Question 1

All of the following are reasons to use an estimated method of costing inventory except
A)Perpetual inventory records are not maintained.
B)Purchase records are not maintained.
C)A disaster has destroyed the inventory records and the inventory.
D)Interim financial statements are required but physical inventory is only taken at the end of the financial accounting period.

Accepted Answer

Not maintaining purchase records is a valid reason to use an estimated method of costing inventory. However, it is not a reason to not use an estimated method of costing inventory. The other options, such as not maintaining perpetual inventory records or needing to prepare interim financial statements, are valid reasons to use an estimated method. Additionally, a disaster destroying the inventory records and inventory would necessitate using an estimated method since there would be no way to accurately determine the cost of the destroyed items.

Question 2

If the cost of an item of inventory is $60 and the current replacement cost is $75,the amount included in inventory according to the lower of cost or market is
A)$15
B)$60
C)$75
D)$135

Accepted Answer

The lower of cost or market rule dictates that inventory should be reported at the lower value between its original cost and its current market price. In this case, the original cost is $60 and the current replacement cost is $75, so the inventory should be reported at $60, the lower amount.

Question 3

Kristin's Boutiques has identified the following items for possible inclusion in its December 31 inventory.Which of the following would not be included in the year-end inventory?
A)Merchandise purchased FOB shipping point was picked up by the freight company but had still not arrived at Kristin's Boutique as of December 31.
B)Kristin has in its warehouse merchandise on consignment from Abby Co.
C)Kristin has sent merchandise to various retailers on a consignment basis.
D)Kristin has merchandise on hand which has been returned by customers because of wrong size.

Accepted Answer

Merchandise on consignment from Abby Co. is not owned by Kristin's Boutiques and therefore should not be included in Kristin's inventory.

Question 4

Which of the following measures the length of time it takes to acquire,sell,and replace inventory?
A)inventory turnover
B)number of days' sales in inventory
C)retail method of inventory costing
D)gross profit method of inventory costing

Accepted Answer

Number of days' sales in inventory measures the length of time it takes to acquire, sell, and replace inventory. Inventory turnover measures how many times a company's inventory is sold and replaced within a period of time. Retail method of inventory costing and gross profit method of inventory costing are methods used to estimate the cost of inventory.

Question 5

If a company mistakenly counts less items during a physical inventory than actually exist,how will the error affect the cost of merchandise sold?
A)understated
B)overstated
C)no change
D)only inventory will be affected

Accepted Answer

The answer of If a company mistakenly counts less items...

Question 6

Garrison Company uses the retail method of inventory costing.It started the year with an inventory that had a retail cost of $45,000.During the year,Garrison purchased an inventory with a retail sales value of $300,000.After performing a physical inventory,Garrison calculated the inventory at retail to be $80,000.The mark up is 100% of cost.Determine the ending inventory at its estimated cost.
A)$160,000
B)$80,000
C)$40,000
D)$45,000

Accepted Answer

The ending inventory at its estimated cost is calculated by dividing the ending inventory at retail ($80,000) by the markup (100% of cost means the retail price is double the cost, so the cost is 50% of the retail price). Therefore, $80,000 * 50% = $40,000.

Question 7

Merchandise inventory at the end of the year was understated.Which of the following statements correctly states the effect of the error?
A)net income is understated
B)net income is overstated
C)cost of merchandise sold is understated
D)merchandise inventory reported on the balance sheet is overstated

Accepted Answer

The answer of Merchandise inventory at the end of the...

Question 8

Too much inventory on hand
A)ties up funds that could be used to improve operations
B)increases the cost to safeguard the assets
C)increases the losses due to price declines
D)all of these

Accepted Answer

All of these options are reasons why having too much inventory on hand can be detrimental to a business. It ties up funds that could be used to improve operations, increases the cost to safeguard the assets, and increases the losses due to price declines. Therefore, it is important for businesses to manage their inventory levels efficiently to avoid these negative effects.

Question 9

Excess inventory results in all of the following except
A)tied-up funds that could be used to improve operations
B)lost sales
C)increased storage expense
D)increased risk of loss due to damage

Accepted Answer

Excess inventory may lead to tied-up funds, increased storage expense, and increased risk of loss due to damage, but it does not result in lost sales. In fact, excess inventory may even lead to discounted sales to remove the excess stock.

Question 10

The number of days' sales in inventory measures
A)the length of time it takes to acquire,sell,and replace the inventory
B)the length of time it takes to acquire and receive payment for the inventory
C)the number of days inventory is on hand prior to sale
D)the number of days inventory takes to arrive after ordering

Accepted Answer

The answer of The number of days' sales in inventory...

Question 11

Which of the following measures the relationship between cost of merchandise sold and the amount of inventory carried during the period?
A)inventory turnover
B)fixed asset turnover
C)retail method of inventory costing
D)gross profit method of inventory costing

Accepted Answer

Inventory turnover measures how efficiently a company is managing its inventory by showing how many times the inventory is sold and replaced over a period of time. It is calculated by dividing cost of goods sold by average inventory during the period.

Question 12

For the year ended December 31,Depot Max's cost of merchandise sold was $56,900.Inventory at the beginning of the year was $6,540.Ending inventory was $7,250.Compute Depot Max's inventory turnover for the year.
A)8.7
B)7.8
C)8.3
D)44.0

Accepted Answer

Inventory Turnover = Cost of Goods Sold / Average Inventory

Average Inventory = (Beginning Inventory + Ending Inventory) / 2

Average Inventory = ($6,540 + $7,250) / 2 = $6,895

Inventory Turnover = $56,900 / $6,895 = 8.25

Therefore, the best choice is C) 8.3.

