Question 1

The retail inventory method estimates the cost of ending inventory by applying the gross profit ratio to net sales.

Accepted Answer

A) True 
 B)False

Question 2

Determining the unit costs assigned to inventory items is one of the most important decisions in accounting for inventory.

Accepted Answer

A) True 
 B)False

Question 3

A company had the following purchases and sales during its first year of operations: $$\begin{array} { | l | l | l | } 
\hline & \text { Purchases } & \text { Sales } \
\hline \text { January: } & 10 \text { units at } \$ 120 & 6 \text { units } \
\hline \text { February: } & 20 \text { units at } \$ 125 & 5 \text { units } \
\hline \text { May: } & 15 \text { units at } \$ 130 & 9 \text { units } \
\hline \text { September: } & 12 \text { units at } \$ 135 & 8 \text { units } \
\hline \text { November: } & 10 \text { units at } \$ 140 & 13 \text { units } \
\hline
\end{array}$$ On December 31, there were 26 units remaining in ending inventory. Using the Perpetual LIFO inventory valuation method, what is the value of cost of goods sold? (Assume all sales were made on the last day of the month.)

Accepted Answer

A) $5,470. 
B) $8,670. 
C) $5,305. 
D) $5,130. 
E) $5,400. 
A) $5,470. 
B) $8,670. 
C) $5,305. 
D) $5,130. 
E) $5,400.

Question 4

Which of the following inventory costing methods will always result in the same values for ending inventory and cost of goods sold regardless of whether a perpetual or periodic inventory system is used?

Accepted Answer

A) FIFO and weighted-average cost 
B) FIFO and LIFO 
C) Specific identification and FIFO 
D) LIFO and weighted-average cost 
E) LIFO and specific identification 
A) FIFO and weighted-average cost 
B) FIFO and LIFO 
C) Specific identification and FIFO 
D) LIFO and weighted-average cost 
E) LIFO and specific identification

Question 5

An error in the period-end inventory balance will cause an error in the calculation of cost of goods sold.

Accepted Answer

A) True 
 B)False

Question 6

On March 31 a company needed to estimate its ending inventory to prepare its first quarter financial statements. The following information is available: Beginning inventory, January 1: $4,000 Net sales: $80,000
Net purchases: $78,000
The company's gross margin ratio is 25%. Using the gross profit method, the cost of goods sold would be:

Accepted Answer

A) $19,500. 
B) $63,000. 
C) $60,000. 
D) $58,500. 
E) $20,000. 
A) $19,500. 
B) $63,000. 
C) $60,000. 
D) $58,500. 
E) $20,000.

Question 7

Decisions management must make in accounting for inventory cost include all of the following except:

Accepted Answer

A) Perpetual or periodic inventory system. 
B) Customer demand for inventory. 
C) Items included in inventory and their costs. 
D) Use of market values or other estimates. 
E) Costing method. 
A) Perpetual or periodic inventory system. 
B) Customer demand for inventory. 
C) Items included in inventory and their costs. 
D) Use of market values or other estimates. 
E) Costing method.

Question 8

A company's inventory records report the following in November of the current year: $$\begin{array} { | l | l | l | } 
\hline \text { Beginning } & \text { November 1 } & 5 \text { units } @ \$ 20 \
\hline \text { Purchase } & \text { November } 2 & 10 \text { units } @ \$ 22 \
\hline \text { Purchase } & \text { November 12 } & 6 \text { units } @ \$ 25 \
\hline
\end{array}$$ On November 8, it sold 12 units for $54 each. Using the LIFO perpetual inventory method, what amount of gross profit was earned from the 12 units sold?

Accepted Answer

A) $366 
B) $388 
C) $577 
D) $260 
E) $438 
A) $366 
B) $388 
C) $577 
D) $260 
E) $438

Question 9

Days' sales in inventory is calculated as:

Accepted Answer

A) Ending inventory divided by cost of goods sold. 
B) Ending inventory divided by cost of goods sold times 365. 
C) Ending inventory times cost of goods sold. 
D) Cost of goods sold divided by ending inventory times 365. 
E) Cost of goods sold divided by ending inventory. 
A) Ending inventory divided by cost of goods sold. 
B) Ending inventory divided by cost of goods sold times 365. 
C) Ending inventory times cost of goods sold. 
D) Cost of goods sold divided by ending inventory times 365. 
E) Cost of goods sold divided by ending inventory.

