Question 1

A company reports the following information regarding its inventory. Beginning inventory: cost is $80,000; retail is $130,000 Net purchases: cost is $65,000; retail is $120,000
Sales at retail: $145,000
The year-end inventory shows $135,000 worth of merchandise available at retail prices. What is the cost of the ending inventory calculated using the retail inventory method?
A)$78,300.
B)$73,125.
C)$135,000.
D)$72,900.
E)$105,000.

Accepted Answer

The answer of A company reports the following information regarding...

Question 2

Avanti purchases inventory from overseas and incurs the following costs: the merchandise cost is $50,000, credit terms 2/10, n/30 that apply only to the $50,000; FOB shipping point freight charges are $1,500; insurance during transit is $500; and import duties are $1,000. Avanti paid within the discount period and incurred additional costs of $1,200 for advertising and $5,000 for sales commissions. Compute the cost that should be assigned to the inventory.
A)$50,000
B)$51,500
C)$52,000
D)$53,000
E)$53,200

Accepted Answer

The cost that should be assigned to the inventory can be calculated as follows:
Merchandise cost = $50,000
FOB shipping point freight charges = $1,500
Insurance during transit = $500
Import duties = $1,000
Total landed cost = $53,000
Less: Discount (2% of $50,000) = $1,000
Net landed cost = $52,000
Additional costs:
Advertising = $1,200
Sales commissions = $5,000
Total additional costs = $6,200
Total cost of inventory = Net landed cost + Additional costs = $52,000 + $6,200 = $58,200.
Therefore, the cost that should be assigned to the inventory is $52,000.

Question 3

Oxford Packing Company reported net sales in November of the current year of $1,000,000. At the beginning of November, the company reported beginning inventory of $368,000. Cost of goods purchased during November amounted to $217,500. The company reported ending inventory at the end of November of $226,750. The company's gross profit rate for November of the current year was:
A)81.2%
B)18.8%
C)58.6%
D)35.9%
E)64.1%

Accepted Answer

The answer of Oxford Packing Company reported net sales in...

Question 4

Big Box Store has operated with a 30% average gross profit ratio for a number of years. It had $100,000 in sales during the second quarter of this year. If it began the quarter with $18,000 of inventory at cost and purchased $72,000 of inventory during the quarter, its estimated ending inventory by the gross profit method is:
A)$30,000.
B)$20,000.
C)$21,000.
D)$18,000.
E)$27,000.

Accepted Answer

The answer of Big Box Store has operated with a...

Question 5

Jefferson Company has sales of $300,000 and cost of goods available for sale of $270,000. If the gross profit ratio is typically 30%, the estimated cost of the ending inventory under the gross profit method would be:
A)$90,000
B)$120,000
C)$180,000
D)$60,000
E)$30,000

Accepted Answer

The answer of Jefferson Company has sales of $300,000 and...

Question 6

On January 31, a company needed to estimate its ending inventory to prepare its monthly financial statements. The following information is currently available: Inventory as of January 1: $120,500 Net sales for January: $400,000
Net purchases for January: $270,500
This company typically achieves a gross profit ratio of 15%. Ending Inventory under the gross profit method would be:
A)$9,000.
B)$51,000.
C)$10,425.
D)$102,425.
E)$51,425.

Accepted Answer

The answer of On January 31, a company needed to...

Question 7

When costs to purchase inventory regularly decline, which method of inventory costing will yield the lowest gross profit and income?
A)Gross margin.
B)Weighted average.
C)Specific identification.
D)FIFO.
E)LIFO.

Accepted Answer

The answer of When costs to purchase inventory regularly decline,...

Question 8

On March 31 a company needed to estimate its ending inventory to prepare its first quarter financial statements. The following information is available: Beginning inventory, January 1: $4,000 Net sales: $80,000
Net purchases: $78,000
The company's gross margin ratio is 25%. Using the gross profit method, the estimated ending inventory value would be:
A)$19,500.
B)$60,000.
C)$20,000.
D)$82,000.
E)$22,000.

Accepted Answer

The answer of On March 31 a company needed to...

