Inventory
Easy Test
Easy Test
Click the “Check Your Answer” box below each problem to reveal the correct answer and explanation.
a. purchase discounts
b. freight in
c. freight out
d. finished goods inventory
Answer
a. FIFO
b. LIFO
c. Weighted average
d. each method listed will give the same cost of goods sold
Answer
a. the periodic method
b. the perpetual method
c. either method
d. neither method
Answer
a. too high
b. too low
c. the correct amount
d. higher than last period
Answer
a. the ending balance in the purchases account
b. the ending balance in the inventory account
c. add beginning inventory balance to purchases
d. count the inventory and multiply by cost
Answer
a. at the end of every month
b. at the end of every fiscal year
c. at the end of every quarter
d. it is not required and estimates may always be used
Answer
a. $96,000
b. $34,000
c. $24,000
d. $60,000
Answer
29,000 + 31,000 – 36,000 = 24,000
a. it is a physical tangible asset
b. it is used in the day to day operations of the company
c. it is held for resale ONLY
d. all of the above
Answer
a. every time inventory is purchased or sold
b. at the end of the period only
c. when inventory is purchased only
d. when shrink is determined
Answer
a. the invoice price per unit
b. sales tax paid
c. purchase (volume) discounts
d. all of the above
Answer
Units | Cost per Unit | Total Cost | |
Inventory on 1/1 | 4,000 | $4 | $16,000 |
Purchases of inventory on | |||
1/9 | 3,000 | $4.25 | $12,750 |
1/24 | 5,000 | $4.30 | $21,500 |
Sales during January | 9,000 |
Compute the value of ending inventory and cost of goods sold under the periodic method using
A. FIFO
B. LIFO
C. Average cost
Answer
Inventory on 1/1 4,000 x $4.00 = $16,000
1/9 3,000 x $4.25 = $12,750
1/24 5,000 x $4.30 = $21,500
Available 12,000 $50,250
– Sales (9,000) ??
= Ending Inventory 1/31 3,000 ??
11.A. FIFO Periodic
The date sold does not matter.
First ones purchased are the first ones sold.
Go down from the top (first purchases) until the total is 9,000 units sold.
Beg Inventory 4,000 x $4.00 = $16,000
1/9 Purchases 3,000 x $4.25 = $12,750
1/24 Purchases 2,000 x $4.30 = $ 8,600
Total sold: CGS 9,000 = $37,350
Use only 2,000 of the 1/24 purchase because that is all that is needed to total 9,000.
Ending inventory is always
Available $50,250
– Cost of goods sold ($37,350)
= Ending inventory $12,900
11. B. LIFO Periodic
Last ones purchased are the first ones sold.
Go up from the last purchase (bottom) until the total is 9,000 units sold.
The date sold does not matter.
1/24 purchases 5,000 x $4.30 = $21,500
1/9 Purchases 3,000 x $4.25 = $12,750
Beginning Inventory 1,000 x $4.00 = $ 4,000
Total sold: CGS 9,000 = $38,250
Use only 1,000 of the beginning inventory because that is all that is needed total 9,000
Ending inventory is always
Available $50,250
– Cost of goods sold ($38,250)
= Ending inventory $12,000
11.C. Periodic Weighted Average:
Total $ Available $50,250 =
Total Quantity Available 12,000
= $4.1875 average cost per unit
Units sold 9,000
x Average cost per unit $4.1875
= Cost of goods sold $37,687.50
Ending inventory is always
Available $50,250
– Cost of goods sold ($37,687.50)
= Ending inventory $12,562.50
Units | Cost per Unit | Total Cost | |
Inventory on 1/1 | 4,000 | $4 | $16,000 |
Purchases of inventory on | |||
1/9 | 3,000 | $4.25 | $12,750 |
1/24 | 5,000 | $4.30 | $21,500 |
Sales during January | |||
1/11 | 5,000 | ||
1/29 | 4,000 |
Compute the value of ending inventory and cost of goods sold under the perpetual method using
A. FIFO
B. LIFO
C. Average cost
Answer
FIFO is the same for periodic and perpetual. Do the easier periodic computation.
See the answer to 11.A. for FIFO. It is the same for perpetual.
12.B) LIFO Perpetual
1st Set up purchases and sales in date order.
Only units on hand before the sale are included in units sold.
Start with the last units purchased just before the sale.
Purchases Sales
Cost Cost
Units per-unit Sold per unit CGS
January 1 Beginning Balance 4,000 $4
January 9 Purchased 3,000 $4.25
January 11 Sold 5,000 3,000 $4.25 $12,750 from 1/9
2,000 $4 $ 8,000 from BI
January 24 Purchased 5,000 $4.30
January 29 Sold 4,000 4,000 $4.30 $17,200 from 1/24
_______
Total CGS: $37,950
January 11 sales:
The last ones purchased before the sale are the 3,000 units at $4.25.
