Question 1

A business has sales of $184,158 and a normal gross profit of 45%. The estimated cost of goods sold is: (Round your answer to the nearest dollar.)

Accepted Answer

The estimated cost of goods sold can be calculated by subtracting the gross profit from the total sales. Gross profit is 45% of sales, so the cost of goods sold is 55% of sales (100% - 45% = 55%). Therefore, the cost of goods sold is 55% of $184,158, which equals $101,287 (rounded to the nearest dollar).

Question 2

The retail method is often used for interim financial reports.

Accepted Answer

The retail method is often used for interim financial reports because it provides a cost-effective and timely way to estimate inventory cost, which is crucial for preparing these reports.

Question 3

When ending inventory is understated:

Accepted Answer

When ending inventory is understated, the cost of goods sold (COGS) will be overstated because the ending inventory is subtracted from the goods available for sale to calculate COGS. If COGS is overstated, then profit is understated because COGS is deducted from sales revenue to calculate profit.

Question 4

The gross profit method:

Accepted Answer

The gross profit method determines the value of the ending inventory using a predetermined gross profit rate.

Question 5

The gross profit method is used to determine the value of beginning inventory using a predetermined gross profit rate.

Accepted Answer

The gross profit method is used to estimate the cost of ending inventory or the cost of goods sold, not the value of beginning inventory, by applying a predetermined gross profit rate to sales.

Question 6

Chocolate Heaven had the following data for November:  The cost of the estimated inventory on November 30 under the retail method is: (Round any percentages to two decimal places, X.XX%, and your final answer to the nearest dollar.)

Accepted Answer

The answer of Chocolate Heaven had the following data for...

Question 7

The retail method is used by many manufacturing businesses to estimate the amount of sales.

Accepted Answer

The retail method is primarily used by retail businesses to estimate inventory levels, not by manufacturing businesses for estimating sales. Manufacturing businesses may use different methods such as demand forecasting for estimating sales.

Question 8

The ending inventory for this year is overstated. This error would cause:

Accepted Answer

When ending inventory is overstated, the cost of goods sold (COGS) is understated, leading to an overstatement of the period's net income.

Question 9

An incorrect calculation of ending inventory affects:

Accepted Answer

An incorrect calculation of ending inventory affects cost of goods sold, gross profit, and net income because these financial metrics are directly related to inventory values. Changes in ending inventory impact the cost of goods sold, which in turn affects gross profit and net income.

Question 10

American Lumber has the following company information for October: goods available for sale at cost are $24,000, retail is $38,400, and sales at retail equal $30,400. Bert has a normal gross profit of 30%. The cost of estimated ending inventory under the gross profit method is: (Round any percentages to two decimal places, X.XX%, and your final answer to the nearest dollar.)

Accepted Answer

The answer of American Lumber has the following company information...

Question 11

An understatement of ending inventory in one period results in:

Accepted Answer

An understatement of ending inventory in one period results in an understatement of net income for that period. This causes the beginning inventory of the next period to be understated, leading to an overstatement of net income for the next period.

Question 12

Emile Landscaping had the following data for April:  The cost of the estimated inventory on April 30 under the retail method is: (Round any percentages to two decimal places, X.XX%, and your final answer to the nearest dollar.)

Accepted Answer

The answer of Emile Landscaping had the following data for...

Question 13

Bert Logistics has the following company information for August: goods available for sale at cost are $19,000, retail is $28,500, and sales at retail equal $21,500. Bert has a normal gross profit of 35%. The cost of estimated ending inventory under the gross profit method is: (Round any percentages to two decimal places, X.XX%, and your final answer to the nearest dollar.)

Accepted Answer

The gross profit method estimates the cost of ending inventory by applying the gross profit margin to sales, then subtracting this amount from the goods available for sale at cost. First, calculate the cost-to-retail percentage: Cost = $19,000, Retail = $28,500, so the cost-to-retail percentage is $19,000 / $28,500 = 0.6667 or 66.67%. Next, calculate the estimated cost of goods sold: Sales at retail = $21,500, with a normal gross profit of 35%, the cost percentage is 100% - 35% = 65%. However, we use the cost-to-retail percentage directly to find the cost of goods sold from the retail sales. Estimated cost of goods sold = Sales at retail * cost-to-retail percentage = $21,500 * 66.67% = $14,333.85 (approximately). Finally, estimate the ending inventory at cost: Goods available for sale at cost = $19,000, Estimated cost of goods sold = $14,333.85, Estimated ending inventory = $19,000 - $14,333.85 = $4,666.15, rounded to the nearest dollar is $4,666. However, given the options, my calculation does not exactly match any of the provided choices, indicating a potential mistake in my explanation or a misunderstanding of the question's requirements. The correct approach involves applying the gross profit margin to determine the cost of goods sold and then calculating the ending inventory, but the exact figures provided in the options suggest a different calculation or rounding method might have been expected. Re-evaluating with the correct method: Sales at retail = $21,500, Gross profit = 35%, thus, Cost of goods sold (at retail) = 65% of sales (since cost + profit = sales, and if profit is 35%, cost is 65%). However, to accurately reflect the method and given the options, there seems to be a misunderstanding in the calculation process. The correct method involves using the gross profit to find the cost of goods sold and then subtracting this from the goods available for sale, but without the exact steps leading to one of the provided choices, there's a discrepancy in the explanation.

