Financial Accounting Canadian 5Th Edition Harrison Test Bank Full Chapter PDF

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Financial Accounting 5ce
Chapter 6 – Inventory and Cost of Goods Sold
Chapter 6 Inventory and Cost of Goods Sold
6.1 Account for inventory using the perpetual and periodic inventory systems
1) The largest expense category on the income statement of most merchandising companies is:
A) cost of goods sold
B) other expenses
C) selling expenses
D) administrative expenses
Answer: A
Diff: 1 Type: MC
L.O.: L.O. 6-1
2) Which of the following would not be included in the Inventory account on a merchandising company's
balance sheet?
A) customs duties
B) sales taxes received
C) shipping costs from the manufacturer to the merchandising company
D) insurance on the merchandise while in transit from the manufacturer
Answer: B
Diff: 2 Type: MC
L.O.: L.O. 6-1
3) In a merchandising business, gross margin is equal to sales revenue minus:

A) the sum of cost of goods sold, operating expenses, and prepaid expenses
B) the sum of cost of goods sold and operating expenses
C) cost of goods sold
D) the sum of cost of goods sold and sales commissions
Answer: C
Diff: 2 Type: MC
L.O.: L.O. 6-1
4) A perpetual inventory system offers all the following advantages except:

A) inventory balances are always current
B) it enhances internal control
C) it is less expensive than a periodic system
D) it helps salespeople determine whether there is a sufficient supply of inventory on hand to fill
customer orders
Answer: C
Diff: 2 Type: MC
L.O.: L.O. 6-1
© 2015 Pearson Canada Inc. 6-1

5) All of the following are deducted from the purchase price of inventory in determining cost of goods
sold except:
A) purchase returns
B) purchase allowances
C) freight in
D) purchase discounts
Answer: C
Explanation: A) Purchase returns ARE deducted from the purchase price of inventory in determining
cost of goods sold.
B) Purchase allowances ARE deducted from the purchase price of inventory in determining cost of goods
sold.
C) Freight in is ADDED to the purchase price of inventory is determining cost of goods sold, not
deducted.
D) Purchase discounts ARE deducted from the purchase price of inventory in determining cost of goods
sold.
Diff: 2 Type: MC
L.O.: L.O. 6-1
6) Perpetual inventory records provide information helpful in making all the following decisions except:
A) whether immediate delivery of merchandise is possible
B) when to reorder
C) how quickly items of merchandise are selling
D) whether to extend credit to a customer
Answer: D
Diff: 2 Type: MC
L.O.: L.O. 6-1
7) Technological advances in computers and inventory tracking have:

A) made perpetual inventory records less expensive to maintain
B) completely eliminated the need to physically count inventory
C) made journal entries unnecessary for inventory purchases
D) made perpetual inventory records more expensive to maintain
Answer: A
Diff: 2 Type: MC
L.O.: L.O. 6-1
8) If a company uses a periodic inventory system, it will maintain all of the following accounts except:
A) Cost of Goods Sold
B) Purchases
C) Sales
D) Inventory
Answer: A
Diff: 2 Type: MC
L.O.: L.O. 6-1

9) King Size International buys beds from a manufacturer for sale overseas. A shipment of beds to King
Size was received slightly damaged. The manufacturer agreed to take an extra 10% off of its invoice price
to King Size if it will keep and sell the beds to its customers. In this situation, King Size has received a:
A) purchase return
B) purchase discount
C) purchase allowance
D) sales allowance
Answer: C
Diff: 2 Type: MC
L.O.: L.O. 6-1
10) Using a perpetual inventory system, which of the following entries would record the cost of
merchandise sold on credit?
A) Credit Sales and debit Accounts Receivable
B) Debit Cost of Goods Sold and credit Purchases
C) Debit Cost of Goods Sold and credit Inventory
D) Debit Inventory and credit Cost of Goods Sold
Answer: C
Diff: 2 Type: MC
L.O.: L.O. 6-1
11) Under a perpetual inventory system, which of the following entries would record the purchase of
merchandise on credit?
A) Debit Inventory and credit Accounts Payable
B) Credit Purchases and Debit Cost of Goods Sold
C) Credit Sales and debit Accounts Receivable
D) Debit Purchases and credit Accounts Payable
Answer: A
Diff: 2 Type: MC
L.O.: L.O. 6-1
12) Under a periodic inventory system, which of the following entries would record the purchase of
merchandise on credit?
A) Debit Inventory and credit Accounts Payable
B) Credit Purchases and debit Cost of Goods Sold
C) Credit Sales and debit Accounts Receivable
D) Debit Purchases and credit Accounts Payable
Answer: D
Diff: 2 Type: MC
L.O.: L.O. 6-1

13) If a company is using a perpetual inventory system, the balance in its inventory account three-
quarters of the way through an accounting period would be equal to:
A) the total of the beginning inventory plus goods purchased during the accounting period
B) the inventory on hand at the beginning of the period
C) the amount of inventory on hand at that date
D) the amount of goods purchased during the period
Answer: C
Diff: 3 Type: MC
L.O.: L.O. 6-1
14) Which of the following would be included in the Cost of Goods Sold account on a merchandising
company's income statement?
A) shipping costs from the manufacturer to the merchandiser
B) sales commissions
C) costs of advertising
D) sales taxes
Answer: A
Diff: 2 Type: MC
L.O.: L.O. 6-1
15) Sales commissions are not normally included in the cost of goods sold account.
Answer: TRUE
Diff: 2 Type: TF
L.O.: L.O. 6-1
16) Freight-in is the transportation cost, paid by the buyer, to move goods from the seller to the buyer.
Answer: TRUE
Diff: 2 Type: TF
L.O.: L.O. 6-1
17) Sales taxes paid by a merchandising company on its sales are normally included in the cost of goods
sold account.
Answer: FALSE
Diff: 2 Type: TF
L.O.: L.O. 6-1
18) A purchase allowance is a decrease in the cost of purchases because the purchaser returned goods to
the supplier.
Answer: FALSE
Diff: 1 Type: TF
L.O.: L.O. 6-1
19) In a perpetual inventory system, businesses maintain a continuous record for each inventory item.
Answer: TRUE
Diff: 1 Type: TF
L.O.: L.O. 6-1

20) Historically, perpetual inventory systems have been used to account for inventory items with a low
unit cost.
Answer: FALSE
Diff: 1 Type: TF
L.O.: L.O. 6-1
21) In a merchandising business, gross margin is the difference between sales revenue and the cost of
goods sold.
Answer: TRUE
Diff: 2 Type: TF
L.O.: L.O. 6-1
22) The following data pertain to Home Office Company for the year ended December 31, 2014:
Sales (25% were cash sales) during the year $1,100,600
Cost of goods sold during the year 690,300
Beginning inventory 319,800
Purchases (10% were cash purchases) during the year 738,200
a. Prepare journal entries to record sales, cost of goods sold, and the purchase of inventory during 2014
using the perpetual inventory system.
b. Compute the balance in the inventory account on December 31, 2014.
Answer:
a. Accounts Receivable 825,450
Cash 275,150
Sales Revenue 1,100,600
Cost of Goods Sold 690,300

Inventory 690,300
Inventory 738,200
Cash 73,820
Accounts Payable 664,380
b. $319,800 + $738,200 - $690,300 = $367,700

Diff: 2 Type: ES
L.O.: L.O. 6-1

23) The following data pertain to Stainless Steel Enterprises for the year ended December 31, 2013:
Beginning inventory $188,200

Purchases on credit during the year 400,500
Cost of goods sold during the year 500,600
Sales (70% on credit) during the year 755,400
a. Prepare entries to record the purchase of inventory, cost of goods sold, and sales during 2013 using
the perpetual inventory system.
b. Compute the balance in the inventory account on December 31, 2013.
Answer:
a. Inventory 400,500
Accounts Payable 400,500
Cost of Goods Sold 500,600

Inventory 500,600
Accounts Receivable 528,780

Cash 226,620
Sales Revenue 755,400
b.$188,200 + $400,500 - $500,600 = $88,100

Diff: 2 Type: ES
L.O.: L.O. 6-1

24) The following information is available for Don't Pay a Cent Corporation for the year ended December
31, 2013:
Sales revenue $300,000

Sales commissions $7,500
Purchases (cost) $200,000
Advertising $6,000
Freight-out $700
Freight-in $800
Sales returns $3,000
Purchase returns $2,000
Sales allowances $1,000
Purchase allowances $1,500
Sales discounts $7,000
Purchase discounts $8,000
Calculate the following for Don't Pay a Cent Corporation:

a. Net sales for 2013.
b. Net purchases for 2013.
Answer:
a. Sales revenue $300,000
Sales returns -3,000
Sales allowances -1,000
Sales discounts -7,000
Net sales $289,000
b. Purchases $200,000
Freight-in 800
Purchase returns -2,000
Purchase allowances -1,500
Purchase discounts -8,000
Net purchases $189,300
Diff: 2 Type: ES
L.O.: L.O. 6-1
25) What is the most important asset of a merchandising business?

Answer: Inventory is the most important asset in a merchandising business. The primary activity of a
merchandising business is the selling of its inventory to customers. Proper management of inventory and
managing costs are at the heart of earning profits for a merchandising business. Therefore, we can say
that inventory is the most important asset of a merchandising business.
Diff: 1 Type: ES
L.O.: L.O. 6-1

26) What is the major expense shown on the income statement for a merchandising business?
Answer: The major expense shown on an income statement for a merchandising business is cost of goods
sold. This represents the cost of the inventory sold by the business. As indicated in the opening vignette,
the cost of goods sold (or the cost of sales) is the most important expense for a company that sells goods
rather than services (such as Leon's Furniture). The difference between the revenue generated from
selling the inventory and the cost of the inventory sold is gross margin, or gross profit.
Diff: 2 Type: ES
L.O.: L.O. 6-1
6.2 Explain and apply three inventory costing methods
1) Given the following data, what is the weighted-average cost of ending inventory rounded to the
nearest whole dollar? (Do not round in the process of your calculations, only round your final answer.)
Sales revenue 100 units at $15 per unit

Beginning inventory 40 units at $9 per unit
Purchases 80 units at $10 per unit
A) $300
B) $200
C) $193
D) $180
Answer: C
Diff: 2 Type: MC
L.O.: L.O. 6-2
2) Given the following data, what is cost of goods sold as determined under the FIFO method?
Sales revenue 350 units at $35 per unit

Beginning inventory 120 units at $15 per unit
Purchases 400 units at $20 per unit
A) $6,400
B) $5,250
C) $4,600
D) $7,000
Answer: A
Diff: 2 Type: MC
L.O.: L.O. 6-2

3) Given the following data, calculate the cost of ending inventory using the FIFO costing method:
1/1 Beginning inventory 45 units at $10 per unit

2/25 Purchases 40 units at $12 per unit
12/31 Ending inventory 40 units
A) $400
B) $545
C) $480
D) $560
Answer: B
Diff: 2 Type: MC
L.O.: L.O. 6-2
4) Given the following data, calculate the cost of ending inventory using the weighted-average method
for a periodic inventory system, rounding to the nearest dollar. (Do not round in the process of your
calculations, only round your final answer.)

A) $720
B) $619
C) $581
D) $450
Answer: C
Diff: 2 Type: MC
L.O.: L.O. 6-2

5) Given the following data, calculate the cost of goods sold for the 04/15 sale using the weighted-average
method for a perpetual inventory system, rounding to the nearest dollar. (Do not round in the process of
your calculations, only round your final answer.)

4/15 Sale 20 units at $30 per unit
A) $200
B) $230
C) $280
D) $600
Answer: B
Explanation: A) This would be correct using FIFO, not weighted average.
B) [(50 × $10) + (30 × $14)]/80 × 20 = $230
C) This response incorrectly uses the cost of the last inventory purchased.
D) This response incorrectly uses the sales price of the inventory to determine cost of goods sold, rather
than the purchase price.
Diff: 2 Type: MC
L.O.: L.O. 6-2
6) Given the following data, calculate the cost of goods sold for the 11/15 sale using the weighted-average
method for a perpetual inventory system, rounding to the nearest dollar. (Do not round in the process of

A) $720
B) $771
C) $785
D) $1,920
Answer: C
Explanation: A) This would be correct using FIFO, not weighted average (30 × $10) + (30 × $14).
B) This solution would be correct if the periodic inventory system were used.
C) [(50 × $10) + (30 × $14) - (20 × $11.50) + (50 × $15)]/110 × 60 = $785
Diff: 3 Type: MC
L.O.: L.O. 6-2

7) Given the following data, calculate the cost of goods sold for the period using the weighted-average
method for a periodic inventory system, rounding to the nearest dollar. (Do not round in the process of

A) $960
B) $966
C) $980
D) $2,500
Answer: A
Explanation: A) [(40 × $12) + (20 × $14)) + (40 × $11)]/100 × 80 =$ 960
B) This solution would be correct if the perpetual inventory system were used.
C) This would be correct using FIFO, not weighted average.
Diff: 3 Type: MC
L.O.: L.O. 6-2
8) FIFO tends to increase cost of goods sold when:

A) costs are increasing
B) costs are declining
C) costs are constant
D) FIFO will always yield the lowest possible cost of goods sold
Answer: B
Diff: 2 Type: MC
L.O.: L.O. 6-2
9) FIFO tends to decrease cost of goods sold when:

A) costs are constant
B) costs are decreasing
C) costs are increasing
D) FIFO will always yield the lowest possible taxes
Answer: C
Diff: 2 Type: MC
L.O.: L.O. 6-2

10) When the FIFO method is used, cost of goods sold is assumed to consist of:
A) the most recently purchased units
B) the units with the lowest per unit cost
C) the units with the highest per unit cost
D) the oldest units
Answer: D
Diff: 1 Type: MC
L.O.: L.O. 6-2
11) When using the weighted-average cost method to determine the cost of inventory sold, the weighted-
average cost per unit is calculated as the:
A) cost of goods available for sale divided by the number of units available for sale
B) cost of goods sold divided by the average number of units in inventory
C) cost of goods sold divided by the number of units sold
D) cost of goods in ending inventory divided by the number of units in ending inventory
Answer: A
Diff: 2 Type: MC
L.O.: L.O. 6-2
12) In a time of increasing inventory costs, FIFO gives us a higher COGS number compared to the
weighted average method.
Answer: FALSE
Diff: 1 Type: TF
L.O.: L.O. 6-2
13) FIFO income typically is less realistic compared to the net income under weighted-average cost.
Answer: TRUE
Diff: 1 Type: TF
L.O.: L.O. 6-2
14) A company may use more than one type of inventory method. For example it may use specific
identification for one type of inventory and FIFO for another.
Answer: TRUE
Diff: 1 Type: TF
L.O.: L.O. 6-2
15) FIFO uses "old" inventory costs against revenue.

Answer: TRUE
Diff: 1 Type: TF
L.O.: L.O. 6-2
16) The specific unit cost method is frequently used for items with common characteristics, such as
gallons of paint.
Answer: FALSE
Diff: 1 Type: TF
L.O.: L.O. 6-2

17) When using the weighted-average cost method to determine the cost of inventory sold, the weighted-
average cost per unit is calculated as the cost of goods available for sale divided by the number of units
available for sale.
Answer: TRUE
Diff: 2 Type: TF
L.O.: L.O. 6-2
18) Ending inventory under FIFO reflects the cost of goods most recently acquired.
Answer: TRUE
Diff: 1 Type: TF
L.O.: L.O. 6-2
19) State which of the following inventory methods would best attain the goals of management. Indicate
your answer by writing the proper letter in the blank beside each specific goal.
a. FIFO
b. Weighted-averaged.
c. Specific identification
1. ________ Management wants to report approximate current inventory replacement costs on its
year-end balance sheet during a period of rising prices.
2. ________ Management wants to maximize net income during a period of rising prices.
3. ________ The company sells yachts, deep-sea fishing boats, and off-shore speed boats.
4. ________ Management wants to minimize net income during a period of falling prices.
Answer:
1. a
2. a
3. c
4. a
Diff: 2 Type: ES
L.O.: L.O. 6-2
20) State some guidelines a company's management could use to determine the most desirable inventory
costing method.
Answer:
Specific unit cost:
∙ use for unique or high-cost inventory items, such as automobiles, jewellery, or expensive electronics
FIFO:
∙ ending inventory is reported at its most current cost
∙ maximizes reported income when inventory costs are rising
∙ minimizes reported income when inventory costs are falling
Weighted-average:
∙ "middle-of-the-road" approach for reported income and ending inventory values
Diff: 2 Type: ES
L.O.: L.O. 6-2

21) Key West Group Ltd.

Inventory Information
For January 2013
Numbers of units Price paid per unit

Purchase January 1st 500 $50
Purchase January 15th 1000 $60
*** There were no units on hand at the beginning of January 2013. On January 31st, 2013, Key West
Group sold 1500 units of inventory at $100 each to customers.
Calculate cost of goods sold using FIFO.

Answer: FIFO
500 units × $50 = $25,000

1000 units × $60 = 60,000
COGS $85,000
Diff: 2 Type: ES
L.O.: L.O. 6-2

22) Inventory data for Freezer Burn Corporation for the year ended December 31, 2013, are as follows:
Beginning inventory 50 units at $150 each

March 31 purchase 50 units at $155 each
1st quarter sales 60 units
June 30 purchase 55 units at $160 each
2nd quarter sales 70 units
September 30 purchase 60 units at $170 each
Compute the perpetual ending inventory balance on December 31, 2013, using:
a. FIFO
b. Weighted-average
Answer:
a. FIFO (25 × $160)+ (60 × 170) = $14,200
b. Weighted-average
50 × $150 = $7,500
50 × $155 = $7,750
100 $15,250 = $152.50
less sales 60
remainder 40 × 152.50= $6,100
purchases 55 × $160 = $8,800

95 $14,900 = $156.84
less sale 70
remainder 25 × 156.84= $3,921
60 × $170 = $10,200
85 $14,121 $166.13
Diff: 2 Type: ES
L.O.: L.O. 6-2
23) Inventory data for Hot Buys Company for January 2014 are as follows:
January 1 balance 80 units at $25

January 10 purchase 100 units at $28
January 15 sale 120 units
January 21 purchase 90 units at $32
January 28 sale 110 units
Using FIFO, compute ending inventory as of January 31, 2014, and determine cost of goods sold for
January.
Answer: Ending inventory (40 × $32) = $1,280
Cost of goods sold (80 × $25) + (100 × $28) + (50 × $32) = $6,400
Diff: 2 Type: ES
L.O.: L.O. 6-2

24) West Life Group Ltd.

Inventory Information
For January 2013
Numbers of units Price paid per unit

Purchase January 1st 500 $50
*** There were no units on hand at the beginning of January 2013. On January 31st, 2013, West Life
Group sold 1500 units of inventory at $100 each to customers.
Calculate cost of goods sold using the weighted average method.

