91. Western Inc.’s beginning inventory is $20,000 and purchases for the year are $80,000. A physical inventory
shows that $15,000 of the inventory remains at year end. How much is recorded as cost of goods sold for the
year?
92. (CMA adapted, Dec 95 #27) Jordan Inc. is a profitable company with the goal to maximize cash flow. A
valid reason for Jordan not to adopt the last-in, first-out (LIFO) method of inventory valuation is
93. In a period of rising prices, use of the FIFO rather than LIFO inventory cost flow assumption results in
94. Inventory by specific identification would not be practical for
95. Which inventory cost flow assumption emphasizes the income statement as opposed to the balance sheet?
96. Which inventory cost flow assumption emphasizes the balance sheet as opposed to the income statement?
97. Using either the FIFO and LIFO cost flow assumption will result in the same cost of goods sold when
98. Which of the following cost flow assumptions will report ending inventory closest to current cost?
99. LIFO inventory layers
100. In a time of rising prices, unrealized holding gains on ending inventory are
101. The U.S. GAAP requires firms using LIFO to disclose in notes to the financial statements
102. Addison Hardware
Addison Hardware began the month of November with 150 large brass switchplates on hand at a cost of $4.00
each. These switchplates sell for $7.00 each. The following schedule presents the sales and purchases of this
item during the month of November.
Purchases
Date of Transaction
Quantity Received
Unit Cost
Units Sold
November 5
100
November 7
200
$4.20
November 9
150
November 11
200
4.40
November 17
220
November 22
250
4.80
November 29
100
(CMA adapted, Dec 92 #25) Refer to the Addison Hardware example. If Addison uses FIFO inventory pricing,
the value of the inventory on November 30 would be
103. Addison Hardware
Addison Hardware began the month of November with 150 large brass switchplates on hand at a cost of $4.00
each. These switchplates sell for $7.00 each. The following schedule presents the sales and purchases of this
item during the month of November.
Purchases
Date of Transaction
Quantity Received
Unit Cost
Units Sold
November 5
100
November 7
200
$4.20
November 9
150
November 11
200
4.40
November 17
220
November 22
250
4.80
November 29
100
(CMA adapted, Dec 92 #27) Refer to the Addison Hardware example. If Addison uses weighted average
inventory pricing, the gross profit for November would be
104. Addison Hardware
Addison Hardware began the month of November with 150 large brass switchplates on hand at a cost of $4.00
each. These switchplates sell for $7.00 each. The following schedule presents the sales and purchases of this
item during the month of November.
Purchases
Date of Transaction
Quantity Received
Unit Cost
Units Sold
November 5
100
November 7
200
$4.20
November 9
150
November 11
200
4.40
November 17
220
November 22
250
4.80
November 29
100
Refer to the Addison Hardware example. A growing firm is contemplating switching from a FIFO to a LIFO
cost flow assumption for inventories and cost of goods sold because it has recently experienced increasing
manufacturing costs for its products and anticipates a prolonged period of increasing quantities and
manufacturing costs in the future. The firm wishes to know which of the following statements about the effect
of the switch to LIFO is correct, relative to remaining on FIFO (ignore income tax effects):
105. Addison Hardware
Addison Hardware began the month of November with 150 large brass switchplates on hand at a cost of $4.00
each. These switchplates sell for $7.00 each. The following schedule presents the sales and purchases of this
item during the month of November.
Purchases
Date of Transaction
Quantity Received
Unit Cost
Units Sold
November 5
100
November 7
200
$4.20
November 9
150
November 11
200
4.40
November 17
220
November 22
250
4.80
November 29
100
(CMA adapted, Dec 92 #28) Refer to the Addison Hardware example. If Addison uses (periodic) LIFO
inventory pricing, the cost of goods sold for November would be
106. Inventory Record
The inventory record for a particular item for Year 2 appears below.
