chapter 7 + chapter 6

Stevens Company started the year with an inventory cost of $145,000. During the month of January, Stevens purchased inventory that cost $53,000. January sales totaled $140,000. Estimated gross profit is 35%. The estimated ending inventory as of January 31 is

$107,000

On the basis of the following data, what is the estimated cost of the merchandise inventory on May 31 using the retail method? Cost Retail May 1 Merchandise inventory $125,000 $166,667 May 1-31 Purchases 235,000 313,333 May 1-31 Sales 230,000

$187,500

If the estimated rate of gross profit is 30%, what is the estimated cost of the merchandise inventory on September 30, based on the following data? Sep. 1 Merchandise inventory (at cost) $125,000 Sep. 1-30 Purchases, net (at cost) 300,000 Sep. 1-30 Sales 150,000

$320,000

Garrison Company uses the retail method of inventory costing. It started the year with an inventory that had a retail cost of $45,000. During the year, Garrison purchased an inventory with a retail sales value of $300,000. After performing a physical inventory, Garrison calculated the inventory at retail to be $80,000. The mark up is 100% of cost. Determine the ending inventory at its estimated cost.

$40,000

On the basis of the data shown below: Item Inventory Quantity Unit Cost Price Unit Market Price JFW1 6,330 $10 $11 SAW9 1,140 36 34

102060

A sales invoice included the following information: merchandise price, $12,000; terms 1/10, n/eom, FOB shipping point with prepaid freight of $900 added to the invoice. Assuming that a credit for merchandise returned of $500 is granted prior to payment and that the invoice is paid within the discount period, what is the amount of cash that should be received by the seller?

12,285

On the basis of the following data, determine the value of the inventory at the lower-of-cost-or-market by applying lower-of-cost-or-market to each inventory item, as shown in Exhibit 10. Item Inventory Quantity Unit Cost Price Unit Market Price A13Y 144 $48 $46 VZ31 285 24 27

13464

For the year ended December 31, Depot Max's cost of merchandise sold was $56,900. Inventory at the beginning of the year was $6,540. Ending inventory was $7,250. Depot Max's number of days' sales in inventory is closest to

44

Beginning inventory, purchases, and sales for Item Foxtrot are as follows: Mar. 1 270 units at $18 8 225 units 15 375 units at $20 27 240 units Assuming a perpetual inventory system and using the last-in, first-out (LIFO) method, determine (a) the cost of merchandise sold on March 27 and (b) the inventory on March 31.

4800 3510

If the cost of an item of inventory is $60 and the current replacement cost is $75, the amount included in inventory according to the lower of cost or market is

60

For the year ended December 31, Depot Max's cost of merchandise sold was $56,900. Inventory at the beginning of the year was $6,540. Ending inventory was $7,250. Compute Depot Max's inventory turnover for the year.

8.3

Determine the total value of the merchandise using net realizable value. Item Quantity Selling Price Commission Doll 10 $7 $2 Horse 5 9 3

80

A business using the retail method of inventory costing determines that merchandise inventory at retail is $890,000. If the ratio of cost to retail price is 64%, what is the amount of inventory to be reported on the financial statements?

890,000 * .64% = 569,600

Beginning inventory, purchases, and sales for 30xT are as follows: May 1 50 units at $80 12 35 units 23 60 units at $90 26 55 units

Assuming a perpetual inventory system and using the weighted average method, determine the weighted average unit cost after the May 23 purchase.(88) b. Assuming a perpetual inventory system and using the weighted average method, determine the cost of the merchandise sold on May 26. (4840) c. Assuming a perpetual inventory system and using the weighted average method, determine the inventory on May 31. (1,760) a. ($6,600 ÷ 75 units) b. (55 units × $88.00) c. (20 units × $88.00)

Hardcase Luggage Shop is a small retail establishment located in a large shopping mall. This shop has implemented the following procedures regarding inventory items: Because the shop carries mostly high-quality, designer luggage, all inventory items are tagged with a control device that activates an alarm if a tagged item is removed from the store. Because the display area of the store is limited, only a sample of each piece of luggage is kept on the selling floor. Whenever a customer selects a piece of luggage, the salesclerk gets the appropriate piece from the store's stockroom. Because all salesclerks need access to the stockroom, it is not locked. The stockroom is adjacent to the break room used by all mall employees. Whenever Hardcase Luggage Shop receives a shipment of new inventory, the items are taken directly to the stockroom. Hardcase's accountant uses the vendor's invoice to record the amount of inventory received.

