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Questions
Q:
On June 30 a company needed to estimate its ending inventory to prepare its second quarter financial statements. The following information is available:
Beginning inventory, April 1: $6,000
Net sales: $70,000
Net purchases: $36,000
The company's gross margin ratio is 12%. Using the gross profit method, the cost of goods sold would be:
A. $8,400
B. $34,000
C. $61,600
D. $40,000
E. $35,200
Q:
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
Q:
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
Q:
A company's warehouse was destroyed by a tornado on March 15. The following information was salvaged from the ruins:
Inventory, beginning: $28,000
Purchases for the period: $17,000
Sales for the period: $55,000
Sales returns for the period: $700
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
Q:
Interim statements:
A. Are required by Congress.
B. Are necessary to achieve full disclosure about a business's operations.
C. Are usually monthly or quarterly statements prepared in between the traditional, annual statement dates.
D. Require the use of the perpetual method for inventories.
E. Cannot be prepared if the company follows the conservatism principle.
Q:
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: January 1:
Beginning balance of 18 units at $13 each January 12:
Purchased 30 units at $14 each January 19:
Sold 24 units at a selling price of $30 each January 20:
Purchased 24 units at $17 each January 27:
Sold 27 units at a selling price of $30 each 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
Q:
A company uses the periodic inventory system and had the following activity during the
current monthly period:. November 1:
Beginning inventory
100 units @ $20 November 5:
Purchased
100 units @ $22 November 8:
Purchased
50 units @ $23 November 16:
Sold
200 units @ $45 November 19:
Purchased
50 units @ $25 Using the weighted-average inventory method, the company's ending inventory would be reported at:
A. $2,000
B. $2,200
C. $2,250
D. $2,400
E. $4,400
Q:
A company has inventory of 15 units at a cost of $12 each on August 1. On August 5, they purchased 10 units at $13 per unit. On August 12, they purchased 20 units at $14 per unit. On August 15, they 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
Q:
Given the following information, determine the cost of goods sold at December 31 using the weighted-average periodic inventory method:
December 2: 5 units were purchased at $7 per unit.
December 9: 10 units were purchased at $9.40 per unit.
December 11: 12 units were sold at $35 per unit.
December 15: 20 units were purchased at $10.15 per unit.
December 22: 18 units were sold at $35 per unit.
A. $282.15
B. $332.10
C. $284.70
D. $290.70
E. $210.30
Q:
Given the following information, determine the cost of goods sold at December 31 using the LIFO periodic inventory method:
December 2: 5 units were purchased at $7 per unit.
December 9: 10 units were purchased at $9.40 per unit.
December 11: 12 units were sold at $35 per unit.
December 15: 20 units were purchased at $10.15 per unit.
December 22: 18 units were sold at $35 per unit.
A. $284.70
B. $332.10
C. $281.25
D. $290.70
E. $297.00
Q:
Given the following information, determine the cost of goods sold for December 31 using the FIFO periodic inventory method:
December 2: 5 units were purchased at $7 per unit.
December 9: 10 units were purchased at $9.40 per unit.
December 11: 12 units were sold at $35 per unit.
December 15: 20 units were purchased at $10.15 per unit.
December 22: 18 units were sold at $35 per unit.
A. $282.15
B. $332.10
C. $281.25
D. $297.00
E. $284.70
Q:
A company has inventory of 10 units at a cost of $10 each on June 1. On June 3, they 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
Q:
Per Unit
Total
LCM Applied to Units
Cost
Market
Cost
Market
Items
Whole A
10
$3
$2.50
$ 30.00
$ 25.00
$ 25.00 B
40
$9
$9.50
00
380.00
360.00 C
75
$8
$7.50 $990.00
$967.50
Q:
A company has the following per unit original costs and replacement costs for its inventory:
Part A: 10 units with a cost of $3 and replacement cost of $2.50.
Part B: 40 units with a cost of $9 and replacement cost of $9.50.
Part C: 75 units with a cost of $8 and replacement cost of $7.50.
