Accounting Exam 3

Rohrer Co. has the following data for June: Beginning inventory, 10 units @ $12 each = $120 Purchases in June, 5 units at $15 each = $75 Ending inventory is 7 units 8 units were sold during June What is the average-cost per unit?

$13 ($120 + $75)/(10+5)

A store has a TV on sale for $1,000 and its cost to the store is $400. That TV will be in ending inventory at?

$400

Rohrer Co. has the following data for June: Beginning inventory, 10 units @ $12 each = $120 Purchases in June, 5 units at $15 each = $75 Ending inventory is 7 units 8 units were sold during June What is the cost of goods sold using the LIFO method?

(5 units x $15) + (3 units x $12) 3 comes from remainder of 8 units sold in June

Rohrer Co. has the following data for June: Beginning inventory, 10 units @ $12 each = $120 Purchases in June, 5 units at $15 each = $75 Ending inventory is 7 units 8 units were sold during June What is the cost of ending inventory using the FIFO method?

(5 units x $15) + 2 units x $12 = $99

Straight Line Depreciation Formula

(cost - residual value) / useful life

Beginning inventory consists of 10 units. 6 units are purchased during the period and 2 units are sold. How many units are in ending inventory?

10 + 6 -2 = 14

Beginning inventory consists of 12 units. 4 units are purchased during the period and 3 units are in ending inventory. How many units were sold?

12 + 4 - 3 = 13

Patents are amortized over a period​ of:

20 years or the expected useful​ life, whichever is less.

Rohrer Co. has the following data for June: Beginning inventory, 10 units @ $12 each = $120 Purchases in June, 5 units at $15 each = $75 Ending inventory is 7 units 8 units were sold during June What is the cost of ending inventory using the LIFO method?

7 units x $12

Rohrer Co. has the following data for June: Beginning inventory, 10 units @ $12 each = $120 Purchases in June, 5 units at $15 each = $75 Ending inventory is 7 units 8 units were sold during June What is the cost of goods sold using the FIFO method?

8 units x $12

Average cost method equations

AKA weighted average method Avg cost per unit = cost of goods available for sale / number of units available * Cost of goods available = beginning inventory + purchases Ending inventory = avg cost per unit x number of units Cost of goods sold = Avg cost per unit x number of units sold

Which of the following costs would be capitalized related to​ Zume's pizza​ truck?

Addition of 56 in-truck ovens

An understatement of ending inventory by​ $2 million in one period results in

An overstatement of gross profit by $2 million in the next period

Which item would the specific-identification cost method most likely be used for?

Antique furniture (items that are not sold in large batches)

How is cost of goods sold classified in the financial statements?

As an expense

Capitalizing a cost involves increasing what type of​ account?

Asset

Rohrer Co. has the following data for June: Beginning inventory, 10 units @ $12 each = $120 Purchases in June, 5 units at $15 each = $75 Ending inventory is 7 units 8 units were sold during June What is the cost of ending inventory using the average cost method?

Average cost per unit x Ending inventory units See above for average cost per unit $13 x 7 units = 91

Rohrer Co. has the following data for June: Beginning inventory, 10 units @ $12 each = $120 Purchases in June, 5 units at $15 each = $75 Ending inventory is 7 units 8 units were sold during June What is the cost of goods sold using the average-cost method?

Average cost x units sold in June See above for average cost $13 x 8 = 104

In the year that Zume capitalizes the cost of customizing the plain white panel truck into a pizza delivery​ vehicle, that cost will appear on​ Zume's:

Balance Sheet as an asset called EQUIPMENT

Whitmore Corporation purchased a new delivery van on the last day of its fiscal year. The cost of the delivery van will appear on​ Whitmore's _______________ in the year of purchase.

Balance sheet

Specific Identification Method

Cost inventory at specific cost of particular unit Ex: Real estate, car dealers Beginning inventory + Purchases = Cost of goods available - Ending Inventory = Cost of goods sold

Inventory Turnover Formula

Cost of Goods / Average inventory Cost of Goods / (Beginning inventory + Ending Inventory)/2 If days asked: 365/ratio found above

If ending inventory is understated, which account would be overstated in the same period?

Cost of goods sold Cost of goods available - ending inventory = cost of goods sold

Smatter Corporation purchased land for a new building. Which of the following costs would not be included in the cost of the​ land?

Cost of new parking lot constructed on the land

What type of account is Inventory and how is it classified?

Current asset

Which of the following items would not be included in the calculation of the net cost of inventory?

Delivery charge to customer

Which of the following statements is true about calculating depreciation using the​ units-of-production method:

Depreciation expense depends directly on the amount of output or usage

The depreciation method that does not initially use the residual value in depreciation calculations is the

Double-declining balance method

If there is an error in ending inventory, only that period in which the inventory error occurred would be impacted?

False

It is illegal to use one method of depreciation for financial purposes and another method for tax purposes.

False

Natural resources are reported in the Intangible Assets section of the balance sheet.

False

The Accumulated Depreciation account is an income statement account.

False

When applying the lower-of-cost-or-market rule to inventory valuation under US GAAP, market value generally refers to the selling price of the inventory

False

Company B purchased some land and is preparing the land for a new building. Company B should include which of the following in the cost of the land?

Grading and clearing the land

When compared to the other methods of​ depreciation, use of the​ double-declining-balance method of depreciation will result in depreciation expense that​ is:

Higher in the earlier periods

In the year that Zume expenses the cost of replacement tires for the pizza​ truck, that cost will appear on​ Zume's:

Income Statement as an expense called REPAIRS EXPENSE

When a company expenses the cost of maintenance for its heating and cooling​ system, that cost will appear on its

Income statement

Under US GAAP inventories are reported on the balance sheet at?

Lower of cost or market

Which U.S. GAAP principle or rule would apply if the net realizable value of a​ company's inventory is below its original​ cost?

Lower of cost or market value

Company A purchased a used piece of equipment. All of the following costs should be included in the cost of the equipment except for?

Maintenance costs after the equipment is up and running

Periodic inventory system vs Perpetual inventory system

Periodic: Goods counted by hand Perpetual: Uses computer to keep a running total of all inventory on hand

Which of the following is NOT one of the three things needed to measure​ depreciation?

Probability of obsolescence

Correct Net Income Formula

Stated net income - overstatement - understatement

Cost minus residual value divided by useful​ life, in​ years, is the formula for​ the:

Straight-line method

Book value equals the cost of the asset less the total accumulated depreciation.

True

LIFO values closing inventory at the oldest purchase price?

True

The cost of land may include the cost of any back property taxes that the purchaser pays?

True

The three depreciation methods allocate different amounts of depreciation to each​ period, but all result in the same total amount of depreciation over the life of the asset.

True

When costs are increasing, the cost assigned to ending inventory using LIFO is lower than when using FIFO

True

Gross Profit Percentage Formula

gross profit/net sales revenue To find gross profit: Sales revenue - Cost of goods sold