Question 1

All of the following statements related to goods on consignment are true except:
A)Goods on consignment are goods provided by the owner,call the consignor.
B)A consignee sells goods for the owner.
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 consignee reports the goods in its inventory until sold, while the consignor reports the goods as inventory until the sale is made.

Question 2

A company uses the periodic inventory system and had the following activity during the current monthly period.  Using the weighted-average inventory method,the company's ending inventory would be:
A)$2,000
B)$2,200
C)$2,250
D)$2,400
E)$4,400

Accepted Answer

The answer of A company uses the periodic inventory system...

Question 3

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)$21,000.
C)$20,000.
D)$18,000.
E)$27,000.

Accepted Answer

Using the gross profit method, we can calculate the cost of goods sold:
Cost of goods sold = Sales revenue x (1 - Gross profit ratio)
Cost of goods sold = $100,000 x (1 - 0.30) = $70,000

We can then calculate the estimated ending inventory at cost:
Estimated ending inventory = Beginning inventory + Purchases - Cost of goods sold
Estimated ending inventory = $18,000 + $72,000 - $70,000 = $20,000

Therefore, the best choice is C, as it represents the estimated ending inventory at cost by the gross profit method.

Question 4

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 matching principle.
B)The materiality constraint.
C)The cost principle.
D)The conservation constraint principle.
E)The lower of cost or market principle.

Accepted Answer

The materiality constraint allows companies to expense small costs immediately if they are not significant enough to affect financial statements, rather than assigning them to inventory.

Question 5

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

Accepted Answer

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

Question 6

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)35.9%
B)18.8%
C)81.2%
D)64.1%
E)58.6%

Accepted Answer

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

Question 7

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)$135,000.
B)$73,125.
C)$78,300.
D)$72,900.
E)$105,000.

Accepted Answer

1. Calculate the cost-to-retail percentage:
Cost + Net Purchases / Retail = $80,000 + $65,000 / $130,000 + $120,000 = 1.0769 or 107.69%

2. Calculate the cost of ending inventory at retail prices:
Ending Inventory Retail x Cost-to-Retail Percentage = $135,000 x 107.69% = $145,653

3. Calculate the cost of ending inventory:
Ending Inventory Retail - Ending Inventory Cost = $145,653 - $78,300 = $67,353 or approximately $73,125 rounded to the nearest dollar.

Therefore, the best choice is C.

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 cost of goods sold would be:
A)$60,000.
B)$20,000.
C)$58,500.
D)$63,000.
E)$19,500.

Accepted Answer

The gross margin ratio is 25%, meaning the cost of goods sold is 75% of net sales. Therefore, the cost of goods sold is 75% of $80,000, which is $60,000.

Question 9

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)$60,000
B)$180,000
C)$30,000
D)$90,000
E)$120,000

Accepted Answer

Gross profit = Sales × Gross profit ratio= $300,000 × 30%= $90,000Cost of goods sold = Cost of goods available for sale – Ending inventory$270,000 – Ending inventory = $90,000Ending inventory = $270,000 – $90,000= $180,000

Question 10

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

Accepted Answer

Interim financial statements are financial reports prepared for periods shorter than a full fiscal year, such as quarterly or monthly reports.

Question 11

Health Defense sells first aid kits and uses the periodic inventory system to account for its merchandise.The beginning balance of the inventory and its transactions during January were as follows: January 1: Beginning balance of 18 units at $13 each
January 12: Purchased 30 units at $14 each
January 19: Sold 24 units at a selling price of $30 each
January 20: Purchased 24 units at $17 each
January 27: Sold 27 units at a selling price of $30 each
If the ending inventory is reported at $357,what inventory method was used?
A)LIFO.
B)FIFO.
C)Weighted average.
D)Specific identification.
E)Retail inventory methoD.

Accepted Answer

The FIFO (First-In, First-Out) method assumes that the oldest inventory items are sold first. Calculating the ending inventory using FIFO: 21 units remain (6 from the Jan 20 purchase at $17 each and 15 from the Jan 12 purchase at $14 each), totaling $357.

Question 12

A company has beginning inventory of 15 units at a cost of $12 each on October 1.On October 5,it purchases 10 units at $13 per unit.On October 12 it purchases 20 units at $14 per unit.On October 15,it sells 30 units.Using the FIFO periodic inventory method,what is the value of the inventory at October 15 after the sale?
A)$140
B)$160
C)$210
D)$380
E)$590

Accepted Answer

Under FIFO, the oldest costs are assigned to the cost of goods sold first. The remaining inventory is valued at the most recent costs. After selling 30 units, 15 units at $14 each remain, totaling $210.

Question 13

A company had beginning inventory of 10 units at a cost of $20 each on March 1.On March 2,it purchased 10 units at $22 each.On March 6 it purchased 6 units at $25 each.On March 8,it sold 22 units for $54 each.Using the FIFO perpetual inventory method,what was the cost of the 22 units sold?
A)$470
B)$490
C)$450
D)$570
E)$520

Accepted Answer

FIFO (First-In, First-Out) method assumes that the first units purchased are the first units sold. Therefore, the cost of the 22 units sold is the cost of the 10 units purchased on March 1 (10 x $20 = $200) and the cost of the 12 units purchased on March 2 (12 x $22 = $264). The total cost of the 22 units sold is $200 + $264 = $464.

Question 14

A company has the following per unit original costs and replacement costs for its inventory.LCM is applied to individual items. Part A: 50 units with a cost of $5,and replacement cost of $4.50
Part B: 75 units with a cost of $6,and replacement cost of $6.50
Part C: 160 units with a cost of $3,and replacement cost of $2.50
Under the lower of cost or market method,the total value of this company's ending inventory is:
A)$1,180.00.
B)$1,075.00.
C)$1,112.50.
D)$1,217.50.
E)$1,137.50.

Accepted Answer

The answer of A company has the following per unit...

Question 15

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)$79,200
C)$81,700
D)$84,300
E)$81,000

Accepted Answer

The cost of the inventory is the sum of the merchandise cost, freight charges, insurance during transit, and import duties. The merchandise cost is $80,000, the freight charges are $2,500, the insurance during transit is $300, and the import duties are $1,500. Therefore, the cost of the inventory is $80,000 + $2,500 + $300 + $1,500 = $84,300. However, Hasham paid within the discount period, so the cost of the inventory is reduced by 1% to $84,300 - 1% x $84,300 = $83,500.

Question 16

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)$53,000
C)$52,000
D)$51,500
E)$53,200

Accepted Answer

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

Question 17

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

Accepted Answer

The answer of On December 31,a company needed to estimate...

Question 18

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)$217,950
D)$321,250
E)$157,788

Accepted Answer

The answer of On April 24 of the current year,The...

Question 19

A company has beginning inventory of 10 units at a cost of $10 each on February 1.On February 3,it purchases 20 units at $12 each.12 units are sold on February 5.Using the FIFO periodic inventory method,what is the cost of the 12 units that are sold?
A)$120
B)$124
C)$128
D)$130
E)$140

Accepted Answer

The answer of A company has beginning inventory of 10...

Question 20

A company's warehouse contents were destroyed by a flood on September 12.The following information was the only information that was salvaged: 1.Inventory,beginning: $28,000
2)Purchases for the period: $17,000
3)Sales for the period: $55,000
4)Sales returns for the period: $700
The company's average gross profit ratio is 35%.What is the estimated cost of the lost inventory?
A)$9,705.
B)$25,995.
C)$29,250.
D)$44,000.
E)$45,000.

Accepted Answer

Explanation:Cost of goods sold = Beginning inventory + Purchases - Sales + Sales returns= 28,000 + 17,000 - 55,000 + 700= 9,700Estimated cost of lost inventory = Cost of goods sold / (1 - Gross profit ratio)= 9,700 / (1 - 0.35)= 9,700 / 0.65= $14,846.15

Quiz 6: Inventories and Cost of Sales

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

A company uses the periodic inventory system and had the following activity during the current monthly period. Using the weighted-average inventory method,the company's ending inventory would be:

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:

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

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:

Interim financial statements:

A company had beginning inventory of 10 units at a cost of $20 each on March 1.On March 2,it purchased 10 units at $22 each.On March 6 it purchased 6 units at $25 each.On March 8,it sold 22 units for $54 each.Using the FIFO perpetual inventory method,what was the cost of the 22 units sold?

A company has beginning inventory of 10 units at a cost of $10 each on February 1.On February 3,it purchases 20 units at $12 each.12 units are sold on February 5.Using the FIFO periodic inventory method,what is the cost of the 12 units that are sold?