Determine whether each of these procedures is appropriate or inappropriate and select the response below. Appropriate/Inappropriate a. Appropriate b. Inappropriate c. Inappropriate

Cost flow is in the order in which the costs were incurred.

FIFO

Cost of the latest purchases are assigned to ending inventory

FIFO

Produces results that are similar to the specific identification method

FIFO

Produces the highest ending inventory when costs are increasing

FIFO

Produces the same cost of merchandise sold under both the periodic and the perpetual inventory systems

FIFO

Which of the following inventory costing method is based on the assumption that the first unit of inventory available for sale is the first unit sold?

FIFO

Shipping terms where the ownership of merchandise passes to the buyer when the buyer receives the merchandise.

FOB destination

Kristin's Boutiques has identified the following items for possible inclusion in its December 31 inventory. Which of the following would not be included in the year-end inventory?

Kristin has in its warehouse merchandise on consignment from Abby Co.

Cost flow is assumed to be in the reverse order of costs incurred.

LIFO

Does not follow the physical flow of goods in most cases

LIFO

Produces the highest gross profit when costs are decreasing

LIFO

Purchased merchandise was shipped FOB shipping point on the last day of the year. The cost of the merchandise was not included in ending inventory.

Net income for the current year will be understated.

All of the following are reasons to use an estimated method of costing inventory except

Purchase records are not maintained.

The units of an item available for sale during the year were as follows: Jan. 1 Inventory 13 units at $25 $325 July 7 Purchase 16 units at $26 416 Nov. 23 Purchase 9 units at $28 252 38 units $993

There are 19 units of the item in the physical inventory at December 31. The periodic inventory system is used. Determine the inventory cost using (a) the first-in, first-out (FIFO) method; (b) the last-in, first-out (LIFO) method; and (c) the weighted average cost method (round per unit cost to two decimal places and your final answer to the nearest whole dollar). a. First-in, first-out (FIFO) $512 b. Last-in, first-out (LIFO) $481 c. Weighted average cost $497

Merchandise that was sold and shipped FOB shipping point on the last day of the year was not included in the seller's ending inventory.

There will be no error effect on net income. .

Merchandise that was sold and shipped FOB destination on the last day of the year was not included in the seller's ending inventory.

UNDERSTATED

Assigns the same value to all inventory units

WEIGHTED AVERAGE

During 2016, the accountant discovered that the physical inventory at the end of 2015 had been understated by $42,750. Instead of correcting the error, however, the accountant assumed that the error would balance out (correct itself) in 2016.

When an error is discovered affecting the prior period, it should be corrected. In this case, the merchandise inventory account should be debited and the owner's capital account credited for $42,750." and "Failure to correct the error for 2015 and purposely misstating the inventory and the cost of merchandise sold in 2016 would cause the income statements for the two years to not be comparable." are correct.

Beginning inventory, purchases, and sales for WCS12 are as follows: Oct. 1 300 units at $8 13 175 units 22 375 units at $10 29 280 units

a. Assuming a perpetual inventory system and using the weighted average method, determine the weighted average unit cost after the October 22 purchase. Round your answer to two decimal places. $9.50 per unit b. Assuming a perpetual inventory system and using the weighted average method, determine the cost of the merchandise sold on October 29. Round your "average unit cost" to two decimal places. $2660 c. Assuming a perpetual inventory system and using the weighted average method, determine the inventory on October 31. Round your "average unit cost" to two decimal places. $2090 a. ($4,750 ÷ 500 units) b. (280 units × $9.50) c. (220 units × $9.50)

