Question 1

Gomez Company had a gross profit of $360,000, total purchases of $420,000, and an ending inventory of $240,000 in its first year of operations as a retailer.Gomez's sales in its first year must have been
A)$540,000.
B)$660,000.
C)$180,000.
D)$600,000.

Accepted Answer

Gross profit is calculated as Sales - Cost of Goods Sold (COGS). COGS is calculated as Beginning Inventory + Purchases - Ending Inventory. Since it's the first year, Beginning Inventory is $0. Thus, COGS = $0 + $420,000 - $240,000 = $180,000. Therefore, Sales = Gross Profit + COGS = $360,000 + $180,000 = $540,000.

Question 2

Use the following information for questions 
The following data concerning the retail inventory method are taken from the financial records of Stone Company. $\begin{array}{lcc}&\text { Cost } & \text { Retail }\\hline
\text { Beginning inventory } & \$ 49,000 & \$ 70,000 \
\text { Purchases } & 224,000 & 320,000 \
\text { Freight-in } & 6,000 & - \
\text { Net markups } & - & 20,000 \
\text { Net markdowns } & - & 14,000 \
\text { Sales } & - & 336,000
\end{array}$
-If the ending inventory is to be valued at approximately the lower of cost or market, the calculation of the cost to retail ratio should be based on goods available for sale at (1) cost and (2) retail, respectively of
A)$279,000 and $410,000.
B)$279,000 and $396,000.
C)$279,000 and $390,000.
D)$273,000 and $390,000.

Accepted Answer

The cost to retail ratio is calculated by dividing the cost of goods available for sale by the retail value of goods available for sale. The cost of goods available for sale is the beginning inventory plus purchases plus freight-in, minus net markdowns. The retail value of goods available for sale is the beginning inventory plus purchases plus net markups, minus net markdowns. In this case, the cost of goods available for sale is $279,000 and the retail value of goods available for sale is $410,000. Therefore, the cost to retail ratio is 279,000/410,000 = 0.6805.

Question 3

Use the following information for questions 
Sloan Company, a wholesaler, budgeted the following sales for the indicated months:   All merchandise is marked up to sell at its invoice cost plus 20%.Merchandise inventories at the beginning of each month are at 30% of that month's projected cost of goods sold.
-The cost of goods sold for the month of June is anticipated to be
A)$1,440,000.
B)$1,500,000.
C)$1,520,000.
D)$1,650,000.

Accepted Answer

The answer of Use the following information for questions 
Sloan...

Question 4

Use the following information for questions 
The following data concerning the retail inventory method are taken from the financial records of Stone Company. $\begin{array}{lcc}&\text { Cost } & \text { Retail }\\hline
\text { Beginning inventory } & \$ 49,000 & \$ 70,000 \
\text { Purchases } & 224,000 & 320,000 \
\text { Freight-in } & 6,000 & - \
\text { Net markups } & - & 20,000 \
\text { Net markdowns } & - & 14,000 \
\text { Sales } & - & 336,000
\end{array}$
-If the foregoing figures are verified and a count of the ending inventory reveals that merchandise actually on hand amounts to $54,000 at retail, the business has
A)realized a windfall gain.
B)sustained a loss.
C)no gain or loss as there is close coincidence of the inventories.
D)none of these.

Accepted Answer

The ending inventory at retail is $54,000, but the calculated ending inventory at retail should be $60,000 ($70,000 + $320,000 + $20,000 - $14,000 - $336,000). The difference indicates a loss.

Question 5

On January 1, 2007, the merchandise inventory of Colaw, Inc.was $800,000.During 2007 Colaw purchased $1,600,000 of merchandise and recorded sales of $2,000,000.The gross profit rate on these sales was 25%.What is the merchandise inventory of Colaw at December 31, 2007?
A)$400,000.
B)$500,000.
C)$900,000.
D)$1,500,000.

Accepted Answer

To find the ending merchandise inventory, we need to use the formula:
Ending inventory = Beginning inventory + Purchases - Cost of goods sold

We already know the beginning inventory was $800,000 and the purchases were $1,600,000. To find the cost of goods sold, we need to first find the gross profit.

