Question 1

Explain the difference between the retail inventory method and gross profit inventory method for valuing inventory.

Accepted Answer

The retail method is generally used to p

Question 2

What is the effect of an error in the ending inventory balance on the income statement?

Accepted Answer

An inventory error causes misstatements

Question 3

A company's cost of inventory was $317,500. Due to phenomenal demand for this product, the market value of its inventory increased to $323,000. According to the consistency principle, this company should write up the value of its inventory.

Accepted Answer

A) True 
 B)False

Question 4

Days' sales in inventory:

Accepted Answer

A)  Is also called days' stock on hand 
B)  Focuses on average inventory rather than ending inventory 
C)  Is used to measure solvency 
D)  Is calculated by dividing cost of goods sold by ending inventory 
E)  Is a substitute for the acid-test ratio 
A)  Is also called days' stock on hand 
B)  Focuses on average inventory rather than ending inventory 
C)  Is used to measure solvency 
D)  Is calculated by dividing cost of goods sold by ending inventory 
E)  Is a substitute for the acid-test ratio

Question 5

A company markets a climbing kit and uses the perpetual inventory system to account for its merchandise. The beginning balance of the inventory and its transactions during January were as follows:
$\begin{array}{|l|l|}\hline \text { January 1: } & \text { Beginning balance of 18 units at \$13 each. } \
\hline \text { January 12: } & \text { Purchased } 30 \text { units at \$14 each. } \
\hline \text { January 19: } & \text { Sold } 24 \text { units at } \$ 30 \text { selling price each. } \
\hline \text { January 20: } & \text { Purchased } 24 \text { units at } \$ 17 \text { each. } \
\hline \text { January 27: } & \text { Sold } 27 \text { units at } \$ 30 \text { selling price each. } \
\hline
\end{array}$
If the ending inventory is reported at $276, which inventory method was used?

Accepted Answer

A)  LIFO method 
B)  FIFO method 
C)  Weighted-average method 
D)  Specific identification method 
E)  Retail inventory method 
A)  LIFO method 
B)  FIFO method 
C)  Weighted-average method 
D)  Specific identification method 
E)  Retail inventory method

Question 6

A company made the following merchandise purchases and sales during the month of May:
$$\begin{array} { | l | l | l | l | } 
\hline \text { May 1 purchased } & 380 & \text { units at } & \$ 15 \text { each } \
\hline \text { May 5 purchased } & 270 & \text { units at } & \$ 17 \text { each } \
\hline \text { May 10 sold } & 400 & \text { units at } & \$ 50 \text { each } \
\hline \text { May 20 purchased } & 300 & \text { units at } & \$ 22 \text { each } \
\hline \text { May 25 sold } & 400 & \text { units at } & \$ 50 \text { each } \
\hline
\end{array}$$
There was no beginning inventory. If the company uses the weighted-average inventory valuation method and the perpetual inventory method, what would be the cost of its ending inventory?

Accepted Answer

The answer of A company made the following merchandise purchases...

Question 7

Given the following information, determine the cost of ending inventory at November 30 using the FIFO perpetual inventory method.
November 3: 15 units were purchased at $8 per unit.
November 11: 18 units were purchased at $9.50 per unit.
November 15: 15 units were sold at $45 per unit
November 18: 30 units were purchased at $10.75 per unit
November 30: 20 units were sold at $55 per unit

Accepted Answer

The answer of Given the following information, determine the cost...

Question 8

What costs are assigned to merchandise inventory?

Accepted Answer

The costs of merchandise inven

Question 9

Monthly or quarterly statements are called interim statements because they are prepared between the traditional annual statement dates.

Accepted Answer

A) True 
 B)False

Question 10

Goods on consignment are goods shipped by their owner, called the consignee, to another party called the consignor.

Accepted Answer

A) True 
 B)False

Question 11

The Inventory account is a controlling account for the inventory subsidiary ledger that contains a separate record for each individual product.

Accepted Answer

A) True 
 B)False

Question 12

The _____________________ method of assigning costs to inventory and cost of goods sold assumes that the inventory items are sold in the order acquired.

Accepted Answer

First in,

Question 13

The assignment of costs to cost of goods sold and to inventory using specific identification is the same for both the perpetual and periodic systems.