Never results in either the highest or lowest possible net income

average

Rarely used with a perpetual inventory system

average

Informs the seller of the reasons for the return of merchandise or the request for a price allowance.

debit memo

Using a perpetual inventory system, the entry to record the purchase of $30,000 of merchandise on account would include a

debit to merchandise inventory

Expense account for recording shipping costs paid by the seller.

delivery expense

If the seller is to pay the freight costs of delivering merchandise, the delivery terms are stated as

fob destination

If title to merchandise purchases passes to the buyer when the goods are shipped from the seller, the terms are

fob shipping point

The cost associated with delivery of merchandise to the customer.

freight

Losses of inventory due to theft, damage, spoilage, etc. that cause the actual inventory on hand to be less than that on record.

inventory shrinkage

Which of the following measures the relationship between cost of merchandise sold and the amount of inventory carried during the period?

inventory turnover

Which of the following inventory costing method is based on the assumption that the last unit of inventory available for sale is the first unit sold?

lifo

Excess inventory results in all of the following except

lost sales

When goods are shipped FOB destination and the seller pays the freight charges, the buyer

makes no journal entry

Account used to record merchandise on hand under a perpetual inventory system. Account used to record merchandise on hand under a perpetual inventory system.

merchandise inventory

Which of the following accounts usually has a debit balance?

merchandise inventory

Which of the following inventory costing method determines the cost based on the average unit cost of the inventory available for sale?

moving average

Statement that includes subtotals for net sales, gross profit, and net operating income in determining net income.

mulitple step income satement

Which of the following measures the length of time it takes to acquire, sell, and replace inventory?

number of days' sales in inventory

Beginning inventory was understated.

overstated

If a company mistakenly counts less items during a physical inventory than actually exist, how will the error affect the cost of merchandise sold?

overstated

Merchandise inventory at the end of the year is overstated. Which of the following statements correctly states the effect of the error?

owner's equity is overstated

Under this system, only revenue is recorded when sales are made.

periodic

Average cost is rarely used with this system.

perpetual

Inventory system that updates the merchandise inventory account for every purchase and sale transaction.

perpetual inventory system

establishes an initial record of the receipt of inventory

receiving report

The method of estimating inventory that uses records of the selling prices of the merchandise is called

retail method

Early payment discount offered to customers by the seller.

sales discount

Merchandise is sold for cash. The selling price of the merchandise is $6,000 and the sale is subject to a 7% state sales tax. The journal entry to record the sale would include a credit to

sales tax payable for 420

Statement where net income is determined by deducting all expenses from all revenues.

singe step income sate

Cost flow matches the unit sold to the unit purchased.

specific id

Which of the following inventory costing method determines the cost based on the actual cost of inventory sold?

specific identification

A company purchases 25 units of inventory for $2.50 and 15 units for $2.00. If the company sells twenty $2.50 units and ten $2.00 units at a total cost of $70, which of the following inventory costing method does it use? Round the cost per unit to the nearest cent when making the calculation

specific identification method

The amount of the total cash paid to the seller for merchandise purchased for consumption would normally include

the list price plus the sales tax

A consignor included merchandise in the hands of the consignee in ending inventory.

there will be no error effect on net income

A chart of accounts for a merchandising business

usually requires more accounts than does the chart of accounts for a service business

last document in the chain, use to compare all three for accuracy

vendors invoice

Never results in either the highest or lowest possible net income

weighted average

Discount taken by the buyer for early payment of invoice.

purchanse discount

authorizes the purchase of inventory from an approved vendor

purchase order

Account where returned merchandise or price adjustments are recorded by the buyer under the periodic inventory system.

purchase returns and allowances

Assigns the same value to all inventory units

AVERAGE

A company will most likely use an estimated method of determining inventory when

a natural disaster has destroyed most of the inventory

The units of an item available for sale during the year were as follows: Jan. 1 12units at $5,400 $64,800 Aug. 7 18units at $6,000 108,000 Dec. 11 15units at $6,480 97,200 Available for sale 45units $270,000 There are 14 units of the item in the physical inventory at December 31. The periodic inventory system is used. Determine the inventory cost using (a) the first-in, first-out (FIFO) method; (b) the last-in, first-out (LIFO) method; and (c) the weighted average cost method.

