# 3 Intermediate Accounting Questions

Question 1

Company Z had the following transactions in its first year of operations:

• On January 15, purchased 5,000 units of inventory for \$20 each
• On March 1, purchased 10,000 units of inventory for \$22 each
• On March 30, sold 7,000 units of inventory for \$48 each
• On June 20, purchased 9,000 units of inventory for \$25 each
• On August 10, sold 12,000 units of inventory for \$50 each
• On September 3, sold 1,000 units of inventory \$49 each

Company Z records transactions using a perpetual system. Calculate the cost of goods sold and ending inventory using (1) average cost, (2) FIFO, and (3) LIFO.

Company Z asks you to advise them on which inventory method to use. What method would you choose if the company wants to take out a loan from a bank in the near future that requires the company to meet a large threshold for its current assets’ value? What method would you choose if the company has a near-term investment opportunity that requires more cash on hand? Explain your answers.

Question 2

Company X has the following information:

• Inventory at end-of-year prices of \$1,300,000 (2018 – base year), \$1,450,000 (2019), and \$1,350,000 (2020)
• The price index is 105 in 2019 and 107 in 2020

Use the dollar-value LIFO method to calculate ending inventory for 2019 and 2020.

Question 3

Company ABC divides its inventory into three different groups. Group 1 has 350 units and the price per unit is \$12. Group 2 has 200 units and the price per unit is \$20. Group 3 has 900 units and the price per unit is \$2.5. The purchase price for all units was \$9,000. Determine the cost per unit for each group. Use the relative sales value method.

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