Question 1

Dryer Corporation had the following amounts, all at retail: $$\begin{array} { l r l r } 
\text { Beginning inventory } & \$ 3,600 & \text { Purchases } & \$ 100,000 \
\text { Purchase returns } & 6,000 & \text { Net markups } & 18,000 \
\text { Abnormal shortage } & 4,000 & \text { Net markdowns } & 2,800 \
\text { Sales } & 72,000 & \text { Sales returns } & 1,800 \
\text { Employee discounts } & 1,600 & \text { Normal shortage } & 2,600
\end{array}$$ What is Dryer's ending inventory at retail?

Accepted Answer

Explanation:Ending inventory at retail = Beginning inventory + Purchases + Net markups - Purchase returns - Net markdowns - Sales + Sales returns + Employee discounts + Abnormal shortage + Normal shortage= 3,600 + 100,000 + 18,000 - 6,000 - 2,800 - 72,000 + 1,800 + 1,600 + 4,000 + 2,600= $34,400

Question 2

Teel Distribution Co.has determined its December 31, 2007 inventory on a FIFO basis at $250,000.Information pertaining to that inventory follows: $$\begin{array} { l r } 
\text { Estimated selling price } & \$ 255,000 \
\text { Estimated cost of disposal } & 10,000 \
\text { Normal profit margin } & 30,000 \
\text { Current replacement cost } & 225,000
\end{array}$$ Teel records losses that result from applying the lower-of-cost-or-market rule.At December 31, 2007, the loss that Teel should recognize is

Accepted Answer

The answer of Teel Distribution Co.has determined its December 31,...

Question 3

The 2007 financial statements of Wert Company reported a beginning inventory of $80,000, an ending inventory of $120,000, and cost of goods sold of $600,000 for the year.Wert's inventory turnover ratio for 2007 is

Accepted Answer

Inventory turnover ratio = Cost of goods sold / Average inventory
Average inventory = (Beginning Inventory + Ending Inventory) / 2
Average inventory = ($80,000 + $120,000) / 2 = $100,000
Inventory turnover ratio = $600,000 / $100,000 = 6 times. Therefore, the answer is B.

Question 4

Use the following information for questions 
Trent Co.uses the retail inventory method.The following information is available for the current year. $\begin{array}{lcc}&\text { Cost }& \text { Retail }\ \hline
\text { Beginning inventory } & \$ 78,000 & \$ 122,000 \
\text { Purchases } & 295,000 & 415,000 \
\text { Freight-in } & 5,000 & - \
\text { Employee discounts } & - & 2,000 \
\text { Net markups } & - & 15,000 \
\text { Net Markdowns } & - & 20,000 \
\text { Sales } & - & 390,000
\end{array}$
-The ending inventory at retail should be

Accepted Answer

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

Question 5

The original cost of an inventory item is above the replacement cost and the net realizable value.The replacement cost is below the net realizable value less the normal profit margin.As a result, under the lower-of-cost-or-market method, the inventory item should be reported at the

Accepted Answer

The lower-of-cost-or-market method requires inventory to be reported at the lower of either its original cost or its market value. In this scenario, the market value is determined by comparing the replacement cost (which is lower than both the original cost and the net realizable value) to the net realizable value less the normal profit margin. Therefore, the inventory item should be reported at the net realizable value less the normal profit margin, which represents a conservative estimate of the inventory's market value.

Question 6

At December 31, 2007, the following information was available from Dole Co.'s accounting records: Sales for the year totaled $1,050,000.Markdowns amounted to $10,000.Under the lower-of-cost-or-market method, Dole's inventory at December 31, 2007 was

Accepted Answer

The answer of At December 31, 2007, the following information...

Question 7

Use the following information for questions 
Trent Co.uses the retail inventory method.The following information is available for the current year. $\begin{array}{lcc}&\text { Cost }& \text { Retail }\ \hline
\text { Beginning inventory } & \$ 78,000 & \$ 122,000 \
\text { Purchases } & 295,000 & 415,000 \
\text { Freight-in } & 5,000 & - \
\text { Employee discounts } & - & 2,000 \
\text { Net markups } & - & 15,000 \
\text { Net Markdowns } & - & 20,000 \
\text { Sales } & - & 390,000
\end{array}$
-The approximate cost of the ending inventory by the conventional retail method is

Accepted Answer

The conventional retail method uses the following formula to calculate the approximate cost of the ending inventory:Cost of ending inventory = (Ending inventory at retail - Net markdowns) x (Cost of goods sold / Net sales)Cost of goods sold = Beginning inventory + Purchases + Freight-in - Employee discounts - Net markupsCost of goods sold = $78,000 + $295,000 + $5,000 - $2,000 - $15,000 = $376,000Ending inventory at retail = $390,000 - $20,000 = $370,000Cost of ending inventory = ($370,000 - $20,000) x ($376,000 / $390,000) = $95,900

