Question 1

Choose the correct statement concerning periodic and perpetual inventory systems.

Accepted Answer

A) Only the periodic system requires a physical count once per year 
B) The balance in the inventory account is known twice per fiscal year under the periodic system 
C) Both systems provide a means of estimating shrinkage loss 
D) Only the periodic system ever requires an adjusting entry at the end of each year after the physical count 
A) Only the periodic system requires a physical count once per year 
B) The balance in the inventory account is known twice per fiscal year under the periodic system 
C) Both systems provide a means of estimating shrinkage loss 
D) Only the periodic system ever requires an adjusting entry at the end of each year after the physical count

Question 2

Which one of the following would cause a decrease in the cost ratio as used in the retail inventory method?

Accepted Answer

A) Higher retail prices. 
B) Lower net mark-ups. 
C) More employee discounts given. 
D) Higher freight-in charges. 
A) Higher retail prices. 
B) Lower net mark-ups. 
C) More employee discounts given. 
D) Higher freight-in charges.

Question 3

F Corporation should include the following in its inventory:

Accepted Answer

A) Goods purchased FOB destination, still en route. 
B) Goods held for pick-up by the buyer. 
C) Goods it sold FOB shipping point, still en route. 
D) Goods out on consignment to the M Company. 
A) Goods purchased FOB destination, still en route. 
B) Goods held for pick-up by the buyer. 
C) Goods it sold FOB shipping point, still en route. 
D) Goods out on consignment to the M Company.

Question 4

When using the moving average method of inventory flow,it is necessary to re-compute a new average each time units are issued from the inventory.

Accepted Answer

A) True 
 B)False

Question 5

The following data concerning the retail inventory method are taken from the financial records of a small company. $\begin{array}{lrr}&\text { At Cost } & \text { At Retail } \
 \text {Beginning inventory }& \$37,200&\$60,000\
 \text {Purchases.}&182,000&308,000 \
 \text {Freight-in. }& 2,800&--\
 \text {Net mark-ups. }&---&2,000 \
 \text {Net markdowns. }&---&3,480 \
 \text {Sales. }&---&313,520 \
\end{array}$ (a) The ending inventory at retail should be: $_______________.
(b) If the ending inventory is to be valued at approximately the lower-of-cost-or-market,FIFO basis,the calculation of the cost to retail ratio should be based on goods available for sale at (1) cost and (2) retail,respectively,of: $________________ and $_________________.

Accepted Answer

(a) $60,000 + $308,000 + $2,00

Question 6

Goods held on consignment for sale on commission should not be included in the inventory at year end.

Accepted Answer

A) True 
 B)False

Question 7

Gross margin rate,mark-up,and cost percentage,are different names for the same relationship.

Accepted Answer

A) True 
 B)False

Question 8

When a perpetual inventory system is used,the inventory account is usually a control account maintained in the general ledger.

Accepted Answer

A) True 
 B)False

Question 9

Lost Discounts indicates that the recorded cost of an item purchased for inventory is its:

Accepted Answer

A) Invoice price. 
B) Invoice price plus any purchase discount already lost. 
C) Invoice price less any purchase discount already taken. 
D) Invoice price less the purchase discount allowable whether or not taken to date. 
A) Invoice price. 
B) Invoice price plus any purchase discount already lost. 
C) Invoice price less any purchase discount already taken. 
D) Invoice price less the purchase discount allowable whether or not taken to date.

Question 10

Use of a perpetual inventory system versus a periodic inventory system may affect the application of the inventory cost flow methods.

Accepted Answer

A) True 
 B)False

Question 11

The weighted-average cost inventory cost flow method can be described by all of the following except:

Accepted Answer

A) Is generally used with a perpetual inventory system. 
B) Is not subject to income manipulation. 
C) Assigns the same unit cost to cost of goods sold and to ending inventory. 
D) Involves assignment of the total cost of goods available for sale to cost of goods sold and ending inventory only at the end of the period. 
A) Is generally used with a perpetual inventory system. 
B) Is not subject to income manipulation. 
C) Assigns the same unit cost to cost of goods sold and to ending inventory. 
D) Involves assignment of the total cost of goods available for sale to cost of goods sold and ending inventory only at the end of the period.

Question 12

Below is a list of statements relating to inventory systems.Each statement describes a characteristic of the periodic and/or perpetual systems.Some statements relate to only one system,some statements relate to both systems,and some relate to neither system.Enter check marks in the blanks to indicate the appropriate system: (a statement may require one,two,or no check marks). \[\begin{array} { | l | l | l | } 
\hline & \text { Perpetual } & \text { Periodic } \
\hline & \text { Inventory } & \text { Inventory } \
\hline & \text { System } & \text { System } \
\hline \begin{array} { l } 
\text { (a) When an item is sold, two concurrent accounting } \
\text { entries are made for different amounts. }
\end{array} & & \
\hline \begin{array} { l } 
\text { (b) Cost of goods sold is determined as a residual } \
\text { amount. }
\end{array} & & \
\hline \begin{array} { l } 
\text { (c) At the end of the accounting period, two inventory } \
\text { entries usually must be made in the accounts. }
\end{array} & & \
\hline \text { (d) A physical inventory count rarely, if ever, is taken. } & & \
\hline \begin{array} { l } 
\text { (e) More effective inventory control (such as of theft) is } \
\text { possible. }
\end{array} & & \
\hline \begin{array} { l } 
\text { (f) The amount (balance) in the inventory account } \
\text { throughout the accounting period usually is the } \
\text { beginning inventory amount. }
\end{array} & & \
\hline \begin{array} { l } 
\text { (g) Each purchase is debited to the inventory account } \
\text { throughout the accounting period. }
\end{array} & & \
\hline \begin{array} { l } 
\text { (h) Inventory amounts are determined by actual count. }
\end{array} & \
\hline \begin{array} { l } 
\text { (i) Purchases of merchandise are not debited to the } \
\text { inventory account throughout the period. }
\end{array} & & \
\hline \begin{array} { l } 
\text { (j) The method which usually involves more detailed } \
\text { record keeping. }
\end{array} & & \
\hline \begin{array} { l } 
\text { (k) Inventory amounts are determined from the detailed } \
\text { inventory records. }
\end{array} & & \
\hline \begin{array} { l } 
\text { (1) Only one accounting entry is made when an item is } \
\text { sold. }
\end{array} & & \
\hline \begin{array} { l } 
\text { (m) Only one accounting entry is made to record a } \
\text { purchase of merchandise. }
\end{array} & & \
\hline \begin{array} { l } 
\text { (n) Only one accounting entry is made to record a } \
\text { purchase of merchandise. }
\end{array} & & \
\hline
\end{array}\]

Accepted Answer

The answer of Below is a list of statements relating...

Question 13

The Everything Store has just removed a demonstrator from display and demonstration-it will be sold at a reduced price.The original price was $180 and the original cost was $140.Additional information: $\begin{array} { l  } 
 \text {Estimated repairs before selling.  }&\$20\
 \text {Estimated selling price reduced to. }&120\
 \text {Estimated selling costs. }&7\
 \text {Normal profit margin. }&1/3\
\end{array}$
 The demonstrator will be included in the used inventory balance.What inventory value should be assigned to the used demonstrator?

Accepted Answer

A) $73 
B) $80 
C) $93 
D) $120 
A) $73 
B) $80 
C) $93 
D) $120

Question 14

The following information relates to 2013: $$\begin{array} { | l | r| r| } 
\hline & \text { Cost } & \text { Retail } \
\hline \text { Beginning inventory } & \$ 29,000 & \$ 45,000 \
\hline \text { Purchases } & 140,000 & 190,000 \
\hline \text { Purchases discounts taken } & 3,000 & \
\hline \text { Purchases returns } & 5,000 & 8,000 \
\hline \text { Freight-in } & 20,000 & \
\hline \text { Net mark-ups } & & 40,000 \
\hline \text { Net markdowns } & & 12,000 \
\hline \text { Sales } & & 190,000 \
\hline \text { Employee discounts } & & 3,000 \
\hline
\end{array}$$ Using the retail inventory method and LCM (based on the average cost flow assumption),what is the value of the ending inventory? When performing your calculations,round your cost ratios to one decimal point.

Accepted Answer

A) $44,888 
B) $44,020 
C) $42,036 
D) $41,614 
A) $44,888 
B) $44,020 
C) $42,036 
D) $41,614

Question 15

Compare and contrast the gross margin method and the retail inventory method.

Accepted Answer

Both methods use the relationship of cos

Question 16

The difference between the gross margin percentage and cost ratio is usually called the mark-up rate.

Accepted Answer

A) True 
 B)False

Question 17

Briefly outline the accounting and reporting of losses on purchase commitments when (a) the purchase contract is subject to revision or cancellation and (b) it is non-cancellable and a loss is probable.

Accepted Answer

a.When a purchase contract is subject to

Question 18

Between January 1 and April 30,a company's sales amounted to $140,000 and its purchases amounted to $120,000.The January 1 inventory was $34,000.Using the gross margin method,what is a reliable estimate of the April 30 inventory if the prior period's gross margin has been:
(a) 40 percent based on cost? April ending inventory is $_____________.
(b) 40 percent based on selling prices? April ending inventory is $_____________.

