A Company Uses a Perpetual Inventory System, and Follows GAAP

question 175

Multiple Choice

A company uses a perpetual inventory system, and follows GAAP in preparing its external financial statements. At the end of 2002, the balance in the inventory account was $66,000; $6,000 of those goods were purchased f.o.b. shipping point and did not arrive until 2013. Purchases in 2013 were $30,000. The perpetual inventory showed an ending inventory of $72,000 for 2013. A physical count of the goods on hand at the end of 2013 showed an inventory of $60,000. What should the company report on its 2013 income statement for cost of goods sold?

• A) $24,000
• B) $30,000
• C) $36,000
• D) $42,000

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Definitions:

Financial Leverage

Financial leverage is the use of borrowed funds to increase the potential return of an investment, magnifying both potential gains and potential losses.

Dividend Rate

The total expected dividend payments from an investment or security expressed on an annual basis.

Premium on Stock

The amount by which the price paid for a stock exceeds its par (or nominal) value, representing additional capital paid in by investors.

Treasury Stock

Stocks that the issuing entity initially sold and then bought back, decreasing the total number of stocks available in the market.