Question 8

Use the following information for questions 
Baker Company, which uses the retail LIFO method to determine inventory cost, has provided the following information for 2007: $\begin{array}{lrr}&\text { Cost }& \text { Retail }\ \hline
\text { Inventory, } 1 / 1 / 07 & \$ 94,000 & \$ 140,000 \
\text { Net purchases } & 378,000 & 562,000 \
\text { Net markups } & & 68,000 \
\text { Net markdowns } & & 30,000 \
\text { Net sales } & & 530,000
\end{array}$
-Assuming stable prices (no change in the price index during 2007), what is the cost of Baker's inventory at December 31, 2007?

Accepted Answer

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

Question 9

Gore Company's accounting records indicated the following information: $\begin{array}{lr}
\text { Inventory, 1/1/07 } & 600,000 \
\text { Purchases during 2007 } & 3,000,000 \
\text { Sales during 2007 } & 3,800,000
\end{array}$
 A physical inventory taken on December 31, 2007, resulted in an ending inventory of $700,000.Gore's gross profit on sales has remained constant at 25% in recent years.Gore suspects some inventory may have been taken by a new employee.At December 31, 2007, what is the estimated cost of missing inventory?

Accepted Answer

The correct answer is A.The estimated cost of missing inventory is $50,000. This is calculated as follows:Cost of goods sold = Sales - Gross profit= $3,800,000 - (25% x $3,800,000)= $2,850,000Ending inventory = $700,000Beginning inventory = $600,000Purchases = $3,000,000Cost of goods available for sale = $3,600,000Cost of goods sold + Ending inventory = $3,550,000Missing inventory = $3,600,000 - $3,550,000= $50,000

Question 10

Eaton Co.uses the retail inventory method to estimate its inventory for interim statement purposes.Data relating to the computation of the inventory at July 31, 2007, are as follows: $\begin{array}{lrr}&\text { Cost }& \text { Retail }\ \hline
\text { Inventory, 2/1/07 } & \$ 200,000 & \$ 250,000 \
\text { Purchases } & 1,000,000 & 1,575,000 \
\text { Markups, net } & & 175,000 \
\text { Sales } & & 1,750,000 \
\text { Estimated normal shoplifting losses } & & 20,000 \
\text { Markdowns, net } & & 110,000
\end{array}$ Under the lower-of-cost-or-market method, Eaton's estimated inventory at July 31, 2007 is

Accepted Answer

The lower-of-cost-or-market method requires that the inventory be valued at the lower of its cost or its market value. The cost of the inventory is $1,200,000 ($200,000 + $1,000,000). The market value of the inventory is $1,445,000 ($1,575,000 - $175,000 - $110,000 - $20,000). The lower of cost or market is $1,200,000.

Question 11

Under the lower-of-cost-or-market method, the replacement cost of an inventory item would be used as the designated market value

Accepted Answer

The lower-of-cost-or-market method compares the cost of an inventory item to its replacement cost (designated market value), and records the item at the lower of the two values. However, in order for replacement cost to be used as the designated market value, it must be below the net realizable value (the estimated selling price less any costs of completion or disposal) but above the net realizable value less the normal profit margin. This ensures that the replacement cost reflects a realistic estimate of the inventory's true market value. Option A is incorrect because replacement cost must be below both net realizable value and normal profit margin, not just net realizable value less normal profit margin. Option C is incorrect because replacement cost must be below net realizable value to be used as designated market value. Option D is incorrect because replacement cost is compared to net realizable value to determine whether it should be used as designated market value.

Question 12

Use the following information for questions 
Trent Co.uses the retail inventory method.The following information is available for the current year. $\begin{array}{lcc}&\text { Cost }& \text { Retail }\ \hline
\text { Beginning inventory } & \$ 78,000 & \$ 122,000 \
\text { Purchases } & 295,000 & 415,000 \
\text { Freight-in } & 5,000 & - \
\text { Employee discounts } & - & 2,000 \
\text { Net markups } & - & 15,000 \
\text { Net Markdowns } & - & 20,000 \
\text { Sales } & - & 390,000
\end{array}$
-Assuming that the LIFO inventory method is used, that the beginning inventory is the base inventory when the index was 100, and that the index at year end is 112, the ending inventory at dollar-value LIFO retail cost is

Accepted Answer

The ending inventory at dollar-value LIFO retail cost is $92,757. This is calculated by multiplying the beginning inventory by the ending index and dividing by the beginning index.

Question 13

Dye Corporation's computation of cost of goods sold is:  The average days to sell inventory for Dye are

Accepted Answer

The answer of Dye Corporation's computation of cost of goods...

