Multiple Choice (1.8 points each)
The 2021 inventory data for Angel Corporation’s is presented below. Assume that Angel uses periodic inventory tracking.
|2021 Beginning Inventory (purchased in 2020)||200 units @ $24 per unit|
|Purchase 1 on 2/1/21||500 units @ $26 per unit|
|Purchase 2 on 6/12/21||300 units @ $30 per unit|
|Sale 1 on 3/5/21||450 units @ $50 per unit|
|Sale 2 on 9/15/21||400 units @ $50 per unit|
When Angel examined what items were sold, they noted that 150 of the units are from 2021 beginning inventory, 430 units are from the 2/1/21 purchase, and 270 units are from the 6/12/21 purchase.
- What is Inventory on the 12/31/21 Balance Sheet if Angel uses FIFO?
- What is Cost of Goods Sold on the 2021 Income Statement if Angel uses LIFO?
- What is Inventory on the 12/31/21 Balance Sheet if Angel uses Specific Identification?
- What is Gross Profit on the 2021 Income Statement if Angel uses Weighted Average Cost?
- On January 29, 2021, Verdi Corporation sold and shipped merchandise to KBA, Inc. for $400,000 on credit. Goods were shipped FOB destination and arrived at KBA warehouse on February 2. Which of the following statements is true?
- Verdi Corporation includes the $400,000 as part of its January 31 Inventory balance.
- KBA, Inc. includes the $400,000 as part of its January 31 Inventory balance.
- Both companies include the $200,000 as part of their January 31 Inventory balances.
- The goods are in transit on January 31 so neither company includes the $400,000 as part of its January 31 Inventory balance.
- Cozy Corporation uses a periodic inventory system. When Cozy’s manager counts its inventory on December 31, 2021, he accidentally forgets to count one pile of blankets, resulting in 2021 ending inventory being understated by $80,000. The manager counts the December 31, 2022 inventory correctly. Which of the following statements is true related to Cozy Corporation’s 2021 and 2022 financial statements?
- 2022 Beginning Inventory will be overstated by $80,000.
- 2022 Cost of Goods Sold will be understated by $80,000.
- 2021 Cost of Goods Sold will be understated by $80,000.
- Both a and b are true.
- All of the above are true.
- In a period of rising prices, which of the following inventory methods generally results in the lowest balance sheet figure for inventory?
- Weighted Average Cost
- Cannot tell without more information
Use Starbucks’ most recent financial statements to answer the following three questions.
- Which inventory cost flow assumption does Starbucks use to value its inventories?
- Weighted Average Cost
- Specific Identification
- What is the most likely reason that Starbucks chose this inventory cost flow assumption (given rising price trend)?
- To report higher Net Income on its Income Statement.
- To report higher Total Assets on its Balance Sheet.
- To pay less taxes.
- Both a and b are true.
- Which of the following statements about Starbucks is TRUE?
- year 2020 Gross Profit < Fiscal year 2019 Gross Profit.
- < Fiscal year 2018 Gross Profit.
- < Fiscal year 2018 Operating Income.
Problem (32 points)
|2021 Beginning Inventory (bought in 2020)||50 units @ $40 per unit|
|Purchase 1 on 2/10/21||140 units @ $48 per unit|
|Purchase 2 on 8/7/21||60 units @ $50 per unit|
|Sale 1 on 3/4/21||80 units @ $110 per unit|
|Sale 2 on 9/5/21||130 units @ $110 per unit|
When Joy counts its 2021 year-end inventory, they see that 5 of the units are from beginning inventory, 20 units are from the 2/10/21 purchase, and 15 units are from the 8/7/21 purchase.
Show how Joy’s Balance Sheet and Income Statement would look under each of the inventory cost flow assumptions. Compute Ending Inventory, Sales, COGS, and Gross Profit under Specific Identification, Weighed Average Cost, FIFO and LIFO. Fill in your answers on the table below. SHOW YOUR WORK. Round your answers to nearest cent.
|Specific Identification||Weighted Average||FIFO||LIFO|
|12/31/21 Balance Sheet|
|2021 Income Statement|
|Cost of Goods Sold|
|Consolidated Income Statements In millions of dollars|
|Year ended Sept. 27, 2020||Year ended Sept. 29, 2019||Year ended Sept. 30, 2018|
|Net Sales||$ 23,518.0||$ 26,508.6||$ 24,719.5|
|Cost of goods sold||7,694.9||8,526.9||7,930.7|
|Selling, general, and administrative expenses||14,261.4||13,903.8||12,905.5|
|Consolidated Balance Sheets In millions of dollars|
|ASSETS||As of Sept. 27, 2020||As of Sept. 29, 2019|
|Cash and cash equivalents||$ 4,350.9||$ 2,686.6|
|Accounts receivable, net||883.4||879.2|
|Prepaid expenses and other current assets||739.5||488.2|
|Total current assets||$ 7,806.4||$ 5,653.9|
|Notes to Consolidated Financial Statements (partial)|
|Footnote 1. Summary of Significant Accounting Policies 1.1 Description of Business We purchase and roast high-quality coffees that we sell, along with handcrafted coffee and tea beverages and a variety of fresh and prepared food items, through our company-operated stores. We also sell a variety of coffee and tea products and license our trademarks through other channels such as licensed stores, grocery and foodservice. 1.3 Fiscal Year Our fiscal year ends on the Sunday closest to September 30. Fiscal year 2020 ended on September 27, 2020, fiscal year 2019 ended on September 29, 2019, and fiscal year 2018 ended on September 30, 2018. 1.11 Inventories The Company values inventories at the lower of cost or net realizable value using the first-in, first-out (“FIFO”) method.|
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