Answer: Weighted Average
500 × 50 = $25,000
1000 × 60 = $60,000
2000 × 70 = $140,000
3500 225,000 or $64.29 per unit
COGS: $64.29 × 1500 = $96,435

Diff: 2 Type: ES
L.O.: L.O. 6-2

25) Calculate inventory turnover for the following independent situations.
a. Ending inventory $25,000

Purchases during the year 127,000
b. Purchases during the year $350,000

Ending inventory 42,500
c. Beginning inventory $37,500

d. Purchases during the year $335,700

Answer:
a. $30,000 + $127,000 - $25,000 = $132,000 cost of goods sold
($30,000 + $25,000) / 2 = $27,500 average inventory
$132,000 / $27,500 = 4.8
b. $50,000 + $350,000 - $42,500 = $357,500 cost of goods sold

$357,500 / $46,250 = 7.73
c. $37,500 + $270,000 - $42,000 = $265,500 cost of goods sold

$265,500 / $39,750 = 6.68
d. $27,000 + $335,700 - $32,000 = $330,700 cost of goods sold

$330,700 / $29,500 = 11.21
Diff: 2 Type: ES
L.O.: L.O. 6-2

6.3 Explain how accounting standards apply to inventories
1) If year-end inventory is reduced from cost to a lower net realizable value, which of the following
accurately depicts the results?
A) Year-end inventory is reduced and cost of goods sold is reduced by the same amount.
B) Cost of goods sold is reduced and beginning inventory of the next period is reduced by the same
amount.
C) The capital account balance is increased and beginning inventory of the next period is reduced by the
same amount.
D) Cost of goods sold is increased and beginning inventory of the next period is decreased by the same
amount.
Answer: D
Diff: 3 Type: MC
L.O.: L.O. 6-3
2) Consider the following data:
Ending inventory at cost $115,000

Ending inventory at market 119,000
Cost of goods sold (before consideration of LCNRV rule) 165,000
Which of the following depicts the proper account balance after the application of the LCNRV rule?
A) Ending Inventory balance will be $119,000.
B) Ending Inventory balance will be $115,000.
C) Cost of Goods Sold will be $161,000.
D) Cost of Goods Sold will be $169,000.
Answer: B
Diff: 2 Type: MC
L.O.: L.O. 6-3
3) The disclosure principle requires that management prepare financial reports that disclose all of the
following types of information except:
A) the method of inventory costing used
B) forecasts of expected future earnings to help investors decide whether to invest in the company
C) information that facilitates comparison with other companies' financial reports
D) information that is relevant to decision making
Answer: B
Diff: 2 Type: MC
L.O.: L.O. 6-3

4) Sales Company Ltd. paid $10 wholesale for one unit of inventory for resale in the retail market. The
same inventory can now be purchased for $9. The retail sales price of the inventory is $13, however, it
normally costs $2 to sell each unit. Using the lower-of-cost-and-net-realizable-value rule the inventory
would be reported on Sales Company Ltd.'s balance sheet at:
A) $9
B) $10
C) $11
D) $13
Answer: B
Explanation: A) Inventory is valued at the lower of cost ($10) or net realizable value ($13 - $2 = $11). The
current wholesale price ($9) is not usually considered.
B) Inventory is valued at the lower of cost ($10) or net realizable value ($13 - $2 = $11). The lower of these
two amounts is $10 so inventory is value at cost.
C) Inventory is valued at the lower of cost ($10) or net realizable value ($13 - $2 = $11). The lower of these
two amounts is $10 so inventory is value at cost
D) $13 is the estimated sales price; costs to sell must be deducted to determine net realizable value which
must then be compared to cost to determine the value to be reported on the balance sheet.
Diff: 2 Type: MC
L.O.: L.O. 6-3
5) A firm can change their inventory costing method if it provides more reliable and relevant information.
Answer: TRUE
Diff: 2 Type: TF
L.O.: L.O. 6-3
6) A change in inventory costing method should be applied prospectively.

Answer: FALSE
Diff: 3 Type: TF
L.O.: L.O. 6-3
7) The disclosure principle indicates an organization should provide enough information for those
outside of the organization to make an informed decision about the organization.
Answer: TRUE
Diff: 1 Type: TF
L.O.: L.O. 6-3
8) Previously written down inventory does not need to be reassessed as it is at its lowest value.
Answer: FALSE
Diff: 2 Type: TF
L.O.: L.O. 6-3
9) The comparability principle in accounting means that a company must perform strictly proper
accounting only for items and transactions that are significant to the financial statements of a business.
Answer: FALSE
Diff: 2 Type: TF
L.O.: L.O. 6-3

10) When applying the lower-of-cost-or-net-realizable-value rules to ending inventory valuation, net
realizable value generally refers to the cost at which the company could sell a unit of inventory.
Answer: FALSE
Diff: 2 Type: TF
L.O.: L.O. 6-3
11) The lower-of-cost-or-net-realizable-value rule applies only when a company uses the FIFO inventory
valuation method.
Answer: FALSE
Diff: 2 Type: TF
L.O.: L.O. 6-3
12) The following information is available for Digital Image Corporation for the year ended December 31,
2013:

Beginning inventory (at cost) 200,000
Net purchases 250,000
Ending inventory:
Historical cost 170,000
Net realizable value 155,000
a. Compute gross margin as it would appear on the income statement valuing ending inventory at
historical cost.
b. Compute gross margin as it would appear on the income statement valuing ending inventory at
lower-of-cost-or-net-realizable-value.
Answer:
a. Sales revenue $600,000
Cost of goods sold
Cost of goods available for sale 450,000
Less: Ending inventory 170,000
Cost of goods sold 280,000
Gross margin $320,000
b. Sales revenue $600,000

Cost of goods sold
Less: Ending inventory 155,000
Gross margin $305,000
Diff: 2 Type: ES
L.O.: L.O. 6-3

13) Roughrider Ltd. (Roughrider) uses the lower of cost and net realizable value rule to value its football
equipment inventory. Roughrider defines market as net realizable value. Roughrider's inventory on
January 31, 2014 had a cost of $1,200,000 and an NRV of $1,125,000.
Required:
a. By how much should Roughrider's inventory be written down?
b. Prepare the journal entry that Roughrider should prepare to record the write-down.
c. What amount should be reported for inventory on Roughrider's January 31, 2014 balance sheet?
Answer:
a. The inventory should be written down by $1,200,000 - $1,125,000 = $75,000.
b. Dr. Cost of sales 75,000

Cr. Inventory 75,000
c. The inventory should be presented on the balance sheet at $1,125,000.

Diff: 2 Type: ES
L.O.: L.O. 6-3
14) The Key West Group uses the lower of cost and net realizable value rule to value its kayak inventory.
The Kayaks in inventory were purchased on January 1, 2012 for $12,000. At year end December 31, 2012
the net realizable value of Key West's inventory dropped to $9,000. At the end of 2013 due to a shortage
of Kayaks this inventory increased in value to $15,000.
Required:
Prepare the required journal entries (if any) required at the 2012 and 2013 year end.
Answer: December 31, 2012
Cost of Goods Sold $3,000
Inventory $3,000
December 31, 2013

Inventory $3,000
Cost of Goods Sold $3,000
Diff: 2 Type: ES
L.O.: L.O. 6-3
6.4 Analyze and evaluate gross profit and inventory turnover
1) Inventory turnover is calculated by:

A) dividing average inventory by cost of goods sold
B) dividing cost of goods sold by average inventory
C) multiplying average inventory by cost of goods sold
D) subtracting ending inventory from cost of goods sold
Answer: B
Diff: 1 Type: MC
L.O.: L.O. 6-4

2) The gross margin rate is equal to:

A) net sales revenue minus cost of goods sold
B) gross margin divided by net sales revenue
C) net sales revenue minus gross margin on sales
D) cost of goods sold divided by net sales revenue
Answer: B
Diff: 1 Type: MC
L.O.: L.O. 6-4
3) Data for Flat Panel Ltd. for the year ended December 31, 2013, are as follows:

Inventory turnover for 2013 is:

A) 2.40
B) 2.25
C) 1.07
D) 3.47
Answer: A
Diff: 2 Type: MC
L.O.: L.O. 6-4
4) Victory Stables Ltd. for the year ended December 31, 2013, are as follows:

The Gross Profit percentage for 2013 is:

A) 0.80
B) 1.57
C) 0.20
D) 1.83
Answer: A
Diff: 2 Type: MC
L.O.: L.O. 6-4

5) The gross margin percentage is one of the most closely watched profitability measures. It can be
calculated by:
A) dividing cost of goods sold by average inventory
B) dividing gross margin by net sales revenue
C) dividing gross margin by net accounts receivable
D) dividing cost of goods sold by net sales revenue
Answer: B
Diff: 2 Type: MC
L.O.: L.O. 6-4
6) A sharp decrease in the gross profit percentage is a potential indicator of trouble.

Answer: TRUE
Diff: 2 Type: TF
L.O.: L.O. 6-4
7) The gross margin percentage can be calculated by dividing cost of goods sold by net sales revenue.
Answer: FALSE
Diff: 2 Type: TF
L.O.: L.O. 6-4
8) Inventory turnover is calculated by dividing average inventory by cost of goods sold.

Answer: FALSE
Diff: 1 Type: TF
L.O.: L.O. 6-4

9) The following data are available for Big Box Corporation:

Purchases returns and allowances 800
Purchases 45,000
Sales 85,400
Purchases discounts 1,200
Sales returns 2,000
Sales discounts 1,300
Operating expenses 31,700
Compute:
a. Net purchases
b. Net sales
c. Cost of goods sold
d. Gross margin
e. Gross margin rate and allowances
f. Net income
Answer:
a. Net purchases = $45,000 - ($800 + $1,200) = $45,000 - $2,000 = $43,000
b. Net sales = $85,400 - ($2,000 + $1,300) = $85,400 - $3,300 = $82,100
c. Cost of goods sold = $12,500 + $43,000 - $15,000 = $40,500
d. Gross margin = $82,100 - $40,500 = $41,600
e. Gross margin rate = $41,600 / $82,100 = 50.7%
f. Net income = $41,600 - $31,700 = $9,900
Diff: 2 Type: ES
L.O.: L.O. 6-1, 6-4

10) You are provided with the following information about the bookstore at your university:
Cost of sales for the year ended June 30, 2014 $ 510,000
Inventory balance on June 30, 2013 125,000
Inventory balance on June 30, 2014 165,000
Required:
a. Calculate the inventory turnover ratio for the year ended June 30, 2014.
b. What is the average length of time that it took to sell its inventory in 2014?
c. Is the inventory turnover ratio satisfactory? What would you need to know to fully answer this
question?
Answer:
a. Average inventory = ($125,000 + 165,000)/2 = $145,000.
Inventory turnover = cost of sales / average inventory =
$510,000 / $145,000 = 3.52
b. The average length of time to sell inventory = 365 /3.52 = 103.7 days.
c. You cannot assess whether the turnover is satisfactory without having benchmarks. Information that
could be helpful includes the typical turnover for other university bookstores and the turnover for your
bookstore in recent years, to identify trends. Also, any changes in the accounting environment that might
explain or affect the turnover period would be useful.
Diff: 2 Type: ES
L.O.: L.O. 6-4
11) In 2013, Norwood Limited had sales and cost of sales of $250,000 and $62,500 respectively. The
company had shareholders equity of $100,000 and its assets were $125,000. The company's gross margin
for 2013 was:
Answer: Gross Margin = Sales - Cost of Sales
= $250,000 - $62,500
= $187,500
Diff: 2 Type: ES
L.O.: L.O. 6-4

12) Calculate gross margin percentage for the following independent situations.
a. Net sales $500,000

b. Net sales $650,000

c. Net sales $880,000

d. Net sales $232,000

Answer:
a. $28,000 + $340,700 - $35,000 = $333,700 cost of goods sold
$500,000 - $333,700 = $166,300 gross margin
$166,300 / $500,000 = 0.33
b. $37,500 + $270,000 - $42,000 = $265,500 cost of goods sold

$650,000 - $265,500 = $384,500 gross margin
$384,500 / $650,000 = 0.59
c. $60,000 + $420,000 - $52,500 = $427,500 cost of goods sold

$880,000 - $427,500 = $452,500 gross margin
$452,500 / $880,000 = 0.51
d. $30,000 + $127,000 - $25,000 = $132,000 cost of goods sold

$232,000 - $132,000 = $100,000 gross margin
$100,000 / $232,000 = 0.43
Diff: 2 Type: ES
L.O.: L.O. 6-4

13) State some methods retailers might use to increase the gross margin on sales.
Answer:
∙ Conduct market research to pinpoint the products that sell well to particular groups of customers.
∙ Increase advertising to help boost sales.
∙ Increase the selling price of the products.
∙ Cut the cost of inventory purchases by taking advantage of purchase discounts,
purchasing in large quantities, and searching for economical shipping rates.
Diff: 2 Type: ES
L.O.: L.O. 6-4
14) Discuss methods companies could use to increase the rate of inventory turnover.
Answer: ∙ Conduct market research to pinpoint which products sell the best to particular groups of
customers.
∙ Decrease the selling price of products.
∙ Reduce the amount of inventory kept on hand.
Diff: 2 Type: ES
L.O.: L.O. 6-4
15) Victory Stables had sales and cost of sales of $600,000 and $450,000 respectively in 2014. The company
had shareholders equity of $750,000 and its assets were $1,125,000. Calculate the company's gross margin
and gross profit percentage for 2014.
Answer: Gross Margin = Sales - Cost of Sales
= $600,000 - $450,000
= $150,000
Gross Profit Percentage = Gross Margin/Net Sales Revenue

