Deck 6: Retail Inventory

Question 1

A new average cost is calculated after each purchase when a business is using which of the following methods?

A)First-in,first-out
B)Average cost
C)Specific unit cost
D)Last-in,first-out

Answer 1

B

Question 2

When a company uses LIFO,the cost of sales correlates to the most recently purchased goods and the ending inventory correlates to the oldest goods in stock.

Answer 2

True

Question 3

Which of the following concepts states that a company must perform strictly proper accounting ONLY for significant items?

A)Consistency principle
B)Accounting conservatism
C)Disclosure principle
D)Materiality concept

Answer 3

D

Question 4

Which of the following requires that financial statements should report the LEAST favourable figures?

A)Relevance principle
B)Accounting conservatism
C)Comparability principle
D)Materiality concept

Question 5

The various costing methods are necessary because the cost per unit of acquiring new inventory fluctuates frequently.

Question 6

Ending inventory equals the number of units on hand multiplied by the unit cost.

Question 7

Under which of the following inventory costing methods is ending inventory based on the cost of the most recent purchases?

A)Specific unit cost
B)Last-in,first-out
C)First-in,first-out
D)Average cost

Question 8

The comparability principle states that a business should use the same accounting methods from period to period.

Question 9

A company is uncertain whether a complex transaction should be recorded as an asset or as an expense.Under the conservatism principle,they should choose to treat it as an asset.

Question 10

Under which of the following inventory costing methods is the cost of sales based on the cost of the oldest purchases?

A)Average cost
B)Specific unit cost
C)First-in,first-out
D)Last-in,first-out

Question 11

A company decides to ignore a very small error in its inventory balance.This is an example of which of the following principles?

A)Relevance principle
B)Comparability principle
C)Materiality concept
D)Accounting conservatism

Question 12

A company discovers that its Cost of sales is understated by an insignificant amount.They do NOT need to correct the error because of the conservatism principle.

Question 13

A company changes its inventory costing method each period in order to maximise profit.This is a violation of the consistency principle.

Question 14

The materiality concept requires that a company should report enough information for outsiders to make wise decisions about the company.

Question 15

Which of the following states that a company must perform strictly proper accounting ONLY for items that are significant to the company's financial statements?

A)Comparability principle
B)Relevance principle
C)Accounting conservatism
D)Materiality concept

Question 16

Which of the following inventory costing methods is based on the actual cost of each particular unit of inventory?

A)Specific unit cost
B)First-in,first-out
C)Last-in,first-out
D)Average cost

Question 17

Changing from the LIFO (Last-In,First-Out)to specific-identification method of valuing inventory ignores the:

A)principle of comparability.
B)principle of relevance.
C)principle of conservatism.
D)concept of materiality.

Question 18

A company is uncertain whether a complex transaction should result in an asset being recorded at $100 000 or at $150 000.Under the conservatism principle,they should choose to show it at the lower amount.

Question 19

Which of the following states that the business should use the same accounting methods from period to period?

A)Accounting conservatism
B)Materiality concept
C)Comparability principle
D)Relevance principle

Question 20

Under last-in,first-out,the cost of sales is based on the oldest purchases.

Question 21

Harris Company had the following balances and transactions during 2016: $$\begin{array} { | l | l | } \hline \text { Beginning inventory } & 280 \text { units at } \$ 72 \\\hline 10 \text { March } & \text { Sold } 70 \text { units } \\\hline 10 \text { June } & \text { Purchased } 150 \text { units at } \$ 76 \\\hline 30 \text { October } & \text { Sold } 125 \text { units } \\\hline\end{array}$$ What would the cost of sales be as reported on the income statement for the year ending 31 December 2016 if the perpetual,last-in,first-out costing method is used?

A)$5040
B)$15,840
C)$16,440
D)$11,400

Question 22

Which of the following inventory costing methods yields the highest Gross profit when costs are rising during the accounting period?

A)First-in,first-out
B)Average cost
C)Last-in,first-out
D)Specific unit cost

Question 23

A company that uses the perpetual inventory system sold goods for $3700 to a customer on account.The company had purchased the inventory for $500.Which of the following journal entries correctly records the cost of sales?