Question 13

Merchandise inventory at the end of the year is overstated.Which of the following statements correctly states the effect of the error?
A)stockholders' equity is overstated
B)cost of merchandise sold is overstated
C)gross profit is understated
D)net income is understated

Accepted Answer

When merchandise inventory is overstated, it leads to an understatement of the cost of goods sold, which results in an overstatement of gross profit and net income. Consequently, stockholders' equity is also overstated due to the inflated net income.

Question 14

The method of estimating inventory that uses records of the selling prices of the merchandise is called
A)retail method
B)gross profit method
C)inventory turnover method
D)average cost method

Accepted Answer

The retail method of estimating inventory is based on the assumption that the cost-to-retail percentage is consistent over time. This method uses the selling prices of the merchandise to estimate the cost of the inventory. Gross profit method uses the gross profit percentage to estimate the cost of the inventory. Inventory turnover method calculates the number of times inventory is sold and replaced in a given period. Average cost method calculates the cost of inventory by averaging the unit costs of all items in the inventory. Out of these options, only A (retail method) is a method of estimating inventory based on selling prices.

Question 15

On the basis of the following data,what is the estimated cost of the merchandise inventory on May 31 using the retail method? 
A)$250,000
B)$360,000
C)$172,500
D)$187,500

Accepted Answer

The answer of On the basis of the following data,what...

Question 16

If the estimated rate of gross profit is 30%,what is the estimated cost of the merchandise inventory on September 30,based on the following data?

A) $320,000 
B) $192,500 
C) $275,000 
D) $105,000

Accepted Answer

The answer of If the estimated rate of gross profit...

Question 17

If a company mistakenly counts more items during a physical inventory than actually exist,how will the error affect their bottom line?
A)no change to net income
B)net income will be overstated
C)net income will be understated
D)only gross profit will be affected

Accepted Answer

If a company mistakenly counts more items during a physical inventory than actually exist, the inventory will be overstated. This means that the cost of goods sold will be understated, leading to an overstatement of gross profit and ultimately net income. Therefore, net income will be overstated.

Question 18

Which of the following is used to analyze the efficiency and effectiveness of inventory management?
A)inventory turnover only
B)number of days' sales in inventory only
C)both inventory turnover and number of days' sales in inventory
D)neither inventory turnover or number of days' sales in inventory

Accepted Answer

Both inventory turnover and number of days' sales in inventory are used to analyze the efficiency and effectiveness of inventory management. Inventory turnover measures how frequently inventory is sold and restocked, while number of days' sales in inventory measures how many days it takes for inventory to turn over. Together, they provide a more comprehensive understanding of how well a company is managing its inventory.

Question 19

During the taking of its physical inventory on December 31,2014,Barry's Bike Shop incorrectly counted its inventory as $350,000 instead of the correct amount of $280,000.The effect on the balance sheet and income statement would be
A)assets overstated by $70,000; retained earnings understated by $70,000; and net income statement understated by $70,000
B)assets overstated by $70,000; retained earnings understated by $70,000; and no effect on the income statement
C)assets,retained earnings,and net income all overstated by $70,000
D)assets and retained earnings overstated by $70,000; and net income understated by $70,000

Accepted Answer

Overstating inventory by $70,000 would increase assets by the same amount. Since ending inventory is overstated, cost of goods sold would be understated, leading to an overstatement of net income. This, in turn, would cause retained earnings to be overstated by the same amount.

Question 20

For the year ended December 31,Depot Max's cost of merchandise sold was $56,900.Inventory at the beginning of the year was $6,540.Ending inventory was $7,250.Depot Max's number of days' sales in inventory is closest to
A)42
B)46
C)8
D)44

Accepted Answer

The answer of For the year ended December 31,Depot Max's...

Quiz 6: Inventories

All of the following are reasons to use an estimated method of costing inventory except

If the cost of an item of inventory is $60 and the current replacement cost is $75,the amount included in inventory according to the lower of cost or market is

Kristin's Boutiques has identified the following items for possible inclusion in its December 31 inventory.Which of the following would not be included in the year-end inventory?

Which of the following measures the length of time it takes to acquire,sell,and replace inventory?

If a company mistakenly counts less items during a physical inventory than actually exist,how will the error affect the cost of merchandise sold?

Merchandise inventory at the end of the year was understated.Which of the following statements correctly states the effect of the error?

Too much inventory on hand

Excess inventory results in all of the following except

The number of days' sales in inventory measures

Which of the following measures the relationship between cost of merchandise sold and the amount of inventory carried during the period?

For the year ended December 31,Depot Max's cost of merchandise sold was $56,900.Inventory at the beginning of the year was $6,540.Ending inventory was $7,250.Compute Depot Max's inventory turnover for the year.

Merchandise inventory at the end of the year is overstated.Which of the following statements correctly states the effect of the error?

The method of estimating inventory that uses records of the selling prices of the merchandise is called

On the basis of the following data,what is the estimated cost of the merchandise inventory on May 31 using the retail method?

If the estimated rate of gross profit is 30%,what is the estimated cost of the merchandise inventory on September 30,based on the following data?

If a company mistakenly counts more items during a physical inventory than actually exist,how will the error affect their bottom line?

Which of the following is used to analyze the efficiency and effectiveness of inventory management?

During the taking of its physical inventory on December 31,2014,Barry's Bike Shop incorrectly counted its inventory as $350,000 instead of the correct amount of $280,000.The effect on the balance sheet and income statement would be

For the year ended December 31,Depot Max's cost of merchandise sold was $56,900.Inventory at the beginning of the year was $6,540.Ending inventory was $7,250.Depot Max's number of days' sales in inventory is closest to