Question

Smith Co. sold equipment that had cost $8,000 and had accumulated depreciation of $6,700. The sale price for the equipment was $2,000. The entry to record the sale will include a

		a. debit to Equipment for $8,000
		b. credit to Accumulated Depreciation, Equipment, for $6,700
		c. credit to Cash for $2,000
		d. credit to Gain on Sale of Equipment for $700

Assuming that inventory costs have been rising throughout the period, use of the LIFO inventory method will produce a lower value for Net Income than will the FIFO or Average inventory methods.

		a. True
		b. False

Smith Co. sold equipment that had cost $8,000 and had accumulated depreciation of $6,700. The sale price for the equipment was $1,000. The entry to record the sale will include a

		a. credit Gain on Sale of Equipment for $1,000
		b. debit Loss on Sale of Equipment for $300
		c. credit Cash for $1,000
		d. credit to Accumulated Depreciation, Equipment for $6,700

   Use the following information for this question:

                   June 1                 Inventory 100 @ $1.00

                            6                 Purchased 150 @ $1.10

                          13                 Purchased   50 @ $1.20

                          20                 Purchased 100 @ $1.30

                          25                 Purchased   25 @ $1.40                                                              

                           Total Units Sold in June: 300 units

Using the last-in, first-out (LIFO) method, the COST OF GOODS SOLD is

		a. $362.50
		b. $127.50
		c. $325
		d. $165

Answer 1

Carrying value = Cost - Accumulated depreciation

= $8,000 - $6,700

= $1,300

Gain = Sale price - Carrying value

= $2,000 - $1,300

= $700

The answer is Option d.

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The answer is Option a.

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Carrying value = Cost - Accumulated depreciation

= $8,000 - $6,700

= $1,300

Gain = Sale price - Carrying value

= $1,000 - $1,300

= $(300)

The answer is Option b.

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Under the Last in first out (LIFO) method of inventory valuation, Cost of goods sold consists of the units from recent purchases. Ending inventory consists of the units from beginning inventory and earliest purchases.

300 units sold consists of 25 units from June 25 purchases, 100 units from June 20 purchases, 50 units from June 13 purchases, 125 units from June 6 purchases.

Cost of goods sold = (25 * $1.4) + (100 * $1.3) + (50 * $1.2) + (125 * $1.1)

= $35 + $130 + $60 + $137.5

= $362.5

The answer is Option a.