Question 9

On April 24 of the current year, The Memphis Pecan Company experienced a tornado that destroyed the company's entire inventory. At the beginning of April, the company reported beginning inventory of $226,750. Inventory purchased during April (until the date of the tornado)was $197,800. Sales for the month of April through April 24 were $642,500. Assuming the company's typical gross profit ratio is 50%, estimate the amount of inventory destroyed in the tornado.
A)$212,275
B)$103,300
C)$321,250
D)$217,950
E)$157,788

Accepted Answer

To estimate the amount of inventory destroyed, we need to first calculate the cost of goods sold (COGS) for April:

Beginning inventory + Purchases - Ending inventory = COGS

$226,750 + $197,800 - Ending inventory = $642,500 x 50%

$424,550 - Ending inventory = $321,250

Ending inventory = $103,300

Since the tornado destroyed the entire inventory, the amount destroyed is equal to the ending inventory:

Amount of inventory destroyed = $103,300

Therefore, the correct answer is B.

Question 10

Hasham purchases inventory from overseas and incurs the following costs: the merchandise cost is $80,000, credit terms 1/10, n/30, applicable only to the $80,000; FOB shipping point freight charges are $2,500; insurance during transit is $300; and import duties are $1,500. Hasham paid within the discount period. Compute the cost that should be assigned to the inventory.
A)$83,500
B)$81,700
C)$84,300
D)$79,200
E)$81,000

Accepted Answer

The answer of Hasham purchases inventory from overseas and incurs...

Question 11

All of the following statements regarding U.S. GAAP and IFRS are true except:
A)Both U.S. GAAP and IFRS include broad and similar guidance for the items and costs making up merchandise inventory.
B)Both U.S. GAAP and IFRS require companies to write down inventory when its value falls below the cost presently recorded.
C)Both U.S. GAAP and IFRS allow reversals of write downs up to the original acquisition cost.
D)For both U.S. GAAP and IFRS, merchandise inventory includes all items that a company owns and holds for sale.
E)With limited exceptions, neither U.S. GAAP nor IFRS allow inventory to be adjusted upward beyond the original cost.

Accepted Answer

The answer of All of the following statements regarding U.S....

Question 12

Sandoval needs to determine its year-end inventory. The warehouse contains 20,000 units, of which 3,000 were damaged by flood and are not sellable. Another 2,000 units were purchased from Markor Company, FOB shipping point, and are currently in transit. The company also consigns goods and has 4,000 units at a consignee's location. How many units should Sandoval include in its year-end inventory?
A)21,000
B)19,000
C)23,000
D)29,000
E)26,000

Accepted Answer

The answer of Sandoval needs to determine its year-end inventory....

Question 13

On March 31 a company needed to estimate its ending inventory to prepare its first quarter financial statements. The following information is available: Beginning inventory, January 1: $4,000 Net sales: $80,000
Net purchases: $78,000
The company's gross margin ratio is 25%. Using the gross profit method, the cost of goods sold would be:
A)$19,500.
B)$63,000.
C)$60,000.
D)$58,500.
E)$20,000.

Accepted Answer

The answer of On March 31 a company needed to...

Question 14

Salmone Company reported the following purchases and sales of its only product. Salmone uses a perpetual inventory system. Determine the cost assigned to cost of goods sold using FIFO.
$$\begin{array} { | r | l | l | l | } 
\hline \text { Date } & \text { Activities } & \text { Units Ac quired at Cost } & \text { Units Sold at Retail } \
\hline \text { May 1 } & \text { Beginning Inventory } & 150 \text { units } @ \$ 10.00 & \
\hline 5 & \text { Purchase } & 220 \text { units } @ \$ 12.00 & \
\hline 10 & \text { Sales } & & 140 \text { units } @ \$ 20.00 \
\hline 15 & \text { Purchase } & 100 \text { units } @ \$ 13.00 & \
\hline 24 & \text { Sales } & & 90 \text { units } @ \$ 21.00 \
\hline
\end{array}$$
A)$5,440
B)$2,850
C)$2,980
D)$2,460
E)$2,590

Accepted Answer

The answer of Salmone Company reported the following purchases and...