Under the lower of cost or market method, the total value of this company's ending inventory must be reported as:
A. $990.00.
B. $947.50.
C. $967.50 or $947.50, depending upon whether LCM is applied to individual items or the inventory as a whole.
D. $967.50.
E. $990.00 or $947.50, depending upon whether LCM is applied to individual items or to the inventory as a whole.
Q:
Per Unit
Total
LCM Applied to Units
Cost
Market
Cost
Market
Items
Whole A
50
$5
$4.50
$ 250
$ 225.00
$225 B
75
$6
$6.50
450
50
450 C
160
$3
$2.50 $1,180
$1,112.50
Q:
A company has the following per unit original costs and replacement costs for its inventory:
Part A: 50 units with a cost of $5 and replacement cost of $4.50.
Part B: 75 units with a cost of $6 and replacement cost of $6.50.
Part C: 160 units with a cost of $3 and replacement cost of $2.50.
Under the lower of cost or market method, the total value of this company's ending inventory must be reported as:
A. $1,180.00.
B. $1,075.00.
C. $1,112.50 or $1075.00, depending upon whether LCM is applied to individual items or the inventory as a whole.
D. $1,112.50.
E. $1180.00 or $1075.00, depending upon whether LCM is applied to individual items or to the inventory as a whole.
Q:
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. Replacement cost has now fallen to $13 per unit. Calculate the value of this company's inventory at the lower of cost or market.
A. $2,550
B. $2,600
C. $2,700
D. $3,000
E. $3,200
Q:
The conservatism constraint:
A. Requires that when more than one equally likely estimate of amounts is expected to be received or paid in the future, then the less optimistic amount should be used.
B. Requires that a company use the same accounting methods period after period.
C. Requires that revenues and expenses be reported in the period in which they are earned or incurred.
D. Requires that all items of a material nature be included in financial statements.
E. Requires that all inventory items be reported at full cost.
Q:
Generally accepted accounting principles require that the inventory of a company be reported at:
A. Market value
B. Historical cost
C. Lower of cost or market
D. Replacement cost
E. Retail value
Q:
In applying the lower of cost or market method to inventory valuation, market is defined as:
A. Historical cost
B. Current replacement cost
C. Current sales price
D. FIFO
E. LIFO
Q:
Given the following information, determine the cost of goods sold at December 31 using the weighted-average perpetual inventory method.
December 2: 5 units were purchased at $7 per unit.
December 9: 10 units were purchased at $9.40 per unit.
December 11: 12 units were sold at $35 per unit.
December 15: 20 units were purchased at $10.15 per unit.
December 22: 18 units were sold at $35 per unit.
A. $282.30
B. $332.10
C. $281.25
D. $290.70
E. $210.30
Q:
Given the following information, determine the cost of goods sold at December 31 using the LIFO perpetual inventory method.
December 2: 5 units were purchased at $7 per unit.
December 9: 10 units were purchased at $9.40 per unit.
December 11: 12 units were sold at $35 per unit.
December 15: 20 units were purchased at $10.15 per unit.
December 22: 18 units were sold at $35 per unit.
A. $282.15
B. $332.10
C. $281.25
D. $290.70
E. $210.30
Q:
Given the following information, determine the cost of goods sold for December 31 using the FIFO perpetual inventory method.
December 2: 5 units were purchased at $7 per unit.
December 9: 10 units were purchased at $9.40 per unit.
December 11: 12 units were sold at $35 per unit.
December 15: 20 units were purchased at $10.15 per unit.
December 22: 18 units were sold at $35 per unit.
A. $282.15
B. $332.10
C. $281.25
D. $290.70
E. $210.30
Q:
Given the following information, determine the cost of ending inventory at December 31 using the weighted-average perpetual inventory method.
December 2: 5 units were purchased at $7 per unit.
December 9: 10 units were purchased at $9.40 per unit.
December 11: 12 units were sold at $35 per unit.
December 15: 20 units were purchased at $10.15 per unit.
December 22: 18 units were sold at $35 per unit.
