RobertA

JME purchased 400 units of inventory that cost $4.00 each. Later the firm purchased an additional 500 units that cost $5.00 each. JME sold 700 units of inventory for $7.00 each. If JME uses a first in, first out (FIFO) cost flow method, the amount of gross profit appearing on the income statement is:

A) $1,800.

B) $2,400.

C) $3,100.

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(units sold × sales price) – [(inventory cost × unit cost) + (inventory cost × unit cost)] = sales – COGS = gross profit
(700 × 7.00) – [(400 × 4.00) + (300 × 5.00)] = 1,800

RobertA

Which of the following inventory accounting methods must be used for financial reporting purposes if a U.S. firm uses last in, first out (LIFO) for tax purposes?

A) The firm may use any of the above methods.

B) LIFO.

C) FIFO.

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If a U.S. firm uses LIFO for tax purposes, it must also use LIFO for financial reporting purposes, according to U.S. tax law.

RobertA

Given the following data and assuming a periodic inventory system, what is the ending inventory using the average cost method?

Purchases	Sales
40 units at $60/unit	25 units at $65/unit
50 units at $55/unit	30 units at $60/unit
60 units at $45/unit	40 units at $50/unit

A) $2,878.

B) $2,933.

C) $3,141.

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Average cost per unit purchased:

40 units at $60/per unit = $2,400
50 units at $55/per unit = $2,750
60 units at $45/per unit = $2,700

Total = 150 units = $7,850
Average cost per unit = $7,850 /150 units = $52.33/unit
Purchased 40 + 50 + 60 = 150 units. Sold 25 + 30 + 40 = 95
Ending inventory = 150 − 95 = 55 units × $52.33/unit = $2,878

RobertA

Purchases	Sales
20 units at $50	15 units at $60
35 units at $40	35 units at $45
85 units at $30	85 units at $35

Assume beginning inventory was zero.

Inventory value at the end of the period using the average cost method is:

A) $177.

B) $4,680.

C) $1,540.

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Average Cost = Cost of Goods Available / Total Units Available
Average Cost = $4,950 / 140 = $35.36
EOP Inventory Value = $35.36 × 5 = $176.79

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Inventory value at the end of the period using FIFO is:

A) $1,200.

B) $175.

C) $150.

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(Units purchased minus units sold) times cost = EOP value
(140 – 135) × $30 = $150

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Inventory value at the end of the period using LIFO is:

A) $1,200.

B) $2,400.

C) $250.

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5 × $50 = $250

RobertA

The Mountain Bike Supply Company had 500 units in its beginning inventory. Each of these units cost $5. During the period, Mountain Bike Supply first purchased 400 units at $6 each and then 200 units at $7 each. At the end of the period, Mountain Bike Supply had 600 units. What is the cost of goods sold and inventory for Mountain Bike Supply if it uses FIFO inventory valuation?

COGS

Inventory

A) $2,500 $3,100

B) $2,500 $3,800

C) $3,200 $3,100

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Under FIFO:

COGS	= 500 @ $5 = $2,500
Inventory	= 200 @ $7 + 400 @ $6 = $3,800

RobertA

Given the following inventory data about a firm:

• Beginning inventory 20 units at $50/unit
• Purchased 10 units at $45/unit
• Purchased 35 units at $55/unit
• Purchased 20 units at $65/unit
• Sold 60 units at $80/unit

What is the inventory value at the end of the period using LIFO?

A) $1,575.

B) $3,450.

C) $1,225.

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Ending inventory equals 20 + 10 + 35 + 20 − 60 = 25 of the first units purchased equals:
(20 units)($50/unit) + (5 units)($45/unit) =
$1,000 + $225 = $1,225

RobertA

	Units	Unit Price
Beginning Inventory	709	$2.00
Purchases	556	$6.00
Sales	959	$13.00
SGA Expenses	$2,649 per annum

What is the cost of goods sold using the average cost method and using the first in first out (FIFO) method?

Average Cost

FIFO

A) $3,604.02 $2,918.00

B) $4,142.02 $2,918.00

C) $3,604.02 $3,423.82

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Average cost = cost of goods available/total units available. COGS = Units sold × avg. cost = 959 × 3.7581 = $3,604.02.

FIFO COGS = (709 × 2) + (250 × 6) = $2,918.00

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What is the ending inventory level in dollars using the FIFO Method?

A) $1,836.00.

B) $1,744.20.

C) $3,604.02.

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Ending Inventory = 306 × 6 = $1,836.00.

RobertA

An analyst provided the following information about a company:

• Purchases throughout the year
  $55,000

• COGS
  $60,000

• 
  Ending inventory
  $35,000

The beginning inventory was:

A) $45,000.

B) $40,000.

C) $55,000.

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COGS of $60,000 + ending inventory of $35,000, less purchases of $55,000.

RobertA

Arlington, Inc. uses the first in, first out (FIFO) inventory cost flow assumption. Beginning inventory and purchases of refrigerated containers for Arlington were as follows:

	Units	Unit Cost	Total Cost
Beginning Inventory	20	$10,000	$200,000
Purchases, April	10	12,000	120,000
Purchases, July	10	12,500	125,000
Purchases, October	20	15,000	300,000

In November, Arlington sold 35 refrigerated containers to Johnson Company. What is the cost of goods sold assigned to the 35 sold containers?

A) $485,000.

B) $434,583.

C) $382,500.

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Under FIFO, cost of goods sold is the value of the first units purchased. The 35 units sold consist of the 20 units in beginning inventory, the 10 units purchased in April, and 5 of the units purchased in July. COGS = $200,000 + $120,000 + (5 × $12,500) = $382,500.

RobertA

For balance sheet purposes, inventories based on:

A) FIFO are preferable to those based on LIFO, as they more closely reflect current costs.

B) LIFO are preferable to those based on FIFO, as they more closely reflect the current costs.

C) LIFO are preferable to those based on average cost, as they more closely reflect the current costs.

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The inventories based on FIFO are preferable to those presented under LIFO or average cost for balance sheet purposes. Under FIFO, the older inventories are taken out first, and the ending inventory balance consists of the recent purchases and thus most closely reflect the current (economic) value.