Inventory, January 1, Year 2
$0.20
$4,000
Purchases:
March 2
.24
$ 960
April 30
.28
840
June 15
.32
1,920
September 30
.26
520
December 15
.20
200
Total purchases
$4,440
Total available for sale
$8,440
Units sold
Refer to the Inventory Record example. The cost of goods sold for year 2 under FIFO is:
107. Inventory Record
The inventory record for a particular item for Year 2 appears below.
Inventory, January 1, Year 2
$0.20
$4,000
Purchases:
March 2
.24
$ 960
April 30
.28
840
June 15
.32
1,920
September 30
.26
520
December 15
.20
200
Total purchases
$4,440
Total available for sale
$8,440
Units sold
Refer to the Inventory Record example. The cost of goods sold for year 2 under LIFO is:
108. Inventory Record
The inventory record for a particular item for Year 2 appears below.
Inventory, January 1, Year 2
$0.20
$4,000
Purchases:
March 2
.24
$ 960
April 30
.28
840
June 15
.32
1,920
September 30
.26
520
December 15
.20
200
Total purchases
$4,440
Total available for sale
$8,440
Units sold
Refer to the Inventory Record example. The cost of goods sold for year 2 under weighted-average cost-flow
assumption is (rounded to the nearest dollar):
109. A firm using FIFO had a beginning inventory of $48,000, an ending inventory of $56,000, and a pretax
income of $400,000. If it had used LIFO, its beginning inventory would have been $20,000, its ending
inventory would have been $16,000, and its pretax income would have been:
110. A firm using FIFO had a beginning inventory of $48,000, an ending inventory of $56,000, and a pretax
income of $400,000. If it had used LIFO, its beginning inventory would have been $20,000, and its ending
inventory would have been $16,000. From the information provided, one can conclude that:
111. Ethical issues may arise when management dips into LIFO layers
112. Thomas Engine Company
Thomas Engine Company is a wholesaler of marine engine parts. The activity of carburetor 2642J during the
month of March is presented below.
Balance or
Unit
Date
Transaction
Units
Unit Cost
Sales Price
March 1
Inventory
3,200
$64.30
$86.50
4
Purchase
3,400
64.75
87.00
14
Sales
3,600
87.25
25
Purchase
3,500
66.00
87.25
28
Sales
3,450
88.00
(CMA adapted, Jun 96 #13) Refer to the Thomas Engine Company example. If Thomas uses a last-in, first-out
periodic inventory system, the total cost of the inventory for carburetor 2642J at March 31 is
113. (CMA adapted, Jun 96 #15) Refer to the Thomas Engine Company example. If Thomas uses a weighted
average periodic inventory system, the total cost of the inventory for carburetor 2642J at March 31 is
114. Unrealized holding gain denotes the difference between the
115. Managements face the decision as to when to replenish inventories at year-end. Assuming inflation, a
company using LIFO would experience which of the following?
116. Peters Peepers Inc. manufactures high quality sunglasses that carry the endorsements of several sports
personalities. In an effort to achieve sales targets for the fourth quarter of the year, Peters Peepers Inc. pressured
its independent distributors to make unusually large orders of the sunglasses. Low-priced imitations of these
sunglasses hit the market soon thereafter, causing the distributors to accumulate large inventories. The
distributors shipped these sunglasses back to Peters Peepers Inc. Peters Peepers Inc.stored the returned
sunglasses in a remote warehouse out of the view of its auditors and did not record them as returned goods. The
actions
117. Kant Kount Inc. uses large warehouses to store its finished goods ready for sale. After its personnel and
auditors conducted a physical inventory of goods on one side of its warehouses, Kant Kount Inc. transported a
portion of the inventory to another part of the warehouse, removing the inventory tags that indicated that the
items had already been counted in inventory, and thereby included the items a second time in inventory. In this
way, the firm overstated its ending inventory for the current year, understated its cost of goods sold, and
overstated its earnings. This action resulted in an overstatement of the beginning inventory for the next year.
Assuming a correct count of the ending inventory for the second year, the action has the result of overstating
cost of goods sold for the second year and understating earnings. Net income for the two years combined,
however, is correctly stated, the net result of an overstatement in the first year offset by an equal understatement
in the second year. The actions
118. On December 10 of the current year, All Star Sports Inc. receives an advance of $50,000 from a hockey
team for 20,000 custom-made shirts with the team’s logo, which the team intends to distribute to fans entering a
hockey game during the first week in January. All Star Sports Inc. completes the manufacturing of the shirts on
December 30, intending to ship them on December 31 before its accounting period ends. Unfortunately, a
snowstorm on December 31 prevented their shipment. All Star Sports Inc. recorded this transaction as a sale for
December, and reduced its inventory accordingly. It set the items aside in its shipping room on December 31
with a clear sign to its own personnel conducting a physical inventory on that date and to its auditors who were
observing the count that the items were not to be counted as inventory. These actions
119. Solve for the missing piece of information for each of the following independent situations:
Account
CASE A
CASE B
CASE C
CASE D
Raw materials
$1,000
$ 400
$300
$ 200
Cost of completed units
3,200
2,200
C
1,500
Manufacturing overhead
400
B
300
100
Ending work in process
1,200
800
400
D
Direct labor costs
2,200
1,000
100
1,000
Beginning work in process
A
750
700
400
A.
$800
B.
$850
C.
$1,000
D.
$200
120. The following data relate to the manufacturing activities of Glasco Industries for the month of March:
March 1
March 31
Raw Materials Inventory
$ 42,300
$ 40,600
Factory Supplies Inventory
9,600
9,800
Work-In-Process Inventory
102,200
103,100
Finished Goods Inventory
48,700
47,300
Glasco incurred the following manufacturing costs during March:
Raw materials purchased
83,500
Supplies purchased
14,300
Wages
186,800
Utilities
1,250
Insurance
550
Depreciation
3,100
Rent
4,400
(Note: Glasco Industries treats all raw materials used in production, as well as all wages incurred for
production, as direct in nature and such costs are not included in manufacturing overhead.)
Compute Glasco’s cost of goods sold for March.
Glasco Industries
Schedule of Cost of Goods Sold
For the Month Ended March 31, Year 1
Beginning finished goods inventory
$ 48,700
Add: Cost of goods manufactured
294,500
Goods available for sale
$343,200
Less: Ending finished goods inventory
47,300
Cost of goods sold
$295,900
Glasco Industries
Schedule of Cost of Goods Manufactured
For the Month Ended March 31, Year 1
Raw materials:
Beginning raw materials inventory
$ 42,300
Add: purchases of raw materials
83,500
Raw materials available for use
$125,800
Less: ending raw materials inventory
40,600
Raw materials used in production
$ 85,200
Direct labor
186,800
Manufacturing overhead
Beginning supplies inventory
$ 9,600
Add: purchases of supplies
14,300
Supplies available for use
$ 23,900
Less: ending supplies inventory
9,800
Supplies used in production
$ 14,100
Utilities
1,250
Insurance
550
Depreciation
3,100
Rent
4,400
Total overhead costs
23,400
Total manufacturing costs
$295,400
Add: Beginning Work-in-process inventory
102,200
Total In Process
$397,600
Less: Ending Work-in-process
103,100
Cost of goods manufactured
$294,500
121. Prepare journal entries for the following transactions related to a manufacturing operation.
a.
The firm acquires manufacturing equipment for $45,000 cash.
b.
The firm purchases raw materials costing $36,000 on account.
c.
The firm issues raw materials costing $15,000 to the production department.
d.
Payroll of $35,000 is paid: $20,000 to direct factory workers and $15,000 to sales personnel.
e.
Utilities of $1,000 are paid: $300 for manufacturing equipment, $500 for factory building, and $200 for
the administrative offices.
f.
Depreciation on the building and equipment is as follows: Factory building $4,550, manufacturing
equipment $500, and sales and administration building $1,000.
g.
Units completed and transferred to finished goods total $37,000.
h.
Cost of goods sold for the period is $40,000.
a.
Equipment
45,000
Cash
45,000
b.
Raw Materials
36,000
Accounts Payable
36,000
c.
Work-In-Process
15,000
Raw Materials
15,000
d.
Work-In-Process/Direct Labor
20,000
Salaries Expense—Sales
15,000
Cash
35,000
e.
Work-In-Process/Manufacturing Overhead
800
Utilities Expense
200
Cash
1,000
f.
Work-In-Process/Manufacturing Overhead
5,050
Depreciation Expense
1,000
Accumulated Depreciation
6,050
g.
Finished Goods Inventory
37,000
Work-In-Process
37,000
h.
Cost of Goods Sold
40,000
Finished Goods Inventory
40,000
122. In the first month of operations, Good Stuff Manufacturing had the following transactions:
a.
Incorporated on April 1, Year 1. Issued 10,000 shares of $1 par value common stock for $30,000.
b.
Acquired factory equipment for $6,000 cash on April 2. Equipment has a 5 year life with a $600
salvage value.
c.
On April 4, purchased $10,000 of raw materials with cash.
d.
Paid $4,000 for April and May rent on administrative offices on April 5.
e.
On April 8, issued raw materials of $8,000 to production department.
f.
On April 10, purchased $5,000 additional raw materials on account.
g.
Paid $5,000 in payroll on April 14; $4,000 to factory workers, $1,000 to salesmen.
h.
Paid utilities of $1,000 on April 15; $800 for factory and $200 for administrative office.
i.
Units completed during the month and transferred to the finished goods total $7,000.
j.
Sales for the month totaled $10,000; all were credit sales.
k.
Cost of goods sold for the month is $6,500.
(Note: Good Stuff Manufacturing treats all raw materials used in production, as well as all wages incurred for
production, as direct in nature and such costs are not included in manufacturing overhead.)
Required:
a.
Prepare journal entries for the above transactions, including any adjusting entries.
b.
Prepare a balance sheet and income statement for April, Year 1.
a.
Journal
entries
a.
April 1
Cash
30,000
Common Stock
10,000
Additional Paid-in Capital
20,000
b.
April 2
Equipment
6,000
Cash
6,000
c.
April 4
Raw Materials
10,000
Cash
10,000
d.
April 5
Prepaid Rent
2,000
Rent Expense
2,000
Cash
4,000
e.
April 8
Work in Process
8,000
Raw Materials
8,000
f.
April 10
Raw Materials
5,000
Accounts Payable
5,000
g.
April 14
Work in Process
4,000
Salaries Expense
1,000
Cash
5,000
h.
April 15
Work in Process
800
Utilities Expense
200
Cash
1,000
i.
April 30
Finished Goods
7,000
Work in Process
7,000
j.
April 30
Accounts Receivable
10,000
Sales
10,000
k.
April 30
Cost of Goods Sold
6,500
Finished Goods
6,500
l.
April 30
Work in Process
90
Accumulated Depreciation
90
b
.
G
o
o
d
S
t
u
ff
M
a
n
u
f
a
c
t
u
r
i
n
g
B
a
l
a
n
c
e
S
h
e
e
t
A
s
o
f
A
p
r
il
3
0
,
Y
e
a
r
1
Assets
Cash
$
4
,
0
0
0
Accounts Receivable
1
0
,
0
0
0
Inventories:
Raw Materials
7
,
0
0
0
Work-in-Process
5
,
8
9
0
Finished Goods
5
0
0
Prepaid Rent
2
,
0
0
0
Total Current Assets
$
2
9
,
3
9
0
Equipment
6
,
0
0
0
Less: Accumulated Depreciation
(
9
0
)
Total Assets
$
3
5
,
3
0
0
Liabilities
Accounts Payable
$
5
,
0
0
0
Total Current Liabilities
$
5
,
0
0
0
Shareholders’ equity
Common Stock, 10,000 shares, $1 par
1
0
,
0
0
0
Additional Paid-in Capital
2
0
,
0
0
0
Retained Earnings
3
0
0
Total Liabilities & Shareholders’ Equity
$
3
5
,
3
0
0