Question 1

On January 1, 2014, the merchandise inventory of Glaus, Inc. was $1,200,000. During 2014 Glaus purchased $2,400,000 of merchandise and recorded sales of $3,000,000. The gross profit rate on these sales was 25%. What is the merchandise inventory of Glaus at December 31, 2014?
A) $600,000.
B) $750,000.
C) $1,350,000.
D) $2,250,000.

Accepted Answer

The cost of goods sold can be calculated as follows: 
Cost of goods sold = Sales - Gross profit = $3,000,000 - ($3,000,000 x 25%) = $2,250,000

Using the formula for calculating ending inventory: 
Ending inventory = Beginning inventory + Purchases - Cost of goods sold 
Ending inventory = $1,200,000 + $2,400,000 - $2,250,000 = $1,350,000

Therefore, the merchandise inventory of Glaus at December 31, 2014 is $1,350,000.

Question 2

Use the following information for questions 114 through 118.
The following data concerning the retail inventory method are taken from the financial records of Welch Company. 
-Assuming no change in the price level if the LIFO inventory method were used in conjunction with the data, the ending inventory at cost would be
A) $127,800.
B) $126,000.
C) $122,400.
D) $129,600.

Accepted Answer

Under the LIFO (Last-In, First-Out) inventory method, the most recent costs are used to value the cost of goods sold, and the oldest costs are used to value ending inventory. Assuming no change in the price level, the ending inventory at cost would be calculated using the oldest inventory costs, which corresponds to choice B, $126,000.

Question 3

Goren Corporation had the following amounts, all at retail:  What is Goren's ending inventory at retail?
A) $39,400.
B) $41,000.
C) $42,600.
D) $43,400

Accepted Answer

The answer of Goren Corporation had the following amounts, all...

Question 4

On April 15 of the current year, a fire destroyed the entire uninsured inventory of a retail store. The following data are available:  The amount of the inventory loss is estimated to be
A) $96,000.
B) $48,000.
C) $120,000.
D) $80,000.

Accepted Answer

The answer of On April 15 of the current year,...

Question 5

Drake Corporation had the following amounts, all at retail:  What is Drake's ending inventory at retail?
A) $69,400.
B) $71,000.
C) $72,600.
D) $73,400

Accepted Answer

The answer of Drake Corporation had the following amounts, all...

Question 6

Gamma Ray Corp. has annual sales totaling $780,000 and an average gross profit of 20% of cost. What is the dollar amount of the gross profit?
A) $156,000.
B) $117,000.
C) $130,000.
D) $195,000.

Accepted Answer

The answer of Gamma Ray Corp. has annual sales totaling...

Question 7

Crane Sales Company uses the retail inventory method to value its merchandise inventory. The following information is available for the current year:  If the ending inventory is to be valued at the lower-of-cost-or-market, what is the cost-to-retail ratio?
A) $207,500 ÷ $285,000
B) $207,500 ÷ $293,500
C) $205,000 ÷ $295,000
D) $207,500 ÷ $283,500

Accepted Answer

To find the cost-to-retail ratio, we need to divide the cost of goods available for sale ($293,500) by the retail value of goods available for sale ($402,000).

Cost-to-retail ratio = Cost of goods available for sale ÷ Retail value of goods available for sale
Cost-to-retail ratio = $293,500 ÷ $402,000
Cost-to-retail ratio = 0.7296

Since we need the ending inventory to be valued at the lower-of-cost-or-market, we need to look at the cost and market values for each item and choose the lower value. We can then calculate the ending inventory at cost by multiplying the cost-to-retail ratio by the retail value of the ending inventory.

Retail value of ending inventory = $117,500
Cost-to-retail ratio = 0.7296
Cost of ending inventory = $117,500 × 0.7296
Cost of ending inventory = $85,717

Therefore, the cost-to-retail ratio is $207,500 ÷ $293,500, or 0.706 and the best choice is B.

Question 8

The sales price for a product provides a gross profit of 25% of sales price. What is the gross profit as a percentage of cost?
A) 25%.
B) 20%.
C) 33%.
D) Not enough information is provided to determine.