Question 14

Ace Corporation's computation of cost of goods sold is:   The average days to sell inventory for Ace are

Accepted Answer

The answer of Ace Corporation's computation of cost of goods...

Question 15

Use the following information for questions 
Baker Company, which uses the retail LIFO method to determine inventory cost, has provided the following information for 2007: $\begin{array}{lrr}&\text { Cost }& \text { Retail }\ \hline
\text { Inventory, } 1 / 1 / 07 & \$ 94,000 & \$ 140,000 \
\text { Net purchases } & 378,000 & 562,000 \
\text { Net markups } & & 68,000 \
\text { Net markdowns } & & 30,000 \
\text { Net sales } & & 530,000
\end{array}$
-Assuming that the price index was 105 at December 31, 2007 and 100 at January 1, 2007, what is the cost of Baker's inventory at December 31, 2007 under the dollar-value-LIFO retail method?

Accepted Answer

The correct answer is A.The dollar-value-LIFO retail method is a method of inventory valuation that uses the retail value of the inventory to determine the cost of the inventory. The cost of the inventory is then adjusted by the change in the price index to reflect the change in the cost of the inventory over time.In this case, the price index was 105 at December 31, 2007 and 100 at January 1, 2007. This means that the cost of the inventory has increased by 5% over the year.The cost of Baker's inventory at December 31, 2007 under the dollar-value-LIFO retail method is $133,690.

Question 16

Use the following information for questions 
Trent Co.uses the retail inventory method.The following information is available for the current year. $\begin{array}{lcc}&\text { Cost }& \text { Retail }\ \hline
\text { Beginning inventory } & \$ 78,000 & \$ 122,000 \
\text { Purchases } & 295,000 & 415,000 \
\text { Freight-in } & 5,000 & - \
\text { Employee discounts } & - & 2,000 \
\text { Net markups } & - & 15,000 \
\text { Net Markdowns } & - & 20,000 \
\text { Sales } & - & 390,000
\end{array}$
-If the ending inventory is to be valued at approximately lower of average cost or market, the calculation of the cost ratio should be based on cost and retail of

Accepted Answer

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

Question 17

Gooch Corporation had the following amounts, all at retail: $$\begin{array} { l r l r } 
\text { Beginning inventory } & \$ 3,600 & \text { Purchases } & \$ 120,000 \
\text { Purchase returns } & 6,000 & \text { Net markups } & 18,000 \
\text { Abnormal shortage } & 4,000 & \text { Net markdowns } & 2,800 \
\text { Sales } & 72,000 & \text { Sales returns } & 1,800 \
\text { Employee discounts } & 1,600 & \text { Normal shortage } & 2,600
\end{array}$$ What is Gooch's ending inventory at retail?

Accepted Answer

The correct answer is A.Explanation:Ending inventory at retail = Beginning inventory + Purchases + Net markups - Net markdowns - Sales + Sales returns + Employee discounts - Purchase returns - Abnormal shortage - Normal shortage= 3,600 + 120,000 + 18,000 - 2,800 - 72,000 + 1,800 + 1,600 - 6,000 - 4,000 - 2,600= 54,400

Question 18

Use the following information for questions 
Trent Co.uses the retail inventory method.The following information is available for the current year. $\begin{array}{lcc}&\text { Cost }& \text { Retail }\ \hline
\text { Beginning inventory } & \$ 78,000 & \$ 122,000 \
\text { Purchases } & 295,000 & 415,000 \
\text { Freight-in } & 5,000 & - \
\text { Employee discounts } & - & 2,000 \
\text { Net markups } & - & 15,000 \
\text { Net Markdowns } & - & 20,000 \
\text { Sales } & - & 390,000
\end{array}$
-If the ending inventory is to be valued at approximately LIFO cost, the calculation of the cost ratio should be based on cost and retail of

Accepted Answer

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

Quiz 9: Inventories: Additional Valuation Issues

The 2007 financial statements of Wert Company reported a beginning inventory of $80,000, an ending inventory of $120,000, and cost of goods sold of $600,000 for the year.Wert's inventory turnover ratio for 2007 is

The original cost of an inventory item is above the replacement cost and the net realizable value.The replacement cost is below the net realizable value less the normal profit margin.As a result, under the lower-of-cost-or-market method, the inventory item should be reported at the

At December 31, 2007, the following information was available from Dole Co.'s accounting records: Sales for the year totaled $1,050,000.Markdowns amounted to $10,000.Under the lower-of-cost-or-market method, Dole's inventory at December 31, 2007 was

Under the lower-of-cost-or-market method, the replacement cost of an inventory item would be used as the designated market value

Dye Corporation's computation of cost of goods sold is: The average days to sell inventory for Dye are

Ace Corporation's computation of cost of goods sold is: The average days to sell inventory for Ace are