honeycfa

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

honeycfa

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 first in, first out (FIFO)?

A) $1,575.

B) $3,475.

C) $3,100.

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Ending inventory equals 20 + 10 + 35 + 20 ? 60 = 25 of last units purchased in inventory.

(20 units)($65/unit) + (5 units)($55/unit) = $1,300 + $275 = $1,575

honeycfa

A firm uses the last in, first out (LIFO) accounting method and posts $100,000 as ending inventory. Last year's financial statements show inventory at $110,000. This period's income statement shows costs of goods sold at $90,000 with a LIFO reserve of $30,000. How much inventory was purchased this period, and what would the ending inventory balance be under first in, first out (FIFO)?

       Inventory purchases    Ending inventory (FIFO)

A) $80,000    $130,000

B) $90,000    $130,000

C) $80,000    $70,000

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EI = BI + P - COGS

100 = 110 + P - 90

P = $80,000

In order to convert ending inventory under FIFO to LIFO you have to add the LIFO reserve to the ending inventory under LIFO.
EI_FIFO = $100,000 + $30,000 = $130,000

honeycfa

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) $3,200 $3,100

C) $2,500 $3,800

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Under FIFO:

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

honeycfa

A company's beginning inventory was overstated by $3,000, now ending inventory is understated by $2,000. If purchases were properly reported, then earnings before taxes will be:

A) overstated by $1,000.

B) overstated by $5,000.

C) understated by $5,000.

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Cost of goods sold (COGS) will be overstated by 5,000 so earnings before taxes (EBT) will be understated by 5,000.

honeycfa

Which of the following is least likely part of the basic inventory equation?

A) Beginning inventory + purchases = ending inventory + cost of goods sold.

B) Beginning inventory ? ending inventory ? cost of goods sold = purchases.

C) Purchases ? ending inventory + beginning inventory = cost of goods sold.

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To solve for purchases the basic inventory equation would then be: ending inventory + COGS ? beginning inventory = purchases.

honeycfa

An analyst notes the following about a company:

• Beginning inventory was reported as $5,000.
• Costs of goods sold were reported as $8,000.
• Ending inventory is $7,000 (the analyst has physically verified this amount).

Which of the following statements is most accurate?

A) If the analyst discovered that beginning inventory was understated by $2,000, then earnings before taxes must have been overstated by $2,000.

B) If the analyst discovered that beginning inventory was overstated by $1,000, then cost of goods sold must have been understated by $1,000.

C) Purchases must have been $6,000.

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If inventory is overstated then COGS must also be overstated or purchases were understated, since you are told that ending inventory is ok.

honeycfa

	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 weighted average method?

A) $3,423.82.

B) $3,604.02.

C) $2,918.00.

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Weighted average = cost of goods available / total units available. COGS = Units sold × weighted average = 959 × 3.7381 = $3,604.02.

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What is the cost of goods sold using the first in, first Out (FIFO) method?

A) $8,325.00.

B) $2,772.10.

C) $2,918.00.

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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) $4,142.00.

B) $1,744.20.

C) $1,836.00.

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

honeycfa

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) $150.

C) $175.

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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

honeycfa

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) $2,400.

B) $3,100.

C) $1,800.

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(700 × 7.00) – [(400 × 4.00) + (300 × 5.00)] = 1,800