Financial and Managerial Accounting Chapter 5

Assume that J-Mart uses a perpetual weighted average inventory system. During the period, it had two sales. Calculate the average cost per unit on hand as of June 8 when it made its first sale. Jun 1 10 @ $12 Jun 5 Purchase 10 @ $15 Jun 8 Sale 6 units Jun 28Purchase 10 @ $18 Jun 30 Sale 8 units Multiple choice question. $33/unit $15/unit $10/unit $13.50/unit

$13.50

Given The following information, determine the COGS for the period Jan 1 Beg Inv: $950 Jan 1-30 Purchases: $1800 Jan 31 Ending Inv: $250 Multiple Choice: $2,500 $3,000 $250 $1,100

$950+ $250= 2750 $2750-250= $2500

Assume that Sparks uses a perpetual specific identification inventory system. Its ending inventory consists of 2 units from beginning inventory, 4 units from the Jan. 5 purchase, and 10 units from the Jan. 29 purchases. Calculate the dollar value of its ending inventory. Jan 1 Beginning Inventory 10 @ $12 Jan 5 Purchase 10 @ $15 Jan 29 Purchase 10 @ $18 Jan 30 Sale 14 units Multiple choice question. $450 $264 $186 $160

2*12=24 4*15= 60 10*18=180 24+60+180=264

Assume that Widgets, Inc. uses a perpetual specific identification inventory system. During the period, it sold 4 units from beginning inventory, 8 units from the Jan. 5 purchase, and 2 units from the Jan. 29 purchases. Calculate the dollar value of its cost of goods sold for the period Jan 1: Beginning Inventory 10 @ $12 Jan 5 Purchase 10 @ $15 Jan 29 Purchase 10 @ $18 Jan 30 Sale

4*$12= 48 8*$15= 40 2*$18= 36 48+40+36= 204

Assume that Sparks uses a perpetual FIFO inventory system. Its ending inventory consists of 9 units. Calculate the dollar value of its ending inventory. Jan 1 Beginning Inventory 10 @ $12 Jan 8 Purchase 20 @ $18 Jan 15 Sale 21 units

9x$18=162

Select all that apply Which statement(s) below correctly describe(s) the relationship of cost of goods sold and ending inventory? (Check all that apply.) Multiple select question. Cost of goods available for sale must be allocated between cost of goods sold and ending inventory. Cost of goods sold plus goods available for sale will equal total goods in ending inventory. Cost of goods sold will equal total ending inventory. Cost of goods sold plus ending inventory will equal the total goods available for sale.

Cost of goods available for sale must be allocated between cost of goods sold and ending inventory. Cost of goods sold plus ending inventory will equal the total goods available for sale.

The FIFO cost flow assumption assumes that the cost of items purchased (earliest/latest) are the costs that will be transferred first to cost of goods sold on the (balance sheet/income statement).

Earliest Income Statement

Identify the statements below that are correct regarding the advantages of the four inventory methods using a perpetual inventory system. (Check all that apply.) Multiple select question. FIFO assigns an amount to cost of goods sold on the income statement that approximates its current replacement cost. LIFO mimics the actual flow of goods for most businesses. FIFO assigns an amount to inventory on the balance sheet that approximates its current cost. Weighted average tends to smooth out erratic changes in costs.

FIFO assigns an amount to inventory on the balance sheet that approximates its current cost. Weighted average tends to smooth out erratic changes in costs.

Which of the following lists the four methods used to assign costs to inventory and to cost of goods sold? Multiple choice question. FIFO, FILO, weighted average and Individual LIFO, LILO, weighted average and specific identification FIFO, LIFO, weighted average and specific Identification FIFO, FILO, weighted average and specific identification

FIFO, LIFO, weighted average and specific Identification

Demonstrate how inventory costs are treated both as assets and expenses by selecting the correct statement(s) below. (Check all that apply.) Multiple select question. Inventory costs are treated as an asset when they are sold. Inventory costs are treated as an expense when they are sold. Inventory costs are initially treated as an expense when they are purchased. Inventory items sold are considered part of cost of goods sold on the income statement. Inventory items retained at the end of the period are considered part of Merchandise Inventory on the balance sheet.

Inventory costs are treated as an expense when they are sold. Inventory items sold are considered part of cost of goods sold on the income statement. Inventory items retained at the end of the period are considered part of Merchandise Inventory on the balance sheet.

Demonstrate how inventory costs are treated both as assets and expenses by selecting the correct statement(s) below. (Check all that apply.) Multiple select question. Inventory costs are treated as an asset when they are sold. Inventory items sold are considered part of cost of goods sold on the income statement. Inventory items retained at the end of the period are considered part of Merchandise Inventory on the balance sheet. Inventory costs are initially treated as an expense when they are purchased. Inventory costs are treated as an expense when they are sold.