Question 15

When costs to purchase inventory regularly decline, which method of inventory costing will yield the lowest cost of goods sold?
A)Weighted average.
B)Specific identification.
C)LIFO.
D)Gross margin.
E)FIFO.

Accepted Answer

LIFO, or Last-In-First-Out, assumes that the most recent inventory purchased is sold first. Therefore, in a period of declining inventory costs, LIFO will assume that the cheapest inventory is sold first, resulting in a lower cost of goods sold.

Question 16

Salmone Company reported the following purchases and sales of its only product. Salmone uses a perpetual inventory system. Determine the cost assigned to the ending inventory using FIFO.
$$\begin{array} { | r | l | l | l | } 
\hline \text { Date } & \text { Activities } & \text { Units Acquired at Cost } & \text { Units Sold at Retail } \
\hline \text { May 1 } & \text { Beginning Inventory } & 150 \text { units } @ \$ 10.00 & \
\hline 5 & \text { Purchase } & 220 \text { units } @ \$ 12.00 & \
\hline 10 & \text { Sales } & & 140 \text { units } @ \$ 20.00 \
\hline 15 & \text { Purchase } & 100 \text { units } @ \$ 13.00 & \
\hline 24 & \text { Sales } & & 90 \text { units } @ \$ 21.00 \
\hline
\end{array}$$
A)$2,460
B)$2,850
C)$2,860
D)$2,590
E)$2,980

Accepted Answer

Using FIFO, the ending inventory consists of the most recent purchases. After the sales, 240 units remain (150+220+100-140-90). These are 100 units @ $13.00 and 140 units @ $12.00, totaling $2,980.

Question 17

All of the following statements related to goods on consignment are true except:
A)A consignee sells goods for the owner.
B)Goods on consignment are goods provided by the owner, call the consignor.
C)The consignor continues to own the consigned goods.
D)The consignee reports the goods in its inventory until sold.
E)The consignor reports the goods in its inventory until sold.

Accepted Answer

The answer of All of the following statements related to...

Question 18

Interim financial statements:
A)Are statements prepared for periods of less than one year.
B)Require the use of the perpetual method for inventories.
C)Cannot be prepared if the company follows the conservatism principle.
D)Are necessary to achieve full disclosure about a business's operations.
E)Are required by the Congress.

Accepted Answer

Interim financial statements are prepared for periods of less than one year, such as quarterly or semi-annually.

Question 19

IFRS reporting currently does not allow which method of inventory costing?
A)Lower of cost or market.
B)Weighted average.
C)Specific identification.
D)FIFO.
E)LIFO.

Accepted Answer

IFRS reporting currently does not allow the use of the LIFO method of inventory costing, but all other methods (FIFO, weighted average, specific identification, and lower of cost or market) are permitted. Therefore, the best choice is E.

Question 20

Some companies choose to avoid assigning incidental costs of acquiring merchandise to inventory by recording them as cost of goods sold when incurred. The principle that supports this is called:
A)The cost principle.
B)The lower of cost or market principle.
C)The conservation constraint principle.
D)The expense recognition principle.
E)The materiality constraint.

Accepted Answer

The answer of Some companies choose to avoid assigning incidental...

Quiz 6: Inventories and Cost of Sales

Jefferson Company has sales of $300,000 and cost of goods available for sale of $270,000. If the gross profit ratio is typically 30%, the estimated cost of the ending inventory under the gross profit method would be:

When costs to purchase inventory regularly decline, which method of inventory costing will yield the lowest gross profit and income?

All of the following statements regarding U.S. GAAP and IFRS are true except:

When costs to purchase inventory regularly decline, which method of inventory costing will yield the lowest cost of goods sold?

All of the following statements related to goods on consignment are true except:

Interim financial statements:

IFRS reporting currently does not allow which method of inventory costing?

Some companies choose to avoid assigning incidental costs of acquiring merchandise to inventory by recording them as cost of goods sold when incurred. The principle that supports this is called: