A) A clothing manufacturer that sells all of its finished goods before they go out of style.
B) A defense contractor that completes its projects within the deadlines set by its customer (the federal government).
C) A pharmaceutical firm that consistently brings new products to market ahead of its competitors.
D) A homebuilder who has its suppliers deliver lumber and other building materials to the building site the night before these materials will be used by the company’s construction crews.
Use the following to answer questions 2 – 3:
At year-end, the perpetual inventory records of Williams Co. indicate 60 units of a particular product in inventory, acquired at the following dates and unit costs:
Purchased in August: 30 units at $900 per unit
Purchased in November: 30 units at $950 per unit
However, a complete physical inventory taken at year-end indicates only 50 units of this product actually are on hand.
13. Refer to the above data. Assuming that Williams uses the LIFO flow assumption, it should record this inventory shrinkage by:
A) Debiting Cost of Goods Sold $9,500
B) Crediting Cost of Goods Sold $9,000.
C) Debiting Cost of Goods Sold $9,000.
D) Crediting Cost of Goods Sold $9,500.
3. Refer to the above data. Assuming that Williams uses the FIFO flow assumption, it should record this inventory shrinkage by:
A) Crediting Cost of Goods Sold $9,500
B) Debiting Cost of Goods Sold $9,000.
C) Crediting Cost of Goods Sold $9,000.
D) Debiting Cost of Goods Sold $9,500.
4. On Saturday, June 30, Dalton Stereo sold merchandise to Tom Reed on account. The sales price was $4,200, and the cost of goods sold was $3,100. The sales revenue was recorded immediately, but the entry recording the cost of goods sold was dated Monday, July 2. As a result, net income for June was:
A) Overstated by $4,200.
B) Overstated by $3,100.
C) Overstated by $1,100.
D) Not affected, but the net income for July is understated.
5. For the last several years Goldschmidt Corporation has operated with a gross profit rate of 35%. On January 1 of the current year the company had on hand inventory with a cost of $300,000. Purchases of merchandise during January amounted to $96,000, and sales for the month were $180,000. With the gross profit method, the estimated inventory at January 31 is:
6. The recent annual report of Quest Corporation disclosed a LIFO reserve of $25 million. Assuming that Quest pays income taxes at a rate of 40%, using LIFO has:
A) Saved the company $25 million in income taxes.
B) Saved the company $10 million in income taxes.
C) Cost the company an additional $15 million in income taxes.
D) None of the above, as Quest cannot use LIFO in its income tax return if it uses this method in its financial statements.
Use the following to answer questions 7 – 9:
At the end of last year, Tech-Toys had merchandise costing $120,000 in inventory. During January of the current year, the company purchased merchandise costing $82,000, and sold merchandise that it had purchased at a total cost of $64,000. Tech Toys uses a perpetual inventory system.
18. Refer to the above data. The total amount debited to the Inventory account during January was:
8. Refer to the above data. The balance in the Inventory account at January 31 was:
9. Refer to the above data. The amount of goods transferred from the Inventory account to the Cost of Goods Sold account during January was: