Question 1

A company uses the periodic inventory system and had the following activity during the current monthly period. In a periodic inventory system, 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 2

A company's warehouse was destroyed by a tornado on March 15. The following information was the only information that was salvaged: 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

The estimated cost of the lost inventory is $45,000. The gross profit ratio is 35%, which means that the cost of goods sold is 65% of sales. Therefore, the cost of the lost inventory is 65% of $45,000, which is $29,250.

Question 3

The conservatism constraint:
A) Prescribes that when multiple estimates of amounts to be received or paid in the future are equally likely, then the least optimistic amount should be used.
B) Prescribes that a company use the same accounting methods period after period.
C) Prescribes that revenues and expenses be reported in the period in which they are earned or incurred.
D) Prescribes that all items of a material nature be included in financial statements.
E) Prescribes that all inventory items be reported at full cost.

Accepted Answer

The conservatism constraint, also known as the principle of prudence, states that when multiple estimates of amounts to be received or paid in the future are equally likely, then the least optimistic amount should be used. This helps to avoid overstating assets or income, as well as understating liabilities or expenses.

Question 4

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

Accepted Answer

FIFO (First-In, First-Out) method assumes that the first inventory items purchased are the first ones sold.

On June 5, the company sold 12 units, so we need to determine which units were sold by using FIFO method.

Out of the 10 units purchased on June 1, none were sold, so we have 10 units left in inventory.

Out of the 20 units purchased on June 3, we assume that the first 10 units were sold since they were the oldest in inventory. This leaves us with 10 units at $12 each and a total cost of $120.

Therefore, the cost of 12 units sold is 10 units at $10 each (remaining from June 1) plus 2 units at $12 each (the oldest of June 3 purchases) which gives us a total cost of $100 + $24 = $124. Choices A, C, D, and E can be eliminated as they do not match this calculation.

Question 5

A company had inventory of 10 units at a cost of $20 each on November 1. On November 2, it purchased 10 units at $22 each. On November 6 it purchased 6 units at $25 each. On November 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 first 10 units purchased at $20 each, plus the cost of the next 10 units purchased at $22 each, plus the cost of the first 2 units purchased at $25 each. This totals $470.

Question 6

A company that has operated with a 30% average gross profit ratio for a number of years had $100,000 in sales during the first 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 estimated cost of goods sold (COGS) during the quarter:
$100,000 in sales * (1 - 30% gross profit ratio) = $70,000 COGS

To find the estimated ending inventory, we can subtract the COGS from the total cost of inventory available:
$18,000 beginning inventory + $72,000 purchases = $90,000 total inventory available
$90,000 total inventory available - $70,000 estimated COGS = $20,000 estimated ending inventory

Therefore, the answer is (C) $20,000.

Question 7

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

Accepted Answer

Under FIFO, the first units purchased are the first to be sold. The sale of 30 units includes 15 units at $12 (from August 1) and 15 units at $13 (from August 5), totaling $375. The remaining inventory is 5 units at $13 and 20 units at $14, totaling $210.

Question 8

Georgia Peach Company reported net sales in June of the current year of $1,000,000. At the beginning of June, the company reported beginning inventory of $368,000. Cost of goods purchased during June amounted to $217,500. The company reported ending inventory at the end of June of $226,750. The company's gross profit rate for June of the current year was:
A) 35.9%
B) 18.8%
C) 81.2%
D) 64.1%
E) Impossible to determine from the information provided.

Accepted Answer

The answer of Georgia Peach Company reported net sales in...

Question 9

A company normally sells its product for $20 per unit. However, the selling price has fallen to $15 per unit. This company's current inventory consists of 200 units purchased at $16 per unit. Net realizable value has now fallen to $13 per unit. Calculate the value of this company's inventory at the lower of cost and net realizable value.
A) $2,550.
B) $2,600.
C) $2,700.
D) $3,000.
E) $3,200.

Accepted Answer

The answer of A company normally sells its product for...

Question 10

On December 31, a company needed to estimate its ending inventory to prepare its fourth quarter financial statements. The following information is currently available: Inventory as of October 1: $12,500
Net sales for fourth quarter: $40,000
Net purchases for fourth quarter: $27,500
This company typically achieves a gross profit ratio of 15%. Ending Inventory under the gross profit method would be:
A) $4,000.
B) $6,000.
C) $10,000.
D) $16,000.
E) $34,000.

Accepted Answer

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

Question 11

Flaxco purchases inventory from overseas and incurs the following costs: the cost of the merchandise is $50,000, credit terms are 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. Flaxco 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 cost of the inventory is the cost of the merchandise plus the costs incurred to get the merchandise ready for sale. The costs incurred to get the merchandise ready for sale include the freight charges, insurance during transit, and import duties. The cost of the advertising and sales commissions are not included in the cost of the inventory because these costs are incurred after the merchandise is ready for sale. Therefore, the cost that should be assigned to the inventory is $50,000 + $1,500 + $500 + $1,000 = $53,000.

Question 12

All of the following statements related to goods on consignment are 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 the consignee does not own the goods; the consignor, who retains ownership, reports the goods in its inventory until they are sold.

Question 13

On July 24 of the current year, The Georgia Peach Company experienced a natural disaster that destroyed the company's entire inventory. At the beginning of July, the company reported beginning inventory of $226,750. Inventory purchased during July (until the date of the disaster) was $197,800. Sales for the month of July through July 24 were $642,500. Assuming the company's typical gross profit ratio is 50%, estimate the amount of inventory destroyed in the natural disaster.
A) $212,275
B) $103,300
C) $217,950
D) $321,250
E) $157,788

Accepted Answer

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

Question 14

Interim statements:
A) Are always required under GAAP.
B) Are always necessary to achieve full disclosure about a business's operations.
C) Are usually monthly or quarterly 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 statements are usually prepared for periods of less than one year, such as monthly or quarterly statements. These statements are not always required under GAAP and do not necessarily require the use of the perpetual method for inventories. However, they are necessary for full disclosure about a business's operations as they provide updates on financial performance and position throughout the year. The conservatism principle does not prevent the preparation of interim statements.

Question 15

A company sells a climbing kit 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: 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 company used the FIFO (First-In, First-Out) inventory method since the ending inventory is reported at $357, which is the value of the most recent units (January 30th) multiplied by their purchase price of $9.

Question 16

Jackson 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) Impossible to determine from the information provided.

Accepted Answer

The gross profit ratio is 30%, meaning the cost of goods sold (COGS) ratio is 70% (100% - 30%). Sales are $300,000, so COGS is 70% of that, which is $210,000 ($300,000 * 70%). The cost of goods available for sale is $270,000. Subtracting the COGS ($210,000) from the cost of goods available for sale ($270,000) gives the estimated ending inventory of $60,000.

Question 17

A company reported the following information regarding its inventory. Beginning inventory: cost is $70,000; retail is $130,000
Net purchases: cost is $65,000; retail is $120,000
Sales at retail: $145,000
The year-end inventory showed $105,000 worth of merchandise available at retail prices. What is the cost of the ending inventory?
A) $48,300.
B) $56,700.
C) $56,441.
D) $78,300.
E) $105,000.

Accepted Answer

The answer of A company reported the following information regarding...

Question 18

On September 30 a company needed to estimate its ending inventory to prepare its third quarter financial statements. The following information is available: Beginning inventory, July 1: $4,000
Net sales: $40,000
Net purchases: $41,000
The company's gross margin ratio is 15%. Using the gross profit method, the cost of goods sold would be:
A) $4,000.
B) $5,000.
C) $21,000.
D) $25,000.
E) $34,000.

Accepted Answer

The cost of goods sold (COGS) is calculated by subtracting the gross margin from net sales. With a gross margin ratio of 15%, the gross margin is $6,000 (15% of $40,000). Therefore, COGS is $34,000 ($40,000 - $6,000).

Question 19

Some companies choose to avoid assigning incidental costs of acquiring merchandise to inventory by recording them as expenses when incurred. The argument 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 and net realizable value.

Accepted Answer

The answer of Some companies choose to avoid assigning incidental...

Question 20

A company has the following per unit original costs and net realizable values for its inventory: Part A: 50 units with a cost of $5, and net realizable value of $4.50
Part B: 75 units with a cost of $6, and net realizable value of $6.50
Part C: 160 units with a cost of $3, and net realizable value of $2.50
Under the lower of cost and net realizable value, the total value of this company's ending inventory is:
A) $1,180.00.
B) $1,075.00.
C) $1,075.00 or $1,112.50, depending upon whether lower of cost and net realizable value is applied to individual items or the inventory as a whole.
D) $1,112.50.
E) $1,180.00 or $1,075.00, depending upon whether lower of cost and net realizable value is applied to individual items or to the inventory as a whole.

Accepted Answer

The lower of cost and net realizable value is applied to each item individually. For Part A, the value is 50 units x $4.50 = $225. For Part B, the value is 75 units x $6 = $450. For Part C, the value is 160 units x $2.50 = $400. The total value is $225 + $450 + $400 = $1,075.

Quiz 6: Inventories and Cost of Sales

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

A company's warehouse was destroyed by a tornado on March 15. The following information was the only information that was salvaged: The company's average gross profit ratio is 35%. What is the estimated cost of the lost inventory?

The conservatism constraint:

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

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

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

Interim statements:

A company sells a climbing kit 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: If the ending inventory is reported at $357, what inventory method was used?

Jackson 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 expenses when incurred. The argument that supports this is called: