25) A company that uses the perpetual inventory system purchased 500 pallets of industrial soap for
$10,000 and paid $950 for the freight-in. The company sold the whole lot to a supermarket chain for
$13,000 on account. Which of the following entries correctly records the sale?
A)
Accounts Receivable
13,000
Sales Revenue
13,000
Cost of Goods Sold
10,950
Merchandise Inventory
10,950
B)
Merchandise Inventory
13,000
Cost of Goods Sold
13,000
C)
Cost of Goods Sold
13,000
Sales Revenue
13,000
D)
Accounts Receivable
13,000
Sales Revenue
13,000
Cost of Goods Sold
10,000
Merchandise Inventory
10,000
26) Which of the following statements regarding FIFO is incorrect?
A) Ending inventory is based on the costs of the most recent purchases.
B) FIFO is consistent with the physical movement of inventory for most companies.
C) The first units to come in are assumed to be the first units sold.
D) FIFO is a specific identification costing method because companies sell their oldest inventory first.
27) James Sales sold 450 units of product to a customer on account. The company uses the perpetual
inventory system and the FIFO inventory costing method. The selling price was $28 per unit, and the
cost, according to the company‘s inventory records, was $12 per unit. Prepare the journal entries to record
the sale. Omit explanations.
28) Countrywide Sales sold 400 units of product to a customer on account. The selling price was $28 per
unit, and the cost, according to the company’s inventory records, was $14 per unit. Prepare the journal
entry to record the cost of goods sold. (Assume a perpetual inventory system and the FIFO inventory
costing method.) Omit explanation.
29) Costas, Inc. purchased inventory on account for $6,500. Prepare the journal entry to record the
purchase of inventory on account. (Assume a perpetual inventory system.) Omit explanation.
30) Western Sky, Inc. sold 500 units of inventory at $25 per unit for cash. The company uses the perpetual
inventory system and the FIFO inventory costing method. The beginning inventory included 550 units at
a cost of $15 per unit. The cost of the most recent purchases is $10 per unit. Prepare the journal entries to
record the sale. Omit explanations.
31) Meadows, Inc. sold 500 units of inventory at $25 per unit on account. The company uses the perpetual
inventory system and the FIFO inventory costing method. The beginning inventory included 400 units at
$15 per unit. The most recent purchases include 600 units at $18 per unit. Prepare the journal entries to
record the sale. Omit explanations.
32) Modern Lifestyle Furniture began June with merchandise inventory of 45 sofas that cost a total of
$31,500. During the month, Modern purchased and sold merchandise on account as follows:
June 7
Purchase
25 sofas @ $750 each
14
Sale
30 sofas @ $1,150 each
18
Purchase
50 sofas @ $775 each
27
Sale
35 sofas @ $1,200 each
Prepare a perpetual inventory record, using the FIFO inventory costing method, and determine the
company’s cost of goods sold, ending merchandise inventory, and gross profit.
| Purchases | Cost of Goods Sold | Inventory on Hand |
Quant
Unit
Cost
Quant
Unit
Cost
Total
Cost
33) Under the last-in, first-out (LIFO) method, the cost of goods sold is based on the oldest purchases.
34) The last-in, first-out (LIFO) costing system may or may not match the physical flow of goods.
35) The last-in, first-out (LIFO) costing system is permitted under International Financial Reporting
Standards (IFRS).
36) Under International Financial Reporting Standards (IFRS), companies may only use the specific
identification, FIFO, and weighted-average methods to cost inventory.
37) When a company uses the last-in, first-out (LIFO) method, the cost of goods sold represents the costs
of most recently purchased goods, and the ending inventory represents the oldest costs.
38) Which of the following inventory costing methods uses the costs of the oldest purchases to calculate
the value of the ending inventory?
A) specific identification
B) weighted-average
C) last-in, first-out
D) first-in, first-out
39) Which of the following statements regarding LIFO is incorrect?
A) The last units in are assumed to be the first units sold.
B) Ending inventory comes from the most recent purchases.
C) This method leaves the oldest costs in ending inventory.
D) LIFO is an assumption about how costs flow.
40) A company purchased 300 units for $20 each on January 31. It purchased 200 units for $40 each on
February 28. It sold a total of 250 units for $110 each from March 1 through December 31. If the company
uses the last-in, first-out inventory costing method, calculate the cost of ending inventory on December
31. (Assume that the company uses a perpetual inventory system.)
A) $10,000
B) $22,500
C) $5,000
D) $250
41) A company purchased 400 units for $30 each on January 31. It purchased 135 units for $40 each on
February 28. It sold 200 units for $55 each from March 1 through December 31. If the company uses the
last-in, first-out inventory costing method, what is the amount of Cost of Goods Sold on the income
statement for the year ending December 31? (Assume that the company uses a perpetual inventory
system.)
A) $7,350
B) $5,400
C) $12,000
D) $17,400
42) Rally Wheels, Inc. had the following balances and transactions during 2018:
Beginning Merchandise Inventory as of January 1, 2018
200 units at $71
March 10
Sold 50 units
June 10
Purchased 800 units at $76
October 30
Sold 175 units
What would the company’s ending merchandise inventory cost be on December 31, 2018 if the perpetual
inventory system and the last-in, first-out inventory costing method are used?
A) $16,850
B) $75,000
C) $58,150
D) $60,800
43) State the accounting term that applies to each of the following definitions.
Definition
Accounting Term
Businesses should use the same
accounting methods from period to
period.
Treats the oldest inventory purchases as
the first units sold.
Principle whose foundation is to exercise
caution in reporting financial information.
Treats the most recent/newest purchases
as cost of goods sold.
Definition
Accounting Term
Businesses should use the same
accounting methods from period to
period.
Consistency principle
Treats the oldest inventory purchases as
the first units sold.
First-in, first-out (FIFO)
Principle whose foundation is to exercise
caution in reporting financial information.
Conservatism principle
Treats the most recent/newest purchases
as cost of goods sold.
Last-in, first-out (LIFO)
44) State the accounting term that applies to each of the following definitions.
Definition
Accounting Term
Principle that states significant items must
conform to GAAP.
Treats the most recent/newest purchases
as the first units sold.
Requires that a company report enough
information for outsiders to make
knowledgeable decisions.
Identifies exactly which inventory item
was sold. Usually used for higher cost
inventory.
Principle that states significant items must
Materiality concept
Treats the most recent/newest purchases
as the first units sold.
Last-In, first-out (LIFO)
knowledgeable decisions.
Identifies exactly which inventory item
was sold. Usually used for higher cost
inventory.
Specific Identification