Accounting Volume 1 Canadian 9th Edition By Charles T. Horngren – Test Bank A+

Description

Objective 6-1

1) All balance sheets have inventory listed as an asset.

Answer: FALSE

Diff: 1

Learning Outcome: A-02 Describe the components of and prepare the four basic financial statements

Skill: Knowledge

Objective: 6-1 Account for perpetual inventory under specific-unit-cost, FIFO, and weighted-average-cost methods

2) The two main types of inventory systems are the perpetual system and the periodic system.

Answer: TRUE

Diff: 1

Learning Outcome: A-09 Explain and apply inventory costing methods

Skill: Knowledge

Objective: 6-1 Account for perpetual inventory under specific-unit-cost, FIFO, and weighted-average-cost methods

3) Gross margin is the excess of net sales revenue over cost of goods sold.

Answer: TRUE

Diff: 1

Learning Outcome: A-02 Describe the components of and prepare the four basic financial statements

Skill: Knowledge

Objective: 6-1 Account for perpetual inventory under specific-unit-cost, FIFO, and weighted-average-cost methods

4) The inventory costing method used must match the physical flow of goods in and out of inventory.

Answer: FALSE

Diff: 2

Learning Outcome: A-09 Explain and apply inventory costing methods

Skill: Knowledge

Objective: 6-1 Account for perpetual inventory under specific-unit-cost, FIFO, and weighted-average-cost methods

5) Under moving-weighted-average cost method, the cost of goods sold is based on the oldest purchases.

Answer: FALSE

Diff: 2

Learning Outcome: A-09 Explain and apply inventory costing methods

Skill: Knowledge

Objective: 6-1 Account for perpetual inventory under specific-unit-cost, FIFO, and weighted-average-cost methods

6) It is necessary to do a physical count of inventory when using a perpetual inventory system.

Answer: TRUE

Diff: 2

Learning Outcome: A-09 Explain and apply inventory costing methods

Skill: Comprehension

Objective: 6-1 Account for perpetual inventory under specific-unit-cost, FIFO, and weighted-average-cost methods

7) Measuring the cost of inventory is difficult when prices are constant.

Answer: FALSE

Diff: 1

Learning Outcome: A-09 Explain and apply inventory costing methods

Skill: Comprehension

Objective: 6-1 Account for perpetual inventory under specific-unit-cost, FIFO, and weighted-average-cost methods

8) FIFO costing is consistent with the physical movement of inventory for many companies.

Answer: TRUE

Diff: 1

Learning Outcome: A-09 Explain and apply inventory costing methods

Skill: Knowledge

Objective: 6-1 Account for perpetual inventory under specific-unit-cost, FIFO, and weighted-average-cost methods

9) The specific-unit-cost method is useful for inventory items that have common characteristics, such as tonnes of ore or litres of paint.

Answer: FALSE

Diff: 2

Learning Outcome: A-09 Explain and apply inventory costing methods

Skill: Knowledge

Objective: 6-1 Account for perpetual inventory under specific-unit-cost, FIFO, and weighted-average-cost methods

10) The specific-unit-cost method is useful for inventory items that have a distinctive identity.

Answer: TRUE

Diff: 2

Learning Outcome: A-09 Explain and apply inventory costing methods

Skill: Knowledge

Objective: 6-1 Account for perpetual inventory under specific-unit-cost, FIFO, and weighted-average-cost methods

11) Under the FIFO method, ending inventory is valued based on the most recent purchases.

Answer: TRUE

Diff: 2

Learning Outcome: A-09 Explain and apply inventory costing methods

Skill: Knowledge

Objective: 6-1 Account for perpetual inventory under specific-unit-cost, FIFO, and weighted-average-cost methods

12) Under the perpetual system, ending inventory and cost of goods sold will be the same when FIFO inventory costing method is used.

Answer: FALSE

Diff: 2

Learning Outcome: A-09 Explain and apply inventory costing methods

Skill: Comprehension

Objective: 6-1 Account for perpetual inventory under specific-unit-cost, FIFO, and weighted-average-cost methods

13) In a perpetual inventory system, recording a sale also includes a corresponding journal entry to record the inventory reduction.

Answer: TRUE

Diff: 2

Learning Outcome: A-03 Analyze and record transactions and their effects on the financial statements

Skill: Knowledge

Objective: 6-1 Account for perpetual inventory under specific-unit-cost, FIFO, and weighted-average-cost methods

14) A FIFO perpetual inventory system:

1. A) assigns the most recent costs to ending inventory.
2. B) assigns the most recent costs to cost of goods sold when goods are sold.
3. C) reports the oldest costs for ending inventory values.
4. D) does not match the typical physical flow of goods.

Answer: A

Diff: 1

Learning Outcome: A-09 Explain and apply inventory costing methods

Skill: Knowledge

Objective: 6-1 Account for perpetual inventory under specific-unit-cost, FIFO, and weighted-average-cost methods

15) Inventory is classified:

1. A) as a property, plant, and equipment asset on the balance sheet.
2. B) as a current asset on the balance sheet.
3. C) as a current liability on the balance sheet.
4. D) as either an investment or a current asset on the balance sheet.

Answer: B

Diff: 2

Learning Outcome: A-02 Describe the components of and prepare the four basic financial statements

Skill: Knowledge

Objective: 6-1 Account for perpetual inventory under specific-unit-cost, FIFO, and weighted-average-cost methods

16) A perpetual inventory system:

1. A) keeps a running record of all goods.
2. B) can be maintained only with computer software.
3. C) is used only for inexpensive goods.
4. D) does not required a physical count at the end of the fiscal year.

Answer: A

Diff: 2

Learning Outcome: A-09 Explain and apply inventory costing methods

Skill: Knowledge

Objective: 6-1 Account for perpetual inventory under specific-unit-cost, FIFO, and weighted-average-cost methods

17) Which of the following is not an acceptable inventory cost method?

1. A) first-in, first-out
2. B) last-out, first-in
3. C) specific-unit-cost
4. D) weighted-average cost

Answer: B

Diff: 2

Learning Outcome: A-09 Explain and apply inventory costing methods

Skill: Comprehension

Objective: 6-1 Account for perpetual inventory under specific-unit-cost, FIFO, and weighted-average-cost methods

18) If inventory items may be identified individually, the business could easily use this method of inventory costing:

1. A) average cost.
2. B) specific-unit-cost.
3. C) FIFO.
4. D) weighted-average cost.

Answer: B

Diff: 2

Learning Outcome: A-09 Explain and apply inventory costing methods

Skill: Knowledge

Objective: 6-1 Account for perpetual inventory under specific-unit-cost, FIFO, and weighted-average-cost methods

19) Which of the following methods represents the most accurate cost?

1. A) FIFO
2. B) specific-unit-cost
3. C) average cost
4. D) weighted-average cost

Answer: B

Diff: 2

Learning Outcome: A-09 Explain and apply inventory costing methods

Skill: Comprehension

Objective: 6-1 Account for perpetual inventory under specific-unit-cost, FIFO, and weighted-average-cost methods

20) A jeweller selling unique, high-priced items of jewellery would most likely use which method of inventory costing?

1. A) FIFO
2. B) average cost
3. C) specific-unit-cost
4. D) weighted-average cost

Answer: C

Diff: 2

Learning Outcome: A-09 Explain and apply inventory costing methods

Skill: Comprehension

Objective: 6-1 Account for perpetual inventory under specific-unit-cost, FIFO, and weighted-average-cost methods

21) Refer to Table 6-1. Assume a perpetual inventory system and all sales occurred prior to October 30th. Under the FIFO method, cost of goods sold on the income statement would be:

1. A) $375.
2. B) $537.
3. C) $162.
4. D) $420.

Answer: A

Explanation: A) [(10 × $7) + (15 × $9) + (17 × $10)] = $375

Diff: 2

Learning Outcome: A-09 Explain and apply inventory costing methods

Skill: Application

Objective: 6-1 Account for perpetual inventory under specific-unit-cost, FIFO, and weighted-average-cost methods

22) Which of the following inventory costing methods requires a company to keep track of the actual physical movement of individual inventory items?