Accepted Answer

A) True 
 B)False

Question 14

The City Store reported the following amounts on their financial statements for 2009, 2010 and 2011:
$$\begin{array} { | l | r | r | r | } 
\hline & { \text { For the year ended December } 31 } \
\hline & 2009 & 2010 & 2011 \
\hline \text { Cost of goods sold } & \$ 75,000 & \$ 87,000 & \$ 77,000 \
\hline \text { Net income } & 22,000 & 25,000 & 21,000 \
\hline \text { Total current assets } & 155,000 & 165,000 & 110,000 \
\hline \text { Equity } & 287,000 & 295,000 & 304,000 \
\hline
\end{array}$$
It was discovered early in 2012 that the ending inventory on December 31, 2009 was overstated by $6,000 and the ending inventory on December 31, 2010 was understated by $2,500. The ending inventory on December 31, 2011 was correct. Ignoring income taxes, determine the correct amounts of cost of goods sold, net income, total current assets and equity for each of the years 2009, 2010 and 2011.

Accepted Answer

The answer of The City Store reported the following amounts...

Question 15

Net realizable value for damaged or obsolete goods is equal to the sales price plus the cost of making the sale.

Accepted Answer

A) True 
 B)False

Question 16

Managers are able to make important decisions correctly using erroneous inventory balances because inventory errors are self-correcting and as a result, are less serious.

Accepted Answer

A) True 
 B)False

Question 17

An overstated beginning inventory will ______________ cost of goods sold and _____________ net income.

Accepted Answer

Overstate;

Question 18

Given the following information, determine the cost of ending inventory at December 31 using the weighted-average perpetual inventory method. Assume this is the first month of the company's operations.
 December 2: 5 units were purchased at $7 per unit.
December 9: 10 units were purchased at $9.40 per unit.
December 12: 2 units were sold.

Accepted Answer

A)  $17.20 
B)  $111.80 
C)  $129.00 
D)  $94.00 
E)  $8.60 
A)  $17.20 
B)  $111.80 
C)  $129.00 
D)  $94.00 
E)  $8.60

Question 19

Given the following events, what is the per-unit value of ending inventory on November 30 if this company uses a weighted-average perpetual inventory system?
 November 1: 5 units were purchased at $6 per unit.
November 12: 10 units were purchased at $7.50 per unit.
November 14: 7 units were sold for $14 per unit.
November 24: 12 units were purchased at $10 per unit.

Accepted Answer

A)  $6.00 
B)  $7.00 
C)  $8.80 
D)  $13.00 
E)  $21.80 
A)  $6.00 
B)  $7.00 
C)  $8.80 
D)  $13.00 
E)  $21.80

Question 20

Goods in transit are automatically included in a company's inventory account.

Accepted Answer

A) True 
 B)False

Exam 5: Inventories and Cost of Sales

Explain the difference between the retail inventory method and gross profit inventory method for valuing inventory.

What is the effect of an error in the ending inventory balance on the income statement?

A company's cost of inventory was $317,500. Due to phenomenal demand for this product, the market value of its inventory increased to $323,000. According to the consistency principle, this company should write up the value of its inventory.

Days' sales in inventory:

What costs are assigned to merchandise inventory?

Monthly or quarterly statements are called interim statements because they are prepared between the traditional annual statement dates.

Goods on consignment are goods shipped by their owner, called the consignee, to another party called the consignor.

The Inventory account is a controlling account for the inventory subsidiary ledger that contains a separate record for each individual product.

The _____________________ method of assigning costs to inventory and cost of goods sold assumes that the inventory items are sold in the order acquired.

The assignment of costs to cost of goods sold and to inventory using specific identification is the same for both the perpetual and periodic systems.

Net realizable value for damaged or obsolete goods is equal to the sales price plus the cost of making the sale.

Managers are able to make important decisions correctly using erroneous inventory balances because inventory errors are self-correcting and as a result, are less serious.

An overstated beginning inventory will ______________ cost of goods sold and _____________ net income.

Goods in transit are automatically included in a company's inventory account.

Introducing Accounting in Business

Analyzing and Recording Transactions

Adjusting Accounts and Preparing Financial Statements

Accounting for Merchandising Operations

Cash and Internal Controls

Accounts and Notes Receivable

Long-Term Assets

Current Liabilities

Long-Term Liabilities

Corporate Reporting and Analysis

Reporting and Analyzing Cash Flows

Analyzing Financial Statements

Managerial Accounting Concepts and Principles

Job Order Costing and Analysis

Process Costing and Analysis

Activity-Based Costing and Analysis

Cost Behavior and Cost-Volume-Profit Analysis

Variable Costing and Performance Reporting

Master Budgets and Performance Planning

Flexible Budgets and Standard Costing

Decentralization and Performance Evaluation

Relevant Costing for Managerial Decisions

Capital Budgeting and Investment Analysis

Investments and International Operations

Accounting for Partnerships

Appendix : Accounting With Special Journals

Filters

An overstated beginning inventory will __ cost of goods sold and _ net income.