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

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Question 31

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Which of the following statements is correct regarding either the perpetual or periodic inventory systems?

A) In a perpetual inventory system, the inventory account is not changed for each purchase during the accounting period.
B) In a perpetual inventory system, cost of goods sold is recorded at the time of each sale during the accounting period.
C) In a periodic inventory system, cost of goods sold is developed only from a comparison of beginning inventory and ending inventory.
D) In a periodic inventory system, the inventory account is increased for each purchase during the accounting perioD.Cost of goods sold is debited when inventory is sold when using a perpetual inventory system.

E) None of the above
F) C) and D)

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Question 32

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What is the net adjustment to net income with respect to the determination of cash flows from operating activities when inventory increases $100,000 and accounts payable increases $20,000?

A) An increase of $120,000.
B) A decrease of $120,000.
C) An increase of $80,000.
D) A decrease of $80,000.

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

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Question 33

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A decrease in the merchandise inventory account occurs when units of inventory purchased are greater than units of goods sold.

Carr Corporation has provided the following information for its most recent month of operation: sales $8,000; beginning inventory $1,000; ending inventory $2,000 and gross profit $5,000. How much were Carr's inventory purchases during the period?

Maxim Corp. has provided the following information about one of its products: $\begin{array}{clrr}\text { Date }&\text { Transaction } &\text { Number of Units }&\text { Cost per Unit }\\\hline1 / 1 & \text { Beginning Inventory } & 200 & \$ 140 \\6 / 5 & \text { Purchase } & 400 & \$ 160 \\11 / 10 & \text { Purchase } & 100 & \$ 200\end{array}$ During the year, Maxim sold 400 units. What is cost of goods sold using the average cost method?

On March 15, 2014, 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, 2014?

LIFO liquidation results when a company has a lower level of inventory at the end of the year than it had at the beginning of the year.

On December 15, 2014, Transport Company accepted delivery of merchandise that it purchased on credit. As of December 31, 2014, 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, 2014, (end of the accounting period) was that

RJ Corporation has provided the following information about one of its inventory items: $\begin{array}{clrr}\text { Date }&\text { Transaction } &\text { Number of Units }&\text { Cost per Unit }\\\hline1 / 1 & \text { Beginning Inventory } & 400 & \$ 3,200 \\6 / 6 & \text { Purchase } & 800 & \$ 3,600 \\9 / 10 & \text { Purchase } & 1,200 & \$ 4,000 \\11 / 15 & \text { Purchase } & 800 & \$ 4,200\end{array}$ During the year, RJ sold 3,000 units. What was ending inventory using the average cost flow assumption under a periodic inventory system?

An increase in accounts payable is added to net income when determining cash flows from operating activities.

Iris Company has provided the following information regarding two of its items of inventory at year-end: • There are 100 units of Item A, having a cost of $20 per unit and a replacement cost of $18 per unit. • There are 50 units of Item B, having a cost of $50 per unit and a replacement cost of $55 per unit. How much is the ending inventory using lower of cost or market on an item-by-item basis?

Tinker's 2014 cost of goods sold was $750,000 and 2013 cost of goods sold was $770,000. The inventory at the end of 2014 was $188,000 and $208,000 at the end of 2013. Tinker's average number of days to sell its inventory during 2014 is closest to:

A grocery store probably would use the specific identification inventory costing method for most of the items in its inventory.

The journal entry to write-down inventory under the lower of cost or market (LCM) rule results in a credit to cost of goods sold and a debit to inventory.

Inventory turnover under LIFO is greater than inventory turnover under FIFO when unit costs are increasing.

An increase in inventory is subtracted from net income when determining cash flow from operating activities.

When there is a $3,000,000 decrease in inventory and a $2,000,000 decrease in accounts payable, cash flow from operating activities increases by $1,000,000.

In a period of increasing costs, the LIFO Reserve would be deducted from the ending inventory under LIFO costing to convert it to ending inventory under FIFO costing.

Which of the following journal entries is not consistent with the use of a periodic inventory system? A. Purchases $\quad$ Accounts payable B. Inventory $\quad$ Accounts payable C. Accounts payable $\quad$ Cash D. Accounts receivable $\quad$ Sales revenue

Which of the following statements is correct when inventory unit costs are decreasing?