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Exam 6: Merchandise Inventory

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Question 101

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Roadside, Inc. had the following balances and transactions during 2018: $\begin{array} { | l | l | } \hline \text { Beginning Merchandise Inventory } & 40 \text { units at } \$ 70 \\\hline \text { March 10 } & \text { Sold } 38 \text { units } \\ \hline \text { June } 10 & \text { Purchased } 80 \text { units at } \$ 80 \\\hline \text { October } 30 & \text { Sold } 74 \text { units } \\\hline\end{array}$ What is the amount of the company's ending Merchandise Inventory, as disclosed in the December 31, 2018 balance sheet, using the periodic LIFO inventory costing method?

A) $480
B) $560
C) $640
D) $420

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

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Question 102

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In a period of rising costs, the first-in, first-out (FIFO) method results in a higher cost of goods sold and a lower gross profit than the last-in, first-out (LIFO) method.

A) True
B) False

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Question 103

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A company purchased 500 units for $30 each on January 31. It purchased 550 units for $33 each on February 28. It sold a total of 650 units for $45 each from March 1 through December 31. What is the cost of ending inventory on December 31 if the company uses the first-in, first-out (FIFO) inventory costing method? (Assume that the company uses a perpetual inventory system.)

Martha, Inc. had 21,000 units of ending inventory that were recorded at the cost of $8.00 per unit using the FIFO method. The current replacement cost is $4.25 per unit. Which of the following amounts would be reported as ending Merchandise Inventory on the balance sheet using the lower-of-cost-or-market rule?

Companies often disclose that the LCM rule is followed in notes to their financial statements.

Which of the following statements regarding a periodic inventory system is incorrect?

Under the weighted-average method for inventory costing, the cost per unit is determined by ________.

Which of the following is NOT an inventory costing method?

Which of the following inventory costing methods uses the cost of the oldest purchases to compute the cost of goods sold?

Under International Financial Reporting Standards (IFRS) , which of the following statements regarding the lower-of-cost-or-market rule is incorrect?

Changing the method of valuing inventory ignores the principle of ________.

In a period of rising costs, the last-in, first-out (LIFO) method results in a lower cost of goods sold and a higher net income than the first-in, first-out (FIFO) method.

When a company uses the last-in, first-out (LIFO) method, the cost of goods sold represents the costs of most recently purchased goods, and the ending inventory represents the oldest costs.

Cougar, Inc. had the following balances and transactions during 2019: $\begin{array} { | l | l | } \hline \text { Beginning Merchandise Inventory } & 150 \text { units at } \$ 80 \\\hline \text { March 10 } & \text { Sold 50 units } \\ \hline \text { June } 10 & \text { Purchased 300 units at } \$ 82 \\\hline \text { October 30 } & \text { Sold } 140 \text { units } \\\hline\end{array}$ What would be reported as Cost of Goods Sold on the income statement for the year ending December 31, 2019 if the perpetual inventory system and the weighted-average inventory costing method are used? (Round the unit costs to two decimal places and total costs to the nearest dollar.)

The periodic inventory records of Hawk Dental Supply indicate the following for the month of April: $\begin{array} { | r | l | r | } \hline \text { Apr. 1 } & \text { Beginning merchandise inventory } & 15 \text { units @ \$32 each } \\\hline 7 & \text { Purchase } & 7 \text { units @ \$34 each } \\\hline 18 & \text { Purchase } & 12 \text { units @ \$37 each } \\\hline 26 & \text { Purchase } & 10 \text { units @ \$40 each } \\\hline\end{array}$ As of April 30, Hawk counts 8 units of merchandise inventory on hand. Compute ending merchandise inventory and cost of goods sold for Hawk using the FIFO inventory method.

Countrywide Sales sold 400 units of product to a customer on account. The selling price was $28 per unit, and the cost, according to the company's inventory records, was $14 per unit. Prepare the journal entry to record the cost of goods sold. (Assume a perpetual inventory system and the FIFO inventory costing method.) Omit explanation.

Given the same purchase and sales data, and assuming the cost of inventory is rising, the costing methods for inventory will result in different amounts for sales revenue.

Modern Lifestyle Furniture began June with merchandise inventory of 45 sofas that cost a total of $31,500. During the month, Modern purchased and sold merchandise on account as follows: $\begin{array}{|r|l|l|}\hline\text { June 7} & \text { Purchase } & 25 \text { sofas } @ \$ 750 \text { each } \\\hline 14 & \text { Sale } & 30 \text { sofas } @ \$ 1,150 \text { each } \\\hline 18 & \text { Purchase } & \text { 50 sofas } @ \$ 775 \text { each } \\\hline 27 & \text { Sale } & 35 \text { sofas } @ \$ 1,200 \text { each }\\\hline\end{array}$ Prepare a perpetual inventory record, using the FIFO inventory costing method, and determine the company's cost of goods sold, ending merchandise inventory, and gross profit. | Purchases | Cost of Goods Sold | Inventory on Hand |

The consistency principle states that businesses should report the same amount of ending merchandise inventory from period to period.