Question 1

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

20,000 - 3,000 + 2,000 + 4,000 = 23,000

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

$50,000 * .98 = $49,000 + $1,500 + $500 + $1,000 = $52,000

Question 3

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.
$$\begin{array} { | c | l | l | l | } 
\hline \text { Date } & { \text { Activities } } & \text { Units Acquired at Cost } & \text { Units Sold at Retail } \
\hline \text { May 1 }&\text {Beginning Inventory } & 150 \text { units @ } \$ 10.00 & \
\hline 5& \text { Purchase } & 220 \text { units @ } \$ 12.00 & \
\hline 10& \text { Sales } & & 140 \text { units @ \$20.00 } \
\hline 15 &\text { Purchase } & 100 \text { units @ } \$ 13.00 & \
\hline 24& \text { Sales } & & 90 \text { units @ \$21.00 } \
\hline
\end{array}$$

A) $2,980
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 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

75% * $80,000 = $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 the ending inventory using FIFO.
$$\begin{array} { | c | l | l | l | } 
\hline \text { Date } & { \text { Activities } } & \text { Units Acquired at Cost } & \text { Units Sold at Retail } \
\hline \text { May 1 }&\text {Beginning Inventory } & 150 \text { units @ } \$ 10.00 & \
\hline 5& \text { Purchase } & 220 \text { units @ } \$ 12.00 & \
\hline 10& \text { Sales } & & 140 \text { units @ \$20.00 } \
\hline 15 &\text { Purchase } & 100 \text { units @ } \$ 13.00 & \
\hline 24& \text { Sales } & & 90 \text { units @ \$21.00 } \
\hline
\end{array}$$
A) $2,980
B) $2,460
C) $2,850
D) $2,590
E) $2,860

Accepted Answer

FIFO (First-In, First-Out) assumes that the first units purchased are the first units sold. Therefore, the ending inventory consists of the units purchased on May 5 and May 15. The cost of the ending inventory is calculated as follows:Units from May 5 purchase: 220 units @ $12.00 = $2,640Units from May 15 purchase: 100 units @ $13.00 = $1,300Total cost of ending inventory: $2,640 + $1,300 = $3,940

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-annually. They are not required by Congress, but are necessary for full disclosure about a business's operations. The method for inventories (perpetual or periodic) depends on the company's accounting policies and is not tied to the preparation of interim financial statements. The conservatism principle is a concept used in accounting to ensure that assets and income are not overstated, but it does not prevent the preparation of interim financial statements.

Question 7

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

COGS = $400,000 * 85% = $340,000
Costs available for sale = $120,500 + $270,500 = $391,000
EI = $391,000 - $340,000 = $51,000

Question 8

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) For both U.S. GAAP and IFRS, merchandise inventory includes all items that a company owns and holds for sale.
C) Both U.S. GAAP and IFRS require companies to write down inventory when its value falls below the cost presently recorded.
D) Both U.S. GAAP and IFRS allow reversals of write downs up to the original acquisition cost.
E) With limited exceptions, neither U.S. GAAP nor IFRS allow inventory to be adjusted upward beyond the original cost.

Accepted Answer

Both U.S. GAAP and IFRS require inventory write-downs when its value falls below cost, but only IFRS allows reversals of write-downs up to the amount of the original write-down. U.S. GAAP does not permit such reversals.

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

If sales for the period were $300,000 and the company's typical gross profit ratio is 30%, gross profit would be approximately $90,000. That means that cost of goods sold must have been $210,000. Subtracting cost of goods sold of $210,000 from the $270,000 of cost of goods available for sale yields ending inventory of $60,000.

Question 10

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

COGS = $100,000 * 70% = $70,000
Costs available for sale = $18,000 + $72,000 = $90,000
End. Inv. = $90,000 - $70,000 = $20,000

Question 11

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 expense recognition 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 disregard certain accounting principles if the effect of following them is not material or significant to the financial statements. In this case, if the incidental costs of acquiring merchandise are not significant, companies may choose to expense them immediately under the materiality constraint rather than capitalizing them as part of inventory cost.

Question 12

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

Beginning inventory on April 1 was $226,750. Purchases for the month of April amounted to $197,800, yielding cost of goods available for sale of $424,550. If the company's typical gross profit ratio is 50% and if sales for the month of April were $642,500, then the cost of goods sold during April was $321,250. Subtracting that amount from the cost of goods available for sale yields ending inventory of $103,300.

Question 13

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 14

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

Beginning inventory + Purchases = Cost of Goods Available for Sale
$4,000 + $78,000 = $82,000
Cost of Goods Available for Sale - Estimated Cost of Goods Sold = Estimated Ending Inventory
$82,000 - (75% * $80,000) = Estimated Ending Inventory
$22,000 = Estimated Ending Inventory

Question 15

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 consigned goods in its inventory because ownership remains with the consignor until the goods are sold.

Question 16

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

($80,000 * .99) + $2,500 + $300 + $1,500 = $83,500

Question 17

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

11ea84bb_ea30_0dea_bd15_cf4ddc24e3ce_TB6946_00 Cost/retail ratio $145,000/$250,000 = 58%
Ending inventory at cost $135,000 * 58% = $78,300

Question 18

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

Combining beginning inventory of $368,000 with purchases for the period of $217,500 yields cost of goods available for sale of $585,500. If we then subtract the ending inventory of $226,750, we get cost of goods sold of $358,750. Subtracting cost of goods sold ($358,750) from sales ($1,000,000) yields gross profit of $641,250. Dividing gross profit of $641,250 by sales of $1,000,000 yields a gross profit percentage of 64.125% or 64.1% rounded.

Question 19

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

Accepted Answer

IFRS reporting does not allow the use of LIFO method for inventory costing.

Question 20

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 (last-in, first-out) method assumes that the last items purchased are the first items sold. When costs are declining, the most recently purchased units tend to be the most expensive, leading to a higher cost of goods sold and lower net income under LIFO than under other inventory costing methods. Therefore, LIFO will yield the lowest cost of goods sold in periods of declining costs to purchase inventory.

Quiz 5: Inventories and Cost of Sales

Interim financial statements:

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

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:

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?

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

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

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