Inventory items sold are considered part of cost of goods sold on the income statement. Inventory items retained at the end of the period are considered part of Merchandise Inventory on the balance sheet. Inventory costs are treated as an expense when they are sold.

Recount the methods used to assign costs to inventory and cost of goods sold under both a perpetual and a periodic system. (Check all that apply.) Multiple select question. Last-in, first-out First-in, last-out Specific identification Last-in, last-out First-in, first-out Weighted average

Last-in, first-out Specific identification First-in, first-out Weighted average

One identical unit is purchased on each of the following three dates and at the respective costs: June 1 at $10; June 2 at $15; and July 4 at $20 The company sells two units during the period. Conclude which inventory items are sold first and which unit remains in ending inventory if the company is using the FIFO cost flow assumption. The June 1 at $10 is sold; the June 2 at $15 and the July 4 at $20 remain in ending inventory. The June 2 at $15 and the July 4 at $20 are both sold; the June 1 at $10 remains in ending inventory. The June 1 at $10 and the June 2 at $15 are both sold; the July 4 unit remains in ending inventory.

The June 1 at $10 and the June 2 at $15 are both sold; the July 4 unit remains in ending inventory.

One identical unit is purchased on each of the following three dates and at the respective costs: June 1 at $10; June 2 at $15; and July 4 at $20 The company sells two units during the period. Conclude which inventory items are sold first and which unit remains in ending inventory if the company is using the FIFO cost flow assumption. Multiple choice question. The June 1 at $10 and the June 2 at $15 are both sold; the July 4 unit remains in ending inventory. The June 1 at $10 is sold; the June 2 at $15 and the July 4 at $20 remain in ending inventory. The June 2 at $15 and the July 4 at $20 are both sold; the June 1 at $10 remains in ending inventory.

The June 1 at $10 and the June 2 at $15 are both sold; the July 4 unit remains in ending inventory.

Assume that three identical units are purchased separately on the following three dates and at the respective costs: June 1 at $10 June 2 at $15 July 4 at $20 The company sells two units during the period. Conclude which inventory items are sold first and which unit remains in ending inventory if the company is using the LIFO perpetual cost flow assumption. Multiple choice question. The June 1 at $10 and the June 2 at $15 are both sold; the July 4 unit remains in ending inventory. The June 2 at $15 and the July 4 at $20 are both sold; the June 1 at $10 remains in ending inventory. The June 1 at $10 is sold; the June 2 at $15 and the July 4 at $20 remains in ending inventory.

The June 2 at $15 and the July 4 at $20 are both sold; the June 1 at $10 remains in ending inventory.

An advantage of the LIFO method is that it best matches Multiple choice question. current costs with revenues erratic changes in costs the costs of items with the revenues they generate the flow of goods for most businesses

current costs with revenues

The FIFO cost flow assumption assumes that the cost of items purchased _____ (earliest/latest) are the costs that will be transferred first to cost of goods sold on the _____ (balance sheet/income statement).

earliest income statement

The LIFO cost flow assumption assumes that the cost of items purchased ______ are the costs that will be transferred first to cost of goods sold on the ______ ______.

latest/income statement

The formula to compute cost of goods sold is Multiple choice question. merchandise available for sale plus net purchases. merchandise available for sale minus ending inventory merchandise available for sale plus ending inventory merchandise available for sale plus beginning inventory

merchandise available for sale minus ending inventory

When purchase costs are (rising/declining) , FIFO will report the lowest cost of goods sold yielding the highest gross profit and net income.

rising

Which of the following summarizes the weighted average cost flow assumption? Multiple choice question. Weighted average assumes that costs flow in the order incurred. Weighted average assumes that cost flow is allocated by the physical weight of items purchased. Weighted average assumes that costs flow in the reverse order incurred. Weighted average assumes that costs flow at an average of the costs available.

Weighted average assumes that costs flow at an average of the costs available.

Assuming purchase costs are rising in a periodic inventory system, determine which of the statements below are correct regarding the cost of goods sold under FIFO, LIFO and weighted average cost flow methods. (Check all that apply.) Multiple select question. Weighted average cost of goods sold will be between FIFO and LIFO costs of goods sold. Companies using FIFO will pay higher taxes than companies using LIFO, assuming all else being equal. Companies using FIFO will report the smallest cost of goods sold. Companies using FIFO will report the highest gross profit and net income. Companies using LIFO will report the smallest cost of goods sold.

Weighted average cost of goods sold will be between FIFO and LIFO costs of goods sold. Companies using FIFO will pay higher taxes than companies using LIFO, assuming all else being equal. Companies using FIFO will report the smallest cost of goods sold. Companies using FIFO will report the highest gross profit and net income.