Question 10

Identify the items that are included in merchandise inventory. (In your answer address the special situations of goods in transit, consigned goods, and damaged goods.)

Accepted Answer

Merchandise inventory consists of goods

Question 11

Hasham purchases inventory from overseas and incurs the following costs: the merchandise cost is $80,000, credit terms 1/10, n/30, applicable only to the $80,000; FOB shipping point freight charges are $2,500; insurance during transit is $300; and import duties are $1,500. Hasham paid within the discount period. Compute the cost that should be assigned to the inventory.

Accepted Answer

A) $83,500 
B) $81,700 
C) $84,300 
D) $79,200 
E) $81,000 
A) $83,500 
B) $81,700 
C) $84,300 
D) $79,200 
E) $81,000

Question 12

The reasoning behind the retail inventory method is that if we can get a good estimate of the cost-to-retail ratio, we can multiply ending inventory at retail by this ratio to estimate ending inventory at cost.

Accepted Answer

A) True 
 B)False

Question 13

A company has inventory with a selling price of $451,000, a market value of $223,000 and a cost of $241,000. According to the lower of cost or market, the inventory should be written down to $223,000.

Accepted Answer

A) True 
 B)False

Question 14

Some companies choose to avoid assigning incidental costs of acquiring merchandise to inventory by recording them as cost of goods sold when incurred. The principle that supports this is called:

Accepted Answer

A) The cost principle. 
B) The lower of cost or market principle. 
C) The conservation constraint principle. 
D) The expense recognition principle. 
E) The materiality constraint. 
A) The cost principle. 
B) The lower of cost or market principle. 
C) The conservation constraint principle. 
D) The expense recognition principle. 
E) The materiality constraint.

Question 15

What advantages does a perpetual inventory system have over periodic inventory system?

Accepted Answer

Advances in technology have greatly redu

Question 16

How do the consistency concept and the full disclosure principle affect inventory valuation?

Accepted Answer

The consistency concept requires that co

Question 17

A company had the following purchases and sales during its first year of operations: $$\begin{array} { | l | l | l | } 
\hline & \text { Purchases } & \text { Sales } \
\hline \text { January: } & 10 \text { units at } \$ 120 & 6 \text { units } \
\hline \text { February: } & 20 \text { units at } \$ 125 & 5 \text { units } \
\hline \text { May: } & 15 \text { units at } \$ 130 & 9 \text { units } \
\hline \text { September: } & 12 \text { units at } \$ 135 & 8 \text { units } \
\hline \text { November: } & 10 \text { units at } \$ 140 & 13 \text { units } \
\hline
\end{array}$$ On December 31, there were 26 units remaining in ending inventory. Using the Perpetual FIFO inventory valuation method, what is the cost of the ending inventory? (Assume all sales were made on the last day of the month.)

Accepted Answer

A) $3,405. 
B) $3,200. 
C) $3,270. 
D) $3,540. 
E) $3,365. 
A) $3,405. 
B) $3,200. 
C) $3,270. 
D) $3,540. 
E) $3,365.

Question 18

Regardless of the inventory costing system used, cost of goods available for sale must be allocated at the end of the period between

Accepted Answer

A) net purchases during the period and ending inventory. 
B) beginning inventory and cost of goods sold. 
C) ending inventory and beginning inventory. 
D) ending inventory and cost of goods sold. 
E) beginning inventory and net purchases during the period. 
A) net purchases during the period and ending inventory. 
B) beginning inventory and cost of goods sold. 
C) ending inventory and beginning inventory. 
D) ending inventory and cost of goods sold. 
E) beginning inventory and net purchases during the period.

Question 19

Grays Company has inventory of 10 units at a cost of $10 each on August 1. On August 3, it purchased 20 units at $12 each. 12 units are sold on August 6. Using the FIFO perpetual inventory method, what amount will be reported as cost of goods sold for the 12 units that were sold?

Accepted Answer

A) $130. 
B) $120. 
C) $128. 
D) $124. 
E) $140. 
A) $130. 
B) $120. 
C) $128. 
D) $124. 
E) $140.

Question 20

The reliability of the gross profit method depends on a good estimate of the gross profit ratio.

Accepted Answer

A) True 
 B)False

The retail inventory method estimates the cost of ending inventory by applying the gross profit ratio to net sales.