Accepted Answer

If the gross profit is 25% of the sales price, this means that the cost is 75% of the sales price. Therefore, the gross profit as a percentage of cost is calculated as (Gross Profit / Cost) * 100 = (25 / 75) * 100 = 33.33%, which rounds to 33%.

Question 9

On October 31, a fire destroyed PH Inc.'s entire retail inventory. The inventory on hand as of January 1 totaled $2,040,000. From January 1 through the time of the fire, the company made purchases of $495,000 and had sales of $1,080,000. Assuming the rate of gross profit to selling price is 40%, what is the approximate value of the inventory that was destroyed?
A) $2,040,000.
B) $2,019,000.
C) $1,455,000.
D) $1,887,000.

Accepted Answer

The cost of goods sold is 60% of sales (100% - 40% gross profit). Therefore, the cost of goods sold is $1,080,000 * 60% = $648,000. The cost of inventory available for sale is $2,040,000 (beginning inventory) + $495,000 (purchases) = $2,535,000. The inventory destroyed is $2,535,000 - $648,000 = $1,887,000.

Question 10

Use the following information for questions 114 through 118.
The following data concerning the retail inventory method are taken from the financial records of Welch Company. 
-The ending inventory at retail should be
A) $222,000.
B) $180,000.
C) $192,000.
D) $126,000.

Accepted Answer

The answer of Use the following information for questions 114...

Question 11

For 2014, cost of goods available for sale for Tate Corporation was $2,700,000. The gross profit rate on sales was 20%. Sales for the year were $2,400,000. What was the amount of the ending inventory?
A) $0.
B) $780,000.
C) $540,000.
D) $480,000.

Accepted Answer

Cost of goods sold = Cost of goods available for sale - Ending inventoryCost of goods sold = $2,700,000 - Ending inventoryGross profit = Sales - Cost of goods soldGross profit = $2,400,000 - Cost of goods soldGross profit rate = Gross profit / Sales20% = (Gross profit / $2,400,000)Gross profit = $480,000Cost of goods sold = $2,400,000 - $480,000 = $1,920,000Ending inventory = $2,700,000 - $1,920,000 = $780,000

Question 12

Use the following information for questions 114 through 118.
The following data concerning the retail inventory method are taken from the financial records of Welch Company. 
-Assuming that the LIFO inventory method were used in conjunction with the data and that the inventory at retail had increased during the period, then the computation of retail in the cost-to-retail ratio would
A) exclude both markups and markdowns and include beginning inventory.
B) include markups and exclude both markdowns and beginning inventory.
C) include both markups and markdowns and exclude beginning inventory.
D) exclude markups and include both markdowns and beginning inventory.

Accepted Answer

When using the LIFO inventory method, the cost-to-retail ratio must include both markups and markdowns and exclude beginning inventory. This is because LIFO assumes that the last units purchased or produced are the first ones sold, so beginning inventory is not considered. Markups and markdowns are considered because they affect the ending inventory value at retail, which is needed to calculate the cost-to-retail ratio.

Question 13

Use the following information for questions 114 through 118.
The following data concerning the retail inventory method are taken from the financial records of Welch Company. 
-If the ending inventory is to be valued at approximately the lower of cost or market, the calculation of the cost-to-retail ratio should be based on goods available for sale at (1) cost and (2) retail, respectively of
A) $837,000 and $1,230,000.
B) $837,000 and $1,188,000.
C) $837,000 and $1,170,000.
D) $819,000 and $1,170,000.

Accepted Answer

The cost-to-retail ratio is calculated based on the goods available for sale at both cost and retail prices. The correct figures for this calculation are $837,000 at cost and $1,230,000 at retail, as indicated in option A. This approach ensures that the ending inventory is valued at the lower of cost or market by comparing the cost of goods available for sale to their selling prices.

Question 14

The inventory account of Irick Company at December 31, 2014, included the following items:  Based on the above information, the inventory account at December 31, 2014, should be reduced by
A) $45,400.
B) $45,200.
C) $69,400.
D) $51,400.

Accepted Answer

The answer of The inventory account of Irick Company at...

Question 15

Use the following information for questions 114 through 118.
The following data concerning the retail inventory method are taken from the financial records of Welch Company. 
-If the foregoing figures are verified and a count of the ending inventory reveals that merchandise actually on hand amounts to $108,000 at retail, the business has
A) realized a windfall gain.
B) sustained a loss.
C) no gain or loss as there is close coincidence of the inventories.
D) none of these answer choices are correct.

