Inventories and Cost of Goods Sold
Financial Accounting II
Old Questions

BBA Second Semester
Pokhara University | PU
Management Notes

2010 fall No. 1.a.

Everest Company’s inventory records for the month of November reveal the following:

Selling and administrative expenses for the month were Rs. 16,200. Depreciation expense was

Rs 6,000 Everest Company’s tax rate is 35%.

Required:

a. Calculate the cost of goods sold and ending inventory under each of the following three methods (assume a periodic inventory system)

(i) FIFO (ii) LIFO, and  (iii) weighted average.            [4]

b. Calculate the gross margin and net income under each costing assumption. [4]

c. Under which costing method will Everest pay the least amount of taxes? Explain your answer.

2010  Fall Q.No. 1b

On February 12, a hurricane destroys the entire inventory of Suncoast Corporation. An estimate of the amount of inventory lost is needed for insurance purposes. The following information is available:

Inventory on January 1                                          Rs.15,400

Net sales from January 1 to February 12               Rs.105,300

Purchase from January 1 to February 12            Rs. 84230

Suncoast estimates its gross profit ratio as 25% net sales The insurance company has agreed to pay Suncoast Rs 10 000 as a settlement for hi inventory destroyed.

Required: Prepare the journal entry on Suncoast’s books to recognize the inventory lost and the insurance reimbursement.  [5]

2010 Spring Q.No. 1

Following information pertains to Acer Co, for the month of January 2010.

• Beginning inventory is 125 units @ Rs.10.
• Operating expenses for the month is Rs 1,500.
• Tax rate for the company is 30 %
• Following table pertains the information about purchase and sale of inventory for Jan 2010.

Required:

1. Prepare cost of goods sold and ending inventory under LIFO, FIFO and weighted average costing method. [9]
2. Prepare income statement under LIFO, FFO and weighted average costing method and which method does provide low tax expenses.   [5+1]

2011 Fall Q.No. 1a

Suppose you are the account officer of the Star Trading House At the end of its last year of operations, the house is suffering from losses. The following information has been accumulated during this year.

Purchases

January          100 units @ Rs 80

April                120 units @ Rs 80

November      150 units @ Rs 90

During the year, Star Trading House sold 300 units at Rs 150 each. The expected tax rate is 10% The finance controller doesn’t understand how to report inventory in the financial statement because no record of the cost of the units sold was taken as each sale was made.

Required: 

1. What inventory system must Star Trading House use and why? [2]
2. Which method (LIFO & FIFO) provides more profit? Prepare income statement to justify Your answer.  [6]

2011 Fall Q.No. 1 b.

On July 1, 2006, an explosion destroyed a store of raw material. The insurance company has agreed to pay store Rs 10,000 as a settlement for the inventory destroyed. But an estimate of the amount of inventory lost is needed for insurance purposes. The following information is available.

Beginning inventory              Rs 24,000

Purchases, January-June       Rs 23,000

Sales, January-June                Rs 40,000

Inventory not destroyed       2,000

Gross profit margin                 20%

Determine the inventory lost and prepare the journal entry on this store books to recognize the inventory lost as well as the insurance reimbursement. [5+2]

2011 Spring Q.No.1

Fishtail Foods Company records for the month of October reveal the following: [15]

Selling and administrative expenses for the month were Rs 8100.Depreciation expense was Rs 3000 Fishtail Foods Company’s tax rate is 30%.

Required:

i. Calculate the cost of goods and ending inventory under each of the following three methods (a) FIFO, (b) LIFO, and (c) Weighted Average Cost

ii. Calculate the gross margin end net income under each costing assumption.

iii. Which costing method will be beneficial for Fishtail Foods Company? Justify your answer.

2012 Fall Q.No.1

The Butwal Furniture Company sold 900 chairs during the year at Rs 1600 each. It had a beginning inventory on January 1, 2007 of 200 chairs at a cost of Rs 1,000 each.The following purchases were made during the year December 31,2007.

March 200 chairs @ Rs 1,100

August 300 chairs @ Rs 1,300

June 100 chairs @ Rs 1,200

November 200 chairs @ Rs 1,400

The company incurred operating expense of Rs 1,60,000 during the year The company uses the periodic inventory system.

Required:

a. Compute the value of ending inventory and cost of goods sold using LIFO and FIFO method. [5+5]

b. If tax rate is 40% which method provides more profit? Show your calculation with income statement. [1+4]

2012 Spring Q.No. 1

Star Trading Company sells a special product for Rs 2 per unit and uses periodic inventory system. The data are available for the year

Required:

i. Compute the amount of cost of goods sold and ending inventory using he FIFO, LIFO andWeighted average method. [9]

ii. Compute gross margin, under the FIFO and LIFO costing assumption. [2]

iii. Assume an estimated tax rate of 20%. Compute the amount of taxes saved if the Company uses the LIFO method rather than FIFO method. [2]

iv. In which situation does FIFO method provides more tax saving over LIFO method? [2]

2013 Fall Q.No.1

Following information pertains lo MSI Company for the month of January 2010:

• Beginning inventory is 125 units @ Rs. 10.
• Operating expenses for the month is Rs. 1,500.
• Tax Rate for the company is 30%.
• Following table pertains the information about purchase and sale of inventory for Jan 2010.

Required:

a. Prepare cost of goods sold and ending inventory under LIFO, FIFO and weighted average costing method.[9]

b. Prepare income statement under LIFO, FFO and weighted average costing method and which method does provide low tax expenses. [5+1]

2013 Spring Q. No. 1

You are given the following information relating to beginning inventory, purchases and sales of Pokhara Training Company. It has followed perpetual inventory system to determine its inventory. Operating expenses were Rs 10,000 excluding depreciation of Rs. 4000.

Required:

i. Calculate cost of goods sold and ending inventory under LIFO and FIFO method. [5]

ii. Prepare income statement under both methods (assume an estimated tax rate of 25 %). [6]

iii. Which method is more advantageous to the company for income tax purpose and shareholder reporting purpose?

[4]

2014 Fall Q.No. 1a

Sam’s company purchased merchandise to be resold at increasing costs during the year 2010.The purchases were made at the following costs:    [10]

January 1, 2010 (carried over from 2009)            20 units at Rs 10

January 25, 2010 purchase                                      40 units at Rs. 11

June 20, 2010 purchase                                            40 units at Rs 12

October 10, 2010 purchase                                     50 units at Rs. 13

Required:

i. What are the number of units and the cost of the goods available for sale? Assuming the company sold 10 units at the end of each month.

ii. Assuming the LIFO periodic cost flow assumption, what will be the company’s cost of goods sold and ending inventory the 120 units sold in 2010?

iii. Assuming the periodic weighted-average cost flow assumption, what is the company’s cost of goods sold and ending inventory for the 120 units sold in 2010?

2014 Fall Q.No. 1

On July 1st, 2012 an explosion destroyed a store of raw material. The insurance has agreed to pay store Rs 10,000 as a settlement for the inventory destroyed. But an estimate of the amount of inventory lost in needed for insurance purposes. The following information is available: [5]

Beginning inventory              Rs 24,000

Purchases, January-June       Rs 53,000

Sales, January-June                Rs 44,000

Inventory not destroyed       2,000

Gross profit margin                 20%

Required:

Determine the inventory lost and prepare the journal entry on this store books to recognize the inventory lost as well as the insurance reimbursement.

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Smirti

(Founder of Management Notes)
MBA,BBA.

I am Smirti Bam, an enthusiastic edu blogger with a passion for sharing insights into the dynamic world of business and management through this website.

I hold a MBA degree from Presidential Business School, Kathmandu, and a BBA degree with a specialization in Finance from Apex College,

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