WGU INTERMEDIATE ACCOUNTING II (D104)
|UNIT 7 INVENTORY Q&A 2025
, Unit 7 Inventory (14 questions)
Compare the cost flow assumptions used to account for inventories
1. The following information is available for a company that uses a specific Consider the following inventory activity:
identification inventory system:
• October 1: Beginning inventory consisted of 200 units at a cost of $7.00
each.
• October 7: 500 units were purchased at a cost of $8.00 each.
• October 18: 250 units were sold from the October 7 purchase.
• October 22: 600 units were purchased at a cost of $8.50 each.
• October 24: 300 units were purchased at a cost of $9.00 each.
• October 26: 350 units were sold from the October 22 purchase.
The 9 units of ending inventory are identified with the purchase of May
What are the cost of goods sold (COGS) and the value of ending inventory for
20.
October?
Using the specific identification method, what is the value of the ending
$4,975 = CGS: (350 x $8.50) + (250 x $8.00). Ending Inventory: $8,225 = (200 x $7) inventory and the cost of goods sold.
+ ((500 -250) x 8) + ((600 - 350) x $8.5) + (300 x $9) a. $126 and $430, respectively.
b. $126 and $530, respectively.
Accounting Rule: The specific identification inventory valuation method tracks
c. $126 and $544, respectively.
every single item in an inventory individually from the time it enters the inventory
d. $56 and $474, respectively.
until the time it leaves it. This inventory method is suitable for companies with
expensive, easily distinguishable low-volume merchandise such as jewelry, fur Ans c
coats, automobiles, unique furniture, special manufactured made products.
Determine the effects of inventory errors on the financial statements
2. A company that used the periodic inventory system overstated its beginning A company mistakenly understated ending inventory by $25,000 in a
inventory but correctly stated its ending inventory. year but verified the correct ending inventory was recorded in the
following year.
What will be the effect of this error on the financial statements at the end of the
period? What is the effect of this on the total net income for the two years
, The cost of goods sold will be overstated and gross profit/net income will be combined?
understated. The ending inventory on the balance sheet is correct according to
the facts. No effect at the end of year 2. The error counterbalances each other as
net income will be understated by $25,000 in Year 1 and overstated by
Accounting Rule: Inventory errors come in two form: understatements or $25,000 in Year 2: $25,000 + ($25,000).
overstatements.
Accounting Rule: Inventory errors come in two form: understatements or
Beginning inventory errors affect only the income statement because cost of overstatements.
goods sold is calculated using beginning inventory + purchases – ending
inventory. Beginning inventory errors affect only the income statement because
cost of goods sold is calculated using beginning inventory + purchases –
Ending inventory errors affect both the income statement and the balance sheet, ending inventory.
and will affect two periods because 1) the ending inventory of one period will
become the beginning inventory for the following period, and 2) the calculation Ending inventory errors affect both the income statement and the
of the cost of goods sold is beginning inventory + purchases – ending inventory. balance sheet, and will affect two periods because 1) the ending
inventory of one period will become the beginning inventory for the
As shown in the table below, errors in calculating beginning inventory have a following period, and 2) the calculation of the cost of goods sold is
direct effect on cost of goods sold and inverse effect on gross profit and net beginning inventory + purchases – ending inventory.
income. On the other hand, errors in calculating ending inventory have an
inverse effect on cost of goods sold and a direct effect on gross profit and net As shown in the table below, errors in calculating beginning inventory
income. Errors in purchases have the same effect as errors in beginning have a direct effect on cost of goods sold and inverse effect on gross
inventory, that is a direct effect on cost of goods sold and inverse effect on gross profit and net income. On the other hand, errors in calculating ending
profit and net income inventory have an inverse effect on cost of goods sold and a direct effect
on gross profit and net income. Errors in purchases have the same effect
Error CGS GP/NI as errors in beginning inventory, that is a direct effect on cost of goods
Beginning Inventory sold and inverse effect on gross profit and net income
understated understated overstated
overstated overstated understated Error CGS GP/NI
Purchases Beginning Inventory
understated understated overstated understated understated overstated
overstated overstated understated overstated overstated understated
Ending Inventory Purchases
understated Overstated understated understated understated overstated
overstated Understated overstated overstated overstated understated
Ending Inventory
understated Overstated understated
overstated Understated overstated
3. A company did not record the credit purchases of inventory and did not include A company uses a periodic inventory system. A $100 purchase is not
|UNIT 7 INVENTORY Q&A 2025
, Unit 7 Inventory (14 questions)
Compare the cost flow assumptions used to account for inventories
1. The following information is available for a company that uses a specific Consider the following inventory activity:
identification inventory system:
• October 1: Beginning inventory consisted of 200 units at a cost of $7.00
each.
• October 7: 500 units were purchased at a cost of $8.00 each.
• October 18: 250 units were sold from the October 7 purchase.
• October 22: 600 units were purchased at a cost of $8.50 each.
• October 24: 300 units were purchased at a cost of $9.00 each.
• October 26: 350 units were sold from the October 22 purchase.
The 9 units of ending inventory are identified with the purchase of May
What are the cost of goods sold (COGS) and the value of ending inventory for
20.
October?
Using the specific identification method, what is the value of the ending
$4,975 = CGS: (350 x $8.50) + (250 x $8.00). Ending Inventory: $8,225 = (200 x $7) inventory and the cost of goods sold.
+ ((500 -250) x 8) + ((600 - 350) x $8.5) + (300 x $9) a. $126 and $430, respectively.
b. $126 and $530, respectively.
Accounting Rule: The specific identification inventory valuation method tracks
c. $126 and $544, respectively.
every single item in an inventory individually from the time it enters the inventory
d. $56 and $474, respectively.
until the time it leaves it. This inventory method is suitable for companies with
expensive, easily distinguishable low-volume merchandise such as jewelry, fur Ans c
coats, automobiles, unique furniture, special manufactured made products.
Determine the effects of inventory errors on the financial statements
2. A company that used the periodic inventory system overstated its beginning A company mistakenly understated ending inventory by $25,000 in a
inventory but correctly stated its ending inventory. year but verified the correct ending inventory was recorded in the
following year.
What will be the effect of this error on the financial statements at the end of the
period? What is the effect of this on the total net income for the two years
, The cost of goods sold will be overstated and gross profit/net income will be combined?
understated. The ending inventory on the balance sheet is correct according to
the facts. No effect at the end of year 2. The error counterbalances each other as
net income will be understated by $25,000 in Year 1 and overstated by
Accounting Rule: Inventory errors come in two form: understatements or $25,000 in Year 2: $25,000 + ($25,000).
overstatements.
Accounting Rule: Inventory errors come in two form: understatements or
Beginning inventory errors affect only the income statement because cost of overstatements.
goods sold is calculated using beginning inventory + purchases – ending
inventory. Beginning inventory errors affect only the income statement because
cost of goods sold is calculated using beginning inventory + purchases –
Ending inventory errors affect both the income statement and the balance sheet, ending inventory.
and will affect two periods because 1) the ending inventory of one period will
become the beginning inventory for the following period, and 2) the calculation Ending inventory errors affect both the income statement and the
of the cost of goods sold is beginning inventory + purchases – ending inventory. balance sheet, and will affect two periods because 1) the ending
inventory of one period will become the beginning inventory for the
As shown in the table below, errors in calculating beginning inventory have a following period, and 2) the calculation of the cost of goods sold is
direct effect on cost of goods sold and inverse effect on gross profit and net beginning inventory + purchases – ending inventory.
income. On the other hand, errors in calculating ending inventory have an
inverse effect on cost of goods sold and a direct effect on gross profit and net As shown in the table below, errors in calculating beginning inventory
income. Errors in purchases have the same effect as errors in beginning have a direct effect on cost of goods sold and inverse effect on gross
inventory, that is a direct effect on cost of goods sold and inverse effect on gross profit and net income. On the other hand, errors in calculating ending
profit and net income inventory have an inverse effect on cost of goods sold and a direct effect
on gross profit and net income. Errors in purchases have the same effect
Error CGS GP/NI as errors in beginning inventory, that is a direct effect on cost of goods
Beginning Inventory sold and inverse effect on gross profit and net income
understated understated overstated
overstated overstated understated Error CGS GP/NI
Purchases Beginning Inventory
understated understated overstated understated understated overstated
overstated overstated understated overstated overstated understated
Ending Inventory Purchases
understated Overstated understated understated understated overstated
overstated Understated overstated overstated overstated understated
Ending Inventory
understated Overstated understated
overstated Understated overstated
3. A company did not record the credit purchases of inventory and did not include A company uses a periodic inventory system. A $100 purchase is not
