Cost of Goods Sold
CPA Financial Accounting and Reporting (FAR) · Learn by Concept
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CPA Financial Accounting and Reporting (FAR) › Cost of Goods Sold
Which of the following statements is a primary objective of accounting for income taxes? To:
Identify all of the permanent and temporary differences of an enterprise
Compare an entity's federal tax liability to its state tax liability
Recognize the amount of deferred tax liabilities and deferred tax assets reported for future tax consequences
Estimate the effect of tax consequences of future events
Explanation
The primary objective of income tax accounting is to recognize and account for deferred tax assets and liabilities.
During a period of falling prices, which of the following inventory valuation methods would yield the highest cost of goods sold?
LIFO
FIFO
Weighted average
Impossible to determine based no the provided information
Explanation
Under FIFO, the oldest inventory goes to COGS. In a period of falling prices, the oldest inventory has the highest cost, driving up COGS.
Troy, Inc has inventory with a FIFO cost of \$17,730, net realizable value of \$17,850, replacement cost of \$17,490, and net realizable value less normal profit of \$17,545. What amount should Troy report as ending inventory in its balance sheet at year-end?
\$16,400
\$32,400
\$31,100
\$64,800
Explanation
Under FIFO, the oldest inventory goes to COGS first. Here, a total of 10,800 units were sold; the first 8K of these were included in beginning inventory and cost \$1 each. The remaining 2,800 units were included in the March 10 purchase at \$3 each. Therefore, COGS is calculated as 8,000 units x \$1 per unit +2,800 units x \$3 per unit.
Of the following, which would not be included in Cost of Goods Sold?
Direct Materials
Direct Labor
Manufacturing Overhead
Maintenance costs
Explanation
DM, DL, and MOH are all included in Cost of Goods Manufactured and Cost of Goods Sold.
As a result of differences between depreciation for financial reporting purposes and tax purposes, the financial reporting basis of a company's plant assets exceeded the tax basis. Assuming the company had no other temporary difference, the firm should report a:
Current tax payable
Deferred tax liability
Deferred tax asset
Current tax receivable
Explanation
If book basis of an asset is greater than tax basis, a deferred tax liability should be established for the tax effect of the difference.
Larry, Inc had beginning inventory in January of Year 2 of 10,000 units costing \$1 each. On February 14, 4,000 units were purchased costing \$3 each. On April 20, 12,000 units were sold. On November 22, 6,000 more units were purchased at \$6 each. What will Larry record as its cost per unit under a weighted average inventory system?
\$4
\$3.33
\$3
\$2.90
Explanation
Under the weighted average costing method, cost per unit is the average price of all inventory purchased. Larry spent a total of $58K (10,000 units x \$1 + 4,000 units x \$3 each + 6,000 units x \$6). This total is divided by the total number of units purchased, which is 20K. To calculate cost per unit, the total cost of $58K is divided by total units of 20K.