO with a periodic inventory system.

On May 1, Ace Bonding Company purchased inventory costing $2,000 on account with terms 2/10, n/30. On May 18, Ace pays for this inventory and records which of the following using a periodic inventory system?

Given the information in the table below, what is the company's gross profit? $\begin{array} { | l | r | } \hline \text { Sales revenue } & \$ 350,000 \\\hline \text { Accounts receivable } & \$ 280,000 \\\hline \text { Ending inventory } & \$ 230,000 \\\hline \text { Cost of goods sold } & \$ 180,000 \\\hline \text { Sales returns } & \$ 50,000 \\\hline \text { Sales discount } & \$ 20,000 \\\hline\end{array}$

A company has the following transactions during March: Record all transactions, including the month-end adjustment to cost of goods sold, assuming the company uses a periodic inventory system and has no beginning inventory.

The inventory method that will always produce the same amount for cost of goods sold in a periodic inventory system as in a perpetual inventory system would be:

Inventory records for Dunbar Incorporated revealed the following: $\begin{array} { l l c r } \text { Date } & { \text { Transaction } } & \text { Number } & \text { Unit } \\&&\text { Apr. Units } & \text { Cost } \\\text { Apr 1 } & \text { Beginning inventory } & 500 & \$ 2.40 \\\text { Apr. 20 } & \text { Purchase } & 400 & 2.50\end{array}$ Dunbar sold 700 units of inventory during the month. Cost of goods sold assuming LIFO would be:

A company uses a periodic system to record inventory transactions. The company purchases inventory on account on February 9, 2012, for $50,000 and then sells this inventory on account on March 7, 2012, for $70,000. Record the transactions for the purchase and sale of the inventory.

Listed below are ten terms followed by a list of phrases that describe or characterize five of the terms. Match each phrase with the best term placing the letter designating the term in the space provided. Terms: -_____ Cost of freight included in inventory.

At the time inventory is sold, cost of goods sold is recorded under the perpetual inventory system.

Davis Hardware Company uses a perpetual inventory system. How should Davis record the sale of inventory costing $620 for $960 on account?

At the end of a reporting period, Gamble Corporation determines that its ending inventory has a cost of $300,000 and a market value of $230,000. What would be the effect(s) of the adjustment to write down inventory to market value?

During periods when inventory costs are rising, ending inventory will most likely be:

Ending inventory is equal to the cost of items on hand plus:

Which of the following is true regarding LIFO and FIFO?

Listed below are five terms followed by a list of phrases that describe or characterize the terms. Match each phrase with the best term placing the letter designating the term in the space provided. Terms: -_____ Cost of components that will become part of the finished product but have not yet been used in production.