Question1(a) AAA Ltd has the following transactions for year ended 30 June 2019: Produced 120,000 units at a cost of $10 each Sold and delivered 80,000 units at a price of $20 each and Collected cash on 40,000 units of those sold. Which of the following statements is true for the year ended 30 June 2019? The company's cost of goods sold is $1,200,000 this year The company earned $2,400,000 sales revenue this year The company's gross profits from this sale is $800,000 this year The company's inventory decreased by $1,200,000 this year due to sales The company collected $1,600,000 cash from the sale ResetMaximum marks: 1 Flag question undefined

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BlackTom AI · Accepted Answer

Let's break down what happened and examine each option against the given data.

First, compute the key numbers:
- Units produced: 120,000 at cost $10 each → total cost of production (COGS-related for produced goods) = $1,200,000.
- Units sold and delivered: 80,000 at price $20 each → total sales revenue = 80,000 × 20 = $1,600,000.
- Cost of goods sold for the 80,000 units sold = 80,000 × 10 = $800,000.
- Gross profit on those sold units = sales revenue minus COGS for those units = $1,600,000 − $800,000 = $800,000.
- Ending inventory (40,000 units produced but not sold) at cost = 40,000 × $10 = $400,000. If beginning inventory were zero, inventory would have increased by $400,000 this year due to production; there is no information suggesting a decrease of $1,200,000.
- Cash collected from the sale: only 40,000 units were collected, so cash collected = 40,000 × $20 = $800,000. The remaining $800,000 would be receivable if not yet collected.

Now evaluate each option one by one:

Option 1: 'The company's cost of goods sold is $1,200,000 this year'
- This figure represents the total cost of producing the 120,000 units, not the COGS recognized for the 80,000 units actually sold. In many accounting contexts, COGS for the period includes only the cost of goods that were sold, which here is $800,000 for 80,000 units. Therefore, stating COGS as $1,200,000 ignores that 40,000 units remain in ending inventory and are not expensed as COGS yet. This makes the statement incorrect.

Option 2: 'The company earned $2,400,000 sales revenue this year'
- The revenue from the 80,000 units sold at $20 each is $1,600,000, not $2,400,000. The number $2,400,000 would correspond to 120,000 units sold, or 40,000 more than what actually occurred, so this is inaccurate. Thus this option is false.

Option 3: 'The company's gross profits from this sale is $800,000 this year'
- This matches the calculated gross profit on the 80,000 units sold: $1,600,000 revenue minus $800,000 COGS equals $800,000. Since gross profit is defined as revenue minus cost of goods sold on the units sold, this statement is true. This aligns with standard gross profit calculations and the provided figures.

Option 4: 'The company's inventory decreased by $1,200,000 this year due to sales'
- Ending inventory, given 40,000 units remain unsold at cost $10 per unit, would be $400,000 if beginning inventory is zero. Rather than a decrease, inventory actually increased by the amount of produced but unsold goods (40,000 units × $10 = $400,000). The assertion of a $1,200,000 decrease contradicts the data and is incorrect.

Option 5: 'The company collected $1,600,000 cash from the sale'
- Cash collection occurred only for 40,000 units at $20 each, totaling $800,000. The remaining $800,000 would be collected later or recorded as receivables, not as cash collected in this period. Therefore this statement overstates actual cash collection and is false.

In summary, Option 3 correctly reflects the computed gross profit of $800,000 for the units sold, while the other options misstate revenue, COGS timing, inventory movement, or cash collections based on the given transactions.

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