Question 1

For the year ended December 31, Depot Max's cost of goods 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 ratio = Cost of goods sold / Average inventory

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

Average inventory = ($6540 + $7250) / 2
Average inventory = $6895

Inventory turnover ratio = $56900 / $6895
Inventory turnover ratio = 8.25

Therefore, the answer is C) 8.3.

Question 2

For the year ended December 31, Depot Max's cost of goods 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 number of days' sales in inventory is calculated as (Ending Inventory / Cost of Goods Sold) * 365. First, find the average inventory: (Beginning Inventory + Ending Inventory) / 2 = ($6,540 + $7,250) / 2 = $6,895. Then, calculate the days' sales in inventory: ($6,895 / $56,900) * 365 ≈ 44 days.

Question 3

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

Too much inventory on hand 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, all of these choices are the best answer.

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 by expressing it in days. It is calculated by dividing the average inventory by the cost of goods sold and multiplying the result by 365 days.

Question 5

If the estimated rate of gross profit is 30%, what is the estimated cost of the 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 6

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 cause assets to be overstated by the same amount. Since inventory is an asset, the balance sheet would show $70,000 more in assets than actually exists. This overstatement would also cause both net income and retained earnings to be overstated. Net income is overstated because the cost of goods sold would be understated (less inventory cost recognized), leading to higher profits. Higher profits increase retained earnings, thus both are overstated by $70,000.

Question 7

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 typically leads to tied-up funds, increased storage expenses, and a higher risk of loss due to damage or obsolescence, but it does not directly result in lost sales. In fact, having excess inventory might prevent stockouts, thereby avoiding lost sales. Lost sales are more commonly associated with insufficient inventory.

Question 8

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 markup 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

Using the retail method, we can determine the cost-to-retail percentage, which is (retail value - cost value) / retail value. 
Beginning inventory had a retail cost of $45,000 and a markup of 100%, so the cost value is $22,500. 
Purchases during the year had a retail sales value of $300,000 and a markup of 100%, so the cost value is $150,000. 
The total cost value is therefore $172,500. 
The ending inventory at retail is $80,000, so the cost of the ending inventory can be estimated by multiplying $80,000 by the cost-to-retail percentage: 
($80,000 - cost value) / $80,000 = ($80,000 - cost value) / 80 
Multiplying both sides by 80 gives: 
$80,000 - cost value = cost-to-retail percentage x $80,000 
$80,000 - cost value = ($80,000 - $172,500) / $80,000 x $80,000 
$80,000 - cost value = $40,000 
So the cost value of the ending inventory is $40,000, which represents an estimated inventory value of $80,000 at retail with a cost-to-retail percentage of 50%.

Question 9

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 indicates how many times a company sells and replaces its inventory within a specific time period, while number of days' sales in inventory measures the number of days it takes for a company to sell its inventory. Together, these metrics provide insight into how well a company is managing its inventory levels and turning inventory into sales.

Question 10

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 uses the selling price of the merchandise to estimate the ending inventory. It involves multiplying the cost of the merchandise by a cost-to-retail percentage to arrive at the estimated ending inventory at retail value. This method is commonly used in the retail industry to estimate the cost of ending inventory. The gross profit method estimates the cost of goods sold using the gross profit percentage, while the inventory turnover method calculates the number of times inventory is sold and replaced during a period. The average cost method calculates the cost of inventory by taking the average of the cost of goods available for sale.

Question 11

Which of the following measures the relationship between cost of goods 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 using its inventory to generate sales. It is calculated by dividing the cost of goods sold by the average inventory held during the period. This ratio helps to determine how often a company is selling its inventory and restocking it. A high inventory turnover ratio is generally considered positive as it indicates that a company is efficiently managing its inventory and generating sales.

Question 12

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, it will result in an overstatement of inventory. This will lead to an overstatement of cost of goods sold and an understatement of expenses, ultimately resulting in an overstatement of net income.

Question 13

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

Accepted Answer

When a company counts fewer items than actually exist, it reports lower inventory levels. This error leads to a higher cost of goods sold (COGS) because the ending inventory is an essential part of the COGS calculation. Lower ending inventory means higher COGS.

Question 14

On the basis of the following data, what is the estimated cost of the 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,...

Question 15

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

Maintaining purchase records is essential for both actual and estimated methods of costing inventory. The absence of purchase records would not be a reason to use an estimated method, as these records are necessary to estimate the cost of inventory accurately.

Question 16

Determine the total value of the merchandise using net realizable value. 
A)$35
B)$80
C)$115
D)$25

Accepted Answer

The answer of Determine the total value of the merchandise...

Question 17

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 inventory on hand which has been returned by customers because of wrong size.

Accepted Answer

The answer of Kristin's Boutiques has identified the following items...

Question 18

A company will most likely use an estimated method of determining inventory when
A)the company decides not to do a physical inventory
B)a natural disaster has destroyed most of the inventory
C)the company has not kept up with its inventory records
D)the company is preparing annual financial statements

Accepted Answer

The answer of A company will most likely use an...

Question 19

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 20

Stevens Company started the year with an inventory cost of $145,000. During the month of January, Stevens purchased inventory that cost $53,000. January sales totaled $140,000. Estimated gross profit is 35%. The estimated ending inventory as of January 31 is
A)$58,000
B)$91,000
C)$107,000
D)$69,300

Accepted Answer

First, we calculate the cost of goods sold (COGS) for the month of January: 
COGS = Beginning Inventory + Purchases - Ending Inventory 
We don't know Ending Inventory yet, so we'll use the estimated ending inventory as the ending inventory figure for this calculation. 
COGS = $145,000 + $53,000 - Estimated Ending Inventory

Next, we can calculate the estimated gross profit: 
Gross Profit = Sales - COGS 
Gross Profit = $140,000 - COGS 
Gross Profit = $140,000 - ($145,000 + $53,000 - Estimated Ending Inventory) = $42,000 + Estimated Ending Inventory

We know that the estimated gross profit is 35% of sales, so we can set up the equation: 
35% * Sales = Gross Profit 
0.35 * $140,000 = $42,000

Now we can solve for Estimated Ending Inventory: 
$42,000 + Estimated Ending Inventory = $49,350 
Estimated Ending Inventory = $49,350 - $42,000 = $7,350

Finally, to find the estimated ending inventory as of January 31: 
Estimated Ending Inventory = Ending Inventory + COGS - Purchases 
$7,350 = Ending Inventory + ($145,000 + $53,000 - Ending Inventory) - $53,000 
$7,350 = $145,000 - $Ending Inventory 
$Ending Inventory = $145,000 - $7,350 = $137,650

Therefore, the estimated ending inventory as of January 31 is $107,000 (Choice C).

Quiz 6: Inventories

For the year ended December 31, Depot Max's cost of goods 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.

For the year ended December 31, Depot Max's cost of goods 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

Too much inventory on hand

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

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

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

Excess inventory results in all of the following except

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

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

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

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

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

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

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

Determine the total value of the merchandise using net realizable value.

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 company will most likely use an estimated method of determining inventory when

The number of days' sales in inventory measures

Stevens Company started the year with an inventory cost of $145,000. During the month of January, Stevens purchased inventory that cost $53,000. January sales totaled $140,000. Estimated gross profit is 35%. The estimated ending inventory as of January 31 is