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Exam 5: Inventories and Cost of Goods Sold

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Question 101

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Match the costs that might be included as part of the cost of inventory to the listed accounting treatment. -Income taxes paid on profits earned from selling goods to customers

A) Add to inventory cost
B) Subtract from inventory cost
C) Not an inventory cost

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

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Question 102

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Match the inventory-related accounts to costs that may be included in inventories for retailers and manufacturers. -Cost of materials which are not yet entered into the production process.

A) Merchandise Inventory
B) Raw Materials
C) Work in Process
D) Finished Goods
E) Cost of Goods Sold

F) A) and B)
G) A) and E)

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Question 103

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The following is from Goldman Inc.'s 2016 income statement. $\begin{array} { l r } \text { Purchases } & \$ 172,000 \\\text { Transportation-In } & 11,000 \\\text { Inventory, January 1,2016 } & 26,500 \\\text { Inventory, December 31,2016 } & 28,800 \\\text { Purchase Returns and Allowances } & 8,400\end{array}$ ? How much will Goldman report as its cost of goods sold in its 2016 income statement?

Under the periodic inventory system, a physical inventory must be taken at the end of the period to determine cost of goods sold.

When a company using LIFO experiences a partial or complete liquidation of its older, lower-priced inventory, its gross margin will be ____________________ (higher, lower, or unchanged) for the period.

Based upon the following data, determine the cost of merchandise sold for April. $\begin{array} { l r } \text { Merchandise Inventory April } 1 & \$ 85,560 \\\text { Merchandise Invent ory April } 30 & 96,330 \\\text { Purchases } & 373,880 \\\text { Purchases Returns \& Allowances } & 14,760 \\\text { Purchases Discounts } & 10,900 \\\text { Freight In } & 4,135\end{array}$

Sales Returns and Allowances is a contra-asset account.

Match the terms with the descriptions related to merchandise sales and purchases. -The buyer must pay the shipping costs.

If a company overstates its ending inventory for the current year, what are the effects on cost of goods sold and net income for the current year? $\begin{array}{ll}\text { Effect on Cost of Goods Sold } & \text { Effect on Net Income } \\\hline \text { a. Understated } & \text { Overstated } \\\text { b. Overstated } & \text { No effect } \\\text { c. Understated } & \text { Understated } \\\text { d. Overstated } & \text { Overstated }\end{array}$

Credit terms of n/30 mean that the net amount of the invoice, less any returns or allowances, is due within 30 days of the date of the invoice.

Which method assigns the cost of the most recent items purchased to ending inventory?

Under LIFO, the units in the ending inventory represent the most recent purchase(s).

A company using the periodic inventory system has the following account balances: Merchandise Inventory at the beginning of the year, $3,600; Freight-In, $650; Purchases, $10,700; Purchases Returns and Allowances, $1,950; Purchases Discounts, $330.The cost of merchandise purchased is equal to

Takenson Corp.is a merchandising company that uses the periodic inventory system.Selected account balances are listed below: $\begin{array} { l r } \text { Sales } & \$ 500,000 \\\text { Purchases } & 225,000 \\\text { Inventory (beginning) } & 16,000 \\\text { Inventory (ending) } & 30,000 \\\text { Operating Expenses } & 148,000 \\\text { Income Tax Expense } & 10,000 \\\text { Retained Earnings (beginning) } & 53,000 \\\text { Dividends } & 15,000\end{array}$ -Refer to the information for Takenson Corp. Calculate net income.

Using the following information, what is the amount of cost of goods sold? $\begin{array} { | l | r | l | l | r | } \hline \text { Furchases } & \$ 32,000 & & \text { Purchases discounts } & \$ 960 \\\hline \begin{array} { l } \text { Merchandise inventory } \\\text { September 1 }\end{array} & 5,700 & & \begin{array} { l } \text { Merchandise inventory } \\\text { September } 30\end{array} & 6,370 \\\hline \begin{array} { l } \text { Sales returns and } \\\text { allowances }\end{array} & 910 & & \text { Sales } & 63,000 \\\hline \begin{array} { l } \text { Purchases returns and } \\\text { allowances }\end{array} & 1,200 & & \text { Freight In } & 1,040 \\\hline\end{array}$

Which one of the following statements is false?

Which of the following would not be included in inventory costs?

If a customer returns merchandise which has already been paid for, the retailer may give either a cash refund or a credit on account.

Travelli Co.sold merchandise to Trapani Co.on account, $17,000, terms 2/15, net 45.The cost of the merchandise sold is $15,400.Tavella Co.issued a credit memo for $1,750 for merchandise returned that originally cost $1,400.The Trapani Co.paid the invoice within the discount period.What is amount of net sales from the above transactions?

Identify which inventory costing method (LIFO or FIFO) achieves the effect listed in the following items: -Prices are rising; cost of goods sold is lower with this method.