Question 1

The major disadvantage of the retail method is that it is an averaging technique.

Accepted Answer

A) True 
 B)False

Question 2

Under a consignment arrangement, the

Accepted Answer

A)  consignor has ownership until goods are sold to a customer. 
B)  consignor has ownership until goods are shipped to the consignee. 
C)  consignee has ownership when the goods are in the consignee's possession. 
D)  consigned goods are included in the inventory of the consignee. 
A)  consignor has ownership until goods are sold to a customer. 
B)  consignor has ownership until goods are shipped to the consignee. 
C)  consignee has ownership when the goods are in the consignee's possession. 
D)  consigned goods are included in the inventory of the consignee.

Question 3

Goods out on consignment should be included in the inventory of the consignor.

Accepted Answer

A) True 
 B)False

Question 4

A company had sales of $180,000 and cost of goods available for sale of $200,000 during August. If its gross profit margin is estimated to be 30%, the ending inventory value at August 31 is estimated to be

Accepted Answer

A)  $20,000. 
B)  $60,000. 
C)  $74,000. 
D)  $54,000. 
A)  $20,000. 
B)  $60,000. 
C)  $74,000. 
D)  $54,000.

Question 5

The cost of goods available for sale consists of which two elements?

Accepted Answer

A)  the cost of beginning inventory and the cost of ending inventory 
B)  the cost of ending inventory and the cost of goods purchased during the year 
C)  the cost of beginning inventory and the cost of goods purchased during the year 
D)  the difference between the costs of goods purchased and the cost of goods sold during the year 
A)  the cost of beginning inventory and the cost of ending inventory 
B)  the cost of ending inventory and the cost of goods purchased during the year 
C)  the cost of beginning inventory and the cost of goods purchased during the year 
D)  the difference between the costs of goods purchased and the cost of goods sold during the year

Question 6

The inventory turnover ratio is the net sales divided by the average cost of goods sold.

Accepted Answer

A) True 
 B)False

Question 7

When comparing the average and FIFO inventory cost formulas during a period when prices are rising, which of the following statements is correct?

Accepted Answer

A)  FIFO will result in a lower inventory balance reported on the balance sheet. 
B)  Average will result in a higher cash flow. 
C)  FIFO will result in a higher profit reported on the income statement. 
D)  Average will result in a higher gross profit reported on the income statement. 
A)  FIFO will result in a lower inventory balance reported on the balance sheet. 
B)  Average will result in a higher cash flow. 
C)  FIFO will result in a higher profit reported on the income statement. 
D)  Average will result in a higher gross profit reported on the income statement.

Question 8

Robbins Company uses the perpetual inventory system and the FIFO cost formula.   Instructions 
a. Using the inventory and sales data above, calculate the value assigned to cost of goods sold in March and to the ending inventory at March 31.
b. Prepare the journal entries to record the sales on March 4 and March 19. All sales are made on credit.

Accepted Answer

a.
 @#IMG-DLM& Ending Inventory: $8,600

Question 9

Inventory ratios can be used to measure how effectively a company manages its inventory.

Accepted Answer

A) True 
 B)False

Question 10

An overstatement of the cost of goods sold will result in an overstatement of gross profit.

Accepted Answer

A) True 
 B)False

Question 11

Benjaha Company is preparing the annual financial statements dated December 31, 2015. Information about inventory stocked for regular sale follows:   Instructions 
a. Calculate the correct value for the December 31, 2015 ending inventory using the lower of cost and net realizable value.
b. Assume Benjaha uses a perpetual inventory system. Prepare the journal entry to record any inventory write down required.

Accepted Answer

a.
 @#IMG-DLM& b.
 @#IMG-DLM& To adjust

Question 12

If the ending inventory is understated then the profit of the company will be understated.

Accepted Answer

A) True 
 B)False

Question 13

Karr Company has a beginning merchandise inventory of $17,000, an ending merchandise inventory of $20,000, sales of $350,000, and a cost of goods sold of $200,000. Karr's inventory turnover is

Accepted Answer

A)  10.0 times. 
B)  10.8 times. 
C)  17.5 times. 
D)  18.9 times. 
A)  10.0 times. 
B)  10.8 times. 
C)  17.5 times. 
D)  18.9 times.

