Exam 6: Cost of Goods Sold and Inventory

Oliver & Co. has been in business for fifteen years. During that time, the company has consistently used the LIFO inventory costing method. Because of inflation, purchase prices for merchandise have increased consistently over the fifteen years. The company has maintained the same inventory quantities over the 15 years. Which of the following statements is true for the company?

The amount recognized on the balance sheet as the cost of inventory will ultimately be recognized as

During periods of stable purchase prices, FIFO produces the highest ending inventory relative to the other inventory costing methods.

Serrano Company On September 1, 2013, Serrano Company purchased 70 units of Product A for $35,000 cash and also paid $1,500 transportation costs related to this purchase. On the same date, Serrano Company purchased 100 units of Product B for $10,000 on credit; however, the seller paid the $1,200 freight. The credit terms for Product B were 2/10, n/30. On September 3rd, Serrano Company determined that 5 units of Product A were defective, so they were returned to the seller. Serrano Company paid for its purchase of Product B on September 9th. On September 10th, Serrano Company purchased 90 units of Product C for $8,000 on credit with terms 1/10, n/30. The seller paid the freight. Serrano Company paid for its purchase of Product C on September 21st. -Refer to the information provided for Jocque Fabrics. If the Average Cost method is used, determine the following amounts: A)Ending inventory on February 28th? B)Cost of Goods sold for the month of February? C)Gross Margin for February?

During a period of increasing purchase prices, which inventory costing method will yield the lowest cost of goods sold?

-Refer to the information provided for Paschal Exports. If the FIFO method of inventory costing is used, determine the following amounts: A)Cost of goods sold for the units sold on July 10th? B)Ending inventory on July 31st?

Differentiate between the record keeping required for sales and cost of goods sold under a perpetual versus a periodic inventory system.

The lower of cost or market (LCM)rule violates the historical cost principle.

Identify which inventory costing method achieves the effect listed in the following items. (Choices may be used more than once.) a.FIFO method c.Average cost method b.LIFO method d.Specific identification method -Prices are declining; income taxes are higher with this method.

-Refer to the information provided for Klump Co. If the company uses the FIFO inventory costing method, cost of goods sold for the month of June is:

Deeter Company, which sells auto parts, uses a perpetual inventory system. Identify the effects on the accounting equation. (Choices may be used more than once.) a.Increase in assets and liabilities b.Decrease in assets and liabilities c.Increase in assets and stockholders' equity d.Decrease in assets and stockholders' equity e.Increase in liabilities and decrease in stockholders' equity f.Decrease in liabilities and increase in stockholders' equity -Purchased merchandise on credit.

The inventory turnover ratio is a measure of how many times during a period a company sells off its inventory.

Which inventory costing method results in the lowest income tax expense during a period of decreasing purchase prices?

When merchandise is sold FOB destination, the seller is responsible for the shipping costs.

Refer to the information provided for Pham Enterprises. What is the company's average-days-to-sell inventory measure?

Satoor, Inc. Satoor, Inc., which uses a periodic inventory system, purchased merchandise from Taye Company on July 7, 2013, for $15,000. The credit terms were 1/10, n/30. The goods were shipped FOB shipping point on July 7, 2013. Satoor, Inc. received the merchandise on July 10 and paid the amount due on July 15. -Refer to the information provided for Stallworth Corp. How many units did the company sell during November?

Match the terms with the descriptions provided. a.Average days to sell inventory d.Inventory turnover ratio b.Gross margin e.Freight-in c.Gross profit ratio f.Freight-out -Transportation costs paid by the buyer.

Which of the following accounts would most likely appear on the income statement of a merchandise company, but not on the income statement of a service company?

MATCHING Match the inventory-related accounts to costs that may be included in inventories for retailers and manufacturers. a. merchandise inventory d. finished goods b. raw materials e. cost of goods sold c. work-in-process -Cost of ingredients used to make a product.

Eli Company Eli Company sells novelty items and offers terms of 1/10, n/30 to credit customers. One customer, Faulkner, Inc., purchased 100 Sweet-16 party decor packs with a list price of $20 each on March 5, 2013. -Refer to the information provided for Gbane Company. How much will the company report as net purchases for 2013?