$150,000/$600,000 = 25%
Diff: 2 Type: ES
L.O.: L.O. 6-4
16) Smart-T Incorporated had sales and cost of sales of $1,850,000 and $1,100,000 respectively in 2014. The
company had shareholders equity of $925,000, liabilities of $775,000 and assets of $1,700,000. Included in
Smart-T's assets was inventory valued at $100,000 which was a $50,000 increase from the previous year's
holdings.
Calculate Smart-T's gross profit percentage and inventory turn over for 2014.
Answer: Gross profit = $1,850,000 - $1,100,000 = $750,000
Gross profit % = $750,000/1,850,000 = 40.5%
Average Inventory = $75,000

Inventory Turnover = 1,100,000/75,000 = 14.7 times per year or every 24.8 days.
Diff: 2 Type: ES
L.O.: L.O. 6-4

6.5 Use the cost-of-goods-sold (COGS) model to make management decisions
1) Average inventory is equal to:

A) beginning inventory plus cost of goods sold divided by two
B) beginning inventory plus ending inventory divided by two
C) cost of goods sold plus purchases divided by two
D) ending inventory plus cost of goods sold divided by two
Answer: B
Diff: 2 Type: MC
L.O.: L.O. 6-5
2) Given the following data, what is the cost of goods sold?
Sales revenue $1,980,000

Purchases 1,250,000
A) $690,000
B) $770,000
C) $1,290,000
D) $1,210,000
Answer: C
Diff: 2 Type: MC
L.O.: L.O. 6-5
3) Given the following data, what is the cost of beginning inventory?
Sales revenue $1,450,000

Purchases 950,000
A) $1,485,000
B) $415,000
C) $1,035,000
D) $205,000
Answer: D
Diff: 2 Type: MC
L.O.: L.O. 6-5

4) Given the following data, what is the cost of purchases?

A) $370,000
B) $465,000
C) $595,000
D) $475,000
Answer: D
Diff: 2 Type: MC
L.O.: L.O. 6-5
5) A widely used method for estimating the value of ending inventory is the:
A) the lower-of-cost-or-market method
B) gross margin method
C) periodic method
D) perpetual method
Answer: B
Diff: 1 Type: MC
L.O.: L.O. 6-5
6) The following data are for the CRT Tube Inc. for the year ended December 31, 2013:

Net sales revenue 100,000
Normal gross margin rate 40%
What is the estimated ending inventory?

A) $80,000
B) $60,000
C) $40,000
D) $20,000
Answer: D
Diff: 2 Type: MC
L.O.: L.O. 6-5

7) The following data are for Upholstery Limited for January 2014:

Net sales revenue 85,000
Normal gross margin rate 30%
What is the company's estimated cost of goods sold for the month?
A) $59,500
B) $25,500
C) $42,000
D) $15,000
Answer: A
Diff: 2 Type: MC
L.O.: L.O. 6-5
8) The gross margin method is often used for estimating inventory destroyed by a disaster such as a fire.
Answer: TRUE
Diff: 1 Type: TF
L.O.: L.O. 6-5
9) The gross profit method may aid in detecting large ending inventory errors.
Answer: TRUE
Diff: 1 Type: TF
L.O.: L.O. 6-5
10) Late on the night of August 30, 2014, an angry employee set a torch to the Family Business Ltd.
warehouse, which was full of inventory. Luckily the accounting records were stored in another facility
and not destroyed in the fire. Family Business Ltd. is in the process of filing a claim with its insurance
company for the inventory loss due to the fire. Estimate the value of the inventory destroyed in the fire
using the gross margin method.
Purchases through August 30, 2014 690,500
Net sales through August 30, 2014 1,335,000
The gross margin rate historically has been 40% of net sales
Answer: Beginning inventory $428,000
Purchases 690,500
Cost of goods available for sale 1,118,500
Less: Cost of goods sold 801,000*
Ending inventory $317,500
* Cost of goods sold = $1,335,000 × 60% = $801,000

Diff: 2 Type: ES
L.O.: L.O. 6-5

11) The Tasty Shrimp Limited's warehouse was recently flooded. The controller has asked you to estimate
the inventory loss. You have managed to salvage the following number from the general office for the
month of July. Note the operation was closed on July 1st for Canada Day.
Sales $660,000
Inventory June 30 $500,000
Purchases July $125,500
Purchases June $110,250
Gross Profit Rate 55%
Answer: Beginning inventory $500,000
Purchases 125,500
Less: Cost of goods sold 297,000*
Ending inventory $328,500
* Cost of goods sold = $660,000 × 45% = $297,000

Diff: 2 Type: ES
L.O.: L.O. 6-5
6.6 Analyze how inventory errors affect the financial statements
1) An error in the ending inventory for the year ended December 31, 2013:
A) automatically creates errors in cost of goods in the 2013 and 2014 financial statements
B) has no effect on the 2013 financial statements but will create an error in the 2014 financial statements
C) automatically creates errors in the ending inventory balance in the 2013 and 2014 financial statements
D) affects only the 2013 financial statements
Answer: A
Diff: 2 Type: MC
L.O.: L.O. 6-6
2) If ending inventory for the year ended December 31, 2013, is overstated by $25,000:
A) net income for 2014 will be understated by $25,000
B) net income for 2014 will be overstated by $25,000
C) ending inventory for 2014 will be understated by $25,000
D) beginning inventory for 2014 will be understated by $25,000
Answer: A
Diff: 2 Type: MC
L.O.: L.O. 6-6
3) If ending inventory on December 31, 2013, is overstated, then:

A) cost of goods sold for the year ended December 31, 2014, will be understated
B) cost of goods sold for the year ended December 31, 2013, will be overstated
C) gross margin for the year ended December 31, 2013, will be understated
D) gross margin for the year ended December 31, 2014, will be understated
Answer: D
Diff: 3 Type: MC
L.O.: L.O. 6-6

4) If ending inventory for the year ended December 31, 2013, is understated, this error will cause owners'
equity to be:
A) overstated at the end of 2013 and understated at the end of 2014
B) understated at the end of 2013 and overstated at the end of 2014
C) correctly stated at the end of 2013 and overstated at the end of 2014
D) understated at the end of 2013 and correctly stated at the end of 2014
Answer: D
Diff: 3 Type: MC
L.O.: L.O. 6-6
5) If ending inventory is overstated, then:

A) cost of goods sold and ending inventory will both be overstated
B) cost of goods sold and ending inventory will both be understated
C) cost of goods sold will be overstated and ending inventory will be understated
D) cost of goods sold will be understated and ending inventory will be overstated
Answer: D
Diff: 2 Type: MC
L.O.: L.O. 6-6
6) Payment for the acquisition of inventory is shown on a cash flow statement as a(n):
A) investing activity
B) operating activity
C) financing activity
D) does not appear on a cash flow statement
Answer: B
Diff: 2 Type: MC
L.O.: L.O. 6-6
7) Cash received from the sale of inventory is shown on a cash flow statement as:
A) an investing activity
B) a financing activity
C) an operating activity
D) either an operating activity or a financing activity
Answer: C
Diff: 2 Type: MC
L.O.: L.O. 6-6
8) Inventory errors counter balance in two consecutive periods.

Answer: TRUE
Diff: 1 Type: TF
L.O.: L.O. 6-6
9) An understatement in ending inventory results in an overstatement of gross profit.

Answer: FALSE
Diff: 1 Type: TF
L.O.: L.O. 6-6

10) Inventory errors can be ignored because they counter balance fix themselves.
Answer: FALSE
Diff: 1 Type: TF
L.O.: L.O. 6-6
11) Overstating ending inventory in the current period will understate the following year's net income.
Answer: TRUE
Diff: 3 Type: TF
L.O.: L.O. 6-6
12) An error in the valuation of beginning inventory in the current period will affect the following year's
net income.
Answer: FALSE
Diff: 3 Type: TF
L.O.: L.O. 6-6
13) If a company makes an error when counting ending inventory in 2013, the effect of the error will
cancel out at the end of 2014.
Answer: TRUE
Diff: 3 Type: TF
L.O.: L.O. 6-6
14) Understating ending inventory in the current period will understate cost of goods sold in the
following period.
Answer: TRUE
Diff: 3 Type: TF
L.O.: L.O. 6-6

15) Determine the effect on cost of goods sold, total assets, and gross margin for 2013 and 2014 if the
following inventory errors are not corrected. Indicate your answer with (+) for overstated, (-) for
understated, and (0) for no effect.
a. Beginning inventory for 2013 is understated
b. Beginning inventory for 2013 is overstated
c. Ending inventory for 2013 is understated
d. Ending inventory for 2013 is overstated
Effect in 2013 on
Cost of Goods Sold Total Assets Gross Margin
a.
b.
c.
d.
Effect in 2014 on
a.
b.
c.
d.
Answer: Effect in 2013 on
a. - 0 +
b. + 0 -
c. + - -
d. - + +
Effect in 2014 on
a. 0 0 0
b. 0 0 0
c. - 0 +
d. + 0 -
Diff: 3 Type: ES
L.O.: L.O. 6-6

16) The following data are available for Franchise Corporation:

Product A Product B Product C
Beginning inventory $ 5,000 $20,000 $15,000
Net purchases 45,000 55,000 53,000
Goods available for sale 50,000 75,000 68,000
Ending inventory 17,000 15,000 7,000
Cost of goods sold 33,000 60,000 61,000
You discover the following errors:
a. Ending inventory for product A was overstated by $7,000.

b. Ending inventory for product B was understated by $4,000.
c. Beginning inventory for product C was overstated by $5,000.
Considering these errors, recalculate cost of goods sold for all products.
Answer:
a. 33,000 + 7,000 = 40,000
b. 60,000 - 4,000 = 56,000
c. 61,000 - 5,000 = 56,000
Diff: 2 Type: ES
L.O.: L.O. 6-6

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somewhere we made a mistake, there was something we failed to
see. I'd like to know what made him jump."
This time the American looked out to sea. He was silent.
The doctor took out an old briar pipe and began filling it from a
leather pouch. "Strange. His radio beacon is functioning normally.
There's no reason why his transmitter and receiver shouldn't be
working too. Yet we've been trying to contact him by means of voice
communication, and he doesn't answer. Maybe he's dead already.
There's no way to tell."
"Do you think he's worth saving?" the pilot asked after a minute.
"I'd like to know why he jumped."
In the briefing room, the American listened intently to the sounds

