978-0134125053 Chapter 5 Part 4

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16) If a misstatement of inventory occurs, the net income for ________ periods will be

misstated.

A) 0

B) 1

C) 2

D) 3

Question Type: Concept

17) Which of the following would NOT cause an error in the physical inventory count on

December 31?

A) Counting inventory purchased that was shipped by the supplier FOB destination on December

B) Double counting an aisle of product

C) Counting inventory purchased that was shipped by the supplier FOB shipping point on

December 31

D) Forgetting to tag a section of inventory

Question Type: Application

18) An error in the reported inventory will cause errors in all of the following EXCEPT the:

A) Balance Sheet.

B) Statement of Retained Earnings.

C) following year’s financial statements.

D) cash account.

Question Type: Concept

19) Cascade Supply Company’s income statement includes sales revenue $122,000, cost of

goods sold $80,000, and gross profit $42,000. If ending inventory was accidentally overstated by

$5,000, what is the correct amount for gross profit?

A) $37,000

B) $42,000

C) $47,000

D) $52,000

Question Type: Application

5.7 Use the gross profit method to estimate ending inventory

1) Ending inventory can be estimated by subtracting the estimated cost of goods available for

sale from the Cost of Goods Sold.

Question Type: Application

2) The historical gross profit percentage can be used to estimate the current period’s gross profit.

Question Type: Concept

3) If a company experiences a loss of inventory for fire, there is no way to estimate the

inventory.

Question Type: Concept

4) The first step in using the gross profit method to estimate ending inventory is to:

A) calculate the cost of goods available for sale.

B) estimate the ending inventory.

C) estimate the beginning inventory.

D) estimate the cost of goods sold.

Question Type: Concept

5) The second step in using the gross profit method to estimate ending inventory is to:

A) estimate the cost of goods sold.

B) calculate the cost of goods available for sale.

C) estimate the ending inventory.

D) estimate the beginning inventory.

Question Type: Concept

6) The last step in using the gross profit method to estimate ending inventory is to:

A) estimate the beginning inventory.

B) estimate the cost of goods sold.

C) calculate the cost of goods available for sale.

D) estimate the ending inventory.

Question Type: Concept

7) Beginning inventory + Net purchases =

A) Cost of goods sold.

B) Cost of goods available for sale.

C) Gross profit.

D) Ending inventory.

Question Type: Concept

8) Net sales times the historical gross profit percentage yields the estimated:

A) ending inventory.

B) beginning inventory.

C) gross profit.

D) cost of goods sold.

Question Type: Concept

9) Net sales minus estimated gross profit yields the estimated:

A) ending inventory.

B) beginning inventory.

C) gross profit.

D) cost of goods sold.

Question Type: Concept

10) Cost of goods available for sale minus estimated Cost of Goods Sold yields the estimated:

A) ending inventory.

B) beginning inventory.

C) gross profit.

D) cost of goods sold.

Question Type: Concept

11) A company has $4,200 in net sales, $3,500 in gross profit, $1,000 in ending inventory, and

$1,600 in beginning inventory. The company’s cost of goods sold is:

A) $3,500.

B) $700.

C) $2,600.

D) $1,900.

Question Type: Application

12) A company has $8,100 in net sales, $1,000 in gross profit, $2,300 in ending inventory and

$1,900 in beginning inventory. The company’s cost of goods sold is:

A) $7,100.

B) $6,200.

C) $5,800.

D) $5,200.

Question Type: Application

13) The ________ estimates inventory by using the format for cost of goods sold.

A) FIFO method

B) LIFO method

C) gross profit method

D) average cost method

Question Type: Concept

14) The Wolfe Company recently lost it‘s entire inventory in a fire. The accounting records

reflect the following information:

Beginning Inventory

$34,000

Net Purchases

$220,400

Net Sales

$378,000

Gross Profit Rate

40%

Using the gross profit method, estimated inventory is:

A) $101,760

B) $27,600

C) $34,000

D) Cannot be determined with given information.

Question Type: Application

5.8 Compute the inventory turnover and days-sales-in–inventory

1) Inventory is the most important asset in a service business.

Question Type: Concept

2) Inventory turnover equals average ending inventory divided by cost of goods sold.

Question Type: Concept

3) Inventory turnover measures the amount of times a company turns over its beginning

inventory during a period.

Question Type: Concept

4) Other than the cost of purchasing the inventory, another large cost of inventory would be

storage of the inventory.

Question Type: Concept

5) An inventory turnover rate of 4 means that the company is selling its inventory approximately

every three months.

Question Type: Application

6) Caesar’s Coffee has beginning inventory of $15,000, ending inventory of $20,000, and cost of

goods sold $50,000. Caesar’s could operate for approximately 4 months without buying more

inventory.

Question Type: Application

7) The inventory turnover rate is computed by:

A) dividing average inventory by cost of goods sold.

B) dividing cost of goods sold by average inventory.

C) dividing ending inventory by cost of goods sold.

D) dividing ending inventory by beginning inventory.

Question Type: Concept

8) Goods available for sale are $26,000; beginning inventory is $15,000; ending inventory is

$17,000; and cost of goods sold is $42,000. The inventory turnover is: (Round your final answer

two decimal places, X.XX)

A) 2.80.

B) 2.47.

C) 2.63.

D) 1.63.

Question Type: Application

9) Goods available for sale are $43,000; beginning inventory is $15,000; ending inventory is

$19,000; and cost of goods sold is $47,000. The inventory turnover is: (Round your final answer

two decimal places, X.XX)

A) 2.53.

B) 2.76.

C) 2.47.

D) 2.26.

Question Type: Application

10) Goods available for sale are $29,000; beginning inventory is $8,000; ending inventory is

$15,000; and cost of goods sold is $10,000. The days-sales–in–inventory is closest to: (Round any

intermediary calculations two decimal places, X.XX, and your final answer to the nearest day.)

A) 460.

B) 292.

C) 420.

D) 548.

Question Type: Application

11) Goods available for sale are $330,000; beginning inventory is $20,000; ending inventory is

$35,000; and cost of goods sold is $245,000. The inventory turnover is: (Round your final

answer two decimal places, X.XX.)

A) 12.25.

B) 7.00.

C) 12.00.

D) 8.91.

Question Type: Application

12) Goods available for sale are $113,000; beginning inventory is $35,000; ending inventory is

$39,000; and cost of goods sold is $73,000. The days–sales-in–inventory is closest to: (Round any

intermediary calculations two decimal places, X.XX, and your final answer to the nearest day.)

A) 236.

B) 185.

C) 120.

D) 195.

Question Type: Application

13) Inventory is often the largest:

A) expense on the Income Statement.

B) long-term asset on the Balance Sheet.

C) current asset on the Balance Sheet.

D) part of general selling expenses.

Question Type: Concept

14) The inventory turnover ratio is normally computed for:

A) a buying season.

B) the entire year.

C) each monthly accounting period.

D) each quarter.

Question Type: Concept

15) Customer demand for an item CANNOT:

A) increase the inventory turnover.

B) decrease the inventory turnover.

C) affect the amount of merchandise the company purchases.

D) change the formula used to calculate inventory turnover.

Question Type: Critical Thinking

16) A business with a ________ net income percentage may often have a ________ inventory

turnover rate:

A) lower, higher.

B) lower, lower

C) higher, lower

D) all of the above are possible combinations of net income percentage and inventory turnover

rate.

Question Type: Concept

17) Having too much inventory can be a problem because:

A) inventory takes up space and ties up money.

B) inventory can become obsolete and lose value.

C) inventory is expensive to maintain.

D) all of the above.

Question Type: Concept

18) An indication that inventory is being sold quickly is:

A) a high turnover rate and high days-sales–in-inventory rate.

B) a high turnover rate and low days-sales-in–inventory rate.

C) a low turnover rate and high days–sales-in–inventory rate.

D) a low turnover rate and low days–sales-in–inventory rate.

Question Type: Application