Accepted Answer

The answer of Use the following information for questions 114...

Question 16

Boxer Inc. uses the conventional retail method to determine its ending inventory at cost. Assume the beginning inventory at cost (retail) were $196,500 ($297,000), purchases during the current year at cost (retail) were $1,704,000 ($2,596,800), freight-in on these purchases totaled $79,500, sales during the current year totaled $2,333,000, and net markups were $207,000. What is the ending inventory value at cost?
A) $767,800.
B) $541,425.
C) $490,624.
D) $525,175.

Accepted Answer

To find ending inventory at cost, we need to first calculate the Cost-to-Retail Percentage (CRT%), which is calculated as follows:

(Cost of Beginning Inventory + Cost of Purchases + Freight-in) / (Retail Value of Beginning Inventory + Retail Value of Purchases) x 100

($196,500 + $1,704,000 + $79,500) / ($297,000 + $2,596,800) x 100 = 65.4%

Next, we can calculate the Estimated Ending Inventory at Cost using the formula:

Ending Inventory at Retail x (100% - CRT%)

Retail value of beginning inventory + retail value of purchases - sales + net markups = $297,000 + $2,596,800 - $2,333,000 + $207,000 = $767,800

$767,800 x (100% - 65.4%) = $262,176

Finally, we can calculate Ending Inventory at Cost:

Retail Value - Estimated Markdowns x CRT%

$262,176 x 65.4% = $171,448

Thus, the ending inventory at cost is $490,624 (option C).

Question 17

On August 31, a hurricane destroyed a retail location of Vinny's Clothier including the entire inventory on hand at the location. The inventory on hand as of June 30 totaled $960,000. Since June 30 until the time of the hurricane, the company made purchases of $255,000 and had sales of $750,000. Assuming the rate of gross profit to selling price is 40%, what is the approximate value of the inventory that was destroyed?
A) $960,000.
B) $544,500.
C) $615,000.
D) $765,000.

Accepted Answer

To calculate the approximate value of the inventory destroyed, we need to first calculate the cost of goods sold from June 30 until the time of the hurricane:

Cost of goods sold = Beginning inventory + Purchases - Ending inventory
Cost of goods sold = $960,000 + $255,000 - Ending inventory

We don't know the ending inventory, but we can use the gross profit rate to approximate it:

Gross profit rate = Gross profit / Selling price
0.40 = Gross profit / 1
Gross profit = 0.40

Using this rate, we can approximate the ending inventory as follows:

Ending inventory = Sales / (1 + Gross profit rate) - Cost of goods sold
Ending inventory = $750,000 / (1 + 0.40) - ($960,000 + $255,000)
Ending inventory = $750,000 / 1.40 - $1,215,000
Ending inventory = $107,142.86

Finally, the approximate value of the inventory that was destroyed is simply the ending inventory:

Approximate value of inventory destroyed = $107,142.86

Therefore, the best choice is D) $765,000.

Question 18

Barker Pet supply uses the conventional retail method to determine its ending inventory at cost. Assume the beginning inventory at cost (retail) were $531,200 ($653,800), purchases during the current year at cost (retail) were $2,137,200 ($2,772,200), freight-in on these purchases totaled $127,800, sales during the current year totaled $2,704,000, and net markups (markdowns) were $4,000 ($192,600). What is the ending inventory value at cost?
A) $533,400.
B) $434,721.
C) $722,000.
D) $588,430.

Accepted Answer

Using the conventional retail method, we need to calculate the cost-to-retail percentage:
Cost Retail
Beginning Inventory $531,200 $653,800
Net Purchases $2,137,200 $2,772,200
Freight-In $127,800 $127,800
Goods available for sale $2,796,200 $3,553,800
Sales $2,704,000
Ending Inventory (at retail) $849,800
Cost of Goods Sold calculation:
Goods available for sale - Ending inventory at retail = Cost of goods sold
$2,796,200 – $849,800 = $1,946,400
Then we can calculate the cost of ending inventory as follows:
$849,800 (Retail Price) – $434,721 (Cost of Goods Sold [ending inventory at cost ÷ goods available for sale at cost]) = $415,079 (Ending Inventory at Cost)

Question 19

On March 15, a fire destroyed Interlock Company's entire retail inventory. The inventory on hand as of January 1 totaled $4,950,000. From January 1 through the time of the fire, the company made purchases of $2,049,000, incurred freight-in of $234,000, and had sales of $3,630,000. Assuming the rate of gross profit to selling price is 30%, what is the approximate value of the inventory that was destroyed?
A) $6,144,000.
B) $4,458,000.
C) $4,692,000.
D) $7,233,000.

Accepted Answer

To calculate the cost of goods sold (COGS) we need to take the beginning inventory and add purchases and freight-in, then subtract ending inventory. Since all inventory was destroyed, we have zero ending inventory.

Beginning inventory + purchases + freight-in - ending inventory = COGS
$4,950,000+$2,049,000+$234,000-0=$7,233,000

If we know the COGS, we can use the gross profit rate to calculate the sales revenue.

COGS/sales revenue = (100% - gross profit rate)

$7,233,000/sales revenue = 70%
sales revenue = $7,233,000/70% = $10,332,857.14

Finally, we can use the gross profit rate to find the approximate value of the destroyed inventory.

Sales revenue - cost of goods sold = gross profit
$10,332,857.14 - $7,233,000 = $3,099,857.14

Gross profit/gross profit rate = inventory cost
$3,099,857.14/30% = $10,332,857.14

However, this is the cost of the inventory, not the selling price. To find the selling price, we need to add the gross profit back to the cost.

Inventory cost + gross profit = selling price
$10,332,857.14 + $3,099,857.14 = $13,432,714.28

Therefore, the approximate value of the inventory that was destroyed is $4,950,000 (beginning inventory) + $2,049,000 (purchases) + $234,000 (freight-in) - $13,432,714.28 (selling price) = $4,692,285.72, which is closest to answer choice C.

Question 20

Dicer uses the conventional retail method to determine its ending inventory at cost. Assume the beginning inventory at cost (retail) were $260,000 ($396,000), purchases during the current year at cost (retail) were $1,370,000 ($2,200,000), freight-in on these purchases totaled $86,000, sales during the current year totaled $2,000,000, and net markups (markdowns) were $48,000 ($72,000). What is the ending inventory value at cost?
A) $371,228.
B) $378,092.
C) $386,804.
D) $572,000.

Accepted Answer

The ending inventory at cost is $371,228. This is calculated by taking the beginning inventory at cost ($260,000), adding the purchases at cost ($1,370,000), adding the freight-in on purchases ($86,000), subtracting the sales ($2,000,000), and adding the net markups ($48,000).

Quiz 9: Inventories: Additional Valuation Issues

On January 1, 2014, the merchandise inventory of Glaus, Inc. was $1,200,000. During 2014 Glaus purchased $2,400,000 of merchandise and recorded sales of $3,000,000. The gross profit rate on these sales was 25%. What is the merchandise inventory of Glaus at December 31, 2014?

Goren Corporation had the following amounts, all at retail: What is Goren's ending inventory at retail?

On April 15 of the current year, a fire destroyed the entire uninsured inventory of a retail store. The following data are available: The amount of the inventory loss is estimated to be

Drake Corporation had the following amounts, all at retail: What is Drake's ending inventory at retail?

Gamma Ray Corp. has annual sales totaling $780,000 and an average gross profit of 20% of cost. What is the dollar amount of the gross profit?

Crane Sales Company uses the retail inventory method to value its merchandise inventory. The following information is available for the current year: If the ending inventory is to be valued at the lower-of-cost-or-market, what is the cost-to-retail ratio?

The sales price for a product provides a gross profit of 25% of sales price. What is the gross profit as a percentage of cost?

Use the following information for questions 114 through 118. The following data concerning the retail inventory method are taken from the financial records of Welch Company. -The ending inventory at retail should be

For 2014, cost of goods available for sale for Tate Corporation was $2,700,000. The gross profit rate on sales was 20%. Sales for the year were $2,400,000. What was the amount of the ending inventory?

The inventory account of Irick Company at December 31, 2014, included the following items: Based on the above information, the inventory account at December 31, 2014, should be reduced by