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Exam 6: Inventory and Cost of Goods Sold

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Question 51

True/False

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The use of the lower-of-cost-or-market method to report inventory is an example of conservatism in financial reporting.

A) True
B) False

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Question 52

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Which of the following is true regarding LIFO and FIFO?

A) In a period of decreasing costs,LIFO results in lower total assets than FIFO.
B) In a period of decreasing costs,LIFO results in lower net income than FIFO.
C) In a period of rising costs,LIFO results in lower net income than FIFO.
D) The amount reported for COGS is based on market value of inventory if LIFO is used.

E) B) and C)
F) All of the above

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Question 53

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LeGrand Corporation reported the following amounts in its income statement: $\begin{array} { l r } \text { Sales revenue } & \$ 440,000 \\\text { Advertising expense } & 60,000 \\\text { Interest expense } & 10,000 \\\text { Salaries expense } & 55,000 \\\text { Utilities expense } & 25,000 \\\text { Income tax expense } & 45,000 \\\text { Cost of goods sold } & 180,000\end{array}$ What was LeGrand's net income?

__________ is commonly referred to as the balance sheet approach.

The following information pertains to Julia & Company: What is the cost of goods sold for Julia & Company assuming it uses LIFO?

Overstating ending inventory in the current year causes net income in the current year to be overstated.

Which of the following is true concerning inventory cost flow assumptions?

The LIFO conformity rule states that if LIFO is used for:

A company uses a periodic system to record inventory transactions.The company purchases inventory on account on February 9,2012,for $50,000 and then sells this inventory on account on March 7,2012,for $70,000.Record the transactions for the purchase and sale of the inventory.

If a company has ending inventory of $25,000,purchases during the year of $95,000,and beginning inventory of $30,000,cost of goods sold equals $90,000.

In a periodic inventory system,at the time of a sale the cost of inventory sold is:

During periods of rising costs,LIFO generally results in a higher cost of goods sold.

For most companies,actual physical flow of their inventory follows LIFO.

What effect would an adjustment to record inventory at the lower-of-cost-or-market have on the company's financial statements?

The practice of using the lower-of-cost-or-market to evaluate inventory reflects which of the following accounting principles?

Cost of goods sold is an asset reported in the balance sheet and inventory is an expense reported in the income statement.

Inventory records for Dunbar Incorporated revealed the following: $\begin{array} { l l c r } { \text { Date } } & { \text { Transaction } } & \begin{array} { c } \text { Number } \\\text { of Units }\end{array} & \begin{array} { r } \text { Unit } \\\text { Cost }\end{array} \\\text { Apr. 1 } & \text { Beginning inventory } & 500 & \$ 2.40 \\\text { Apr. 20 } & \text { Purchase } & 400 & 2.50\end{array}$ Dunbar sold 700 units of inventory during the month.Ending inventory assuming FIFO would be:

The distinction between operating and nonoperating income relates to:

During periods of rising costs,LIFO generally results in a higher ending inventory balance.

A company begins the year with inventory of $50,000 and ends the year with inventory of $55,000.During the year,the following amounts are recorded: $\begin{array} { l r } \text { Purchases } & \$ 210,000 \\\text { Purchase returns } & 25,000 \\\text { Purchase discounts } & 15,000 \\\text { Freight-in } & 40,000\end{array}$ Calculate cost of goods sold for the year.