Sell those units first and then sell the other 2,000 (to get to 5,000 total) from the next one up, BI.
Beginning inventory has only 2,000 units after the sale.
January 29 sales:
The last ones purchased before the sale are the 5,000 units at $4.30).
Sell 4,000 of the units purchased on 1/24, leaving 1,000 from the 1/24 purchase available.
Ending Inventory:
Beginning Inventory 2,000 x $4.00 = $ 8,000
1/24 Purchase 1,000 x $4.30 = $ 4,300
Total Ending Inventory 3,000 $12,300
The total available from the periodic method less cost of goods sold must equal ending inventory.
Total Available $50,250
– Cost of Goods Sold ($37,950)
Ending Inventory $12,300
12.C) Perpetual Moving Average:
A new moving average is computed after each purchase.
The cost of the sale is the most recent moving average cost per unit.
Sales do not change the moving average.
Purchases Sales
Cost Moving Cost
Units x per-unit = Total Average Sold x per unit = CGS
January 1 Beginning 4,000 $4.00 = $16,000
January 9 Purchased 3,000 $4.25 = $12,750
Moving Average 7,000 $28,750 $4.11
January 11 Sold (5,000) $(20,550) 5,000 $4.11 $20,550
Inventory Balance 2,000 $ 8,200
January 24 Purchased 5,000 $4.30 $ 21,500
Moving Average 7,000 $ 29,700 $4.24
January 29 Sold (4,000) $(16,960) 4,000 $4.24 $16,960
Inventory Balance 3,000 $ 12,740 _______
Total CGS: $37,510
Units in Ending Inventory: 3,000
x Last moving Average Cost $ 4.24
= Ending Inventory $12,720
Total available less cost of goods sold must equal ending inventory.
Total Available $50,250
– Cost of Goods Sold ($37,510)
Ending Inventory $12,740
The $20 difference is from rounding in the moving average cost.
An accountant would make a $20 adjustment either to CGS or to the Inventory balance. CGS plus ending inventory must equal total available.
Sales | 2,800,000 |
Ending Inventory | 785,000 |
Purchase Returns | 40,000 |
Administrative Expense | 80,000 |
Purchase Discounts | 8,000 |
Freight In | 16,000 |
Selling Expense | 450,000 |
Depreciation Expenses | 110,000 |
Freight Out | 29,000 |
Beginning Inventory | 420,000 |
Purchases | 1,350,000 |
Calculate cost of goods sold:
Answer
Beginning Inventory | 420,000 |
+ Purchases | 1,350,000 |
– Purchase Returns | (40,000) |
– Purchase Discounts | ( 8,000) |
+ Freight in | 16,000 |
– Ending Inventory | (785,000) |
= Cost of Goods Sold | 953,000 |
Sales and operating expenses are reported separately from cost of goods sold.
Freight Out is an operating/selling expense.
During the Year | Beginning of Year | |
Sales | 200,000 | |
Cost of goods sold | 100,000 | |
Purchases | 85,000 | |
Inventory | 45,000 | |
Operating Expense | 63,000 | |
Shipping Expense | 12,000 | |
Purchase Returns | 6,000 |
At the end of the year the company counted inventory and determined the value using FIFO to be $28,000. The company uses the gross method to record inventory.
A. Record all journal entries necessary to record inventory transactions using the periodic method.
B. Record all journal entries necessary to record inventory transactions using the perpetual method.
Answer
Operating expenses are not recorded with inventory transactions.
14.A Periodic – gross method:
Sales:
Accounts receivable (cash) 200,000
Sales 200,000
(cost of inventory sold is not recorded)
Purchases:
Purchases 85,000
Accounts Payable 85,000
Purchase Returns:
Accounts Payable 6,000
Purchase Returns 6,000
Adjustment at end of period:
Cost of Goods sold 96,000
Purchase Returns 6,000
Inventory (ending) 28,000
Purchases 85,000
Inventory (beginning) 45,000
Or
Cost of Goods sold 96,000
Purchase Returns 6,000
Purchases 85,000
Inventory 17,000
Move purchases and purchase returns to cost of goods sold (make the balance = 0)
Ending inventory must be equal to what you really have on hand. (17,000 adjustment)
Cost of goods sold is the debit amount required to make the entry balance
14.B Perpetual – gross method:
Sales:
Accounts receivable (cash) 200,000
Sales 200,000
Cost of Goods Sold 100,000
Inventory 100,000
Purchases:
Inventory 85,000
Accounts Payable 85,000
Purchase Returns:
Accounts Payable 6,000
Inventory 6,000
Adjustment at end of period:
Inventory 4,000
Cost of Goods Sold 4,000
+ Purchases 85,000
– Purchase returns (6,000)
– Sales (100,000)
= Ending inventory per account 24,000
– Ending inventory counted (28,000)
= Adjustment to inventory 4,000
Inventory must increase by 4,000 to get the balance in the inventory account to the amount actually on hand