1. A) specific-unit-cost
2. B) weighted-average cost
3. C) FIFO
4. D) average cost

Answer: A

Diff: 2

Learning Outcome: A-09 Explain and apply inventory costing methods

Skill: Comprehension

Objective: 6-1 Account for perpetual inventory under specific-unit-cost, FIFO, and weighted-average-cost methods

23) Given the following data, what is the weighted-average cost of ending inventory rounded to the nearest whole dollar?

Sales revenue	100 units at $10 per unit
Beginning inventory	50 units at $8 per unit
Purchases	90 units at $9 per uni

1. A) $400
2. B) $360
3. C) $346
4. D) $864

Answer: C

Diff: 2

Learning Outcome: A-09 Explain and apply inventory costing methods

Skill: Application

Objective: 6-1 Account for perpetual inventory under specific-unit-cost, FIFO, and weighted-average-cost methods

24) When the FIFO method is used, ending inventory is assumed to consist of the:

1. A) oldest units.
2. B) most recently purchased units.
3. C) units with the highest per unit cost.
4. D) units with the lowest per unit cost.

Answer: B

Diff: 1

Learning Outcome: A-09 Explain and apply inventory costing methods

Skill: Knowledge

Objective: 6-1 Account for perpetual inventory under specific-unit-cost, FIFO, and weighted-average-cost methods

25) When the FIFO method of inventory valuation is used, cost of goods sold is assumed to consist of the:

1. A) most recently purchased units.
2. B) most expensive units.
3. C) least expensive units.
4. D) oldest units.

Answer: D

Diff: 1

Learning Outcome: A-09 Explain and apply inventory costing methods

Skill: Knowledge

Objective: 6-1 Account for perpetual inventory under specific-unit-cost, FIFO, and weighted-average-cost methods

26) If a company uses a perpetual inventory system, it will maintain all the following accounts except:

1. A) cost of goods sold.
2. B) inventory.
3. C) sales.
4. D) purchases.

Answer: D

Diff: 2

Learning Outcome: A-09 Explain and apply inventory costing methods

Skill: Knowledge

Objective: 6-1 Account for perpetual inventory under specific-unit-cost, FIFO, and weighted-average-cost methods

27) The adjusting entry at year end under a perpetual inventory system to record cost of goods sold includes a:

1. A) debit to cost of goods sold and a credit to inventory for the ending balance of inventory.
2. B) debit to purchases and a credit to cost of goods sold for the beginning balance of purchases.
3. C) debit to cost of goods sold and a credit to inventory for the beginning balance of inventory.
4. D) No adjusting entry is required under a perpetual inventory system to adjust the beginning and ending balances.

Answer: D

Diff: 2

Learning Outcome: A-09 Explain and apply inventory costing methods

Skill: Comprehension

Objective: 6-1 Account for perpetual inventory under specific-unit-cost, FIFO, and weighted-average-cost methods

Table 6-4

Assume the following data for Burnette Sales for 2014:

Beginning inventory	10 units at $7 each
March 18 purchase	15 units at $9 each
Sale	20 units at $15 each
June 10 purchase	20 units at $10 each
Sale	12 units at $15 each
October 30 purchase	12 units at $11 each
Sale	10 units at $16 each

On December 31, a physical count reveals 15 units on hand.

28) Refer to Table 6-4. Under the FIFO method (assuming a perpetual inventory system), ending inventory would be valued at:

1. A) $162.
2. B) $105.
3. C) $115.
4. D) $135.

Answer: A

Diff: 2

Learning Outcome: A-09 Explain and apply inventory costing methods

Skill: Application

Objective: 6-1 Account for perpetual inventory under specific-unit-cost, FIFO, and weighted-average-cost methods

29) Refer to Table 6-4. Assume a perpetual system. Under the moving-weighted-average-cost method, the cost of goods sold for the first sale (20 units) would be valued at:

1. A) $164.
2. B) $105.
3. C) $115.
4. D) $135.

Answer: A

Diff: 2

Learning Outcome: A-09 Explain and apply inventory costing methods

Skill: Application

Objective: 6-1 Account for perpetual inventory under specific-unit-cost, FIFO, and weighted-average-cost methods

30) Refer to Table 6-4. Assume a perpetual inventory system. Under FIFO method, the cost of goods sold for the second sale (12 units) would be calculated as:

1. A) $165.
2. B) $105.
3. C) $115.
4. D) $135.

Answer: C

Diff: 2

Learning Outcome: A-09 Explain and apply inventory costing methods

Skill: Application

Objective: 6-1 Account for perpetual inventory under specific-unit-cost, FIFO, and weighted-average-cost methods

Table 6-6 Sam’s Wholesale Bikes

January 1 inventory balance	15 units at $350 per unit
January 4 purchase	50 units at $375 per unit
January 15 sale	40 units at $550 per unit
February 8 purchase	80 units at $405 per unit
February 15 sale	70 units at $550 per unit

31) Refer to Table 6-6. What is the cost of goods sold for the two months assuming that Sam’s uses the perpetual FIFO inventory method?

1. A) $42,225
2. B) $56,400
3. C) $48,900
4. D) $38,900

Answer: A

Explanation: A) (15 × $350) + (50 × $375) + (45 × $405) = $42,225

Diff: 2

Learning Outcome: A-09 Explain and apply inventory costing methods

Skill: Application

Objective: 6-1 Account for perpetual inventory under specific-unit-cost, FIFO, and weighted-average-cost methods

32) Refer to Table 6-6. What is the value of the February ending inventory assuming that Sam’s uses the perpetual FIFO inventory method?

1. A) $7,500
2. B) $17,500
3. C) $14,175
4. D) $15,875

Answer: C

Explanation: C) 35 × $405 = $ 14,175

Diff: 2

Learning Outcome: A-09 Explain and apply inventory costing methods

Skill: Application

Objective: 6-1 Account for perpetual inventory under specific-unit-cost, FIFO, and weighted-average-cost methods

33) Refer to Table 6-6. What is the gross margin for the two months assuming that Sam’s uses the perpetual inventory FIFO inventory method?

1. A) $18,275
2. B) $4,100
3. C) $11,600
4. D) $21,600

Answer: A

Explanation: A) $60,500 – $42,225 = $18,275

Diff: 2

Learning Outcome: A-09 Explain and apply inventory costing methods

Skill: Application

Objective: 6-1 Account for perpetual inventory under specific-unit-cost, FIFO, and weighted-average-cost methods

34) Refer to Table 6-6. What is the cost of goods sold for the two months assuming that Sam’s uses the perpetual weighted-average inventory method?

1. A) $38,772
2. B) $42,523
3. C) $49,700
4. D) $46,996

Answer: B

Explanation: B)

Jan 1 15 × $350 = $5,250

Jan 4 50 × $375 = 18,750

65 $24,000 Avg. = $369.23

Jan 15 (40) × $369.23 (14,769)

25 $9,231

Feb 8 80 × $405 32,400

105 $41,631 Avg. = $396.49

Feb 15 (70) × $396.49 (27,754)

35 $13,877

Cost of goods sold = $14,769 + $27,754 = $ 42,523

Diff: 2

Learning Outcome: A-09 Explain and apply inventory costing methods

Skill: Application

Objective: 6-1 Account for perpetual inventory under specific-unit-cost, FIFO, and weighted-average-cost methods

35) Refer to Table 6-6. What is the value of the February ending inventory assuming that Sam’s uses the perpetual weighted-average inventory method?

1. A) $13,877
2. B) $17,628
3. C) $6,700
4. D) $9,404

Answer: A

Diff: 2

Learning Outcome: A-09 Explain and apply inventory costing methods

Skill: Application

Objective: 6-1 Account for perpetual inventory under specific-unit-cost, FIFO, and weighted-average-cost methods

36) Refer to Table 6-6. What is the gross margin for the two months assuming that Sam’s uses the perpetual inventory weighted-average-cost method?

1. A) $13,504
2. B) $21,728
3. C) $10,800
4. D) $17,977

Answer: D

Diff: 2

Learning Outcome: A-09 Explain and apply inventory costing methods

Skill: Application

Objective: 6-1 Account for perpetual inventory under specific-unit-cost, FIFO, and weighted-average-cost methods

Match the following.

A)gross profit

B)weighted average

C)specific-unit-cost method

D)perpetual inventory system

E)FIFO

37) Inventory cost method based on the specific cost of particular units of inventory.

