Question 1

What is inventory shrink? How may inventory shrink come about?

Accepted Answer

Shrink is the difference between the recorded amount of inventory in the financial records and the amount determined in a physical inventory determined during a count. Shrink may be due to theft, loss, or improper record keeping.

Question 2

Many retail stores take a periodic inventory at retail values, using the sales price marked on the merchandise.

Accepted Answer

A) True 
 B)False  True

Question 3

The difference between the cost and the initial retail price of merchandise is

Accepted Answer

A)  markup. 
B)  markon. 
C)  markdown. 
D)  market price. 
A)  markup. 
B)  markon. 
C)  markdown. 
D)  market price. B

Question 4

The most conservative method of applying the lower of cost or market rule is to use the lower of total cost or total market by groups.

Accepted Answer

A) True 
 B)False

Question 5

Following the consistency principle, once a firm adopts a method of inventory valuation, it should use that method consistently from one period to the next.

Accepted Answer

A) True 
 B)False

Question 6

The November 1st inventory of the Ray Adams Company had a cost of $29,750. Its retail value was $48,000. During the month of November, purchases in the amount of $41,734 (including freight in of $234) were made and priced at retail for $79,650. Sales for the month of November amounted to $88,000. What is the November cost of goods sold and the ending inventory at cost and at retail?

Accepted Answer

Question 7

Gross profit ratio is determined by dividing Net Sales by Gross Profit.

Accepted Answer

A) True 
 B)False

Question 8

The fundamental assumption of the gross profit method of estimating inventory is that the rate of gross profit on sales is about the same from period to period.

Accepted Answer

A) True 
 B)False

Question 9

The ____________________ method of estimating ending inventory involves estimating the cost of goods sold by applying a company's cost/sales ratio to its sales for the current period.

Accepted Answer

The answer of The ____________________ method of estimating ending inventory...

Question 10

Duncan Industries' inventory of coats (Model XL) during 2013 is given below. $$\begin{array} { | l | c | c | } 
\hline & \text { \# Units } & \text { Unit Cost } \
\hline \text { Beginning Inventory, January 1, 2013 } & 42 & 75 \
\hline \text { Purchases: } & & \
\hline \text { January 18 } & 20 & 78 \
\hline \text { January 31 } & 25 & 80 \
\hline \text { February 20 } & 30 & 75 \
\hline \text { March 1 } & 10 & 70 \
\hline \text { Ending Inventory, December 31, 2013 } & 4 & \
\hline
\end{array}$$ What is the cost of the ending inventory and the cost of goods sold?
1. Assume Duncan Industries utilizes the FIFO method
2. Assume Duncan Industries utilizes the LIFO method
3. Assume Duncan Industries utilizes the average cost method

Accepted Answer

1. (FIFO) EI: $280.00 = 4 x 70; COGS: 93

Question 11

When the replacement cost of an item is below its original purchase cost, it is necessary to value the inventory at market price in order to reflect the lower current value in the firm's financial records.

Accepted Answer

A) True 
 B)False

Question 12

The modifying convention of conservatism requires that inventory be presented on the balance sheet at

Accepted Answer

A)  cost. 
B)  market value. 
C)  either cost or market value, whichever is lower. 
D)  average cost during the period. 
A)  cost. 
B)  market value. 
C)  either cost or market value, whichever is lower. 
D)  average cost during the period.

Question 13

The following information concerns several of the inventory items at DC's. $$\begin{array} { | c | c | c | c | } 
\hline \text { Description } & \text { Quantity } & \text { Unit Cost } & \text { Market Value } \
\hline \text { Department A: } & & & \
\hline \text { Model DC 225 } & 40 & \$ 16.90 & \$ 17.50 \
\hline \text { Model DC 364 } & 65 & 28.75 & 25.00 \
\hline \text { Model DC 513 } & 50 & 28.00 & 26.50 \
\hline \text { Department B: } & & & \
\hline \text { Model AR 137 } & 13 & 59.00 & 60.00 \
\hline \text { Model AR 226 } & 25 & 97.00 & 94.75 \
\hline \text { Model AR 196 } & 14 & 125.00 & 122.50 \
\hline
\end{array}$$ Determine the amount of inventory to be reported on the financial statements using the lower of cost or market method of valuation under each of the following options.
1. Lower of cost or market for each item separately
2. Lower of total cost or total market
3. Lower of total cost or total market by department

Accepted Answer

1. $8,670.

Question 14

The _________________________ account is the one account that appears on both the balance sheet and the income statement.

Accepted Answer

Merchandis

Question 15

Alyse Designer Handbags had the following inventory figures for its Nicole Model during 2013 as shown below. $$\begin{array} { | l | c | c | } 
\hline & \text { \# Units } & \text { Unit Cost } \
\hline \text { Beginning Inventory, January 1, 2013 } & 36 & 15 \
\hline \text { Purchases: } & & \
\hline \text { January 18 } & 20 & 16 \
\hline \text { March 3 } & 25 & 16 \
\hline \text { June 30 } & 30 & 14 \
\hline \text { October 18 } & 36 & 15 \
\hline \text { Ending Inventory, December 31, 2013 } & 15 & \
\hline
\end{array}$$ What is the cost of the ending inventory and the cost of goods sold?
1. Assume the company utilizes the FIFO method
2. Assume the company utilizes the LIFO method
3. Assume the company utilizes the average cost method

Accepted Answer

1. (FIFO) EI: $225.00 = 15 x 15; COGS: 1

Question 16

Which of the following is NOT a way to apply the lower of cost or market rule?

