Chapter 07 – Reporting and Interpreting Cost of Goods Sold and Inventory
48. A corporation has provided the following information about one of their products:
During the year, 400 units were sold.
What is ending inventory using the average cost method?
49. A corporation has provided the following information about one of their products:
During the year, 400 units were sold.
What is cost of goods sold using the average cost method?
Chapter 07 – Reporting and Interpreting Cost of Goods Sold and Inventory
50. Which of the following statements is false?
51. Moore Company purchased an item for inventory that cost $20 per unit and was priced to
sell at $30. It was determined that the replacement cost is $18 per unit. Using the lower-of–
cost-or- market rule, what amount should be reported on the balance sheet for inventory?
Chapter 07 – Reporting and Interpreting Cost of Goods Sold and Inventory
52. On December 31, 2010, Cruise Company has 10,000 units of an inventory item which cost
$40 per unit when purchased on June 15, 2010. The selling price was $70 per unit. On
December 30, 2010, the replacement cost was $38 per unit. At what amount should the 10,000
units of inventory be reported at on the December 31, 2010 balance sheet?
53. Which of the following statements does not accurately describe the lower of cost or
market (LCM) valuation method?
Chapter 07 – Reporting and Interpreting Cost of Goods Sold and Inventory
54. Which of the following statements does not accurately describe the effects of a write–
down of inventory on December 31, 2010 using the lower of cost or market (LCM) valuation
method?
55. Tinker’s 2011 cost of goods sold was $750,000 and 2010 cost of goods sold was $770,000.
The inventory at the end of 2011 was $188,000 and $208,000 at the end of 2010. What was
Tinker’s inventory turnover during 2011?
Chapter 07 – Reporting and Interpreting Cost of Goods Sold and Inventory
56. Tinker’s 2011 cost of goods sold was $750,000 and 2010 cost of goods sold was $770,000.
The inventory at the end of 2011 was $188,000 and $208,000 at the end of 2010. What is
Tinker’s average number of days to sell their inventory during 2011?
57. QV-TV, Inc. provided the following items in their footnotes for the year-end 2010: Cost
of goods sold was $22 billion under FIFO costing and their inventory value under FIFO
costing was $2.1 billion. The LIFO Reserve for year-end 2009 was a $0.6 billion credit
balance and at year-end 2010 it had increased to a credit balance of $0.8 billion. How much is
LIFO inventory value at year-end 2010?
Chapter 07 – Reporting and Interpreting Cost of Goods Sold and Inventory
58. QV-TV, Inc. provided the following items in their footnotes for the year-end 2010: Cost
of goods sold was $22 billion under FIFO costing and their inventory value under FIFO
costing was $2.1 billion. The LIFO Reserve for year-end 2009 was a $0.6 billion credit
balance and at year-end 2010 it had increased to a credit balance of $0.8 billion. How much is
the 2010 LIFO cost of goods sold?
59. A $25,000 overstatement of the 2010 ending inventory was discovered after the financial
statements for 2010 were prepared. Which of the following describes the effect of the
inventory error on the 2010 financial statements?
Chapter 07 – Reporting and Interpreting Cost of Goods Sold and Inventory
60. A $25,000 overstatement of the 2010 ending inventory was discovered after the financial
statements for 2010 were prepared. Which of the following describes the effect of the
inventory error on the 2011 financial statements?
61. Wilmington Company reported pretax income of $25,000 during 2010 and $30,000
during 2011. Later it was discovered that the ending inventory for 2010 was understated by
$2,000 (and not corrected in 2011). What is the correct pretax income for each year?
Chapter 07 – Reporting and Interpreting Cost of Goods Sold and Inventory
Chapter 07 – Reporting and Interpreting Cost of Goods Sold and Inventory
62. At the end of 2010, a $5,000 understatement was discovered in the amount of the 2010
ending inventory as reflected in the perpetual inventory records. What were the 2010 effects
of the $5,000 inventory error (before correction)?
63. An understatement of the ending inventory in Year 1, if not corrected, will cause which of
the following?
Chapter 07 – Reporting and Interpreting Cost of Goods Sold and Inventory
64. Which of the following is correct when beginning inventory is understated by $1,300 and
ending inventory is understated by $700?
65. On December 15, 2010, Transport Company accepted delivery of merchandise which it
purchased on credit. As of December 31, 2010, the company had neither recorded the
transaction nor included the merchandise in its ending inventory amount because the seller’s
invoice had not been received. The effect of this omission on its balance sheet at December
31, 2010, (end of the accounting period) was that
Chapter 07 – Reporting and Interpreting Cost of Goods Sold and Inventory
66. A company using the periodic inventory system correctly recorded a purchase of
merchandise, but the merchandise was not included in the physical inventory count at the end
of the accounting period. The error caused which of the following?
67. Hollander Company hired some students to help count inventory during their semester
break. Unfortunately, the students added incorrectly and the 2010 ending inventory was
overstated by $5,000. What would be the effect of this error in ending inventory?
Chapter 07 – Reporting and Interpreting Cost of Goods Sold and Inventory
68. During the audit of Montane Company’s 2010 financial statements, the auditors
discovered that the 2010 ending inventory had been overstated by $8,000 and that the 2010
beginning inventory was overstated by $5,000. Before the effect of these errors, 2010 pretax
income had been computed as $100,000. What should be reported as the correct 2010 pretax
income before taxes?
69. RJ Corporation has provided the following information about one of their inventory
items:
During the year, 3,000 units were sold.
What was ending inventory using the LIFO cost flow assumption?
Chapter 07 – Reporting and Interpreting Cost of Goods Sold and Inventory
70. RJ Corporation has provided the following information about one of their inventory items:
During the year, 3,000 units were sold.
What was ending inventory using the FIFO cost flow assumption?
Chapter 07 – Reporting and Interpreting Cost of Goods Sold and Inventory
71. RJ Corporation has provided the following information about one of their inventory items:
During the year, 3,000 units were sold.
What was ending inventory using the average cost flow assumption?
72. RJ Corporation has provided the following information about one of their inventory
items:
During the year, 3,000 units were sold.
What was cost of goods sold using the average cost flow assumption?
Chapter 07 – Reporting and Interpreting Cost of Goods Sold and Inventory
73. RJ Corporation has provided the following information about one of their inventory items:
During the year, 3,000 units were sold.
What was cost of goods sold using the LIFO cost flow assumption?
Chapter 07 – Reporting and Interpreting Cost of Goods Sold and Inventory
74. RJ Corporation has provided the following information about one of their inventory items:
During the year, 3,000 units were sold.
What was cost of goods sold using the FIFO cost flow assumption?
Chapter 07 – Reporting and Interpreting Cost of Goods Sold and Inventory
75. On March 15, 2010, Ryan Company purchased $10,000 of merchandise on credit subject
to terms of 2/10, n/30. Ryan Company records its purchases using the gross amount. The
periodic inventory system is used. Which of the following journal entries is correct when
Ryan Company pays for these goods on March 30, 2010?
Chapter 07 – Reporting and Interpreting Cost of Goods Sold and Inventory
76. On March 15, 2010, Ryan Company purchased $10,000 of merchandise on credit subject
to terms of 2/10, n/30. Ryan Company records its purchases using the gross amount. The
periodic inventory system is used. Which of the following journal entries is correct when
Ryan Company pays for these goods on March 20, 2010?
Chapter 07 – Reporting and Interpreting Cost of Goods Sold and Inventory
77. Which of the following journal entries is not consistent with the use of a perpetual
inventory system?
Chapter 07 – Reporting and Interpreting Cost of Goods Sold and Inventory
78. Which of the following journal entries is not consistent with the use of a periodic
inventory system?