A) $$\begin{array} { | c | l | l | } \hline \text { Accounts receivable } & 500 & \\\hline \text { Sales revenue } & & 500 \\\hline\end{array}$$
B) $$\begin{array} { | c | l | l | } \hline \text { Cost of sales } & 500 & \\\hline \text { Inventory } & & 500 \\\hline\end{array}$$
C) $$\begin{array} { | c | l | l | } \hline \text { Inventory } & 500 & \\\hline \text { Cost of sales } & & 500 \\\hline\end{array}$$
D) $$\begin{array} { | c | l | l | } \hline \text { Cost of sales } & 500 & \\\hline \text { Sales revenue } & & 500 \\\hline\end{array}$$

Question 24

A company purchased 100 units for $30 each on 31 January.It purchased 130 units for $39 each on 28 February.It sold a total of 160 units for $45 each from 1 March to 31 December.What is the amount of ending inventory on 31 December if the company uses the first-in,first-out (FIFO)inventory costing method? (Assume that the company uses a perpetual inventory system. )

A)$2730
B)$960
C)$2100
D)$5250

Question 25

Which of the following inventory costing methods yields the highest Ending inventory when costs are rising during the accounting period?

A)First-in,first-out
B)Average cost
C)Specific unit cost
D)Last-in,first-out

Question 26

Lewis Company had the following balances and transactions during 2016: $$\begin{array} { | l | l | } \hline \text { Beginning inventory } & 140 \text { units at } \$ 84 \\\hline 10 \text { March } & \text { Sold } 70 \text { units } \\\hline 10 \text { June } & \text { Purchased } 280 \text { units at } \$ 86 \\\hline 30 \text { October } & \text { Sold } 150 \text { units } \\\hline\end{array}$$ What would the cost of sales be as reported on the income statement for the year ending 31 December 2016 if the perpetual weighted-average costing method is used? (Round your intermediate calculations to two decimal places. )

A)$29,960
B)$12,840
C)$18,720
D)$17,120

Question 27

A company purchased 130 units for $30 each on 31 January.It purchased 200 units for $35 each on 28 February.It sold 200 units for $60 each from 1 March to 31 December.If the company uses the weighted-average inventory costing method,calculate the amount of cost of sales on the income statement for the year ending 31 December.(Assume the company uses the perpetual inventory system. )

A)$6606
B)$3900
C)$10,900
D)$7000

Question 28

Which inventory valuation model serves as a middle-of-the-road approach for taxes and net profit?

A)Last-in,first-out
B)First-in,first-out
C)Specific unit cost
D)Average cost

Question 29

A company purchased 200 units for $30 each on 31 January.It purchased 125 units for $40 on 28 February.It sold 175 units for $55 each from 1 March to 31 December. If the company uses the last-in,first-out inventory costing method,what is the amount of cost of sales on the income statement for the year ending 31 December? (Assume that the company uses a perpetual inventory system. )

A)$5000
B)$6500
C)$6000
D)$11,000

Question 30

A company that uses the perpetual inventory system purchased 500 pallets of industrial soap for $10,000 and paid $750 for the freight in.The company sold the whole lot to a supermarket chain for $13,000 on account.The company uses the specific-identification method of inventory costing.Which of the following entries correctly records the cost of sale?

A) $$\begin{array} { | c | l | l | } \hline \text { Cost of sales } & 10,000 & \\\hline \text { Inventory } & & 10,000 \\\hline\end{array}$$
B) $$\begin{array} { | c | l | l | } \hline \text { Cost of sales } & 10,750 & \\\hline \text { Inventory } & & 10,750 \\\hline\end{array}$$
C) $$\begin{array} { | c | l | l | } \hline \text { Cost of sales } & 10,000 & \\\hline \text { Sales revenue } & & 10,000 \\\hline\end{array}$$
D) $$\begin{array} { | c | l | l | } \hline \text { Inventory } & 10,750 & \\\hline \text { Cost of sales } & & 10,750 \\\hline\end{array}$$

Question 31

A company that uses the perpetual inventory system sold goods to a customer for cash for $3300.The cost of the sales was $1300.Which of the following journal entries correctly records this transaction?

A) $$\begin{array} { | c | l | l | } \hline \text { Accounts receivable } & 3300 & \\\hline \text { Cash } & & 3300 \\\hline\end{array}$$
B) $$\begin{array} { | c | l | l | } \hline \text { Cash } & 3300 & \\\hline \text { Sales revenue } & & 3300 \\\hline\end{array}$$
$$\begin{array} { | c | l | l | } \hline \text { Cost of sales } & 1300 & \\\hline \text { Inventory } & & 1300 \\\hline\end{array}$$
C) $$\begin{array} { | c | l | l | } \hline \text { Inventory } & 3300 & \\\hline \text { Sales revenue } & & 3300 \\\hline\end{array}$$
D) $$\begin{array} { | c | l | l | } \hline \text { Cost of sales } & 3300 & \\\hline \text { Sales revenue } & & 3300 \\\hline\end{array}$$

Question 32

Rodriguez Company had the following balances and transactions during 2016: $$\begin{array} { | l | l | } \hline \text { Beginning inventory } & 300 \text { units at } \$ 82 \\\hline 10 \text { March } & \text { Sold } 60 \text { units } \\\hline 10 \text { June } & \text { Purchased } 600 \text { units at } \$ 84 \\\hline 30 \text { October } & \text { Sold } 360 \text { units } \\\hline\end{array}$$ What would the ending inventory amount be as reported on the balance sheet at 31 December 2016 if the perpetual first-in,first-out costing method is used?

A)$50,400
B)$24,600
C)$40,320
D)$4920

Question 33

Which of the following inventory costing methods yields the highest cost of sales when costs are rising during the accounting period?

A)Average cost
B)First-in,first-out
C)Last-in,first-out
D)Specific unit cost

Question 34

Metro Computer Company had the following balances and transactions during 2016: $$\begin{array} { | l | l | } \hline \text { Beginning inventory } & 280 \text { units at } \$ 71 \\\hline 10 \text { March } & \text { Sold } 70 \text { units } \\\hline 10 \text { June } & \text { Purchased } 1120 \text { units at } \$ 78 \\\hline 30 \text { October } & \text { Sold } 100 \text { units } \\\hline\end{array}$$ What would the company's ending inventory amount be on 31 December 2016 if the perpetual last-in,first-out costing method is used?

A)$94,470
B)$87,360
C)$19,880
D)$107,240

Question 35

Which of the following inventory costing methods yields the lowest Ending inventory when costs are rising during the accounting period?

A)Specific unit cost
B)Average cost
C)First-in,first-out
D)Last-in,first-out

Question 36

Harris Company had the following balances and transactions during 2016: $$\begin{array} { | l | l | } \hline \text { Beginning inventory } & 175 \text { units at } \$ 82 \\\hline 10 \text { March } & \text { Sold } 50 \text { units } \\\hline 10 \text { June } & \text { Purchased 225 units at } \$ 86 \\\hline 30 \text { October } & \text { Sold 225 units } \\\hline\end{array}$$ What would the cost of sales be as reported on the income statement for the year ending 31 December 2016 if the perpetual first-in,first-out costing method is used?

A)$14,350
B)$33,700
C)$18,850
D)$22,950

Question 37

A company that uses the perpetual inventory system sold goods to a customer on account for $2500 The cost of the sales was $1250.Which of the following journal entries correctly records this transaction?

A) $$\begin{array} { | c | l | l | } \hline \text { Accounts receivable } & 2500 & \\\hline \text { Cash } & & 2500 \\\hline\end{array}$$
B) $$\begin{array} { | c | l | l | } \hline \text { Accounts receivable } & 2500 & \\\hline \text { Sales revenue } & & 2500 \\\hline\end{array}$$
$$\begin{array} { | c | l | l | } \hline \text { Costs of sales } & \$ 1250 & \\\hline \text { Inventory } & & \$ 1250 \\\hline\end{array}$$
C) $$\begin{array} { | c | l | l | } \hline \text { Cost of sales } & 2500 & \\\hline \text { Sales revenue } & & 2500 \\\hline\end{array}$$
D) $$\begin{array} { | c | l | l | } \hline \text { Inventory } & 2500 & \\\hline \text { Costs of sales } & & 2500 \\\hline\end{array}$$

Question 38

A company that uses the perpetual inventory system purchased 500 pallets of industrial soap for $7000 and paid $950 for the freight-in.The company sold the whole lot to a supermarket chain for $13,000 on account.Which of the following entries correctly records the sale?

A) $$\begin{array} { | c | l | l | } \hline \text { Accounts receivable } & 13,000 & \\\hline \text { Sales revenue } & & 13,000 \\\hline\end{array}$$
$$\begin{array} { | c | l | l | } \hline \text { Cost of sales } & 7950 & \\\hline \text { Inventory } & & 7950 \\\hline\end{array}$$
B) $$\begin{array} { | c | l | l | } \hline \text { Sales revenue } & 13,000 & \\\hline \text { Inventory } & & 13,000 \\\hline\end{array}$$
C) $$\begin{array} { | c | l | l | } \hline \text { Cost of sales } & 13,000 & \\\hline \text { Sales revenue } & & 13,000 \\\hline\end{array}$$
D) $$\begin{array} { | c | l | l | } \hline \text { Inventory } & 13,000 & \\\hline \text { Cost of sales } & & 13,000 \\\hline\end{array}$$

Question 39

A company purchased 110 units for $20 each on 31 January.It purchased 200 units for $25 each on 28 February.It sold 200 units for $50 each from 1 March to 31 December.If the company uses the first-in,first-out inventory costing method,what is the amount of cost of sales on the income statement for the year ending 31 December? (Assume that the company uses a perpetual inventory system. )

A)$5000
B)$4450
C)$7200
D)$2200

Question 40

A company purchased 400 units for $30 each on 31 January.It purchased 150 units for $35 each on 28 February.It sold a total of 150 units for $80 each from 1 March to 31 December.If the company uses the weighted-average inventory costing method,calculate the amount of ending inventory on 31 December.(Assume that the company uses a perpetual inventory system. )

A)$12,544
B)$17,250
C)$12,000
D)$13,000

Question 41

In a period of rising costs,FIFO produces lower Cost of sales and higher Gross profit than LIFO.

Question 42

If the historical cost of inventory falls below replacement cost,the business must write down the inventory cost.

Question 43

Ending inventory for the current period is understated.What effect will this error have on equity?

A)Equity will be overstated at the end of the current period and overstated at the end of the next period.
B)Equity will be understated at the end of the current period,but it will be correct at the end of the next period.
C)Equity will be overstated at the end of the current period,but it will be correct at the end of the next period.
D)Equity will be overstated at the end of the current period and understated at the end of the next period.

Question 44

Misty Company had 22,000 units of ending inventory that were recorded at their cost of $9.00 per unit using the first-in,first-out (FIFO)method.The current replacement cost is $4.75 per unit.Which of the following amounts would be reported as Ending inventory on the balance sheet using the lower-of-cost-and-net-realisable-value rule?

A)$220,000
B)$198,000
C)$104,500
D)$302,500

Question 45

Given the same purchase and sales data,the three major costing methods will result in three different amounts for Gross profit.

Question 46

Ending inventory for the current year is overstated by $20 000.What effect will this error have on the following year's Net profit?

A)Net profit will be understated by $40 000.
B)The inventory overstatement will not affect Net profit.
C)Net profit will be understated by $20 000.
D)Net profit will be overstated by $20 000.

Question 47

An overstatement of ending inventory in the current period results in the understatement of Net profit in the current year.

Question 48

The lower-of-cost-and-net-realisable-value rule demonstrates accounting conservatism in action.

Question 49

Rubal Ltd earned revenue of $600,000 and incurred cost of sales of $340,000.Calculate the gross profit percentage.

A)21.65%
B)56.7%
C)100%
D)43.3%

Question 50

Estimated ending inventory can be computed by subtracting Estimated Cost of sales from Cost of goods available for sale.

Question 51

The Gross profit method is a way to estimate inventory on the basis of the Cost of sales model.

Question 52

James Company earned revenue of $700,000 and incurred cost of sales of $110,000.How much is the gross profit percentage?

A)15.7%
B)84.3%
C)100%
D)42.15%

Question 53

The Cost of goods available for sale is equal to the:

A)Sales revenue minus the Cost of sales.
B)Cost of sales plus the Ending inventory.
C)Ending inventory plus the Sales revenues.
D)Cost of sales minus the Ending inventory.

Question 54

The beginning inventory of Soft Toys Company was $42,000.The purchases (excluding returns)and sales revenue for the year were $250,000 and $320,000,respectively.The purchase returns amounted to $31,000.The company's normal gross profit percentage is 80%.What is the amount of estimated ending inventory?

A)$197,000
B)$31,000
C)$261,000
D)$256,000

Question 55

Ending inventory for the current accounting period is overstated by $2 700.What effect will this error have on Cost of sales and Net profit?

A) $$\begin{array} { | c | c | } \hline \text { Cost of sales } & \text { Net profit } \\\hline \text { Understated } & \text { Understated } \\\hline\end{array}$$
B) $$\begin{array} { | c | c | } \hline \text { Cost of sales } & \text { Net profit } \\\hline \text { Overstated } & \text { Overstated } \\\hline\end{array}$$
C) $$\begin{array} { | c | c | } \hline \text { Cost of sales } & \text { Net profit } \\\hline \text { Overstated } & \text { Understated } \\\hline\end{array}$$
D) $$\begin{array} { | c | c | } \hline \text { Cost of sales } & \text { Net profit } \\\hline \text { Understated } & \text { Overstated } \\\hline\end{array}$$

Question 56

The ending inventory for the current year is overstated by $20,000.What effect will this error have on the following year's Net profit?

A)Net profit will be overstated by $40,000.
B)Net profit will be understated by $20,000.
C)Net profit will be overstated by $20,000.
D)Net profit will be understated by $40,000.

Question 57

Which of the following assets must be reported at the lower-of-cost-and-net-realisable-value?

A)Inventory
B)Prepaid insurance
C)Accounts receivable
D)Cash

Question 58

Given the same purchase and sales data,the three major costing methods will result in three different amounts for Sales revenue.

Question 59

Which of the following is used for net realisable value when valuing inventory at lower-of-cost-and-net-realisable-value?

A)Sales price less the company's normal markup percentage
B)Sales price
C)Sales price less costs of completing,marketing,selling and distributing the inventory to customers
D)Cost plus the company's normal markup percentage

Question 60

Gross profit is Sales revenue divided by Cost of sales.

Question 61

Using the FIFO costing method will always produce the same results whether a company uses perpetual or periodic inventory.

Question 62

A company that uses the periodic inventory method provided the following information:
1.Beginning inventory $3000
2.Purchases $140,000
3.Purchase discounts $2200
4.Purchase returns and allowances $1000
At the end of the period,the company does an inventory count and finds $16,000 worth of inventory on hand.
What is the amount of Cost of sales?

A)$147,400
B)$155,800
C)$123,800
D)$140,000

Question 63

Evans Company had the following balances and transactions during 2016. $$\begin{array} { | l | l | } \hline \text { Beginning inventory } & 30 \text { units at } \$ 70 \\\hline 10 \text { March } & \text { Sold } 27 \text { units } \\\hline 10 \text { June } & \text { Purchased } 90 \text { units at } \$ 80 \\\hline 30 \text { October } & \text { Sold } 84 \text { units } \\\hline\end{array}$$ What is the amount of the company's inventory,as disclosed in the 31 December 2016 balance sheet as per the periodic last-in,first-out (LIFO)costing method?

A)$720
B)$480
C)$630
D)$420

Question 64

Under periodic inventory,the company first calculates Cost of sales for the period and then determines what the Ending inventory balance is.

Question 65

When using periodic inventory,the closing process begins with closing out the Beginning inventory to Cost of sales.The second step is to set up the Ending inventory by debiting Cost of sales and crediting Inventory.

Question 66

Using the LIFO costing method will always produce the same results whether a company uses perpetual or periodic inventory.