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Chapter 7--Inventory Key
1. The cost of goods sold is equal to:
2. The amount of inventory expensed during the year is reported on the income statement as:
3. Harold's Five & Dime
Harold's Five & Dime is a merchandising company that uses the periodic inventory system. Selected account
balances are listed below.
Sales
$175,000
Gross purchases
90,000
Beginning inventory
23,000
Ending inventory
17,000
Purchase returns and allowances
3,000
Purchase discounts
7,000
Transportation-in
4,000
Sales discounts
8,000
Sales returns and allowances
5,000
Calculate Harold's net purchases.
4. Which of the following statements is false?
5. What effects occur on a retail store's accounting equation when it records purchase of merchandise on
account, assuming the use of a perpetual inventory system?
6. What effects on a retail store's accounting equation occur when the retail store pays a third-party carrier to
7. Transportation-in is:
8. The following journal entry was included in the accounting records of Spica, Inc.
Oct. 15
Account
s
Payable
4,000
Inventory
40
Cash
3,960
Based on this information, it is likely that Spica:
9. The following journal entry was included in the accounting records of Jonase, Inc.
Feb. 11
Cost of
Goods
Sold
7,000
Inventory
7,000
This entry is needed when Jonase records the:
10. In recording the cost of merchandise sold for cash, based on data available from perpetual inventory records,
the journal entry is:
11. Which inventory cost flow method assigns the cost of the most recent items purchased to ending inventory?
12. Which inventory cost flow method assigns the cost of the most recent items purchased to cost of goods
sold?
13. Which inventory cost flow method assigns the average unit cost to all units whether sold or left in ending
inventory?
14. For which type of merchandise would a company most likely use the specific identification method of
inventory costing?
15. Jensan Company
Jensan uses a perpetual inventory system and had the following inventory transactions for the month of June.
June
1
On
hand,
50
units at
$15.00
each
$ 750.00
4
Purcha
sed 115
units at
$15.10
each
1,736.50
5
Sold 100 units
10
Purcha
sed 75
units at
$15.20
each
1,140.00
24
Sold 50 units
Total
cost of
goods
availab
le for
sale
3,626.50
30
On
hand,
90
units
The June 30th inventory included 45 units from the June 4th purchase and 45 units from the June 10th purchase.
Refer to the information provided for Jensan Co. Jensan's cost of ending inventory at June 30th under the specific identification method is:
16. Jensan Company
Jensan uses a perpetual inventory system and had the following inventory transactions for the month of June.
June
1
On
hand,
50
units at
$15.00
each
$ 750.00
4
Purcha
sed 115
units at
$15.10
each
1,736.50
5
Sold 100 units
10
Purcha
sed 75
units at
$15.20
each
1,140.00
24
Sold 50 units
Total
cost of
goods
availab
le for
sale
3,626.50
30
On
hand,
90
units
The June 30th inventory included 45 units from the June 4th purchase and 45 units from the June 10th purchase.
Refer to the information provided for Jensan Company. What is the cost of goods sold for June under the specific identification method?
17. Portey Company
Portey uses a perpetual inventory system and had the following inventory transactions for the month of June.
June
1
On
hand,
100
units at
$9.00
each
$ 900.00
4
Purcha
sed 120
units at
$9.10
each
1,092.00
5
Sold 150 units
10
Purcha
sed 100
units at
$9.5
each
950.00
24
Sold 60 units
Total
cost of
goods
availab
le for
sale
2,942.00
30
On
hand,
110
units
Refer to the information provided for Portey. If Portey uses the FIFO inventory costing method, the amount of ending inventory reported on the
balance sheet is:
18. Portey Company
Portey uses a perpetual inventory system and had the following inventory transactions for the month of June.
June
1
On
hand,
100
units at
$9.00
each
$ 900.00
4
Purcha
sed 120
units at
$9.10
each
1,092.00
5
Sold 150 units
10
Purcha
sed 100
units at
$9.5
each
950.00
24
Sold 60 units
Total
cost of
goods
availab
le for
sale
2,942.00
30
On
hand,
110
units
Refer to the information provided for Portey. If Portey uses the FIFO inventory costing method, cost of goods sold for the month of June is:
19. Portey Company
Portey uses a perpetual inventory system and had the following inventory transactions for the month of June.
June
1
On
hand,
100
units at
$9.00
each
$ 900.00
4
Purcha
sed 120
units at
$9.10
each
1,092.00
5
Sold 150 units
10
Purcha
sed 100
units at
$9.5
each
950.00
24
Sold 60 units
Total
cost of
goods
availab
le for
sale
2,942.00
30
On
hand,
110
units
Refer to the information provided for Portey. If Portey uses the LIFO inventory costing method, ending inventory at June 30th is:
20. Portey Company
Portey uses a perpetual inventory system and had the following inventory transactions for the month of June.
