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Exam 6: Inventory and Cost of Goods Sold

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Question 61

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Consider the following year-end information for Spitzer Corporation: $\begin{array} { l r } \text { Cost of goods sold } & \$ 420,000 \\\text { Sales revenue } & 800,000 \\\text { Nonoperating expenses } & 10,000 \\\text { Operating expenses } & 170,000 \\\text { Income tax expense } & 80,000\end{array}$ What amount will Spitzer report for operating income?

A) $200,000
B) $210,000
C) $380,000
D) $120,000

E) B) and C)
F) A) and C)

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Question 62

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__________ is commonly referred to as the balance sheet approach.

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Question 63

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The practice of using the lower-of-cost-or-market to evaluate inventory reflects which of the following accounting principles?

When inventory costs are declining, __________ generally results in a lower amount of reported cost of goods sold.

A company overstated its ending inventory balance by $9,000 in 2012. What impact will this error have on total assets and retained earnings in 2012 and 2013 (ignoring tax effects)?

A company begins the year with inventory of $50,000 and ends the year with inventory of $55,000. During the year, the following amounts are recorded: $\begin{array} { l r } \text { Purchases } & \$ 210,000 \\\text { Purchase returns } & 25,000 \\\text { Purchase discounts } & 15,000 \\\text { Freight-in } & 40,000\end{array}$ Calculate cost of goods sold for the year.

During periods when inventory costs are rising, cost of goods sold will most likely be:

Companies are not allowed to report inventory costs by assuming which units of inventory are sold and which units still remain on hand.

Consider the following inventory data: $\begin{array} { l r } \text { Beginning inventory } & \$ 150,000 \\\text { Ending inventory } & 100,000 \\\text { Purchases } & 310,000\end{array}$ What is the average days in inventory for the year?

The adjustment to write down inventory from cost to its lower market value includes a debit to Cost of Goods Sold and a credit to Inventory.

A company understated its ending inventory balance by $5,000 in 2012. What impact will this error have on total assets and retained earnings in 2012 and 2013 (ignoring tax effects)?

A company has the following transactions during March: Record all transactions, assuming the company uses a perpetual inventory system.

A company reports inventory using the lower-of-cost-or-market method. Below is information related to its year-end inventory: $\begin{array} { l c c c } \text { Inventory } & \text { Quantity } & \text { Cost } & \text { Market } \\\text { Item A } & 100 & \$ 25 & \$ 30 \\\text { Item B } & 50 & 30 & 20\end{array}$ Calculate ending inventory under lower-of-cost-or-market and record any necessary adjustment to 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: -_____ Inventory costing method that assumes both cost of goods sold and ending inventory consist of a random mixture of all the goods available for sale.

In a perpetual inventory system, at the time of a sale the cost of inventory sold is:

Income before income taxes equals operating income plus nonoperating revenues less nonoperating expenses.

One of the primary benefits of using FIFO when inventory costs are rising is that it results in greater tax savings.

Beasley, Inc. reports the following amounts in its December 31, 2012, income statement. $\begin{array} { l r l r } \text { Sales revenue } & \$ 300,000 & \text { Income tax expense } & \$ 38,000 \\\text { Interest expense } & 12,000 & \text { Cost of goods sold } & 125,000 \\\text { Salaries expense } & 35,000 & \text { Advertising expense } & 24,000 \\\text { Utilities expense } & 41,000 & &\end{array}$ Prepare a multiple-step income statement.

Inventory records for Marvin Company revealed the following: $\begin{array} { c l c r } \text { Date } & { \text { Transaction } } & \begin{array} { c } \text { Number } \\\text { of Units }\end{array} & \begin{array} { r } \text { Unit } \\\text { Cost }\end{array} \\\text { Mar. 1 } & \text { Beginning inventory } & 1,000 & \$ 7.20 \\\text { Mar. 10 } & \text { Purchase } & 600 & 7.25 \\\text { Mar. 16 } & \text { Purchase } & 800 & 7.30 \\\text { Mar. 23 } & \text { Purchase } & 600 & 7.35\end{array}$ Marvin sold 2,300 units of inventory during the month. Ending inventory assuming FIFO would be:

Inventory is usually reported as a long-term asset in the balance sheet.