Accepted Answer

A)  by item 
B)  by size 
C)  in total 
D)  by group 
A)  by item 
B)  by size 
C)  in total 
D)  by group

Question 17

The steps and proper order for estimating EI cost using the gross profit method are as follows:

Accepted Answer

A)  determine COGA, estimate COGS, subtract COGS from COGA. 
B)  determine COGA, estimate COGS, subtract COGA from COGS. 
C)  estimate COGS, determine COGA, subtract COGA from COGS. 
D)  estimate COGS, determine COGA, subtract COGS from COGA. 
A)  determine COGA, estimate COGS, subtract COGS from COGA. 
B)  determine COGA, estimate COGS, subtract COGA from COGS. 
C)  estimate COGS, determine COGA, subtract COGA from COGS. 
D)  estimate COGS, determine COGA, subtract COGS from COGA.

Question 18

For internal control, unit figures used to compute the inventory should be verified through spot checks.

Accepted Answer

A) True 
 B)False

Question 19

Explain the following terms-markon, markup, and markdown.

Accepted Answer

Markon is the difference between the ori

Question 20

The merchandise available for sale cost a company $90,000 and was marked to sell at a retail price of $125,000. Sales during the period totaled $80,000. If the retail method is used, the estimated cost of the ending inventory is

Accepted Answer

A)  $32,400. 
B)  $12,600. 
C)  $22,400. 
D)  $45,000. 90000/125000 = 70%; 70% x 80000 = 57600; 90000 - 57600 = 32400. 
A)  $32,400. 
B)  $12,600. 
C)  $22,400. 
D)  $45,000. 90000/125000 = 70%; 70% x 80000 = 57600; 90000 - 57600 = 32400.

What is inventory shrink? How may inventory shrink come about?

Many retail stores take a periodic inventory at retail values, using the sales price marked on the merchandise.

The difference between the cost and the initial retail price of merchandise is

The most conservative method of applying the lower of cost or market rule is to use the lower of total cost or total market by groups.

Following the consistency principle, once a firm adopts a method of inventory valuation, it should use that method consistently from one period to the next.

Gross profit ratio is determined by dividing Net Sales by Gross Profit.

The fundamental assumption of the gross profit method of estimating inventory is that the rate of gross profit on sales is about the same from period to period.

The ____________________ method of estimating ending inventory involves estimating the cost of goods sold by applying a company's cost/sales ratio to its sales for the current period.

When the replacement cost of an item is below its original purchase cost, it is necessary to value the inventory at market price in order to reflect the lower current value in the firm's financial records.

The modifying convention of conservatism requires that inventory be presented on the balance sheet at

The _________________________ account is the one account that appears on both the balance sheet and the income statement.

Which of the following is NOT a way to apply the lower of cost or market rule?

The steps and proper order for estimating EI cost using the gross profit method are as follows:

For internal control, unit figures used to compute the inventory should be verified through spot checks.

Explain the following terms-markon, markup, and markdown.

The merchandise available for sale cost a company $90,000 and was marked to sell at a retail price of $125,000. Sales during the period totaled $80,000. If the retail method is used, the estimated cost of the ending inventory is

Notes Payable and Notes Receivable

Property, Plant, and Equipment

Accounting for Partnerships

Corporations: Formation and Capital Stock Transactions

Corporate Earnings and Capital Transactions

Long-Term Bonds

Financial Statement Analysis

The Statement of Cash Flows

Departmentalized Profit and Cost Centers

Accounting for Manufacturing Activities

Job Order Cost Accounting

Process Cost Accounting

Controlling Manufacturing Costs: Standard Costs

Cost-Revenue Analysis for Decision Making

Filters

Exam 17: Merchandise Inventory

What is inventory shrink? How may inventory shrink come about?

Many retail stores take a periodic inventory at retail values, using the sales price marked on the merchandise.

The difference between the cost and the initial retail price of merchandise is

The most conservative method of applying the lower of cost or market rule is to use the lower of total cost or total market by groups.

Following the consistency principle, once a firm adopts a method of inventory valuation, it should use that method consistently from one period to the next.

Gross profit ratio is determined by dividing Net Sales by Gross Profit.

The fundamental assumption of the gross profit method of estimating inventory is that the rate of gross profit on sales is about the same from period to period.

The ____________________ method of estimating ending inventory involves estimating the cost of goods sold by applying a company's cost/sales ratio to its sales for the current period.

When the replacement cost of an item is below its original purchase cost, it is necessary to value the inventory at market price in order to reflect the lower current value in the firm's financial records.

The modifying convention of conservatism requires that inventory be presented on the balance sheet at

The _________________________ account is the one account that appears on both the balance sheet and the income statement.

Which of the following is NOT a way to apply the lower of cost or market rule?

The steps and proper order for estimating EI cost using the gross profit method are as follows:

For internal control, unit figures used to compute the inventory should be verified through spot checks.

Explain the following terms-markon, markup, and markdown.

The merchandise available for sale cost a company $90,000 and was marked to sell at a retail price of $125,000. Sales during the period totaled $80,000. If the retail method is used, the estimated cost of the ending inventory is

Notes Payable and Notes Receivable

Property, Plant, and Equipment

Accounting for Partnerships

Corporations: Formation and Capital Stock Transactions

Corporate Earnings and Capital Transactions

Long-Term Bonds

Financial Statement Analysis

The Statement of Cash Flows

Departmentalized Profit and Cost Centers

Accounting for Manufacturing Activities

Job Order Cost Accounting

Process Cost Accounting

Controlling Manufacturing Costs: Standard Costs

Cost-Revenue Analysis for Decision Making

Filters