A. $51.75
B. $83.22
C. $41.30
D. $49.75
E. $50.75
Q:
Given the following information, determine the cost of ending inventory at December 31 using the LIFO perpetual inventory method.
December 2: 5 units were purchased at $7 per unit.
December 9: 10 units were purchased at $9.40 per unit.
December 11: 12 units were sold at $35 per unit.
December 15: 20 units were purchased at $10.15 per unit.
December 22: 18 units were sold at $35 per unit.
A. $51.75
B. $83.22
C. $41.30
D. $94.00
E. $50.75
Q:
Given the following information, determine the cost of ending inventory at December 31 using the FIFO perpetual inventory method.
December 2: 5 units were purchased at $7 per unit.
December 9: 10 units were purchased at $9.40 per unit.
December 11: 12 units were sold at $35 per unit.
December 15: 20 units were purchased at $10.15 per unit.
December 22: 18 units were sold at $35 per unit.
A. $51.75
B. $83.22
C. $41.30
D. $94.00
E. $50.75
Q:
Given the following information, determine the cost of ending inventory at December 31 using the weighted-average perpetual inventory method. Assume this is the first month of the company's operations.
December 2: 5 units were purchased at $7 per unit.
December 9: 10 units were purchased at $9.40 per unit.
December 12: 2 units were sold.
A. $17.20
B. $111.80
C. $129.00
D. $94.00
E. $8.60
Q:
Given the following information, determine the cost of ending inventory at June 30 using the LIFO perpetual inventory method. Assume this is the first month of the company's operations.
June 1: 15 units were purchased at $20 per unit.
June 15: 12 units were sold.
June 29: 8 units were purchased for $25 per unit.
A. $200
B. $220
C. $260
D. $275
E. $300
Q:
Given the following events, what is the per-unit value of ending inventory on November 30 if this company uses a weighted-average perpetual inventory system?
November 1: 5 units were purchased at $6 per unit.
November 12: 10 units were purchased at $7.50 per unit.
November 14: 7 units were sold for $14 per unit.
November 24: 12 units were purchased at $10 per unit.
A. $6.00
B. $7.00
C. $8.80
D. $13.00
E. $21.80
Q:
A company uses a weighted-average perpetual inventory system.
August 2: 10 units were purchased at $12 per unit.
August 18: 15 units were purchased at $15 per unit.
August 29: 20 units were sold.
August 31: 14 units were purchased at $16 per unit.
What is the per-unit value of ending inventory on August 31?
A. $12.00
B. $13.80
C. $15.42
D. $16.00
E. $17.74
Q:
A company markets a climbing kit and uses the perpetual inventory system to account for its merchandise. The beginning balance of the inventory and its transactions during
January were as follows: January 1:
Beginning balance of 18 units at $13 each. January 12:
Purchased 30 units at $14 each. January 19:
Sold 24 units at $30 selling price each. January 20:
Purchased 24 units at $17 each. January 27:
Sold 27 units at $30 selling price each. If the ending inventory is reported at $276, which inventory method was used?
A. LIFO method
B. FIFO method
C. Weighted-average method
D. Specific identification method
E. Retail inventory method
Q:
A company had inventory of 5 units at a cost of $20 each on November 1. On November 2, they purchased 10 units at $22 each. On November 6, they purchased 6 units at $25 each. On November 8, they sold 18 units for $54 each. Using the LIFO perpetual inventory method, what was the cost of the 18 units sold?
A. $395
B. $410
C. $450
D. $510
E. $520
Q:
A company has inventory of 15 units at a cost of $12 each on August 1. On August 5, they purchased 10 units at $13 per unit. On August 12, they purchased 20 units at $14 per unit. On August 15, they sold 30 units. Using the FIFO perpetual inventory method, what is the value of the inventory on August 15 after the sale?
A. $140
B. $160
C. $210
D. $380
E. $590
Q:
Acme-Jones Corporation uses a LIFO perpetual inventory system.
August 2, 25 units were purchased at $12 per unit.