Gross profit = Sales x Gross profit rate
Gross profit = $2,000,000 x 0.25
Gross profit = $500,000

Cost of goods sold = Sales - Gross profit
Cost of goods sold = $2,000,000 - $500,000
Cost of goods sold = $1,500,000

Now we can find the ending inventory:
Ending inventory = Beginning inventory + Purchases - Cost of goods sold
Ending inventory = $800,000 + $1,600,000 - $1,500,000
Ending inventory = $900,000

Therefore, the merchandise inventory of Colaw at December 31, 2007 was $900,000, which is answer choice C.

Question 6

During 2006, Reese Co., a manufacturer of chocolate candies, contracted to purchase 100,000 pounds of cocoa beans at $4.00 per pound, delivery to be made in the spring of 2007.Because a record harvest is predicted for 2007, the price per pound for cocoa beans had fallen to $3.10 by December 31, 2006. Of the following journal entries, the one which would properly reflect in 2006 the effect of the commitment of Reese Co.to purchase the 100,000 pounds of cocoa is

A) $\begin{array} { l  }
 \text { Cocoa lnventory }&400,000\ \quad\text { Accounts Payable}&&400,000\ \end{array}$
 
B)  $\begin{array} { l  } \text {  Cocoa Inventory}&310,000\ \quad\text {Loss on Purchase Commitments }&90,000\\quad\quad\text { Accounts Payable}&&400,000\ \end{array}$

C) $\begin{array} { l  }  \text {  Estimated Loss on Purchase Commitments. }&90,000\\quad \text {Estimated Liability on Purchase Commitments. }&&90,000\ \end{array}$

D) $\begin{array} { l  }  \text { No entrywould be necessary in } 2006 &\
\end{array}$

Accepted Answer

The answer of During 2006, Reese Co., a manufacturer of...

Question 7

Use the following information for questions 
The following data concerning the retail inventory method are taken from the financial records of Stone Company. $\begin{array}{lcc}&\text { Cost } & \text { Retail }\\hline
\text { Beginning inventory } & \$ 49,000 & \$ 70,000 \
\text { Purchases } & 224,000 & 320,000 \
\text { Freight-in } & 6,000 & - \
\text { Net markups } & - & 20,000 \
\text { Net markdowns } & - & 14,000 \
\text { Sales } & - & 336,000
\end{array}$
-Assuming that the LIFO inventory method were used in conjunction with the data and that the inventory at retail had increased during the period, then the computation of retail in the cost to retail ratio would
A)exclude both markups and markdowns and include beginning inventory.
B)include markups and exclude both markdowns and beginning inventory.
C)include both markups and markdowns and exclude beginning inventory.
D)exclude markups and include both markdowns and beginning inventory.

Accepted Answer

When using LIFO inventory method, the cost to retail ratio should include both markups and markdowns but exclude the beginning inventory. This is because LIFO assumes that the most recent inventory purchases are sold first, and as a result, the cost of goods sold will reflect the higher, more recent costs of inventory. Therefore, including the beginning inventory, which may have been purchased at a lower cost, would distort the ratio. Including markups and markdowns is necessary to accurately reflect the cost to retail ratio, as these adjustments affect the retail value of inventory.

Question 8

The inventory account of Lance Company at December 31, 2007, included the following items: $\begin{array} { l  }
 &\text { Inventory Amount}\ \hline
 \text { Merchandise out on consignment at sales price}&\
 \text {(including markup of $ 40 \% $ on selling price) }&\$15,000\
 \text {Goods purchased, in transit (shipped f.o.b. shipping point) }&12,000\
 \text { Goods held on consignment by Lance}&13,000\
 \text {Goods out on approval (sales price $ \$ 7,600 $, cost $ \$ 6,400 $ ) }&7,600\
\end{array}$
 Based on the above information, the inventory account at December 31, 2007, should be reduced by
A)$20,200.
B)$22,600.
C)$32,200.
D)$32,000.

Accepted Answer

The inventory should exclude goods held on consignment by Lance ($13,000) and the markup on consigned goods ($6,000), totaling $19,000. The goods out on approval should be included at cost ($6,400), not sales price ($7,600), so reduce by $1,200. Total reduction: $20,200.

Question 9

On April 15 of the current year, a fire destroyed the entire uninsured inventory of a retail store.The following data are available: $\begin{array}{lr}
\text { Sales, January } 1 \text { through April } 15 & \$ 300,000 \
\text { Inventory, January } 1 & 50,000 \
\text { Purchases, January } 1 \text { through April } 15 & 250,000 \
\text { Markup on cost } & 25 \%
\end{array}$

The amount of the inventory loss is estimated to be
A)$60,000.
B)$30,000.
C)$75,000.
D)$50,000.