Diff: 1

Learning Outcome: A-09 Explain and apply inventory costing methods

Skill: Knowledge

Objective: 6-1 Account for perpetual inventory under specific-unit-cost, FIFO, and weighted-average-cost methods

38) Another name for gross margin

Diff: 1

Learning Outcome: A-02 Describe the components of and prepare the four basic financial statements

Skill: Comprehension

Objective: 6-1 Account for perpetual inventory under specific-unit-cost, FIFO, and weighted-average-cost methods

39) Inventory costing method in which ending inventory is based on the costs of the most recent purchases

Diff: 1

Learning Outcome: A-09 Explain and apply inventory costing methods

Skill: Knowledge

Objective: 6-1 Account for perpetual inventory under specific-unit-cost, FIFO, and weighted-average-cost methods

40) Inventory system maintaining a continual count of inventory

Diff: 1

Learning Outcome: A-09 Explain and apply inventory costing methods

Skill: Knowledge

Objective: 6-1 Account for perpetual inventory under specific-unit-cost, FIFO, and weighted-average-cost methods

Answers: 37) C 38) A 39) E 40) D

41) The following data pertain to Cross Company (assume a perpetual inventory system) for the month ended January 31, 2013:

Date Description Units Unit Cost Unit Selling Price

Jan.1 Beg. Inventory 10 $50

5 Purchase 25 52

10 Sale (6) $80

16 Sale (10) 82

20 Purchase 12 55

25 Sale (20) 85

Required:

1. Compute the cost of goods sold and ending inventory under FIFO.
2. Compute Gross Margin under FIFO

Answer:

1. Cost of Goods Sold:

10 × $50 = $500

25 × $52 = 1,300

1 × $55= 55

$1,855

Ending inventory: 11 × $55 = $605

1. Gross Margin:

Sales (6 × $80) + (10 × $82) + (20 × $85) $3,000

COGS 1,855

$1,145

Diff: 2

Learning Outcome: A-09 Explain and apply inventory costing methods

Skill: Application

Objective: 6-1 Account for perpetual inventory under specific-unit-cost, FIFO, and weighted-average-cost methods

42) The Snowboarding Company provided the following information for one of its top-selling snowboards:

Date Item Units Amount

Nov.1 Beginning inventory 26 $197

5 Sale (12) 300

12 Purchase 65 210

16 Sale (50) 305

19 Purchase 38 215

22 Sale (62) 310

26 Purchase 40 216

Required:

1. Calculate the cost of goods sold using moving-weighted-average, assuming a perpetual inventory system.
2. Calculate the ending inventory using a weighted-average assuming a periodic inventory system.

Answer:

Cost of Goods Sold Balance

1. 26 × $197= $5,122

(12) × $197 = $2,634 ($2,364)

14 × $197 $2,758

65 × $210 = 13,650

79 $16,408

16,408/79 = $208

(50) × $208 10,400 (10,400)

29 $6,008

38 × $215 8,170

67 14,178

14,178/67=$212

(62) × $212 13,144 (13,144)

5 26,178 1,034

40 × $216 8,640

45 9,674

1. Total units = 26 + 65 + 38 + 40=169

Total Cost = $5,122 + 13,650 + 8,170 + 8,640 = $35,582

Weighted-average = $35,583/169

= $211.

Ending Inventory in units = 169 – [(12 + 50 + 62)]

= 169 – 124

= 45

Total cost of Ending Inventory = 45 × $211 = $9,495

Diff: 3

Learning Outcome: A-09 Explain and apply inventory costing methods

Skill: Application

Objective: 6-1 Account for perpetual inventory under specific-unit-cost, FIFO, and weighted-average-cost methods

Table 6-5

Assume the following data for Kruger Sales for November 2013:

Beginning inventory Nov. 1 5 units at $90 each

Sale Nov. 3 3 units at $120 each

Nov. 6 purchase 11 units at $95 each

Sale Nov. 8 4 units at $120 each

Sale Nov. 9 3 units at $120 each

On November 30, a physical count reveals 6 units on hand.

43) Refer to Table 6-5. Calculate ending inventory for Kruger Sales assuming the perpetual moving-weighted-average-cost method is being used.

Answer:

Received Sold Balance

Date Qty. Cost Amt. Qty. Cost Amt. Qty. Cost Amt.

Nov. 1 5 90 450 5 90 450

Nov. 3 3 90 270 2 90 180

Nov. 6 11 95 1,045 13 94.23 1,225

Nov. 8 4 94.23 377 9 94.23 848

Nov. 9 3 94.23 283 6 94.23 565

Cost of goods sold 930

Ending inventory 565

Diff: 3

Learning Outcome: A-09 Explain and apply inventory costing methods

Skill: Application

Objective: 6-1 Account for perpetual inventory under specific-unit-cost, FIFO, and weighted-average-cost methods

44) Refer to Table 6-5. Calculate gross margin for Kruger Sales assuming the perpetual moving-weighted-average-cost method is being used.

Answer:

Received Sold Balance

Date Qty. Cost Amt. Qty. Cost Amt. Qty. Cost Amt.

Nov. 1 5 90 450 5 90 450

Nov. 3 3 90 270 2 90 180

Nov. 6 11 95 1,045 13 94.23 1,225

Nov. 8 4 94.23 377 9 94.23 848

Nov. 9 3 94.23 283 6 94.23 565

Cost of goods sold 930

Ending inventory 565

Sales

Nov. 3 3

Nov. 8 4

Nov. 9 3

10 × 120 = $1,200

Cost of goods sold:

Cost of goods available 1,495

Less ending inventory ( 565)

Cost of goods sold 930

Gross margin 270

Diff: 3

Learning Outcome: A-09 Explain and apply inventory costing methods

Skill: Application

Objective: 6-1 Account for perpetual inventory under specific-unit-cost, FIFO, and weighted-average-cost methods

45) Refer to Table 6-5. Calculate ending inventory for Kruger Sales assuming the perpetual FIFO cost method is being used.

Answer:

Received Sold Balance

Date Qty. Cost Amt. Qty. Cost Amt. Qty. Cost Amt.

Nov. 1 5 90 450 5 90 450

Nov. 3 3 90 270 2 90 180

Nov. 6 11 95 1,045 2 90 180

11 95 1,045

13 1,225

Nov. 8 2 90 180

2 95 190

4 370 9 95 855

Nov. 9 3 95 285 6 95 570

Cost of goods sold 925

Ending inventory 570

Diff: 2

Learning Outcome: A-09 Explain and apply inventory costing methods

Skill: Application

Objective: 6-1 Account for perpetual inventory under specific-unit-cost, FIFO, and weighted-average-cost methods

46) Refer to Table 6-5. Calculate gross margin for Kruger Sales assuming the perpetual FIFO cost method is being used.

Answer:

Received Sold Balance

Date Qty. Cost Amt. Qty. Cost Amt. Qty. Cost Amt.

Nov. 1 5 90 450 5 90 450

Nov. 3 3 90 270 2 90 180

Nov. 6 11 95 1,045 2 90 180

11 95 1,045

13 1,225

Nov. 8 2 90 180

2 95 190

4 370 9 95 855

Nov. 9 3 95 285 6 95 570

Cost of goods sold 925

Ending inventory 570

Sales

Nov. 3 3

Nov. 8 4

Nov. 9 3

10 × 120 = $1,200

Cost of goods sold:

Cost of goods available 1,495

Less ending inventory ( 570)

Cost of goods sold 925

Gross margin 275

Diff: 2

Learning Outcome: A-09 Explain and apply inventory costing methods

Skill: Application

Objective: 6-1 Account for perpetual inventory under specific-unit-cost, FIFO, and weighted-average-cost methods

47) Sam Levine Merchandising had the following transactions during May:

May 1 Beginning inventory was 20 units valued at $25 per unit.

May 5 Purchased 80 units of merchandise on account for $2,160, terms n/15,

FOB shipping point.

May 9 Paid transportation cost on the May 5 purchase, $240.

May 10 Returned two units of defective merchandise purchased on May 5.

May 11 Sold 30 units for $50 per unit on account.

May 15 Paid for the May 5 purchase, less the return .

May 20 Sold 10 units for $50 per unit on account.

Required:

1. Assuming FIFO and that the perpetual inventory system is used, prepare the journal entries to record the above transactions.

1. Assuming weighted-average and that the periodic inventory system is used, prepare the journal entries to record the above transactions.

Answer:

Requirement 1: Perpetual Inventory Method

Date	Account Name	Debit	Credit
May 5	Inventory	2,160
	Accounts Payable		2,160
May 9	Inventory	240
	Cash		240
May 10	Accounts Payable	54
	Inventory		54
May 11	Accounts Receivable (30 × $50)	1,500
	Sales		1,500
	Cost of Goods Sold (20 × $25) + (10 × ($27 + $3))	800
	Inventory		800
May 15	Accounts Payable ($2,160 – $54)	2,106
	Cash		2,106
May 20	Accounts receivable	500
	Sales		500
	Cost of Goods Sold (10 × $30)	300
	Inventory		300

Requirement 2: Periodic Inventory Method

Date	Account Name	Debit	Credit
May 5	Purchases	2,160
	Accounts Payable		2,160
May 9	Freight-in	240
	Cash		240
May 10	Accounts Payable	54
	Purchase Returns		54
May 11	Accounts Receivable	1,500
	Sales		1,500
May 15	Accounts Payable	2,160
	Cash		2,160
May 20	Accounts Receivable	500
	Sales		500

Diff: 3

Learning Outcome: A-09 Explain and apply inventory costing methods

Skill: Application

Objective: 6-1 Account for perpetual inventory under specific-unit-cost, FIFO, and weighted-average-cost methods

48) Jan-Con Company provides the following information for the month of August.

Date		Units	$/Unit	Total
Aug 1	Opening inventory	40	$ 30	$ 1,200
Aug 3	Purchase	60	$ 35	$ 2,100
Aug 10	Sale	100	$ 60	$ 6,000
Aug 22	Purchase	90	$ 40	$ 3,600
Aug 24	Sale	70	$ 70	$ 4,900

Required:

(a) What is the value of the ending inventory assuming the company uses a periodic inventory system and the weighted-average method?

(b) What is the cost of goods sold if the company uses a perpetual inventory system and the FIFO method of valuing inventory?

(c) What is the cost of goods sold if the company uses a perpetual inventory system and the weighted average method of valuing inventory?

Answer:

(a) What is the value of the ending inventory assuming the company uses a periodic inventory system and the weighted-average method?

Units available 190

Units sold 170

Ending inventory 20

Average cost = $6,900/190 = $36.32

Ending inventory = 20 units * $36.32 = $726.40

(b) What is the cost of goods sold if the company uses a perpetual inventory system and the FIFO method of valuing inventory?

Aug 10th COGS = (40 units * $30) + (60 units * $35) = $3,300.00

Aug 22nd COGS = (70 units * $40) = 2,800.00

$ 6,100.00

(c) What is the cost of goods sold if the company uses a perpetual inventory system and the weighted average method of valuing inventory?

Aug 10th COGS = ∗ 100 = $ 3,300.00

Aug 22nd COGS = ∗ 70 = 2,800.00

$ 6,100.00

Diff: 3

Learning Outcome: A-09 Explain and apply inventory costing methods

Skill: Application

Objective: 6-1 Account for perpetual inventory under specific-unit-cost, FIFO, and weighted-average-cost methods

49) Sam’s Corner Store has the following purchase and sales information for one of their inventory items:

Date		Units	$/Unit	Total
Feb 1	Opening inventory	10	$8	$80
Feb 9	Purchase	25	$9	$225
Feb 15	Sale	15	$15	$225
Feb 17	Purchase	20	$11	$220
Feb 25	Sale	10	$16	$160

Required:

For (a) and (b) assume the company uses the periodic inventory system.

(a) Calculate the gross profit if the company uses first-in, first-out (FIFO)

(b) Calculate the value of the ending inventory if the company uses weighted average.

For (c) and (d) assume the company uses the perpetual inventory system.

(c) What is the cost of goods sold for the Feb 25 sale if the company uses weighted average to cost the inventory?

(d) What is the value of the ending inventory if the company uses FIFO?