August 5, 10 units were purchased at $13 per unit.
August 15, 12 units were sold at $25 per unit.
August 18, 15 units were purchased at $14 per unit. What was the amount of the cost of goods sold?
A. $184.53
B. $163.00
C. $174.43
D. $154.00
E. $144.00
Q:
A corporation uses a LIFO perpetual inventory system.
August 2, 25 units were purchased at $12 per unit.
August 5, 10 units were purchased at $13 per unit.
August 15, 12 units were sold at $25 per unit.
August 18, 15 units were purchased at $14 per unit. What was the amount of the ending inventory for the month of August?
A. $496.00
B. $486.00
C. $492.57
D. $300.00
E. $510.00
Q:
A corporation uses a FIFO perpetual inventory system.
August 2, 25 units were purchased at $12 per unit.
August 5, 10 units were purchased at $13 per unit.
August 15, 12 units were sold at $25 per unit.
August 18, 15 units were purchased at $14 per unit. What was the amount of the ending inventory for the month of August?
A. $496.00
B. $486.00
C. $492.57
D. $300.00
E. $510.00
Q:
Acme-Jones Corporation uses a weighted-average perpetual inventory system.
August 2, 10 units were purchased at $12 per unit.
August 18, 15 units were purchased at $14 per unit.
August 29, 12 units were sold.
What was the amount of the cost of goods sold for this sale?
A. $148.00
B. $150.50
C. $158.40
D. $210.00
E. $330.00
Q:
A company had inventory on November 1 of 5 units at a cost of $20 each. On November 2, they purchased 10 units at $22 each. On November 6 they purchased 6 units at $25 each. On November 5, 8 units were sold for $55 each. Using the weighted-average perpetual inventory method, what was the value of the inventory on November 30?
A. $304.00
B. $404.00
C. $299.33
D. $280.00
E. $276.00
Q:
A company had inventory on November 1 of 5 units at a cost of $20 each. On November 2, they purchased 10 units at $22 each. On November 6, they purchased 6 units at $25 each. On November 8, 8 units were sold for $55 each. Using the FIFO perpetual inventory method, what was the value of the inventory on November 8 after the sale?
A. $304
B. $296
C. $288
D. $280
E. $276
Q:
A company had inventory on November 1 of 5 units at a cost of $20 each. On November 2, they purchased 10 units at $22 each. On November 6, they purchased 6 units at $25 each. On November 8, 8 units were sold for $55 each. Using the LIFO perpetual inventory method, what was the value of the inventory on November 8 after the sale?
A. $304
B. $296
C. $288
D. $280
E. $276
Q:
The inventory valuation method that identifies the invoice cost of each item in ending inventory to determine the cost assigned to that inventory is the:
A. Weighted-average inventory method,
B. First-in, first-out method,
C. Last-in, first-out method,
D. Specific identification method,
E. Retail inventory method,
Q:
Toys "R" Us had cost of goods sold of $9,421 million, ending inventory of $2,089 million, and average inventory of $1,965 million. Its days' sales in inventory equals:
A. 0.21
B. 4.51
C. 4.79
D. 76.1 days
E. 80.9 days
Q:
A company had gross profit of $134,200 on net sales of $205,000. If ending inventory was $8,000 and average inventory was $7,080, what is the company's inventory turnover?
A. 10.0
B. 8.85
C. 16.77
D. 18.95
E. 28.95
Q:
Toys "R" Us had cost of goods sold of $9,421 million, ending inventory of $2,089 million, and average inventory of $1,965 million. The inventory turnover equals:
A. 0.21
B. 4.51
C. 4.79
D. 76.1 days
E. 80.9 days
Q:
Days' sales in inventory is calculated as:
A. Ending inventory divided by sales times 365.
B. Cost of goods sold divided by ending inventory.
C. Ending inventory divided by cost of goods sold times 365.
D. Cost of goods sold divided by ending inventory times 365.
E. Ending inventory divided by cost of goods sold.
Q:
The inventory turnover ratio is calculated as:
A. Cost of goods sold divided by average merchandise inventory.
B. Sales divided by cost of goods sold.
C. Ending inventory divided by cost of goods sold.
D. Cost of goods sold divided by ending inventory.
E. Cost of goods sold divided by ending inventory times 365.
Q:
Days' sales in inventory:
A. Is also called days' stock on hand.
B. Focuses on average inventory rather than ending inventory.
C. Is used to measure solvency.
D. Is calculated by dividing cost of goods sold by ending inventory.
E. Is a substitute for the acid-test ratio.
Q:
The inventory turnover ratio:
A. Is used to analyze profitability.
B. Is used to measure solvency.
C. Measures how quickly a company turns over its merchandise inventory.
D. Validates the acid-test ratio.
E. Calculation depends on the company's inventory valuation method.
Q:
An overstatement of ending inventory will cause
A. An overstatement of assets and equity on the balance sheet.
B. An understatement of assets and equity on the balance sheet.
C. An overstatement of assets and an understatement of equity on the balance sheet.
D. An understatement of assets and an overstatement of equity on the balance sheet.
E. No effect on the balance sheet.
Q:
The understatement of the beginning inventory balance causes:
A. Cost of goods sold to be understated and net income to be understated.
B. Cost of goods sold to be understated and net income to be overstated.
C. Cost of goods sold to be overstated and net income to be overstated.
D. Cost of goods sold to be overstated and net income to be understated.
E. Cost of goods sold to be overstated and net income to be correct.
Q:
The understatement of the ending inventory balance causes:
A. Cost of goods sold to be overstated and net income to be understated.
B. Cost of goods sold to be overstated and net income to be overstated.
C. Cost of goods sold to be understated and net income to be understated.
D. Cost of goods sold to be understated and net income to be overstated.
E. Cost of goods sold to be overstated and net income to be correct.
Q:
An error in the period-end inventory causes an offsetting error in the next period and therefore:
A. Managers can ignore the error.
B. It is sometimes said to be self-correcting.
C. It affects only income statement accounts.
D. If affects only balance sheet accounts.
E. Is immaterial for managerial decision making.
Q:
The full disclosure principle:
A. Requires that when a change in inventory valuation method is made, the notes to the financial statements report the type of change, why it was made, and its effect on net income.
B. Requires that companies use the same accounting method for inventory valuation period after period.
C. Is not subject to the materiality principle.
D. Is only applied to retailers.
E. Is also called the consistency principle.
Q:
A. Requires a company to consistently use the same accounting method of inventory valuation unless a change will improve financial reporting.
B. Requires a company to use one method of inventory valuation exclusively.
C. Requires that all companies in the same industry use the same accounting methods of inventory valuation.
D. Is also called the full disclosure concept.
E. Is also called the matching concept
Q:
The inventory valuation method that results in the lowest taxable income in a period of inflation is:
A. LIFO method
B. FIFO method
C. Weighted-average cost method
D. Specific identification method
E. Gross profit method
Q:
Which inventory valuation method assigns a value to the inventory on the balance sheet that approximates current cost and also mimics the actual flow of goods for most businesses?
A. FIFO
B. Weighted average
C. LIFO
D. Specific identification
E. First in still here
Q:
The inventory valuation method that tends to smooth out erratic changes in costs is:
A. FIFO
B. Weighted average
C. LIFO
D. Specific identification
E. WIFO
Q:
During a period of steadily rising costs, the inventory valuation method that yields the lowest reported net income is:
A. Specific identification method
B. Average cost method
C. Weighted-average method
D. FIFO method
E. LIFO method
Q:
Physical inventory counts:
A. Are not necessary under the perpetual system.
B. Are necessary to measure and adjust for inventory shrinkage.
C. Must be taken at least once a month.
D. Require the use of hand-held portable computers.
E. Are not necessary under the cost-to benefit constraint.
Q:
Given the following items and costs as of the balance sheet date, determine the value of Light Company's merchandise inventory.