June
1
On
hand,
100
units at
$9.00
each
$ 900.00
4
Purcha
sed 120
units at
$9.10
each
1,092.00
5
Sold 150 units
10
Purcha
sed 100
units at
$9.5
each
950.00
24
Sold 60 units
Total
cost of
goods
availab
le for
sale
2,942.00
30
On
hand,
110
units
Refer to the information provided for Portey. If Portey uses the LIFO inventory costing method, cost of goods sold for the month of June is:
21. Portey Company
Portey uses a perpetual inventory system and had the following inventory transactions for the month of June.
June
1
On
hand,
100
units at
$9.00
each
$ 900.00
4
Purcha
sed 120
units at
$9.10
each
1,092.00
5
Sold 150 units
10
Purcha
sed 100
units at
$9.5
each
950.00
24
Sold 60 units
Total
cost of
goods
availab
le for
sale
2,942.00
30
On
hand,
110
units
Refer to the information provided for Portey. If Portey uses the weighted average inventory costing method, ending inventory at June 30th is:
22. Portey Company
Portey uses a perpetual inventory system and had the following inventory transactions for the month of June.
June
1
On
hand,
100
units at
$9.00
each
$ 900.00
4
Purcha
sed 120
units at
$9.10
each
1,092.00
5
Sold 150 units
10
Purcha
sed 100
units at
$9.5
each
950.00
24
Sold 60 units
Total
cost of
goods
availab
le for
sale
2,942.00
30
On
hand,
110
units
Refer to the information provided for Portey. If Portey uses the weighted average inventory costing method, cost of goods sold for the month of June
is:
23. Tickets4U.com
Tickets4U.com uses a perpetual inventory system with a weighted average inventory costing method. The
following information is available for the month of April.
April
1
On
hand,
30
units at
$5.00
each
$150
8
Purcha
sed 40
units at
$5.35
each
214
15
Sold 50 units
22
Purcha
sed 40
units at
$5.20
each
208
30
On
hand,
60
units
Refer to the information provided for Tickets4U.com. Calculate the cost of goods sold for the units sold on April 15th.
24. Tickets4U.com
Tickets4U.com uses a perpetual inventory system with a weighted average inventory costing method. The
following information is available for the month of April.
April
1
On
hand,
30
units at
$5.00
each
$150
8
Purcha
sed 40
units at
$5.35
each
214
15
Sold 50 units
22
Purcha
sed 40
units at
$5.20
each
208
30
On
hand,
60
units
Refer to the information provided for Tickets4U.com. Calculate the cost of ending inventory on April 30th.
25. Wilsonwear Corporation
Wilsonwear uses a perpetual inventory system. The following information is available for the month of March.
Mar.
1
On hand, 25 units at $2 each
$ 50
4
Sold 20 units for $10 each
200
22
Purchased 130 units at $4 each
520
26
Sold 120 units for $10 each
1,200
Refer to the information provided for Wilsonwear Corporation. If Wilsonwear uses the FIFO inventory costing method, how much is cost of goods
sold for March?
26. Wilsonwear Corporation
Wilsonwear uses a perpetual inventory system. The following information is available for the month of March.
Mar.
1
On hand, 25 units at $2 each
$ 50
4
Sold 20 units for $10 each
200
22
Purchased 130 units at $4 each
520
26
Sold 120 units for $10 each
1,200
Refer to the information provided for Wilsonwear Corporation. If Wilsonwear uses the FIFO inventory costing method, how much is ending
inventory at March 31st?
27. Wilsonwear Corporation
Wilsonwear uses a perpetual inventory system. The following information is available for the month of March.
Mar.
1
On hand, 25 units at $2 each
$ 50
4
Sold 20 units for $10 each
200
22
Purchased 130 units at $4 each
520
26
Sold 120 units for $10 each
1,200
Refer to the information provided for Wilsonwear Corporation. If Wilsonwear uses the LIFO inventory costing method, how much is cost of goods
sold for the month of March?
28. Which method of inventory costing is not acceptable for financial accounting purposes?
29. Which inventory costing method results in the highest inventory balance during a period of rising purchase
prices?
30. During a period of increasing purchase prices, which inventory costing method will yield the lowest cost of
goods sold?
31. Pollet Company started business at the beginning of 2012. Pollet selected the FIFO method for its inventory
costing. The profits will maximize for 2012 under this method, in a period of:
32. Which one of the following statements regarding changing inventory costing methods is true?
A. A change in inventory costing methods can be justified if the change is made after the completed financial
period.
