Question 1

Why are cost flow assumptions made when accounting for merchandise inventory?

Accepted Answer

With changing prices,one would have to carefully track the flow of goods to obtain exact cost of goods sold and ending inventory amounts.Because tracking is usually impractical and sometimes impossible,cost flow assumptions are made to provide a good estimate of inventory cost with no need to track the flow of goods.

Question 2

The gross profit method requires that records be kept at both cost and retail.

Accepted Answer

A) True 
 B)False  False

Question 3

A retail store prices its goods to achieve a gross margin of 30 percent.Up to the date of a fire that destroyed the store's inventory,sales were $400,000 and cost of goods available for sale was $300,000.The estimated cost of the inventory destroyed is

Accepted Answer

A)  $20,000. 
B)  $70,000. 
C)  $120,000. 
D)  $100,000. 
A)  $20,000. 
B)  $70,000. 
C)  $120,000. 
D)  $100,000. A

Question 4

The term goods flow refers to the association of costs with their assumed flow in the operation of a business.

Accepted Answer

A) True 
 B)False

Question 5

An overstatement of beginning inventory in a period will result in an overstatement of gross margin in the next period.

Accepted Answer

A) True 
 B)False

Question 6

If prices were to never change,there would still be a need for alternative inventory methods.

Accepted Answer

A) True 
 B)False

Question 7

Match each definition with the correct term below.
-First-in,first-out

Accepted Answer

A) An inventory management system in which the Internet is used to order and track goods. 
B) A method of valuing inventory that assumes that costs of the first items acquired should be assigned to the first items sold. 
C) A method of estimating inventory that uses the ratio of cost to retail price. 
D) Merchandise that its owner places on the premises of another company with the understanding that payment will be made only when the merchandise is sold. 
E) An inventory management system in which goods arrive just at the time they are needed.
F)when sales have reduced inventories below the levels set in prior years.
G)A method of estimating inventory that assumes the gross margin for a business remains relatively stable from year to year.
H)The association of costs with their assumed flow in the operations of a company.
I)A method of valuing inventory that assumes that the costs of the last items purchased should be assigned to the first items sold.
J)A method of valuing inventory that identifies the cost of each item in ending inventory. 
A) An inventory management system in which the Internet is used to order and track goods. 
B) A method of valuing inventory that assumes that costs of the first items acquired should be assigned to the first items sold. 
C) A method of estimating inventory that uses the ratio of cost to retail price. 
D) Merchandise that its owner places on the premises of another company with the understanding that payment will be made only when the merchandise is sold. 
E) An inventory management system in which goods arrive just at the time they are needed.
F)when sales have reduced inventories below the levels set in prior years.
G)A method of estimating inventory that assumes the gross margin for a business remains relatively stable from year to year.
H)The association of costs with their assumed flow in the operations of a company.
I)A method of valuing inventory that assumes that the costs of the last items purchased should be assigned to the first items sold.
J)A method of valuing inventory that identifies the cost of each item in ending inventory.

Question 8

Which of the following methods generally is used to determine the loss when inventory is destroyed or stolen?

Accepted Answer

A)  Retail method 
B)  FIFO 
C)  LIFO 
D)  Gross profit method 
A)  Retail method 
B)  FIFO 
C)  LIFO 
D)  Gross profit method

Question 9

Cost of goods sold equals $1,000,000,and average inventory equals $400,000.Days' inventory on hand equals

Accepted Answer

A)  91.3 days. 
B)  146.0 days. 
C)  821.9 days. 
D)  912.5 days. 
A)  91.3 days. 
B)  146.0 days. 
C)  821.9 days. 
D)  912.5 days.

Question 10

Inventory turnover is a measure not expressed in terms of a percentage.

Accepted Answer

A) True 
 B)False

Question 11

Use this information to answer the following question.   A periodic inventory system is used.
Using LIFO,the cost assigned to ending inventory is

Accepted Answer

A)  $1,740. 
B)  $4,056. 
C)  $1,332. 
D)  $4,464. 
A)  $1,740. 
B)  $4,056. 
C)  $1,332. 
D)  $4,464.

Question 12

Winer & Daughters reports income before income taxes of $10,000 during 2013.If beginning inventory was understated by $3,000 and ending inventory was overstated by $1,200,calculate corrected income before income taxes for the year.(Show your work.)

Accepted Answer

$5,800 ($1

Question 13

Given the following information about purchases and sales during the year,compute the cost to be assigned to ending inventory under each of three methods: (a)average-cost,(b)FIFO,and (c)LIFO.Assume the periodic inventory system is used.(Show your work.)

Accepted Answer

a.Average-cost: $1,120 ($2,800

Question 14

In verifying a claim for a loss of inventory,an insurance company will most likely use the retail method.

Accepted Answer

A) True 
 B)False

Question 15

The matching of revenue with inventory costs is best achieved with the FIFO method.

Accepted Answer

A) True 
 B)False

Question 16

Use this information to answer the following question.   A periodic inventory system is used.
Using the specific identification method and assuming that 50 of the items left are from the February 13 purchase and the rest are from the February 20 purchase,the cost assigned to ending inventory is

Accepted Answer

A)  $1,920. 
B)  $1,656. 
C)  $1,686. 
D)  $1,588. 
A)  $1,920. 
B)  $1,656. 
C)  $1,686. 
D)  $1,588.

Question 17

In a period of declining prices,which inventory method is best to use for tax purposes?

Accepted Answer

A)  FIFO 
B)  Average-cost 
C)  Specific identification 
D)  LIFO 
A)  FIFO 
B)  Average-cost 
C)  Specific identification 
D)  LIFO

Question 18

Marathon Shoe Store had net retail sales of $400,000 during the current year.The following additional information was obtained from the accounting records.
   Estimate the company's ending inventory at cost using the retail method.(Show your work.)

Accepted Answer

The answer of Marathon Shoe Store had net retail sales...

Question 19

The specific identification method identifies the cost of each item in ending inventory.

Accepted Answer

A) True 
 B)False

Question 20

When the average-cost method is applied to a perpetual inventory system,the sale and purchase of goods will not change the unit cost of the goods that remain in inventory.

Accepted Answer

A) True 
 B)False

Why are cost flow assumptions made when accounting for merchandise inventory?

The gross profit method requires that records be kept at both cost and retail.

A retail store prices its goods to achieve a gross margin of 30 percent.Up to the date of a fire that destroyed the store's inventory,sales were $400,000 and cost of goods available for sale was $300,000.The estimated cost of the inventory destroyed is

The term goods flow refers to the association of costs with their assumed flow in the operation of a business.

An overstatement of beginning inventory in a period will result in an overstatement of gross margin in the next period.

If prices were to never change,there would still be a need for alternative inventory methods.

Match each definition with the correct term below. -First-in,first-out

Which of the following methods generally is used to determine the loss when inventory is destroyed or stolen?

Cost of goods sold equals $1,000,000,and average inventory equals $400,000.Days' inventory on hand equals

Inventory turnover is a measure not expressed in terms of a percentage.

Use this information to answer the following question. A periodic inventory system is used. Using LIFO,the cost assigned to ending inventory is

Winer & Daughters reports income before income taxes of $10,000 during 2013.If beginning inventory was understated by $3,000 and ending inventory was overstated by $1,200,calculate corrected income before income taxes for the year.(Show your work.)

Given the following information about purchases and sales during the year,compute the cost to be assigned to ending inventory under each of three methods: (a)average-cost,(b)FIFO,and (c)LIFO.Assume the periodic inventory system is used.(Show your work.)

In verifying a claim for a loss of inventory,an insurance company will most likely use the retail method.

The matching of revenue with inventory costs is best achieved with the FIFO method.

Use this information to answer the following question. A periodic inventory system is used. Using the specific identification method and assuming that 50 of the items left are from the February 13 purchase and the rest are from the February 20 purchase,the cost assigned to ending inventory is

In a period of declining prices,which inventory method is best to use for tax purposes?

Marathon Shoe Store had net retail sales of $400,000 during the current year.The following additional information was obtained from the accounting records. Estimate the company's ending inventory at cost using the retail method.(Show your work.)

The specific identification method identifies the cost of each item in ending inventory.

When the average-cost method is applied to a perpetual inventory system,the sale and purchase of goods will not change the unit cost of the goods that remain in inventory.

Uses of Accounting Information and the Financial Statements

Analyzing Business Transactions

Measuring Business Income

Supplement - Closing Entries and the Work Sheet

Financial Reporting and Analysis

The Operating Cycle and Merchandising Operations

Cash and Receivables

Current Liabilities and Fair Value Accounting

Long Term Assets

Long-Term Liabilities

Stockholders Equity

The Statement of Cash Flows

Financial Performance Measurement

Investments

Filters

Exam 7: Inventories

Why are cost flow assumptions made when accounting for merchandise inventory?

The gross profit method requires that records be kept at both cost and retail.

A retail store prices its goods to achieve a gross margin of 30 percent.Up to the date of a fire that destroyed the store's inventory,sales were $400,000 and cost of goods available for sale was $300,000.The estimated cost of the inventory destroyed is

The term goods flow refers to the association of costs with their assumed flow in the operation of a business.

An overstatement of beginning inventory in a period will result in an overstatement of gross margin in the next period.

If prices were to never change,there would still be a need for alternative inventory methods.

Match each definition with the correct term below. -First-in,first-out

Which of the following methods generally is used to determine the loss when inventory is destroyed or stolen?

Cost of goods sold equals $1,000,000,and average inventory equals $400,000.Days' inventory on hand equals

Inventory turnover is a measure not expressed in terms of a percentage.

Use this information to answer the following question. A periodic inventory system is used. Using LIFO,the cost assigned to ending inventory is

Winer & Daughters reports income before income taxes of $10,000 during 2013.If beginning inventory was understated by $3,000 and ending inventory was overstated by $1,200,calculate corrected income before income taxes for the year.(Show your work.)

Given the following information about purchases and sales during the year,compute the cost to be assigned to ending inventory under each of three methods: (a)average-cost,(b)FIFO,and (c)LIFO.Assume the periodic inventory system is used.(Show your work.)

In verifying a claim for a loss of inventory,an insurance company will most likely use the retail method.

The matching of revenue with inventory costs is best achieved with the FIFO method.

Use this information to answer the following question. A periodic inventory system is used. Using the specific identification method and assuming that 50 of the items left are from the February 13 purchase and the rest are from the February 20 purchase,the cost assigned to ending inventory is

In a period of declining prices,which inventory method is best to use for tax purposes?

Marathon Shoe Store had net retail sales of $400,000 during the current year.The following additional information was obtained from the accounting records. Estimate the company's ending inventory at cost using the retail method.(Show your work.)

The specific identification method identifies the cost of each item in ending inventory.

When the average-cost method is applied to a perpetual inventory system,the sale and purchase of goods will not change the unit cost of the goods that remain in inventory.

Uses of Accounting Information and the Financial Statements

Analyzing Business Transactions

Measuring Business Income

Supplement - Closing Entries and the Work Sheet

Financial Reporting and Analysis

The Operating Cycle and Merchandising Operations

Cash and Receivables

Current Liabilities and Fair Value Accounting

Long Term Assets

Long-Term Liabilities

Stockholders Equity

The Statement of Cash Flows

Financial Performance Measurement

Investments

Filters