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Exam 7: Reporting and Interpreting Inventories and Cost of Goods Sold

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Question 31

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Acme sells 300 units during this quarter. If Acme uses the LIFO method, what is its cost of goods sold for the quarter?

A) $1,600
B) $1,400
C) $1,500
D) $1,800

E) A) and C)
F) A) and D)

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Question 32

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Which of the following statements is true with regard to all inventory costing methods?

A) The ending inventory balance and cost of goods sold move in the same direction.
B) The ending inventory balance and the cost of total assets move in the opposite direction.
C) The ending inventory balance and net income move in the same direction.
D) The ending inventory balance and net income move in the opposite direction.

E) A) and B)
F) C) and D)

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Question 33

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Which of the following statements regarding inventory costing methods is true?

A new textbook is published in the spring of 2011. Your campus bookstore buys 400 copies at $70 each in June, an additional 1,000 copies in August at $72 each, and 600 copies in December at $75 each. At the end of December 2011, the bookstore has sold 1,900 copies of the text. Find the cost of goods sold and the cost of ending inventory: a) under the weighted average cost method. b) under the FIFO method. c) under the LIFO method. Using your calculations as a guide, explain how different inventory costing methods affect the numerator and denominator of the inventory turnover ratio when unit costs are increasing. Conclude your explanation by identifying the method that produces the highest (and lowest) inventory turnover ratio.

When a company uses a perpetual inventory system, purchase returns will be recorded by:

The most commonly used inventory costing method in the U.S. is:

What is the amount of the gross profit?

In a period of falling prices, the inventory costing method that assigns a value to inventory that approximates current cost is

Which of the following statement is true?

Alphabet Company buys different letters for resale. It buys A thru J on January 1 at $4 per letter, and sells C on January 15. On February 1, it buys K and L at $6 per letter and sells A and K on February 9. It then buys M thru O on March 1 at $7 per letter and sells F, L, M, N, and O on March 19. If the company uses the LIFO method on a perpetual basis, what is the cost of goods sold for the three months ended March 31 (rounded to the nearest dollar) ?

The specific identification method would probably be most appropriate for which of the following goods?

If inventory is sold with terms of FOB destination, the goods belong to the seller until they reach their destination.

On July 1,B. Darin Company sold merchandise costing $4,500 to S. Dee Company for $6,000, terms 2/10, n/30. Both companies use the perpetual inventory system. S. Dee Company pays the invoice on July 8 and takes the appropriate discount. What is the journal entry that S. Dee Company will make on July 8?

A $15,000 overstatement of the 2011 ending inventory was discovered after the financial statements for 2011 were prepared. How would that inventory error impact the 2011 financial statements?

If the company uses the FIFO method, what is the cost of its ending inventory?

When the replacement cost of inventory drops below the cost recorded in the financial records, applying the lower of cost or market (LCM) rule causes:

If BetterBuy uses the weighted average method, its cost of goods sold will be:

What is the journal entry to be recorded by

The understatement of beginning inventory balance causes cost of goods sold to be understated and net income to be understated.

A company has beginning inventory of $128,400 and an ending inventory of $89,100. The company purchased $67,900 during the accounting period. Assuming no returns, calculate the goods available for sale and the cost of goods sold.