a. 14 units × $6,480 b. [(12 units × $5,400) + (2 units × $6,000)] c. (14 units × $6,000), $6,000 = $270,000 ÷ 45 units a. First-in, first-out (FIFO) method $90720 b. Last-in, first-out (LIFO) method $76800 c. Weighted average cost method $84000

Pierce Company sold to Stanton Company merchandise on account FOB shipping point, 2/10, net 30, for $20,000. Pierce prepaid the $500 shipping charge. Which of the following entries does Pierce make to record this sale?

a. Accounts Receivable-Stanton, debit $19,600; Sales, credit $19,600, and Accounts Receivable-Stanton, debit $500; Cash, credit $500

Triple Creek Hardware Store currently uses a periodic inventory system. Kevin Carlton, the owner, is considering the purchase of a computer system that would make it feasible to switch to a perpetual inventory system. Kevin is unhappy with the periodic inventory system because it does not provide timely information on inventory levels. Kevin has noticed on several occasions that the store runs out of good-selling items, while too many poor-selling items are on hand. Kevin is also concerned about lost sales while a physical inventory is being taken. Triple Creek Hardware currently takes a physical inventory twice a year. To minimize distractions, the store is closed on the day inventory is taken. Kevin believes that closing the store is the only way to get an accurate inventory count.

a. Will switching to a perpetual inventory system strengthen Triple Creek Hardware's control over inventory items? Yes b. Will switching to a perpetual inventory system eliminate the need for a physical inventory count? No

Too much inventory on hand

all

During the taking of its physical inventory on December 31, 2014, Barry's Bike Shop incorrectly counted its inventory as $350,000 instead of the correct amount of $280,000. The effect on the balance sheet and income statement would be

assets, retained earnings, and net income all overstated by $70,000

Which of the following is used to analyze the efficiency and effectiveness of inventory management?

both inventory turnover and number of days' sales in inventory

This system can be costly and time consuming if not computerized.

perpetual

Payment arrangements determined by the seller as to when invoices are due and whether early payment discount is offered.

credit terms

Using a perpetual inventory system, the entry to record the return of merchandise purchased on account includes a

credit to merchandise inventory

In recording the cost of merchandise sold for cash, based on data available from perpetual inventory records, the journal entry is

debit Cost of Merchandise Sold; credit Merchandise Inventory

A company purchases 20 units of inventory for $5.50 on January 5 and 25 units for $6.00 on January 25. It then sells a total of 30 units on January 31. If the company is following the LIFO method of inventory costing, what is the total cost of the inventory sold?

177.50

Norfolk Sporting Goods purchases merchandise with a catalog list price of $30,000. The retailer receives a 30% trade discount and credit terms of 2/10, n/30. What amount should Norfolk debit to the Merchandise Inventory account?

20,580

A company purchases 40 units of inventory for $4.00 and 20 units for $3.00. It sells a total of 55 units on a particular date. If the company is following the Moving average method of inventory costing, what is the total cost of the inventory sold?

201.85

Financial statement data for years ending December 31 for Holland Company follows: 2016 2015 Cost of merchandise sold $4,504,500 $3,715,200 Inventories: Beginning of year 788,000 760,000 End of year 850,000 788,000

2016 Average inventory = [($788,000 + $850,000) ÷ 2] 2015 Average inventory = [($760,000 + $788,000) ÷ 2] 2016 Inventory Turnover = ($4,504,500 ÷ $819,000) 2015 Inventory turnover = ($3,715,200 ÷ $774,000) b. 2016 Average daily cost of merchandise sold = ($4,504,500 ÷ 365 days) 2015 Average daily cost of merchandise sold = ($3,715,200 ÷ 365 days) 2016 Average inventory = [($788,000 + $850,000) ÷ 2] 2015 Average inventory = [($760,000 + $788,000) ÷ 2] 2016 Number of days' sales in inventory = ($819,000 ÷ $12,341.1) 2015 Number of days' sales in inventory = ($774,000 ÷ $10,178.6)

A company purchases inventory as shown: Date Units Cost of each Cost of purchase January 1 20 $3.00 $60.00 January 6 20 $2.80 $56.00 January 12 20 $2.70 $54.00 January 26 20 $2.50 $50.00 January 29 20 $2.50 $50.00 Totals 100 $270.00 If the company sells 80 of the units at $3.50 each, what is the cost of goods sold using the FIFO cost assumption?

