Week 7 Quiz

A shop buys identical items at several different unit costs during a period. What does its cost flow assumption decide?

Select one.

• Which helmets or boxes physically leave the shelf first
• Which unit costs move to cost of goods sold and which stay in ending inventory
• What selling price the shop charges for each unit
• Which supplier the shop pays first when invoices come due

The bicycle shop (illustrative) uses a periodic system for helmets: beginning inventory of 20 helmets at $30, Purchase 1 of 40 helmets at $33, and Purchase 2 of 40 helmets at $36. It sells 70 helmets at $50 each. What is cost of goods sold under FIFO?

Select one.

• $2,430
• $2,352
• $2,280
• $1,080

The bicycle shop (illustrative) uses a periodic system for helmets: beginning inventory of 20 helmets at $30, Purchase 1 of 40 helmets at $33, and Purchase 2 of 40 helmets at $36. It sells 70 helmets at $50 each. What is ending inventory for the 30 helmets left under LIFO?

Select one.

• $930
• $1,080
• $1,008
• $2,430

The bicycle shop (illustrative) uses a periodic system for helmets: beginning inventory of 20 helmets at $30, Purchase 1 of 40 helmets at $33, and Purchase 2 of 40 helmets at $36. It sells 70 helmets at $50 each. Under weighted average, what are the unit cost and the cost of goods sold?

Select one.

• $33.00 a helmet; cost of goods sold $2,310
• $36.00 a helmet; cost of goods sold $2,520
• $33.60 a helmet; cost of goods sold $1,008
• $33.60 a helmet; cost of goods sold $2,352

The bicycle shop (illustrative) uses a periodic system for helmets: beginning inventory of 20 helmets at $30, Purchase 1 of 40 helmets at $33, and Purchase 2 of 40 helmets at $36. It sells 70 helmets at $50 each. What is gross profit under FIFO?

Select one.

• $1,070
• $1,220
• $1,148
• $3,500

When each purchase of an item costs more than the one before, which statement describes the effect of the cost flow assumptions?

Select one.

• FIFO reports lower cost of goods sold and higher gross profit than LIFO
• LIFO reports lower cost of goods sold and higher gross profit than FIFO
• FIFO and LIFO report the same gross profit, because the total paid is the same
• FIFO is the better method, because it reports more profit to readers

True or false: a company reporting under IFRS may use LIFO as long as it discloses the method in its notes.

True or false.

• True
• False

The bicycle shop (illustrative) uses FIFO, and its 30 helmets left cost $1,080. It now expects to receive $34 a helmet, net of selling costs. Under the lower of cost and net realizable value, what happens?

Select one.

• No write-down; the helmets stay at $1,080
• A write-down of $72; the helmets are reported at $1,008
• A write-down of $60; the helmets are reported at $1,020
• A write-down of $1,020; the helmets are reported at $60

Which statements about inventory methods and inventory errors are true? Select all that apply.

Select every option that applies.

• A business applies the same inventory method from period to period and discloses the method it uses
• An overstated ending inventory overstates net income in that year and understates net income in the next year
• Changing the inventory method every year has no effect on whether a reader can compare the years
• Specific identification is the practical method for 100 identical helmets

True or false: for the bicycle shop (illustrative), the cost of the 30 helmets left is reported as ending inventory, a current asset on the balance sheet, while the cost of the 70 helmets sold is reported as cost of goods sold on the income statement.

True or false.

• True
• False