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101
Match each term related to inventory analysis with its description.
A) Increases
B) Inventory turnover ratio
C) Higher
D) Average days in inventory
E) Decreases
F) Gross profit ratio
G) Lower
226) The number of times a firm sells its average inventory balance during a reporting period.
Difficulty: 3 Hard
Topic: Analysis - Inventory Turnover Ratio; Analysis - Average Days in Inventory; Analysis -
Gross Profit Ratio
Learning Objective: 06-07 Analyze management of inventory using the inventory turnover ratio
and gross profit ratio.
Bloom's: Analyze
AACSB: Analytical Thinking
AICPA/Accessibility: BB Critical Thinking
227) If a company's cost of inventory decreases and its selling price remains the same, the gross
profit ratio ________.
Difficulty: 3 Hard
Topic: Analysis - Inventory Turnover Ratio; Analysis - Average Days in Inventory; Analysis -
Gross Profit Ratio
Learning Objective: 06-07 Analyze management of inventory using the inventory turnover ratio
and gross profit ratio.
Bloom's: Analyze
AACSB: Analytical Thinking
AICPA/Accessibility: BB Critical Thinking
228) The approximate length of time the average inventory is held.
Difficulty: 3 Hard
Topic: Analysis - Inventory Turnover Ratio; Analysis - Average Days in Inventory; Analysis -
Gross Profit Ratio
Learning Objective: 06-07 Analyze management of inventory using the inventory turnover ratio
and gross profit ratio.
Bloom's: Analyze
AACSB: Analytical Thinking
AICPA/Accessibility: BB Critical Thinking
102
229) When a company purchases inventory at the end of the year and does not sell it, the inventory
turnover ratio ________.
Difficulty: 3 Hard
Topic: Analysis - Inventory Turnover Ratio; Analysis - Average Days in Inventory; Analysis -
Gross Profit Ratio
Learning Objective: 06-07 Analyze management of inventory using the inventory turnover ratio
and gross profit ratio.
Bloom's: Analyze
AACSB: Analytical Thinking
AICPA/Accessibility: BB Critical Thinking
230) Typically, the more specialized the inventory item, the ________ gross profit ratio.
Difficulty: 3 Hard
Topic: Analysis - Inventory Turnover Ratio; Analysis - Average Days in Inventory; Analysis -
Gross Profit Ratio
Learning Objective: 06-07 Analyze management of inventory using the inventory turnover ratio
and gross profit ratio.
Bloom's: Analyze
AACSB: Analytical Thinking
AICPA/Accessibility: BB Critical Thinking
231) A measure of the amount by which the sale of inventory exceeds its cost per dollar of sales.
Difficulty: 3 Hard
Topic: Analysis - Inventory Turnover Ratio; Analysis - Average Days in Inventory; Analysis -
Gross Profit Ratio
Learning Objective: 06-07 Analyze management of inventory using the inventory turnover ratio
and gross profit ratio.
Bloom's: Analyze
AACSB: Analytical Thinking
AICPA/Accessibility: BB Critical Thinking
232) The less frequently a company sells its inventory, the ________ its inventory turnover ratio.
Difficulty: 3 Hard
Topic: Analysis - Inventory Turnover Ratio; Analysis - Average Days in Inventory; Analysis -
Gross Profit Ratio
Learning Objective: 06-07 Analyze management of inventory using the inventory turnover ratio
and gross profit ratio.
Bloom's: Analyze
AACSB: Analytical Thinking
AICPA/Accessibility: BB Critical Thinking
233) At the beginning of 2021, Calston Incorporated reports inventory of $9,000. During 2021, the
company purchases additional inventory for $25,000. At the end of 2021, the cost of inventory
remaining is $8,000. Calculate cost of goods sold for 2021.
234) For each company, calculate the missing amount.
Company
Sales
Cost of
Goods Sold
Gross Profit
Operating
Expenses
Net Income
Lennon
$8,000
(a)
$4,000
$3,000
$1,000
Harrison
9,000
3,000
(b)
2,000
4,000
McCartney
8,000
3,000
5,000
(c)
2,000
Starr
7,000
2,000
5,000
3,000
(d)
104
235) Below are some of the items found in a multiple-step income statement:
a. Sales revenue
b. Net income
c. Operating income
d. Income before income taxes
e. Gross profit
Place these items in the order they would appear from first to last.
105
236) Beasley Inc., reports the following amounts in its December 31, 2021, income statement.
Sales revenue $300,000 Income tax expense $38,000
Interest expense 12,000 Cost of goods sold 125,000
Salaries expense 35,000 Advertising expense 24,000
Utilities expense 41,000
Prepare a multiple-step income statement.
Answer:
237) During 2021, a company sells 20 units of inventory. The company has the following
inventory purchase transactions for 2021:
Date
Transaction
Number of
Units
Unit Cost
Total Cost
Jan. 1
Beginning inventory
15
$60
$900
Sep. 8
Purchase
10
62
620
25
$1,520
Calculate ending inventory and cost of goods sold for 2021 assuming the company uses FIFO.
107
238) During 2021, a company sells 20 units of inventory. The company has the following
inventory purchase transactions for 2021:
Date
Transaction
Number of
Units
Unit Cost
Total Cost
Jan. 1
Beginning inventory
15
$60
$900
Sep. 8
Purchase
10
62
620
25
$1,520
Calculate ending inventory and cost of goods sold for 2021 assuming the company uses LIFO.