Accepted Answer

The answer of Between January 1 and April 30,a company's...

Question 19

The records at the end of the period for a department store reflected the following: $\begin{array} { l  }
 \text {Beginning inventory (retail, $ \$ 26,000 $ ). }&\$22,800 \
 \text {Sales. }&120,000 \
 \text {Sales returns. }& 4,000\
 \text {Purchases (retail, \$152,000). }&103,800 \
 \text { Purchase returns (retail, $ \$ 500 $ )}& 400\
 \text {Freight-in. }& 1,600\
 \text { Additional mark-ups.}& 3,200\
 \text { Mark-up cancellations.}&700 \
 \text { Markdowns.}&8,000 \
 \text { Markdown cancellations.}& 6,000\
 \text { Employee discounts.}&2,000 \
\end{array}$
 Compute the ending inventory at approximate lower-of-cost-or-market (average) using the retail inventory method.Show all computations.

Accepted Answer

@#IMG-DLM& Ending inventory at

Question 20

At the end of the first year of a firm's operations,the total inventory at cost was $200 and the market value (for purposes of Lower of cost and NRV) was $220.The corresponding values at the end of years 2 and 3 are as follows: $$\begin{array} { | l | l| l | } 
\hline & \text { Year 2 } & \text { Year 3 } \
\hline \text { Cost } & \$ 400 & \$ 600 \
\hline \text { NRV } & 340 & 640 \
\hline
\end{array}$$ Explain how,in years 2 and 3,the direct reduction and allowance methods of applying Lower of cost and NRV result in the same reported amount of income.Assume $1,000 of purchases in each year.

Accepted Answer

Year 2: The direct reduction method reco

Choose the correct statement concerning periodic and perpetual inventory systems.

Which one of the following would cause a decrease in the cost ratio as used in the retail inventory method?

F Corporation should include the following in its inventory:

When using the moving average method of inventory flow,it is necessary to re-compute a new average each time units are issued from the inventory.

Goods held on consignment for sale on commission should not be included in the inventory at year end.

Gross margin rate,mark-up,and cost percentage,are different names for the same relationship.

When a perpetual inventory system is used,the inventory account is usually a control account maintained in the general ledger.

Lost Discounts indicates that the recorded cost of an item purchased for inventory is its:

Use of a perpetual inventory system versus a periodic inventory system may affect the application of the inventory cost flow methods.

The weighted-average cost inventory cost flow method can be described by all of the following except:

Compare and contrast the gross margin method and the retail inventory method.

The difference between the gross margin percentage and cost ratio is usually called the mark-up rate.

Briefly outline the accounting and reporting of losses on purchase commitments when (a) the purchase contract is subject to revision or cancellation and (b) it is non-cancellable and a loss is probable.

The Framework for Financial Reporting

Accounting Judgements

Statements of Income and Comprehensive Income

Statements of Financial Position and Changes in Equity; Disclosure Notes

The Statement of Cash Flows

Financial Assets: Cash and Receivables

Property,Plant,and Equipment; Intangibles; and Goodwill

Depreciation,Amortization,and Impairment

Financial Instruments: Investments in Debt and Equity Securities

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Exam 8: Cost-Based Inventories and Cost of Sales

Choose the correct statement concerning periodic and perpetual inventory systems.

Which one of the following would cause a decrease in the cost ratio as used in the retail inventory method?

F Corporation should include the following in its inventory:

When using the moving average method of inventory flow,it is necessary to re-compute a new average each time units are issued from the inventory.

Goods held on consignment for sale on commission should not be included in the inventory at year end.

Gross margin rate,mark-up,and cost percentage,are different names for the same relationship.

When a perpetual inventory system is used,the inventory account is usually a control account maintained in the general ledger.

Lost Discounts indicates that the recorded cost of an item purchased for inventory is its:

Use of a perpetual inventory system versus a periodic inventory system may affect the application of the inventory cost flow methods.

The weighted-average cost inventory cost flow method can be described by all of the following except:

Compare and contrast the gross margin method and the retail inventory method.

The difference between the gross margin percentage and cost ratio is usually called the mark-up rate.

Briefly outline the accounting and reporting of losses on purchase commitments when (a) the purchase contract is subject to revision or cancellation and (b) it is non-cancellable and a loss is probable.

The Framework for Financial Reporting

Accounting Judgements

Statements of Income and Comprehensive Income

Statements of Financial Position and Changes in Equity; Disclosure Notes

The Statement of Cash Flows

Financial Assets: Cash and Receivables

Property,Plant,and Equipment; Intangibles; and Goodwill

Depreciation,Amortization,and Impairment

Financial Instruments: Investments in Debt and Equity Securities

Filters