Question 14

If goods in transit are shipped FOB shipping point by a carrier named by the buyer,

Accepted Answer

A)  the seller has legal title to the goods until they are delivered. 
B)  the buyer has legal title to the goods when a public carrier accepts the goods from the seller. 
C)  the transportation company has legal title to the goods while the goods are in transit. 
D)  no one has legal title to the goods until they are delivered. 
A)  the seller has legal title to the goods until they are delivered. 
B)  the buyer has legal title to the goods when a public carrier accepts the goods from the seller. 
C)  the transportation company has legal title to the goods while the goods are in transit. 
D)  no one has legal title to the goods until they are delivered.

Question 15

Winston Auto Parts reported the following information in its income statement for 2013 and 2014:   Additional Information:   While completing Winston's 2015 financial statements, the accountant realized that errors had been made in previous years' inventory calculations. The correct ending inventory at December 31, 2012 was $6,000, the correct ending inventory at December 31, 2013 was $4,000, and the correct ending inventory at December 31, 2014 was $7,000.
Instructions 
a. Calculate the correct cost of goods sold and gross profit for 2013 and for 2014.
b. Calculate the inventory turnover for 2013 and 2014:
(i) using the originally reported information; and
(ii) using the corrected information.
c. Calculate the gross profit margin for 2013 and 2014:
(i) using the originally reported information; and
(ii) using the corrected information.
d. Explain how the errors will have caused management performance to be improperly evaluated.

Accepted Answer

a.
 @#IMG-DLM& COGS calculated as follows:
 @#IMG-DLM& b. (i

Question 16

Levy's Used Cars uses the specific identification method of costing inventory. During March, Levy purchased three cars for $5,000, $6,500, and $8,000, respectively. During March, the first two cars are sold for $7,500 each. What is Levy's gross profit for March?

Accepted Answer

A)  $2,000 
B)  $3,500 
C)  $500 
D)  $7,000 
A)  $2,000 
B)  $3,500 
C)  $500 
D)  $7,000

Question 17

The evidence required for a reversal of a previous inventory write down would be

Accepted Answer

A)  a decline in selling prices. 
B)  an increase in selling prices. 
C)  an increase in products/ merchandise sold. 
D)  a decrease in products/ merchandise sold. 
A)  a decline in selling prices. 
B)  an increase in selling prices. 
C)  an increase in products/ merchandise sold. 
D)  a decrease in products/ merchandise sold.

Question 18

A company just starting business made the following three inventory purchases in February:   On Feb 15, there were 300 units sold. The company uses a perpetual inventory system.
-Using the average cost formula, the amount allocated to the ending inventory on February 28 is

Accepted Answer

A)  $4,950. 
B)  $3,075. 
C)  $2,958. 
D)  $1,992. 
A)  $4,950. 
B)  $3,075. 
C)  $2,958. 
D)  $1,992.

Question 19

A company just starting in business purchased three merchandise inventory items at the following prices: first purchase, $100; second purchase, $120; third purchase, $125. If the company sold two units for a total of $400 and used FIFO, the gross profit for the period would be

Accepted Answer

A)  $220. 
B)  $180. 
C)  $245. 
D)  $155. 
A)  $220. 
B)  $180. 
C)  $245. 
D)  $155.

Question 20

While goods purchased FOB destination, and shipped by train and then truck, are in transit, the goods should be included in the inventory of the

Accepted Answer

A)  seller. 
B)  purchaser. 
C)  train company. 
D)  truck company. 
A)  seller. 
B)  purchaser. 
C)  train company. 
D)  truck company.

The major disadvantage of the retail method is that it is an averaging technique.

Under a consignment arrangement, the

Goods out on consignment should be included in the inventory of the consignor.

A company had sales of $180,000 and cost of goods available for sale of $200,000 during August. If its gross profit margin is estimated to be 30%, the ending inventory value at August 31 is estimated to be

The cost of goods available for sale consists of which two elements?

The inventory turnover ratio is the net sales divided by the average cost of goods sold.

When comparing the average and FIFO inventory cost formulas during a period when prices are rising, which of the following statements is correct?

Inventory ratios can be used to measure how effectively a company manages its inventory.

An overstatement of the cost of goods sold will result in an overstatement of gross profit.

If the ending inventory is understated then the profit of the company will be understated.

Karr Company has a beginning merchandise inventory of $17,000, an ending merchandise inventory of $20,000, sales of $350,000, and a cost of goods sold of $200,000. Karr's inventory turnover is

If goods in transit are shipped FOB shipping point by a carrier named by the buyer,

Levy's Used Cars uses the specific identification method of costing inventory. During March, Levy purchased three cars for $5,000, $6,500, and $8,000, respectively. During March, the first two cars are sold for $7,500 each. What is Levy's gross profit for March?

The evidence required for a reversal of a previous inventory write down would be

A company just starting business made the following three inventory purchases in February: On Feb 15, there were 300 units sold. The company uses a perpetual inventory system. -Using the average cost formula, the amount allocated to the ending inventory on February 28 is

A company just starting in business purchased three merchandise inventory items at the following prices: first purchase, $100; second purchase, $120; third purchase, $125. If the company sold two units for a total of $400 and used FIFO, the gross profit for the period would be

While goods purchased FOB destination, and shipped by train and then truck, are in transit, the goods should be included in the inventory of the

Accounting in Action

The Recording Process

Adjusting the Accounts

Completion of the Accounting Cycle

Accounting for Merchandising Operations

Internal Control and Cash

Long-Lived Assets

Current Liabilities

Accounting Principles

Accounting for Partnerships

Introduction to Corporations

Corporations: Additional Topics and Ifrs

Non-Current Liabilities

The Cash Flow Statement

Financial Statement Analysis

Investments

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Exam 6: Inventory Costing

The major disadvantage of the retail method is that it is an averaging technique.

Under a consignment arrangement, the

Goods out on consignment should be included in the inventory of the consignor.

A company had sales of $180,000 and cost of goods available for sale of $200,000 during August. If its gross profit margin is estimated to be 30%, the ending inventory value at August 31 is estimated to be

The cost of goods available for sale consists of which two elements?

The inventory turnover ratio is the net sales divided by the average cost of goods sold.

When comparing the average and FIFO inventory cost formulas during a period when prices are rising, which of the following statements is correct?

Inventory ratios can be used to measure how effectively a company manages its inventory.

An overstatement of the cost of goods sold will result in an overstatement of gross profit.

If the ending inventory is understated then the profit of the company will be understated.

Karr Company has a beginning merchandise inventory of $17,000, an ending merchandise inventory of $20,000, sales of $350,000, and a cost of goods sold of $200,000. Karr's inventory turnover is

If goods in transit are shipped FOB shipping point by a carrier named by the buyer,

Levy's Used Cars uses the specific identification method of costing inventory. During March, Levy purchased three cars for $5,000, $6,500, and $8,000, respectively. During March, the first two cars are sold for $7,500 each. What is Levy's gross profit for March?

The evidence required for a reversal of a previous inventory write down would be

A company just starting business made the following three inventory purchases in February: On Feb 15, there were 300 units sold. The company uses a perpetual inventory system. -Using the average cost formula, the amount allocated to the ending inventory on February 28 is

A company just starting in business purchased three merchandise inventory items at the following prices: first purchase, $100; second purchase, $120; third purchase, $125. If the company sold two units for a total of $400 and used FIFO, the gross profit for the period would be

While goods purchased FOB destination, and shipped by train and then truck, are in transit, the goods should be included in the inventory of the

Accounting in Action

The Recording Process

Adjusting the Accounts

Completion of the Accounting Cycle

Accounting for Merchandising Operations

Internal Control and Cash

Long-Lived Assets

Current Liabilities

Accounting Principles

Accounting for Partnerships

Introduction to Corporations

Corporations: Additional Topics and Ifrs

Non-Current Liabilities

The Cash Flow Statement

Financial Statement Analysis

Investments

Filters