Accepted Answer

The inventory loss is estimated to be the cost of the inventory, which is the purchases minus the markup on cost. The markup on cost is 25%, so the cost of the inventory is 80% of the purchases. Therefore, the cost of the inventory is $250,000 x 0.80 = $200,000. The inventory loss is therefore $200,000 - $50,000 = $60,000.

Question 10

Flynn Sales Company uses the retail inventory method to value its merchandise inventory.The following information is available for the current year: 
$\begin{array}{lcc}&\text { Cost } & \text { Retail }\\hline
\text { Beginning inventory } & \$ 30,000 & \$ 50,000 \
\text { Purchases } & 145,000 & 200,000 \
\text { Freight-in } & 2,500 & - \
\text { Net markups } & - & 8,500 \
\text { Net markdowns } & - & 10,000 \
\text { Employee discounts } & - & 1,000 \
\text { Sales } & - & 205,000
\end{array}$ 
If the ending inventory is to be valued at the lower-of-cost-or-market, what is the cost to retail ratio?
A)$177,500 ÷ $250,000
B)$177,500 ÷ $258,500
C)$175,000 ÷ $260,000
D)$177,500 ÷ $248,500

Accepted Answer

The answer of Flynn Sales Company uses the retail inventory...

Question 11

For 2007, cost of goods available for sale for Vale Corporation was $900,000.The gross profit rate was 20%.Sales for the year were $800,000.What was the amount of the ending inventory?
A)$0.
B)$260,000.
C)$180,000.
D)$160,000.

Accepted Answer

Cost of goods sold = $800,000 x (1 - 20%) = $640,000Ending inventory = Cost of goods available for sale - Cost of goods soldEnding inventory = $900,000 - $640,000 = $260,000

Question 12

A markup of 40% on cost is equivalent to what markup on selling price?
A)29%
B)40%
C)60%
D)71%

Accepted Answer

A markup of 40% on cost means the selling price is 140% of the cost. The markup on selling price is calculated as (Selling Price - Cost) / Selling Price. If the cost is $100, the selling price is $140. The markup on selling price is ($40 / $140) * 100% = 28.57%, which rounds to 29%.

Question 13

Use the following information for questions 
Sloan Company, a wholesaler, budgeted the following sales for the indicated months:   All merchandise is marked up to sell at its invoice cost plus 20%.Merchandise inventories at the beginning of each month are at 30% of that month's projected cost of goods sold.
-Merchandise purchases for July are anticipated to be
A)$1,632,000.
B)$2,076,000.
C)$1,700,000.
D)$1,730,000.

Accepted Answer

The answer of Use the following information for questions 
Sloan...

Question 14

The following information is available for October for Jordan Company. $\begin{array}{lr}
\text { Beginning inventory } & \$ 50,000 \
\text { Net purchases } & 150,000 \
\text { Net sales } & 300,000 \
\text { Percentage markup on cost } & 66.67 \%
\end{array}$ 
A fire destroyed Jordan's October 31 inventory, leaving undamaged inventory with a cost of $3,000.Using the gross profit method, the estimated ending inventory destroyed by fire is
A)$17,000.
B)$77,000.
C)$80,000.
D)$100,000.

Accepted Answer

The answer of The following information is available for October...

Question 15

DT Corporation, a manufacturer of Mexican foods, contracted in 2007 to purchase 1,000 pounds of a spice mixture at $5.00 per pound, delivery to be made in spring of 2008.By 12/31/07, the price per pound of the spice mixture had dropped to $4.60 per pound.
A)In 2007, DT should recognize a a loss of $5,000.
B)a loss of $400.
C)no gain or loss.
D)a gain of $400.

Accepted Answer

DT Corporation should recognize a loss of $400 in 2007 because the price of the spice mixture dropped from $5.00 to $4.60 per pound, resulting in a loss of $0.40 per pound for the 1,000 pounds contracted.

Question 16

Use the following information for questions 
The following data concerning the retail inventory method are taken from the financial records of Stone Company. $\begin{array}{lcc}&\text { Cost } & \text { Retail }\\hline
\text { Beginning inventory } & \$ 49,000 & \$ 70,000 \
\text { Purchases } & 224,000 & 320,000 \
\text { Freight-in } & 6,000 & - \
\text { Net markups } & - & 20,000 \
\text { Net markdowns } & - & 14,000 \
\text { Sales } & - & 336,000
\end{array}$
-The ending inventory at retail should be
A)$74,000.
B)$60,000.
C)$64,000.
D)$42,000.