Answer: For (a) and (b) assume the company uses the periodic inventory system.

(a) Calculate the gross profit if the company uses first-in, first-out (FIFO)

Units available to sell 55

Units sold (25)

Ending inventory 30

Sales [(15 ∗ $15) + (10 ∗ $16)] = $385

Cost of goods sold:

Beginning inventory $ 80

Purchases [(25 ∗ $9) + (20 ∗ $11)] 445

Goods available $525

Less: ending inventory (20 ∗ $11)+(10 ∗ $9) (310)

Cost of goods sold 215

Gross margin $170

(b) Calculate the value of the ending inventory if the company uses weighted average.

Weighted average cost per unit = $ 525/55 units = $ 9.55

Ending inventory = 30 units ∗ $9.55 = $286.50

For (c) and (d) assume the company uses the perpetual inventory system.

(c) What is the cost of goods sold for the Feb 25 sale if the company uses weighted average to cost the inventory?

Feb 15 sale weighted average:

Beginning inventory 10 * $8.00 = $80

Feb 9 purchase 25 * $9.00 = 225

Total 35 $305

Average cost = $305/35 = $ 8.71

Cost of goods sold = 15 * $8.71 = $130.65

Remaining units = 35 – 15 = 20

Feb 25 sale weighted average:

Units remaining Apr 15 20 * $8.71 = 174.20

Feb 17 purchase 20 * $11.00 = 220.00

Total 40 394.20

Average cost = $394.20/40 = $ 9.86

Cost of goods sold = 10 * $9.86 = $98.60

(d) What is the value of the ending inventory if the company uses FIFO?

(20 units ∗ $11.00) + (10 units ∗ $9) = $310

Diff: 3

Learning Outcome: A-09 Explain and apply inventory costing methods

Skill: Application

Objective: 6-1 Account for perpetual inventory under specific-unit-cost, FIFO, and weighted-average-cost methods

Objective 6-2

1) FIFO will report the lowest cost of goods sold on the income statement when prices are falling.

Answer: FALSE

Diff: 3

Learning Outcome: A-09 Explain and apply inventory costing methods

Skill: Comprehension

Objective: 6-2 Compare the effects of the FIFO and moving-weighted-average-cost methods

2) FIFO results in a more accurate portrayal of ending inventory on the balance sheet than does moving-weighted-average.

Answer: FALSE

Diff: 3

Learning Outcome: A-09 Explain and apply inventory costing methods

Skill: Comprehension

Objective: 6-2 Compare the effects of the FIFO and moving-weighted-average-cost methods

3) Moving-weighted-average matches cost of goods sold to sales on the income statement better than FIFO.

Answer: FALSE

Diff: 3

Learning Outcome: A-09 Explain and apply inventory costing methods

Skill: Comprehension

Objective: 6-2 Compare the effects of the FIFO and moving-weighted-average-cost methods

4) The FIFO method can result in misleading inventory costs on the balance sheet because the oldest prices are left in ending inventory.

Answer: FALSE

Diff: 2

Learning Outcome: A-09 Explain and apply inventory costing methods

Skill: Comprehension

Objective: 6-2 Compare the effects of the FIFO and moving-weighted-average-cost methods

5) When inventory costs are rising, FIFO results in the highest cost of goods sold and the lowest gross margin.

Answer: FALSE

Diff: 3

Learning Outcome: A-09 Explain and apply inventory costing methods

Skill: Comprehension

Objective: 6-2 Compare the effects of the FIFO and moving-weighted-average-cost methods

6) The moving-weighted-average-cost method generates a gross margin that will be lower than the gross margin generated under FIFO costing when prices are rising.

Answer: TRUE

Diff: 3

Learning Outcome: A-03 Analyze and record transactions and their effects on the financial statements

Skill: Analysis

Objective: 6-2 Compare the effects of the FIFO and moving-weighted-average-cost methods

7) When prices are rising, the ending inventory balance reported on a weighted-average basis is generally:

1. A) lower than on a FIFO basis.
2. B) greater than on a FIFO basis.
3. C) equal to ending inventory reported on a FIFO basis.
4. D) equally likely to be higher or lower on a weighted-average basis as opposed to a FIFO basis.