- $2,000 goods sold by Light to another company. The goods are in transit and shipping terms are FOB shipping point.
- $3,000 goods sold by another company to Light. The goods are in transit and shipping terms are FOB shipping point.
- $4,000 owned by Light but in the possession of another company, the consignee.
- Damaged goods owned by Light that originally cost $5,000 but now have an $800 net realizable value.
A. $7,000
B. $7,800
C. $9,800
D. $9,000
E. $6,800
Q:
Given the following items and costs as of the balance sheet date, determine the value of Faltron Company's merchandise inventory.
- $1,000 goods sold by Faltron to another company. The goods are in transit and shipping terms are FOB destination.
- $2,000 goods sold by another company to Faltron. The goods are in transit and shipping terms are FOB destination.
- $3,000 owned by Faltron but in the possession of another company, the consignee.
- Damaged goods owned by Faltron that originally cost $4,000 but now have a $500 net realizable value.
A. $10,000
B. $6,500
C. $5,500
D. $5,000
E. $4,500
Q:
Goods on consignment:
A. Are goods shipped by the owner to the consignee who sells the goods for the owner.
B. Are reported in the consignee's books as inventory.
C. Are goods shipped to the consignor who sells the goods for the owner.
D. Are not reported in the consignor's inventory since they do not have possession of the inventory.
E. Are always paid for by the consignee when they take possession of the goods.
Q:
Goods in transit are included in a purchaser's inventory:
A. At any time during transit.
B. When the purchaser is responsible for paying freight charges.
C. When the supplier is responsible for freight charges.
D. If the goods are shipped FOB destination.
E. After the halfway point between the buyer and seller.
Q:
Merchandise inventory includes:
A. All goods owned by a company and held for sale.
B. All goods in transit.
C. All goods on consignment.
D. Only damaged goods.
E. Only items that are on the shelf.
Q:
Damaged and obsolete goods:
A. Are never included in inventory.
B. Are included in inventory at their full cost.
C. Are included in inventory at their net realizable value.
D. Should be disposed of immediately.
E. Are assigned a value of zero.
Q:
Using the retail inventory method, if the cost to retail ratio is 60% and ending inventory at retail is $45,000, then estimated ending inventory at cost is $27,000.
Q:
To avoid the time-consuming process of taking an inventory each year, the majority of companies use the gross profit method to estimate ending inventory.
Q:
In the retail inventory method of inventory valuation, the retail amount of inventory refers to the dollar amount measured by looking at the selling prices of inventory items.
Q:
The reliability of the gross profit method depends on a good estimate of the gross profit ratio.
Q:
The reasoning behind the retail inventory method is that if an accurate estimate of the cost-to-retail ratio is made, it can be multiplied by the ending inventory at retail to estimate ending inventory at cost.
Q:
The retail inventory method estimates the cost of ending inventory by applying the gross profit ratio to net sales.
Q:
Monthly or quarterly statements are called interim statements because they are prepared between the traditional annual statement dates.
Q:
When LIFO is used with the periodic inventory system, cost of goods sold is assigned costs from the most recent purchases at the point of each sale, rather than from the most recent purchases for the period.
Q:
A company's cost of inventory was $317,500. Due to phenomenal demand for this product, the market value of its inventory increased to $323,000. According to the consistency principle, this company should write up the value of its inventory.
Q:
The conservatism constraint requires that when more than one estimate of the amounts that are to be received or paid in the future exist and these estimates are about equally likely, then the less optimistic amount is used.
Q:
The lower of cost or market rule for inventory valuation must be applied to each individual unit separately and not to major categories of inventory or to the entire inventory.
Q:
A company has inventory with a market value of $217,000 and a cost of $241,000. According to the lower of cost or market, the inventory should be written down to $217,000.
Q:
In applying the lower of cost or market method to inventory valuation, market is defined as the current selling price.
Q:
In applying the lower of cost or market method to inventory valuation, market is defined as the current replacement cost.
Q:
The choice of an inventory valuation method can have a major impact on gross profit and cost of sales.