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