Question 1

M Company should include the following items in its merchandise inventory:

Accepted Answer

A) Goods purchased FOB destination still en route. 
B) Goods purchased FOB shipping point still en route. 
C) Goods sold by M Company FOB shipping point still en route. 
D) Goods held on consignment from the B Company to M Company.

Question 2

Which of the following behaviours is NOT unethical?

Accepted Answer

A) Delaying the write-down of obsolete inventories due to competitive pressures. 
B) Recording false sales and purchases. 
C) Selectively assigning costs to inventory. 
D) Changing a company's accounting policy to match that of its competitors for comparative purposes.

Question 3

To produce an inventory valuation which approximates lower-of-cost or market using the retail inventory method,the computation of the ratio of cost to retail should:

Accepted Answer

A) ignore both mark-ups and markdowns. 
B) include mark-ups but not markdowns. 
C) include markdowns but not mark-ups. 
D) include mark-ups and markdowns.

Question 4

The relative sales value method is:

Accepted Answer

A) similar to the gross margin method. 
B) used to account for spoilage. 
C) a retail inventory method. 
D) a cost allocation method.

Question 5

Sporting Goods Galore Ltd.uses the retail method of inventory.Data for the year 2013 follows: $\begin{array}{lrr}&\text { At Cost } & \text { At Retail } \
 \text {Beginning inventory.}&\$19,840&\$30,000 \
 \text {Purchases (net). }&53,360&86,000\
 \text {Mark-ups (net). }& &6,000\
 \text {Markdowns (net). }&&(2,000) \
 \text {Goods available for sale. }&\$73,200&120,000 \
 \text {Net sales. }&&80,000 \
 \text {Ending inventory: }& \
 \text {At retail. }&&\$40,000 \
\end{array}$ At cost,assuming FIFO,LCM? $_____________.

Accepted Answer

The answer of Sporting Goods Galore Ltd.uses the retail method...

Question 6

Harris company has items that were incorrectly omitted from purchases made in 2013,but entered correctly in ending inventory.These would have overstated pre-tax income and understated liabilities.

Accepted Answer

A) True 
 B)False

Question 7

During January 2013,What Snew Inc.discovered that (a) the 2012 ending inventory had been understated by $2,000 (and never had been corrected by the accountants) and (b) 2013 credit purchases were understated (not recorded) by $800 (to be paid January 15,2013).Before correction of errors,pre-tax income was: 2012,$44,000 and 2013,$52,000.Assume a periodic inventory system.
Required:
(a) Complete the following to show the correct amounts (show computations): $\begin{array}{|l|l|l|}
\hline &\text { Computation } & \text { Answer } \
\hline
\end{array}$ 2012 correct pre-tax income _______________________ $_______________ 2013 correct pre-tax income _______________________ $_______________ (b) Give any entry (entries) that would be required on January 2,2013,that should be made to correct the accounts (if none is required,so state).Ignore income taxes and assume the books for 2013 have not been closed.

Accepted Answer

The answer of During January 2013,What Snew Inc.discovered that (a)...

Question 8

Unit costs of the principle product sold by Big Auto Parts Ltd.at the end of several successive accounting periods are shown in the top line of amounts below.Different units are in stock each period (none carried over).Beneath the actual cost figures are the anticipated selling prices and replacement costs of the product.Distribution costs average $12 per unit and sales commissions have averaged 10 percent of sales prices.Applying "lower-of-cost-or-NRV" determine unit inventory values for each period. $$\begin{array}{l}
\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\text { Period }\
\begin{array} { l r r r r r } 
\hline & 1 & 2 & 3 & 4 & 5 \
\hline \text { Actual cost........ } & \$ 130 & \$ 150 & \$ 146 & \$ 152 & \$ 160 \
\hline \text { Sales prices........ } & 160 & 160 & 180 & 180 & 190 \
\hline \text { Replacement cost... } & 150 & 150 & 154 & 146 & 162 \
\hline \text { Disposal cost....... } & \_\_\_& \_\_\_&\_\_\_ &\_\_\_ &\_\_\_ \
\hline \text { NRV value......... } &  \_\_\_& \_\_\_&\_\_\_ &\_\_\_ &\_\_\_ \
\hline \text { "Market".......... } &  \_\_\_& \_\_\_&\_\_\_ &\_\_\_ &\_\_\_ \
\hline \text { Inventory value...... } &  \_\_\_& \_\_\_&\_\_\_ &\_\_\_ &\_\_\_ \
\hline
\end{array}
\end{array}$$

Accepted Answer

The answer of Unit costs of the principle product sold...

Question 9

If ending inventories are overstated,net income is understated.

Accepted Answer

A) True 
 B)False

Question 10

If purchases made in one year are mistakenly recorded the following year,this error will counterbalance,that is,there will be no effect on income over a 2-year period.

Accepted Answer

A) True 
 B)False

Question 11

The allocation of the cost of goods available for sale during a reporting period involves the flow of costs rather than the flow of units.

Accepted Answer

A) True 
 B)False

Question 12

On a particular date,which of the following should be included in a company's inventory?

Accepted Answer

A) Goods in the company's warehouse which have been received from another company for sale on consignment 
B) Goods sold through a sales contract the terms of which have been completed, but the goods are being held for the customer to call for at his convenience 
C) Goods purchased and in transit f.o.b.destination 
D) Goods held for sale in the possession of an agent of the company

Question 13

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

Accepted Answer

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

Question 14

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

Accepted Answer

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

Question 15

During a year,Small Wears Ltd.(whose usual gross margin rate on sales is 30 percent) recorded sales of $10,000 and goods available for sale of $12,000.The cost of its ending inventory can be reliably estimated at:

Accepted Answer

A) $2,000 
B) $5,000 
C) $7,000 
D) $10,000

Question 16

Assume that a company records purchases net of discount.If the company bought merchandise valued at $10,000 on credit terms 3/15,n/30,the entry to record a payment for half of the purchase within the discount period would include a debit to:

Accepted Answer

A) Accounts payable for $4,850 and a credit to cash for $4,850 
B) Accounts payable for $5,000 and a credit to cash for $5,000 
C) Accounts payable for $4,850 and to interest expense for $150, and a credit to cash for $5,000 
D) Accounts payable for $5,000 and to interest revenue for $150 and to cash for $4,850

Question 17

A company purchase merchandise for $9,000 on credit terms 2/10,n/30,on May 8,2001 before payment of the invoice,the company returned one-third of the goods for credit because they were damaged in shipment.Give the preferable entry for the return,assuming a periodic inventory system is used by the company.

Accepted Answer

The answer of A company purchase merchandise for $9,000 on...

Question 18

Many department stores allow their employees to purchase goods from the store at a discount.Explain the treatment and rationale for such sales in the retail method (average,LCM).

Accepted Answer

The answer of Many department stores allow their employees to...

Question 19

The weighted-average inventory method rarely is used with periodic inventory procedures.

Accepted Answer

The answer of The weighted-average inventory method rarely is used...

Question 20

Furniture Stores Ltd.uses the retail method to value its inventory.The following information is available for 2005:---  Required: Calculate the December 31,2005 inventory cost under the retail method-average cost (LCM) basis (conventional retail).

Accepted Answer

The answer of Furniture Stores Ltd.uses the retail method to...

Exam 8: Cost-Based Inventories and Cost of Sales

M Company should include the following items in its merchandise inventory:

Which of the following behaviours is NOT unethical?

To produce an inventory valuation which approximates lower-of-cost or market using the retail inventory method,the computation of the ratio of cost to retail should:

The relative sales value method is:

Harris company has items that were incorrectly omitted from purchases made in 2013,but entered correctly in ending inventory.These would have overstated pre-tax income and understated liabilities.

If ending inventories are overstated,net income is understated.

If purchases made in one year are mistakenly recorded the following year,this error will counterbalance,that is,there will be no effect on income over a 2-year period.

The allocation of the cost of goods available for sale during a reporting period involves the flow of costs rather than the flow of units.

On a particular date,which of the following should be included in a company's inventory?

During a year,Small Wears Ltd.(whose usual gross margin rate on sales is 30 percent) recorded sales of $10,000 and goods available for sale of $12,000.The cost of its ending inventory can be reliably estimated at:

Assume that a company records purchases net of discount.If the company bought merchandise valued at $10,000 on credit terms 3/15,n/30,the entry to record a payment for half of the purchase within the discount period would include a debit to:

Many department stores allow their employees to purchase goods from the store at a discount.Explain the treatment and rationale for such sales in the retail method (average,LCM).

The weighted-average inventory method rarely is used with periodic inventory procedures.

Furniture Stores Ltd.uses the retail method to value its inventory.The following information is available for 2005:--- Required: Calculate the December 31,2005 inventory cost under the retail method-average cost (LCM) basis (conventional retail).