220

On the basis of the data shown below: Item Inventory Quantity Unit Cost PriceUnit Market Price Raven 10 1,200 $115 $112 Dove 23 6,500 17 22

244900 http://www.cengage.com/accounting/book_content/warren_9781285743615/video/video.html?asset=aee_7-6

If a company values inventory at the lower of cost or market, which of the following is the value of merchandise inventory on the balance sheet? Apply the lower-of-cost-or-market method to inventory as a whole. Item Inventory Quantity Unit Cost Price Unit Market Price Product C 420 $6 $5 Product D 370 12 14

6960

If the buyer is to pay the freight costs of delivering merchandise, delivery terms are stated as

FOB shipping point

Shipping terms where the ownership of merchandise passes to the buyer when the seller delivers the merchandise to the freight carrier.

FOB shipping point

Prohibited under International Financial Reporting Standards (IFRS)

LIFO

Widely used for tax purposes

LIFO

The following financial statement data for years ending December 31 for Gillispie Company are shown below. 2016 2015 Cost of merchandise sold $1,241,000 $736,716 Inventories: Beginning of year $299,300 $208,780 End of year 430,700 299,300

a. Determine the inventory turnover for 2016 and 2015. Round to one decimal place. Inventory Turnover 2016 3.4 2015 2.9 b. Determine the number of days' sales in inventory for 2016 and 2015. Assume 365 days a year. Round interim calculations and final answers to one decimal place. Number of Days' Sales in Inventory 2016 107.4 days 2015 125.9 days c. Does the change in inventory turnover and the number of days' sales in inventory from 2015 to 2016 indicate a favorable or an unfavorable trend? Favorable

Financial statement data for years ending December 31 for Tango Company follows: 2016 2015 Cost of merchandise sold $3,864,000 $4,001,500 Inventories: Beginning of year 770,000 740,000 End of year 840,000 770,000

a. Determine the inventory turnover for 2016 and 2015. Round to one decimal place. Inventory Turnover 2016 4.8 2015 5.3 b. Determine the number of days' sales in inventory for 2016 and 2015. Assume 365 days a year. Round interim calculations and final answers to one decimal place. Number of Days' Sales in Inventory 2016 76 days 2015 68.9 days c. Does the change in inventory turnover and the number of days' sales in inventory from 2015 to 2016 indicate a favorable or an unfavorable trend? Unfavorable

The beginning inventory was recorded as $10,000, when actual inventory on hand was $12,000.

net incime for the current year will be overstated

Merchandise held on consignment was included in the count of ending inventory.

net income for the current year will be overstated

Merchandise inventory at the end of the year was understated. Which of the following statements correctly states the effect of the error?

net income is understated

If a company mistakenly counts more items during a physical inventory than actually exist, how will the error affect their bottom line?

net income will be overstated

When using this system, a physical inventory is necessary to determine cost of merchandise sold.

periodic

Inventory system that updates the merchandise inventory account only at the end of the accounting period based on a physical count of merchandise on hand.

periodic inventory system

The number of days' sales in inventory measures

the length of time it takes to acquire, sell, and replace the inventory

Merchandise was purchased FOB destination on the last day of the year. The cost of the merchandise purchased was not included in ending inventory.

there will be no error effect on net income

Discount to government agencies or customers who purchase large quantities of merchandise.

trade discount

Rarely used with a perpetual inventory system

weighted average

The cost of the units sold and in ending inventory is a weighted average of the purchase costs.

weighted average