The records of a company provided the following information at December 31, 2001:$\begin{array} { | l | c | } \hline \text { Invoice mailed } & \$ 70 \\ \hline \text { Items purchased, FOB shipping point invoices mailed, items not yet en route } & 104 \\ \hline \text { Items purchased, FOB destination, terms } 5 / 10 , \mathrm { n } / 30 , \text { received at warehouse } & 100 \\ \hline \text { Items held on consignment from another company } & 50 \\ \hline \text { Ending inventory } 12 / 31 / 2001 \text { (excluding above items) } & 80 \\ \hline \end{array}$ Items en route to customers, f.o.b. destination What December 31, 2001, inventory cost should the company report?

A) $224 B) $230 C) $245 D) $404 A) $224 B) $230 C) $245 D) $404

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: $\begin{array} { | l | l | } \hline \text { Estimated repairs before selling } & \$ 20 \\ \hline \text { Estimated selling price reduced to } & 120 \\ \hline \text { Estimated selling costs } & 7 \\ \hline \text { Normal profit margin } & 1 / 3 \\ \hline \end{array}$ The demonstrator will be included in the used inventory balance. What inventory value should be assigned to the used demonstrator?

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

The following items were included in a corporation's inventory account at December 31, 2013: $\begin{array} { | l | l | } \hline \text { Including } 40 \text { percent mark-up on selling price } & \$ 14,000 \\ \hline \text { Goods purchased, in transit, shipped FOB shipping point } & 12,000 \\ \hline \text { Goods held on consignment by the corporation } & 9,000 \\ \hline \end{array}$ Merchandise out on consignment, at sale price, The corporation's inventory account at December 31, 2013 should be reduced by:

A) $14,600 B) $17,400 C) $23,000 D) $35,000 A) $14,600 B) $17,400 C) $23,000 D) $35,000

A fire completely destroyed the inventory housed in a warehouse in August. Reconstructed data follows: $\begin{array} { | l | l | } \hline \text { Sales to date of fire } & \$ 340,000 \\ \hline \text { Gross margin as a percent of cost } & 60 \% \\ \hline \text { Gross purchases to date of fire } & 200,000 \\ \hline \text { Beginning inventory } & 30,000 \\ \hline \text { Purchases returns and allowances to date of fire } & 10,000 \\ \hline \text { Freight-in } & 4,000 \\ \hline \text { Sales returns } & 25,000 \\ \hline \end{array}$ Compute the loss of inventory due to the fire.

A) $98,000 B) $54,667 C) $27,125 D) $34,456 A) $98,000 B) $54,667 C) $27,125 D) $34,456

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.

Year 2: The direct reduction method reco

Country Guides Inc. uses the gross margin method to estimate its ending inventory for each quarter. The following information for the second quarter was provided from the records: $\begin{array} { | l | l | } \hline \text { Sales revenue } & \$ 200,000 \\ \hline \text { Purchases } & 47,500 \\ \hline \text { Freight-in } & 1,400 \\ \hline \text { Beginning inventory } & 41,250 \\ \hline \text { Purchase returns } & 900 \\ \hline \text { Estimated gross margin rate } & 72 \text { percent } \\ \hline \end{array}$ The estimated ending inventory for the second quarter is:

A) $30,250 B) $32,250 C) $33,250 D) $35,050 A) $30,250 B) $32,250 C) $33,250 D) $35,050

A company using a periodic inventory system neglected to record a purchase of merchandise on credit at year end. This merchandise was omitted from the year end physical count. How will these errors affect assets, liabilities, owners' equity at year end and net earnings for the year? $\begin{array} { | l | l | l | l | l | } \hline \text { Assets } & \text { Liabilities } & \text { Owners' Equity } & \text { Net Earnings } \\ \hline 1 & \text { No effect } & \text { Overstate } & \text { understate } & \text { Understate } \\ \hline 2 & \text { No effect } & \text { Understate } & \text { Overstate } & \text { Overstate } \\ \hline 3 & \text { Understate } & \text { No effect } & \text { Understate } & \text { Understate } \\ \hline 4 & \text { Understate } & \text { Understate } & \text { No effect } & \text { No effect } \\ \hline \end{array}$

A) Choice 1 B) Choice 2 C) Choice 3 D) Choice 4 A) Choice 1 B) Choice 2 C) Choice 3 D) Choice 4

Exam 8: Cost-Based Inventories and Cost of Sales

The records of a company provided the following information at December 31, 2001: Invoice mailed \ 70 Items purchased, FOB shipping point invoices mailed, items not yet en route 104 Items purchased, FOB destination, terms 5/10,/30, received at warehouse 100 Items held on consignment from another company 50 Ending inventory 12/31/2001 (excluding above items) 80 Items en route to customers, f.o.b. destination What December 31, 2001, inventory cost should the company report?

(Multiple Choice)

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Question 21

Because commissions are a large component in selling costs for a firm, cost of disposal averages 20 percent of selling price. Historical data has revealed the normal profit margin of the company has averaged 10 percent of sales. Per unit cost and selling price, for five different kinds of inventory items are given below. The five cases are independent. Under lower-of-cost-or-market, fill in the proper reported value of a unit of the inventory for each of the five cases: 1 2 3 4 5 Units cost \ 80 \ 100 \ 160 \ 230 \ 90 Selling price 100 120 200 300 100 Replacement cost 68 94 172 220 88 Inventory value --- ---- --- ---- ----

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Question 22

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

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Question 23

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: Estimated repairs before selling \ 20 Estimated selling price reduced to 120 Estimated selling costs 7 Normal profit margin 1/3 The demonstrator will be included in the used inventory balance. What inventory value should be assigned to the used demonstrator?

(Multiple Choice)

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Question 24

The following information is available from the records of Bulk Foods Inc. for the year ended December 31, 2005: At Cost At Retail Sales \ 100,000 Purchases \ 48,000 90,000 Inventory, January 1, 2005 24,000 54,000 Net additional mark-ups 12,000 Net markdowns 6,000 (a) Under the average cost retail method (non LCM) the inventory cost on December 31, 2005 is $. (b) Under the retail method on FIFO basis, LCM, the inventory cost on December 31, 2005 is $.

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Question 25

Items that were incorrectly omitted from 2013 credit purchases, but correctly included in the 2013 ending inventory would have the following 2013 effects:

(Multiple Choice)

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Question 26

An inventory item was purchased for $3.00. Before it was finally sold it was given an initial markup of $1.00, followed by an additional markup of 50 cents, and then a markup cancellation of 50 cents, and finally a markdown of 40 cents. It was then sold for:

(Multiple Choice)

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Question 27

The following items were included in a corporation's inventory account at December 31, 2013: Including 40 percent mark-up on selling price \ 14,000 Goods purchased, in transit, shipped FOB shipping point 12,000 Goods held on consignment by the corporation 9,000 Merchandise out on consignment, at sale price, The corporation's inventory account at December 31, 2013 should be reduced by:

(Multiple Choice)

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Question 28

A fire completely destroyed the inventory housed in a warehouse in August. Reconstructed data follows: Sales to date of fire \ 340,000 Gross margin as a percent of cost 60\% Gross purchases to date of fire 200,000 Beginning inventory 30,000 Purchases returns and allowances to date of fire 10,000 Freight-in 4,000 Sales returns 25,000 Compute the loss of inventory due to the fire.

(Multiple Choice)

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Question 29

What types of inventory does GAAP allow to be measured at selling price in excess of cost?

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Question 30

FIFO will produce the same ending inventory result regardless of whether a periodic or perpetual inventory system is used.

(True/False)

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Question 31

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: Year 2 Year 3 Cost \ 400 \ 600 NRV 340 640 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.

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Question 32

The gross margin method is frequently used for all of the following except to:

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Question 33

On January 1, 2014, XY retail store sold a TV set to customer AB on credit for $450; AB will make monthly payments. Because of non-payment, XY repossessed the TV set when AB still owed $250. XY estimates reliably that the repossessed set can be resold for $150 cash after spending $40 to repair it and after incurring a selling cost of $10 cash. (a) Give the entry by XY to record the repossession (assume a perpetual inventory system). (b) Give the entry to record the actual repair cost of $45. (c) Give the entry to record the resale of the repossessed set at a cash price of $150 and cash payment of the selling cost of $10.

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Question 34

The records of a company showed the following data for the month of May (in order of date): Units Unit Cost Beginning inventory 200 Purchase \#1 400 Sale \#1 300 Purchase \#2 400 Sale \#2 600 Purchase \#3 200 Required: Complete the following schedule: (round to the nearest cent): Ending Inventory Valuation Cost of Goods Sold (a) FIFO \ \ (b) Weighted average \ \

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Question 35

Under a periodic inventory system, cost of goods sold is a residual amount and, for all practical purposes, cannot be verified independently from the inventory records.

(True/False)

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Question 36

Inventory data for the accounting period were as follows (in order of date): Units Cost Unit Beginning inventory 400 \ 3.00 Purchase \#1 800 \ 3.10 Sale \#1 1,000 Purchase \#2 800 \ 3.20 Sale \#2 600 Compute the following amounts under each inventory flow method (round to nearest cent): Ending Inventory Valuation Cost of Goods Sold (a) FIFO \ - \ - (b) Weighted average \ - \ - (c) Moving average \ - \ -

(Essay)

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Question 37

Country Guides Inc. uses the gross margin method to estimate its ending inventory for each quarter. The following information for the second quarter was provided from the records: Sales revenue \ 200,000 Purchases 47,500 Freight-in 1,400 Beginning inventory 41,250 Purchase returns 900 Estimated gross margin rate 72 percent The estimated ending inventory for the second quarter is:

(Multiple Choice)

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Question 38

The average inventory costing method, which results in a changed unit inventory, cost after each successive purchase is:

(Multiple Choice)

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Question 39

A company using a periodic inventory system neglected to record a purchase of merchandise on credit at year end. This merchandise was omitted from the year end physical count. How will these errors affect assets, liabilities, owners' equity at year end and net earnings for the year? Assets Liabilities Owners' Equity Net Earnings 1 No effect Overstate understate Understate 2 No effect Understate Overstate Overstate 3 Understate No effect Understate Understate 4 Understate Understate No effect No effect

(Multiple Choice)

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Question 40

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

Items that were incorrectly omitted from 2013 credit purchases, but correctly included in the 2013 ending inventory would have the following 2013 effects:

An inventory item was purchased for $3.00. Before it was finally sold it was given an initial markup of $1.00, followed by an additional markup of 50 cents, and then a markup cancellation of 50 cents, and finally a markdown of 40 cents. It was then sold for:

What types of inventory does GAAP allow to be measured at selling price in excess of cost?

FIFO will produce the same ending inventory result regardless of whether a periodic or perpetual inventory system is used.

The gross margin method is frequently used for all of the following except to:

Under a periodic inventory system, cost of goods sold is a residual amount and, for all practical purposes, cannot be verified independently from the inventory records.

The average inventory costing method, which results in a changed unit inventory, cost after each successive purchase is:

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

Revenue Recognition

Financial Assets: Cash and Receivables

Long-Lived Assets

Depreciation, Amortization, and Impairment

Financial Instruments: Investments in Bonds and Equity Securities

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