ACCT Class 13 Vid & Quiz

At the beginning of Year 2, Donald company had $5,000 of inventory on hand. During the accounting period, Donald purchased inventory costing $25,000 and sold inventory for $32,000. Operating expenses were $2,000 during the accounting period. A physical count of inventory on December 31, Year 2 revealed $4,000 of inventory on hand. Based on this information, cost of goods sold is

$26,000. Cost of goods sold is $26,000 ($30,000 cost of goods available for sale - $4,000 ending inventory).

At the beginning of Year 2, Donald company had $5,000 of inventory on hand. During the accounting period Donald purchased inventory costing $25,000 and sold inventory for $32,000. Operating expenses were $2,000 during the accounting period. A physical count of inventory on December 31, Year 2 revealed $4,000 of inventory on hand. Based on this information, cost of goods available for sale is

$30,000. Cost of goods available for sale is $30,000 ($5,000 beginning inventory balance + $25,000 of inventory purchased during the period).

The following information was drawn from the inventory records of Alpha Company as of December 31, Year 2. Beginning inventory (purchased in Year 1) 200 Units @ $ 5 each Purchases made in Year 2 800 Units @ $ 8 each Units Sold 900 Units @ $ 12 each Which of the following is the amount of the gross margin assuming Alpha uses a FIFO cost flow method?

$4,200 The amount of sales revenue is $10,800 (900 units x $12 per unit). The cost of goods sold is $6,600. There are 1,000 units available for sale (200 units purchased in Year 1 + 800 units purchased in Year 2). Given that there were 900 units sold you must determine which of the 1,000 units available for sale were considered to have been sold. The 200 units in beginning inventory represents the first items coming into the business and under FIFO will be the first items charged to cost of goods sold. The remaining 700 units (900 sold − 200 from beginning inventory) would have been drawn from the units purchased in Year 2. The specific computation is shown below: Beginning inventory (purchased in Year 1) 200 Units @ $ 5 each = $ 1,000 Purchases made in Year 2 700 Units @ $ 8 each = 5,600 Cost of goods sold $ 6,600 The gross margin is $4,200 ($10,800 Sales revenue − $6,600 Cost of goods sold).

The following information was drawn from the inventory records of Preston Company. Beginning inventory (purchased in Year 1) 100 Units @ $ 10 each 1st Purchase made in Year 2 400 Units @ $ 12 each 2nd Purchase made in Year 2 500 Units @ $ 14 each Units Sold 950 Units @ $ 15 each Based on this information, which of the following represents the amount of ending inventory appearing on the balance sheet assuming a LIFO cost flow?

$500 Beginning inventory (purchased in Year 1) 100 Units @ $ 10 each = $ 1,000 1st Purchase made in Year 2 400 Units @ $ 12 each = 6,400 2nd Purchase made in Year 2 500 Units @ $ 14 each = 7,000 Cost of goods available for sale $ 12,800 Calculate cost of goods sold: Under LIFO determining the cost of the 950 units sold would start with the last 500 items purchased, then proceed with the next 400 items purchased and then take the final 50 units from the beginning inventory. The specific calculations are as follows: 2nd Purchase made in Year 2 500 Units @ $ 14 each = $ 7,000 1st Purchase made in Year 2 400 Units @ $ 12 each = 4,800 Beginning inventory (purchased in Year 1) 50 Units @ $ 10 each = 500 Cost of goods sold $ 12,300 Calculate ending inventory: Cost of goods available for sale $ 12,800 Less: Cost of goods sold 12,300 Ending Year 2 inventory balance $ 500

Which of the following shows the effects of purchasing inventory on account?

Assets + Liabilities + Equity NA Revenue NA Expense NA Net Income NA Cash Flows NA Purchasing inventory on account is an asset source transaction. It causes assets (inventory) and liabilities (accounts payable) to increase. Buying inventory does not affect revenue. Revenue is affected when the inventory is sold. As a result, there is no effect on the income statement. Since the inventory was purchased on account, the company did not spend cash; therefore there is no effect on the statement of cash flows.

Edwards Shoe Store sold shoes that cost the company $5,700 for $8,200. Which of the following shows how the recognition of the cost of goods sold will affect the Company's financial statement? (Ignore the effects of the associated revenue recognition.)

Assets − Liabilities NA Equity − Revenue NA Expense + Net Income − Cash Flow NA When inventory is sold, the cost of the inventory must be removed from the inventory account thereby reducing assets. The cost of goods sold is recognized as an expense on the income statement thereby reducing net income and ultimately stockholders' equity (retained earnings). The statement of cash flows is not affected because cash flow is recognized when the company pays for the inventory, not when the inventory is sold.

Weiss Company purchased two identical inventory items. The first purchase cost $30 and the second cost $32. When the Company sold one of the items for $40, it expensed $30 to its cost of goods sold account. Based on this information which of the following cost flow methods is the company using?

FIFO FIFO is an acronym meaning "first in first out". In other words, the first item coming into the business (first item purchased) is the first item going out of the business (first item sold). In this case the first item the business purchased cost $30. Since cost of goods sold is $30, the business must be using the FIFO method.

Inventory is

an asset account that appears on the balance sheet. Inventory is a balance sheet asset account. It represents an economic resource that will be used (sold) in the future to produce revenue. In other words, it is the portion of the goods that were not sold during the accounting period. The cost of the inventory that has been sold is accumulated in an expense account titled cost of goods sold and is shown on the income statement. The amount of cash paid for inventory or the amount of cash collected from the sale of inventory is shown on the statement of cost of goods sold. Inventory and cash are separate asset accounts.

The gross margin appears on a

multistep income statement. Gross margin is the difference between sales revenue and the cost of goods sold expense. It is normally shown as the first step in a multi-step income statement. The operating expenses are then subtracted from gross margin to determine the amount of net income. In contrast, on a single step income statement cost of goods sold is shown as one of a number of operating expenses that are subtracted from sales revenue to determine net income. This single-step format does not show the determination of gross margin. Multistep and single-step formats are used only for income statements, they do not apply to the statement of cash flows.

When a merchandising company sells inventory it will

recognize revenue and expense. When a merchandising company sells inventory, it will recognize sales revenue for the amount of the sales price. The company will also recognize a cost of goods sold expense for the amount of the cost of the goods that were sold.