Question

1.What Journal entry should be made if book inventory is $101,000 and market value is 97,000

Debit Inventory 4,000, Credit Cost of Goods sold 4,000

Debit Loss on Inventory Devaluation 4,000, Credit Inventory 4,000

Debit Cost of Goods sold 4,000, Credit Inventory 4,000

No entry is needed as inventory is recorded at cost

2.Which statement is false

When Prices are rising LIFO Cost of Goods Sold will be higher than FIFO

When Prices are rising Net Income will be Lower for LIFO than FIFO

When Prices are rising LIFO ending inventory will be higher than FIFO

You must calculate the weighted average cost per unit after every purchase made

3.If Beginning inventory is $10,000, purchases are $220,000 and Cost of Goods sold is $190,000,ending inventory would be

$40,000

$20,000

$30,000

Can’t determine because we don’t know if they are using FIFO, LIFO or weighted average costing

4.Using the same information from #3, Sales Revenues are $427,000, Sales Discounts Forfeitedare $11,000, and Freight Out is $7,000.What is Gross Profit?

$237,000

$226,000

$223,000

$216,000

5.Using the same information in questions 3 and 4 what is Inventory turnover

9.5

7.6

6.3

4.8

6.Using the same Information in questions 3-5, What is Days sales in inventory

76

58

48

38

7.Which is generally not a characteristic for the specific Identification method for inventory costing

Inventory has a high cost per item

Inventory is usually many items of a like kind nature

The number of Inventory Items are few and the items are unique

There is no such inventory costing method known as specific identification

Use the following information for questions 8-10

Date                                                                              Units     Cost/Unit            Total                      Sales Price/Unit

6/1/15           Beginning Inventory                       23           $10.00                   $230

6/5/15           Purchase                                             15           $11.00                   $165

6/7/15           Sale                                                        20                                                                                           $25.00

6/9/15           Purchase                                             10           $12.00                   $120

6/20/15        Sale                                                        25                                                                                           $27.00

8.Using FIFO Compute Sales, Cost of Goods Sold, Gross Profit and ending inventory for June 2015

Sales $1,175, Cost of Goods Sold $479, Gross Profit $696, ending inventory $36

Sales $1,175, Cost of Goods Sold $467, Gross Profit $708, ending inventory $36

Sales $1,125, Cost of Goods Sold $479, Gross Profit $646, ending inventory $36

Sales $1,175, Cost of Goods Sold $479, Gross Profit $696, ending inventory $46

9.Using LIFO Compute Sales, Cost of Goods Sold, Gross Profit and ending inventory for June 2015

Sales $1,125, Cost of Goods Sold $485, Gross Profit $640, ending inventory $30

Sales $1,125, Cost of Goods Sold $500, Gross Profit $625, ending inventory $30

Sales $1,175, Cost of Goods Sold $485, Gross Profit $690, ending inventory $36

Sales $1,175, Cost of Goods Sold $485, Gross Profit $690, ending inventory $30     

10. Using Weight Average, Compute Sales, Cost of Goods Sold, Gross Profit and ending inventory for June 2015 round to nearest $1

Sales $1,125, Cost of Goods Sold $473, Gross Profit $652, ending inventory $33

Sales $1,175, Cost of Goods Sold $473, Gross Profit $702, ending inventory $33

Sales $1,175, Cost of Goods Sold $497, Gross Profit $678, ending inventory $33

Sales $1,175, Cost of Goods Sold $482, Gross Profit $693, ending inventory $33

Answer 1

Answer to Question 1.

No Entry is needed as Inventory is recorded at Cost.

The Inventory are recorded at Book Value of Inventory, and the difference between Book value and market value of inventory will not be recorded in the books of account.

Answer to Question 2.

When Prices are rising LIFO ending inventory will be higher than FIFO.

In LIFO, it is assumed the inventory last purchased will be sold first. Therefore, in case of price rise, LIFO inventory will result in higher cost of goods sold as goods purchased in last at higher price will be sold first. Higher Cost of Goods sold will result in lesser Net Income. Net Income and Ending Inventory will be lower for LIFO.

Answer to Question 3.

$40,000

Cost of Goods Sold = Beginning Inventory + Purchases – Ending Inventory
$190,000 = $10,000 + $220,000 - Ending Inventory
Ending Inventory = $40,000

Answer to Question 4.

$237,000

Gross Profit = Net Sales – Cost of Goods Sold
Net Sales = Sales Revenue
Net Sales = $427,000

Gross Profit = $427,000 - $190,000
Gross Profit = $237,000