33. If the amount assigned to ending inventory is incorrect, then:
34. If a company understates its inventory, what are the effects on cost of goods sold and net income for the
current year?
35. Ronn Industries
Ronn Industries reported net income of $95,000 for 2012. Early in 2013, Ronn discovered that its 2012 ending
inventory was overstated by $5,000.
Refer to the information provided for Ronn Industries. Determine the effects of the inventory errors for 2012.
36. Ronn Industries
Ronn Industries reported net income of $95,000 for 2012. Early in 2013, Ronn discovered that its 2012 ending
inventory was overstated by $5,000.
Refer to the information provided for Ronn Industries. Determine the financial statement effects of the
inventory error for 2013.
37. Filmore Enterprises
The following information is from Filmore's 2012 accounting records.
Sales
$182,000
Beginning inventory
28,800
Purchases
126,500
Gross profit percentage
40%
Refer to the information provided for Filmore Enterprises. Using the gross profit method, estimate Filmore’s cost of goods sold at year-end.
38. Filmore Enterprises
The following information is from Filmore's 2012 accounting records.
Sales
$182,000
Beginning inventory
28,800
Purchases
126,500
Gross profit percentage
40%
Refer to the information provided for Filmore Enterprises. Using the gross profit method, estimate Filmore’s ending inventory at year end.
39. Sadler Enterprises
The following information is from Filmore's 2012 accounting records.
Sales
$203,000
Beginning inventory
32,800
Purchases
125,500
Gross profit percentage
45%
Refer to the information provided for Sadler Enterprises. Using the gross profit method, estimate Sadler’s cost of goods sold at year-end.
40. Sadler Enterprises
The following information is from Filmore's 2012 accounting records.
Sales
$203,000
Beginning inventory
32,800
Purchases
125,500
Gross profit percentage
45%
Refer to the information provided for Filmore Enterprises. Using the gross profit method, estimate Filmore’s ending inventory at year end.
41. When the market value of inventory items has declined below their cost, which method would be the most
appropriate in complying with GAAP?
42. When inventories are written down due to the application of the lower-of-cost-or-market (LCM) rule, which
of the following is usually increased?
43. Which of the following statements regarding the application of the lower-of-cost-or-market method is true?
A. Generally, historical cost is lower than the market value so the lower-of-cost-or-market rule is applied.
44. The lower-of-cost-or-market rule applies to the write-down of inventory values when market value exceeds
cost. Why does this rule not allow for write-ups in inventory value?
45. If the cost of an item of inventory is $50 and the market value is $57, the amount included in inventory
according to the lower-of-cost-or-market is:
46. If the cost of an item of inventory is $60 and the market value is $50, the amount included in inventory
according to the lower-of-cost-or-market is:
47. Stephan, Inc.
Stephan, Inc. has an inventory turnover rate of 8 times.
Refer to the information provided for Stephan, Inc. If its cost of goods sold is $150,000, then the company:
48. Stephan, Inc.
Stephan, Inc. has an inventory turnover rate of 8 times.
Refer to the information provided for Stephan, Inc. Calculate the company's days-in-inventory ratio.
49. Medina Enterprises
The following selected financial information is available for Medina for the year ended December 31, 2012.
Net sales
$450,000
Inventory, 1/1/12
$48,400
Cost of goods sold
299,500
Inventory, 12/31/12
49,670
Refer to the information provided for Medina Enterprises. What is the inventory turnover ratio for 2012?
A. 6.188 times
50. Medina Enterprises
The following selected financial information is available for Medina for the year ended December 31, 2012.
Net sales
$450,000
Inventory, 1/1/12
$48,400
Cost of goods sold
299,500
Inventory, 12/31/12
49,670
Refer to the information provided for Medina Enterprises. Calculate Medina's days-in-inventory ratio.
A. 58.98 days
51. Max’s Tire Center Company
Selected data from the financial statements of Max’s Tire Center are provided below.
2012
2011
Inventory
$ 55,000
$ 46,000
Cost of sales
120,000
110,000
Total assets
500,000
490,000
Cash flow from operations
320,000
289,000
Net sales
390,000
360,000
Capital expenditures
15,000
13,000
Refer to the selected data provided for Max’s Tire Center. Which of the following would result from a horizontal analysis of Max's balance sheet?
52. Max’s Tire Center Company
Selected data from the financial statements of Max’s Tire Center are provided below.
2012
2011
Inventory
$ 55,000
$ 46,000
Cost of sales
120,000
110,000
Total assets
500,000
490,000
Cash flow from operations
320,000
289,000
Net sales
390,000
360,000
Capital expenditures
15,000
13,000