coming from the speaker. Dr. Valdez and the other members of the
Prospero's crew also listened. Dr. Valdez listened with his eyes
closed, drawing slowly on his pipe.
"Orbital ship Wabash Cannonball acknowledging Azores
transmission," the voice said. "Our condition is still AOK, repeat,
condition is still normal. We are still tracking survival beacon. Range,
10,000 kilometers and closing." There was another burst of radio
noise that momentarily drowned out the voice. The men in the
briefing room had been listening for nearly six hours now.
Occasionally one of them would go out for coffee or fresh air, but he
always returned within a few minutes. The American pilot had not
moved from his place since lift-off. Outside, it had begun to rain.
At last, the critical moment came.
"Range is now five hundred kilometers and closing," the voice said.
"I now have a visual sight. Repeat. I have a visual sight. I can see
him. Switching from computer to manual control." Several minutes of
silence. The pilot was jockeying closer to Duport, making delicate
adjustments in his ship's orbital path. He had a small target. A single
wrong judgement could cause him to drift hundreds of kilometers off
course, wasting a critical amount of fuel.
At last the report came, "Range is now five hundred meters. We are
suiting up and blowing cabin pressure. Stand by for further
transmission." Ten minutes passed. The crew was too busy to
broadcast now. The rain drummed softly on the roof of the briefing
room and ran in slow curtains down the windowpanes.
Finally the voice came on the air again.
"Orbital ship Wabash Cannonball resuming transmission. Rescue
operation is successful. Repeat, operation is successful. We have
him aboard. He's alive."
The American pilot looked up at the faces around him. Dr. Valdez
was rubbing his mouth thoughtfully. The other men stared at the
speaker with blank looks. The American noted that no one was
cheering.
Later, the pilot of the Cannonball described the rescue. When he had
first reported his visual sighting, he had been seeing the sunlight
reflected from the surface of Duport's suit. Duport was a white spark,
shining out among the stars like a meteor or nova. The sight had
given the rescue pilot a peculiar feeling, he mentioned later, seeing
this blue-white star slowly growing in the sky until it was brighter than
Venus, seeing this new star rise, a point of white fire, and knowing
the star was a man.
Then they had suited up and blown the cabin pressure. The co-pilot
had gone out the hatch while the pilot remained at his controls.
Watching through the periscope, he could see Duport spread-eagled
against the sky, the left side of his body a glare of sunlight, the right
side in shadow. Duport had not moved his arms or legs since they
had first seen him, neither did he acknowledge with his suit
transmitter. He was about five hundred meters from the ship and
drifting slowly closer. The co-pilot tethered himself to the hull, then
tossed out a line with a magnetic grapple on its end. He missed,
hauled in, and tossed again. On the third try the end of the line
passed within half a meter of Duport's body. Duport moved his arm,
took the end of the line, and hooked it to his belt. The co-pilot hauled
him in.
About a month later, the American pilot saw Rene Duport for the first
time since he had jumped from the Prospero. It was at the space
medicine laboratories at Walter Reed.
Dr. Valdez stood near the window, looking down at the sunlit lawn. In
the shade of a tall shrub a man was sitting in a lawn chair, his head
back, completely relaxed. He wore a blue denim hospital uniform.
His back was to the window.
"Physically he was in good condition when they brought him down,"
the doctor said, "except for a slight case of dehydration."
"Can I talk to him?" the pilot asked.
Dr. Valdez looked at him sharply, as if surprised by the request.
"You can talk to him if you like. But he won't answer you."
The pilot followed the doctor out of the room and down to the lawn.
They came up from behind the lawn chair and stood looking down at
the man sitting in it. His eyes were closed.
The pilot saw that Duport's jaw was slack. He could not tell whether
he was asleep. The flesh in his cheeks was sunken. He looked older.
Dr. Valdez said, "Catatonia, schizophrenia, it's like no condition I've
ever seen before. He is perfectly aware of what is going on around
him, you see. Bring him food and he eats. Stick him with a pin and
he jumps. All his responses are normal. He took the cable and
attached it himself, remember. But he will make no more than the
minimum necessary effort to survive." The doctor chewed his lip,
thinking. "If only he would say something."
"Have you decided why he jumped?" the pilot asked, not realizing
that he was whispering. "What made him panic?"
"No." The doctor shook his head. "Not panic, it wasn't fear alone, I
think. There was something else. We put him through equally critical
moments in training, and he didn't panic then. Fear was part of it, but
there was something else too."
"Well, what then?"
"I don't know the word. It's something new. Maybe Duport is a new
kind of human being. If not fear, call it—love, or desire. He jumped
into space because, I think, he wanted to."
"I don't understand that," the pilot said.
"I don't either—yet." Dr. Valdez moved a step closer to the man in
the chair. "Rene. Rene Duport."
Without moving his head, Duport opened his eyes.
"Stand up."
Duport got up and stood looking at some point half way between the
two men. His eyes no longer glistened.
"It's as if something has gone out of him," the doctor said.
"Do you know who I am?" the pilot asked. Rene Duport turned his
head until the pupils of his eyes were pointed at the American's face.
But his eyes did not seem to focus on him. Rather they were focused
at some point far beyond him.
"Why did you jump?" the pilot said. Moving a step closer, he looked
into the blank, dull eyes, that continued looking through him, focused
on some strange horizon. The eyes no longer seemed blue, but light
grey. The pilot tried to remember where he had seen eyes like that
before. Then he remembered one day, years before, when he had
looked down into the open eyes of a dead man. He shuddered and
turned away.
"If only he would talk," the doctor said.
The pilot had turned his back on Duport. "Why? If he could talk, what
would you ask him?"
It was two or three minutes before the doctor answered.
"I would ask him what it feels like to be a star."
And as the two men walked away, Rene Duport remained standing
where they left him. He was watching. The pupils of his eyes never
shifted, but he was always watching. The Earth, a swollen balloon,
floated past his field of vision. Slowly his right arm rose until his arm
was horizontal from his shoulder. Then the corners of his mouth lifted
in a faint smile, as his fingers touched the Clouds of Magellan.
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Financial Accounting Canadian 5Th Edition Harrison Test Bank Full Chapter PDF

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Financial Accounting Canadian 5th

Edition Harrison Test Bank

Chapter 6 Inventory and Cost of Goods Sold

3) In a merchandising business, gross margin is equal to sales revenue minus:

4) A perpetual inventory system offers all the following advantages except:

© 2015 Pearson Canada Inc. 6-1

7) Technological advances in computers and inventory tracking have:

© 2015 Pearson Canada Inc. 6-2

© 2015 Pearson Canada Inc. 6-3

© 2015 Pearson Canada Inc. 6-4

Cost of Goods Sold 690,300

b. $319,800 + $738,200 - $690,300 = $367,700

© 2015 Pearson Canada Inc. 6-5

Beginning inventory $188,200

Cost of Goods Sold 500,600

Accounts Receivable 528,780

b.$188,200 + $400,500 - $500,600 = $88,100

© 2015 Pearson Canada Inc. 6-6

Sales revenue $300,000

Calculate the following for Don't Pay a Cent Corporation:

25) What is the most important asset of a merchandising business?

© 2015 Pearson Canada Inc. 6-7

6.2 Explain and apply three inventory costing methods

Sales revenue 100 units at $15 per unit

Sales revenue 350 units at $35 per unit

© 2015 Pearson Canada Inc. 6-8

1/1 Beginning inventory 45 units at $10 per unit

1/1 Beginning inventory 50 units at $10 per unit

© 2015 Pearson Canada Inc. 6-9

1/1 Beginning inventory 50 units at $10 per unit

1/1 Beginning inventory 50 units at $10 per unit

© 2015 Pearson Canada Inc. 6-10

1/1 Beginning inventory 40 units at $12 per unit

8) FIFO tends to increase cost of goods sold when:

9) FIFO tends to decrease cost of goods sold when:

© 2015 Pearson Canada Inc. 6-11

15) FIFO uses "old" inventory costs against revenue.

© 2015 Pearson Canada Inc. 6-12

© 2015 Pearson Canada Inc. 6-13

21) Key West Group Ltd.

Numbers of units Price paid per unit

Calculate cost of goods sold using FIFO.

500 units × $50 = $25,000

© 2015 Pearson Canada Inc. 6-14

Beginning inventory 50 units at $150 each

purchases 55 × $160 = $8,800

January 1 balance 80 units at $25

© 2015 Pearson Canada Inc. 6-15

24) West Life Group Ltd.

Numbers of units Price paid per unit

Calculate cost of goods sold using the weighted average method.

COGS: $64.29 × 1500 = $96,435

© 2015 Pearson Canada Inc. 6-16

25) Calculate inventory turnover for the following independent situations.

a. Ending inventory $25,000

b. Purchases during the year $350,000

c. Beginning inventory $37,500

d. Purchases during the year $335,700

b. $50,000 + $350,000 - $42,500 = $357,500 cost of goods sold

c. $37,500 + $270,000 - $42,000 = $265,500 cost of goods sold

d. $27,000 + $335,700 - $32,000 = $330,700 cost of goods sold

© 2015 Pearson Canada Inc. 6-17