239) During 2021, a company sells 20 units of inventory. The company has the following
inventory purchase transactions for 2021:
Date
Transaction
Number of
Units
Unit Cost
Total Cost
Jan. 1
Beginning inventory
15
$60
$900
Sep. 8
Purchase
10
62
620
25
$1,520
Calculate ending inventory and cost of goods sold for 2021 assuming the company uses the
weighted-average cost method.
240) During 2021, a company sells 300 units of inventory for $85 each. The company has the
following inventory purchase transactions for 2021:
Date
Transaction
Number of
Units
Unit Cost
Total Cost
Jan. 1
Beginning inventory
60
$71
$4,260
May 5
Purchase
170
72
12,240
Nov. 3
Purchase
180
74
13,320
410
$29,820
Calculate ending inventory and cost of goods sold for 2021 assuming the company uses FIFO.
241) During 2021, a company sells 400 units of inventory for $85 each. The company has the
following inventory purchase transactions for 2021:
Date
Transaction
Number of
Units
Unit Cost
Total Cost
Jan. 1
Beginning inventory
60
$70
$4,200
May 5
Purchase
180
72
12,960
Nov. 3
Purchase
190
75
14,250
430
$31,410
Calculate ending inventory and cost of goods sold for 2021 assuming the company uses LIFO.
242) During 2021, a company sells 500 units of inventory for $90 each. The company has the
following inventory purchase transactions for 2021:
Date
Transaction
Number of
Units
Unit Cost
Total Cost
Jan. 1
Beginning inventory
80
$79
$6,320
May 5
Purchase
270
80
21,600
Nov. 3
Purchase
190
82
15,580
540
$43,500
Calculate cost of goods sold and ending inventory for 2021 assuming the company uses the
weighted-average cost method (round weighted-average unit cost to four decimals, if necessary).
243) During 2021, a company sells 200 units of inventory for $50 each. The company has the
following inventory purchase transactions for 2021:
Date
Transaction
Number of
Units
Unit Cost
Total Cost
Jan. 1
Beginning inventory
50
$39
$1,950
May 5
Purchase
100
38
3,800
Nov. 3
Purchase
80
37
2,960
230
$8,710
Actual sales by the company include its entire beginning inventory, 80 units of inventory from the
May 5 purchase, and 70 units from the November 3 purchase. Calculate cost of goods sold and
ending inventory for 2021 assuming the company uses specific identification.
244) For each item below, indicate whether FIFO or LIFO will generally result in a higher reported
amount when inventory costs are rising versus falling.
Inventory Costs
Higher Total
Assets
Higher Cost of
Goods Sold
Higher Net
Income
Rising
Falling
245) When inventory costs are rising, __________ generally results in a higher amount of reported
net income.
246) When inventory costs are declining, __________ generally results in a lower amount of
reported cost of goods sold.
247) When inventory costs are declining, __________ generally results in a lower amount of
reported inventory.
248) When inventory costs are rising, __________ generally results in a lower amount of reported
cost of goods sold.
249) When inventory costs are declining, __________ generally results in a higher amount of
reported net income.
250) __________ is commonly referred to as the balance-sheet approach.
251) __________ is commonly referred to as the income-statement approach.
252) When inventory costs are rising, __________ generally results in a lower income tax
obligation.
253) A company uses a perpetual system to record inventory transactions. The company purchases
inventory on account on February 9, 2021, for $50,000 and then sells this inventory on account on
March 7, 2021, for $70,000. Record the transactions for the purchase and sale of the inventory.
254) A company has the following transactions during March:
March 3 Purchases inventory on account for $3,500, terms 2/10, n/30.
March 5 Pays freight costs of $200 on inventory purchased on March 3.
March 6 Returns inventory with a cost of $500.
March 12 Pays the full amount due on March 3 purchase.
March 29 Sells all inventory purchased on March 3 (less those returned on March 6) for $5,000 on
account.
Record all transactions, assuming the company uses a perpetual inventory system.
255) A company reports inventory using the lower of cost and net realizable value (NRV). Below
is information related to its year-end inventory:
Inventory
Quantity
Cost per Unit
NRV per Unit
Ski Jackets
10
$130
$110
Skis
25
250
300
Calculate the amount to be reported for ending inventory.
256) A company reports inventory using the lower of cost and net realizable value. Below is
information related to its year-end inventory:
Inventory
Quantity
Cost
NRV
Item A
100
$25
$30
Item B
50
30
20
Calculate ending inventory under the lower of cost and net realizable value and record any
necessary adjustment to inventory.
118
257) A company reports inventory using the lower of cost and net realizable value. Below is
information related to its year-end inventory:
Inventory
Quantity
Cost
NRV
Unit A
10
$30
$32
Unit B
18
43
40
Unit C
12
23
27
Unit D
15
18
17
Calculate ending inventory under the lower of cost and net realizable value and record any
necessary adjustment to inventory.
258) A company reports the following amounts for 2021:
Inventory (beginning) $20,000
Inventory (ending) 30,000
Purchases 160,000
Purchase returns 10,000
Calculate cost of goods sold, the inventory turnover ratio, and the average days in inventory for
2021.
259) A company reports the following amounts at the end of the year:
Sales revenue $300,000
Cost of goods sold 225,000
Net income 50,000
Compute the company's gross profit ratio.
260) A company begins the year with inventory of $50,000 and ends the year with inventory of
$55,000. During the year, the following amounts are recorded:
Purchases $210,000
Purchase returns 25,000
Purchase discounts 15,000
Freight-in 40,000
Calculate cost of goods sold for the year.
261) A company uses a periodic system to record inventory transactions. The company purchases
inventory on account on February 9, 2021, for $50,000 and then sells this inventory on account on
March 7, 2021, for $70,000. Record the transactions for the purchase and sale of the inventory.