Determining the unit costs assigned to inventory items is one of the most important decisions in accounting for inventory.

Which of the following inventory costing methods will always result in the same values for ending inventory and cost of goods sold regardless of whether a perpetual or periodic inventory system is used?

An error in the period-end inventory balance will cause an error in the calculation of cost of goods sold.

Decisions management must make in accounting for inventory cost include all of the following except:

Days' sales in inventory is calculated as:

Identify the items that are included in merchandise inventory. (In your answer address the special situations of goods in transit, consigned goods, and damaged goods.)

The reasoning behind the retail inventory method is that if we can get a good estimate of the cost-to-retail ratio, we can multiply ending inventory at retail by this ratio to estimate ending inventory at cost.

A company has inventory with a selling price of $451,000, a market value of $223,000 and a cost of $241,000. According to the lower of cost or market, the inventory should be written down to $223,000.

Some companies choose to avoid assigning incidental costs of acquiring merchandise to inventory by recording them as cost of goods sold when incurred. The principle that supports this is called:

What advantages does a perpetual inventory system have over periodic inventory system?

How do the consistency concept and the full disclosure principle affect inventory valuation?

Regardless of the inventory costing system used, cost of goods available for sale must be allocated at the end of the period between

Grays Company has inventory of 10 units at a cost of $10 each on August 1. On August 3, it purchased 20 units at $12 each. 12 units are sold on August 6. Using the FIFO perpetual inventory method, what amount will be reported as cost of goods sold for the 12 units that were sold?

The reliability of the gross profit method depends on a good estimate of the gross profit ratio.

Accounting in Business

Analyzing and Recording Transactions

Adjusting Accounts and Preparing Financial Statements

Completing the Accounting Cycle

Accounting for Merchandising Operations

Accounting Information Systems

Cash and Internal Controls

Accounting for Receivables

Plant Assets, Natural Resoures, and Intangibles

Current Liabilities and Payroll Accounting

Accounting for Partnerships

Accounting for Corporations

Long-Term Liabilities

Investments and International Operations

Reporting the Statement of Cash Flows

Analysis of Financial Statements

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Exam 6: Inventories and Cost of Sales

The retail inventory method estimates the cost of ending inventory by applying the gross profit ratio to net sales.

Determining the unit costs assigned to inventory items is one of the most important decisions in accounting for inventory.

Which of the following inventory costing methods will always result in the same values for ending inventory and cost of goods sold regardless of whether a perpetual or periodic inventory system is used?

An error in the period-end inventory balance will cause an error in the calculation of cost of goods sold.

Decisions management must make in accounting for inventory cost include all of the following except:

Days' sales in inventory is calculated as:

Identify the items that are included in merchandise inventory. (In your answer address the special situations of goods in transit, consigned goods, and damaged goods.)

The reasoning behind the retail inventory method is that if we can get a good estimate of the cost-to-retail ratio, we can multiply ending inventory at retail by this ratio to estimate ending inventory at cost.

A company has inventory with a selling price of $451,000, a market value of $223,000 and a cost of $241,000. According to the lower of cost or market, the inventory should be written down to $223,000.

Some companies choose to avoid assigning incidental costs of acquiring merchandise to inventory by recording them as cost of goods sold when incurred. The principle that supports this is called:

What advantages does a perpetual inventory system have over periodic inventory system?

How do the consistency concept and the full disclosure principle affect inventory valuation?

Regardless of the inventory costing system used, cost of goods available for sale must be allocated at the end of the period between

Grays Company has inventory of 10 units at a cost of $10 each on August 1. On August 3, it purchased 20 units at $12 each. 12 units are sold on August 6. Using the FIFO perpetual inventory method, what amount will be reported as cost of goods sold for the 12 units that were sold?

The reliability of the gross profit method depends on a good estimate of the gross profit ratio.

Accounting in Business

Analyzing and Recording Transactions

Adjusting Accounts and Preparing Financial Statements

Completing the Accounting Cycle

Accounting for Merchandising Operations

Accounting Information Systems

Cash and Internal Controls

Accounting for Receivables

Plant Assets, Natural Resoures, and Intangibles

Current Liabilities and Payroll Accounting

Accounting for Partnerships

Accounting for Corporations

Long-Term Liabilities

Investments and International Operations

Reporting the Statement of Cash Flows

Analysis of Financial Statements

Filters