Question 14

An incorrect inventory figure will affect the balance sheet.

Accepted Answer

An incorrect inventory figure will alter the total assets on the balance sheet, affecting the overall balance of assets, liabilities, and equity.

Question 15

To use the gross profit method to estimate inventory, you do not need to know the goods available for sale at retail.

Accepted Answer

The gross profit method uses the gross profit rate to estimate the cost of goods sold and, by extension, the ending inventory. The goods available for sale at retail is not needed for this calculation.

Question 16

Bert Logistics has the following company information for August: goods available for sale at cost are $19,000, retail is $28,500, and sales at retail equal $21,500. Bert has a normal gross profit of 35%. The cost of estimated ending inventory under the retail method is: (Round any percentages to two decimal places, X.XX%, and your final answer to the nearest dollar.)

Accepted Answer

The cost of estimated ending inventory under the retail method is $4,667.The retail method is an inventory costing method that uses the retail value of the inventory to estimate the cost of the inventory. The retail value is the price at which the inventory is sold to customers. The cost of the inventory is then estimated by multiplying the retail value by the cost-to-retail ratio. The cost-to-retail ratio is the percentage of the retail value that represents the cost of the inventory.In this case, the retail value of the inventory is $28,500 and the cost-to-retail ratio is 35%. Therefore, the cost of the inventory is $28,500 x 35% = $9,975.The cost of estimated ending inventory is then calculated by subtracting the cost of goods sold from the cost of goods available for sale. The cost of goods sold is equal to the sales at retail multiplied by the cost-to-retail ratio. In this case, the sales at retail are $21,500 and the cost-to-retail ratio is 35%. Therefore, the cost of goods sold is $21,500 x 35% = $7,525.The cost of estimated ending inventory is then $9,975 - $7,525 = $4,667.

Question 17

A business uses the retail inventory method to estimate the value of the ending inventory. For the month of June, the cost of goods available for sale is $15,900 at cost and $22,100 at retail. The cost ratio is:

Accepted Answer

The cost ratio is calculated by dividing the cost of goods available for sale by the retail price of goods available for sale. So, $15,900 / $22,100 = 0.719 or 71.9%.

Question 18

The beginning inventory of this year is understated. This error would cause:

Accepted Answer

An understated beginning inventory results in a lower cost of goods sold, which increases net income for the period.

Question 19

Compute the cost of ending inventory using the retail method when goods available for sale at cost are $10,000, retail is $27,000, and sales at retail equal $23,000. What will the cost ratio be? What will the cost of ending inventory be?

Accepted Answer

The cost ratio is calculated as the cost of goods available for sale divided by the retail value of goods available for sale, which is $10,000 / $27,000 = 37%. The ending inventory at retail is the beginning inventory at retail minus sales, which is $27,000 - $23,000 = $4,000. The cost of ending inventory is then the ending inventory at retail times the cost ratio, which is $4,000 * 37% = $1,480.

Question 20

American Lumber has the following company information for October: goods available for sale at cost are $24,000, retail is $36,500, and sales at retail equal $28,500. Bert has a normal gross profit of 20%. The cost of estimated ending inventory under the retail method is: (Round any percentages to two decimal places, X.XX%, and your final answer to the nearest dollar.)

Accepted Answer

The cost of estimated ending inventory under the retail method is $6,246.The cost of estimated ending inventory under the retail method is calculated as follows:Cost of estimated ending inventory = (Retail value of ending inventory / (1 + Gross profit rate)) x Cost of goods available for saleRetail value of ending inventory = Retail value of goods available for sale - Sales at retailRetail value of ending inventory = $36,500 - $28,500Retail value of ending inventory = $8,000Cost of estimated ending inventory = ($8,000 / (1 + 0.20)) x $24,000Cost of estimated ending inventory = $6,246

Quiz 15: Accounting for Merchandise Inventory