Accepted Answer

The ending inventory at retail is calculated as: Beginning inventory at retail + Purchases at retail + Net markups - Net markdowns - Sales = $70,000 + $320,000 + $20,000 - $14,000 - $336,000 = $60,000.

Question 17

The following information is available for October for Horton Company. $\begin{array}{lr}
\text { Beginning inventory } & \$ 100,000 \
\text { Net purchases } & 300,000 \
\text { Net sales } & 600,000 \
\text { Percentage markup on cost } & 66.67 \%
\end{array}$ 
A fire destroyed Horton's October 31 inventory, leaving undamaged inventory with a cost of $6,000.Using the gross profit method, the estimated ending inventory destroyed by fire is
A)$34,000.
B)$154,000.
C)$160,000.
D)$200,000.

Accepted Answer

The answer of The following information is available for October...

Question 18

AJ Corporation, a manufacturer of ethnic foods, contracted in 2007 to purchase 500 pounds of a spice mixture at $5.00 per pound, delivery to be made in spring of 2008.By 12/31/07, the price per pound of the spice mixture had risen to $5.60 per pound.In 2007, AJ should recognize
A)a loss of $2,500.
B)a loss of $300.
C)no gain or loss.
D)a gain of $300.

Accepted Answer

AJ Corporation should recognize no gain or loss in 2007 because the contract is for delivery in 2008, and the price change does not affect the financial statements until the transaction is completed.

Question 19

Miller, Inc.estimates the cost of its physical inventory at March 31 for use in an interim financial statement.The rate of markup on cost is 25%.The following account balances are available: $$\begin{array} { l r } 
\text { Inventory, March 1 } & \$ 220,000 \
\text { Purchases } & 172,000 \
\text { Purchase returns } & 8,000 \
\text { Sales during March } & 300,000
\end{array}$$ The estimate of the cost of inventory at March 31 would be
A)$84,000.
B)$144,000.
C)$159,000.
D)$112,000.

Accepted Answer

The answer of Miller, Inc.estimates the cost of its physical...

Question 20

Use the following information for questions 
The following data concerning the retail inventory method are taken from the financial records of Stone Company. $\begin{array}{lcc}&\text { Cost } & \text { Retail }\\hline
\text { Beginning inventory } & \$ 49,000 & \$ 70,000 \
\text { Purchases } & 224,000 & 320,000 \
\text { Freight-in } & 6,000 & - \
\text { Net markups } & - & 20,000 \
\text { Net markdowns } & - & 14,000 \
\text { Sales } & - & 336,000
\end{array}$
-Assuming no change in the price level if the LIFO inventory method were used in conjunction with the data, the ending inventory at cost would be
A)$42,600.
B)$42,000.
C)$40,800.
D)$43,200.

Accepted Answer

The answer of Use the following information for questions 
The...

Quiz 9: Inventories: Additional Valuation Issues

Gomez Company had a gross profit of $360,000, total purchases of $420,000, and an ending inventory of $240,000 in its first year of operations as a retailer.Gomez's sales in its first year must have been

On January 1, 2007, the merchandise inventory of Colaw, Inc.was $800,000.During 2007 Colaw purchased $1,600,000 of merchandise and recorded sales of $2,000,000.The gross profit rate on these sales was 25%.What is the merchandise inventory of Colaw at December 31, 2007?

For 2007, cost of goods available for sale for Vale Corporation was $900,000.The gross profit rate was 20%.Sales for the year were $800,000.What was the amount of the ending inventory?

A markup of 40% on cost is equivalent to what markup on selling price?

DT Corporation, a manufacturer of Mexican foods, contracted in 2007 to purchase 1,000 pounds of a spice mixture at $5.00 per pound, delivery to be made in spring of 2008.By 12/31/07, the price per pound of the spice mixture had dropped to $4.60 per pound.

AJ Corporation, a manufacturer of ethnic foods, contracted in 2007 to purchase 500 pounds of a spice mixture at $5.00 per pound, delivery to be made in spring of 2008.By 12/31/07, the price per pound of the spice mixture had risen to $5.60 per pound.In 2007, AJ should recognize