ExpertHard1 markMultiple Choice
CPA · Question 30 · Area II: Balance Sheet Accounts
Sunset Corp. has the following information regarding its inventory:<br/>- Beginning inventory (FIFO): $180,000<br/>- Purchases during the year: $850,000<br/>- Ending inventory (FIFO): $220,000<br/>- Sales: $1,400,000<br/><br/>If Sunset had used LIFO instead of FIFO, ending inventory would have been $195,000. What would cost of goods sold have been under LIFO?
Sunset Corp. has the following information regarding its inventory:<br/>- Beginning inventory (FIFO): $180,000<br/>- Purchases during the year: $850,000<br/>- Ending inventory (FIFO): $220,000<br/>- Sales: $1,400,000<br/><br/>If Sunset had used LIFO instead of FIFO, ending inventory would have been $195,000. What would cost of goods sold have been under LIFO?
Answer options:
A.
$810,000
B.
$835,000
C.
$855,000
D.
$1,205,000
How to approach this question
Use the basic inventory equation: Beginning Inventory + Purchases - Ending Inventory = Cost of Goods Sold. For LIFO calculation, use the LIFO ending inventory amount provided.
Full Answer
B.$835,000✓ Correct
$835,000
The fundamental inventory equation applies to all cost flow methods: Beginning Inventory + Purchases - Ending Inventory = Cost of Goods Sold. Under LIFO: $180,000 + $850,000 - $195,000 = $835,000. The beginning inventory amount is the same regardless of method since this is the first year comparison.
Common mistakes
Using FIFO ending inventory instead of LIFO ending inventory, adjusting beginning inventory unnecessarily, or confusing the inventory equation
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