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 does not report the goods in its inventory because the consignor retains ownership of the goods until they are sold.

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

Accepted Answer

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

Question 3

All of the following statements regarding the financial statement impact of inventory costing are true except.
A)When purchase prices are changing,the methods to assign inventory costs result in different amounts for cost of goods sold.
B)Inventory on the balance sheet approximates current cost when FIFO is used.
C)The weighted average method smooths out erratic changes in costs.
D)Selected costing method does not impact net income.
E)Cost of goods sold on the income statement approximates current cost when LIFO is used.

Accepted Answer

Selected costing method does impact net income, as it directly affects the amount of cost of goods sold and the value of inventory on the balance sheet, both of which ultimately affect the calculation of net income. All other statements are true.

Question 4

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 cost of goods sold (COGS) can be calculated using the gross profit method with the formula: COGS = Net Sales - (Net Sales * Gross Margin Ratio). Given Net Sales of $80,000 and a Gross Margin Ratio of 25%, COGS = $80,000 - ($80,000 * 0.25) = $80,000 - $20,000 = $60,000.

Question 5

Salmone Company reported the following purchases and sales of its only product.Salmone uses a perpetual inventory system.

-Determine the cost assigned to ending inventory using LIFO. 
A)$5,440
B)$2,460
C)$2,590
D)$2,980
E)$2,860

Accepted Answer

LIFO (Last-In, First-Out) assumes the most recent inventory purchases are sold first. To calculate the ending inventory cost, we need to consider the oldest inventory costs. The correct choice is $2,590, which represents the cost of the oldest inventory remaining.

Question 6

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 prepared for periods of less than one year, such as quarterly or semi-annual reports, to provide timely information to users of the financial statements. The other options are not accurate statements about interim financial statements.

Question 7

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

The gross profit ratio is 30%, meaning the cost of goods sold (COGS) is 70% of sales. Sales are $300,000, so COGS is $300,000 * 70% = $210,000. The cost of goods available for sale is $270,000, so the estimated ending inventory is $270,000 - $210,000 = $60,000.

Question 8

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 9

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

Question 10

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)$82,000.
B)$60,000.
C)$20,000.
D)$22,000.
E)$19,500.

Accepted Answer

First, we need to calculate the cost of goods sold (COGS):
Net purchases = $78,000
Beginning inventory = $4,000
Goods available for sale = $82,000

COGS = Goods available for sale - ending inventory
Since we need to find ending inventory, we can rearrange the equation as:
Ending inventory = Goods available for sale - COGS

To find COGS using the gross profit method, we need to first calculate the gross profit:
Net sales = $80,000
Gross margin ratio = 25%
Gross profit = Net sales x Gross margin ratio
Gross profit = $80,000 x 0.25 = $20,000

COGS = Net sales - Gross profit
COGS = $80,000 - $20,000 = $60,000

Therefore, the estimated ending inventory is:
Ending inventory = Goods available for sale - COGS
Ending inventory = $82,000 - $60,000 = $22,000

Option D is the correct answer.

Question 11

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. 
A)$2,980
B)$2,460
C)$2,850
D)$2,590
E)$2,860

Accepted Answer

FIFO (First-In, First-Out) assumes that the oldest inventory items are sold first. To determine the cost of ending inventory, you need to calculate the cost of the most recent purchases that remain unsold. The correct cost assigned to the ending inventory using FIFO is $2,980.

Question 12

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 13

A company decides which inventory amounts to record to cost of goods sold and which amounts remain in ending inventory:
A)Through application of the cost-benefit constraint.
B)By selecting one of four possible inventory costing methods.
C)By selecting the cost principle.
D)Through application of the conservation constraint principle.
E)Is the lower of cost or market principle.

Accepted Answer

The company chooses to use one of the four inventory costing methods (FIFO, LIFO, weighted average, or specific identification) to determine which inventory amounts are recorded as cost of goods sold and which amounts remain in ending inventory. This decision can have a significant impact on the financial statements, so it is important for the company to carefully consider which method to use. A and C are not accurate choices, as the cost-benefit constraint and cost principle do not specifically relate to the inventory costing decision. D is not a relevant concept in this context, and E is a principle that applies specifically to the valuation of inventory, not the allocation of inventory costs.

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. 
A)$2,980
B)$2,460
C)$2,850
D)$2,590
E)$5,440

Accepted Answer

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

Question 15

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, the cost of goods sold can be calculated as:

Cost of goods sold = Sales - (Beginning inventory + Purchases)

Cost of goods sold = $100,000 - ($18,000 + $72,000) 
Cost of goods sold = $10,000

We know that the gross profit ratio is 30%, which means that the gross profit is 30% of the sales. Therefore, we can calculate the estimated gross profit as:

Gross profit = Gross profit ratio x Sales 
Gross profit = 0.30 x $100,000 
Gross profit = $30,000

Using the formula for gross profit:

Gross profit = Sales - Cost of goods sold

$30,000 = $100,000 - Cost of goods sold 
Cost of goods sold = $70,000

Finally, we can calculate the estimated ending inventory using the formula:

Estimated ending inventory = Cost of goods available for sale - Cost of goods sold

Estimated ending inventory = ($18,000 + $72,000) - $70,000 
Estimated ending inventory = $20,000

Therefore, the best choice is C, $20,000.

Question 16

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)29,000
B)21,000
C)23,000
D)19,000
E)26,000

Accepted Answer

Sandoval should include the following in its year-end inventory:

- 20,000 units in the warehouse
- 2,000 units in transit (since they were FOB shipping point, ownership transfers to Sandoval upon shipment)
- 4,000 consigned units (since they are still owned by Sandoval but located at a consignee's location)

Sandoval should not include the 3,000 damaged units since they are not sellable.

Therefore, the total year-end inventory for Sandoval is 20,000 + 2,000 + 4,000 = 26,000 units.

The answer is C) 23,000.

Question 17

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 18

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

Accepted Answer

LIFO assumes that the last inventory purchased is sold first, so when costs are declining, the most recent, and therefore most expensive, inventory is used in the cost of goods sold calculation. This results in a lower cost of goods sold and therefore a higher gross margin.

Question 19

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)$102,425.
B)$10,425.
C)$9,000.
D)$51,000.
E)$51,425.

Accepted Answer

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

Question 20

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 $105,000 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)$60,900.
D)$72,900.
E)$105,000.

Accepted Answer

The cost-to-retail percentage is calculated as (Beginning Inventory Cost + Net Purchases Cost) / (Beginning Inventory Retail + Net Purchases Retail) = ($80,000 + $65,000) / ($130,000 + $120,000) = $145,000 / $250,000 = 58%. The ending inventory at retail is $105,000, so the cost of the ending inventory is $105,000 * 58% = $60,900.

Quiz 5: Inventories and Cost of Sales

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

All of the following statements regarding the financial statement impact of inventory costing are true except.

Salmone Company reported the following purchases and sales of its only product.Salmone uses a perpetual inventory system. -Determine the cost assigned to ending inventory using LIFO.

Interim financial statements:

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:

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.

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

A company decides which inventory amounts to record to cost of goods sold and which amounts remain in ending inventory:

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.

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