Chapter 7—Inventory and the Cost of Sales Key
1. Items that are either manufactured or purchased for resale in the normal course of business are called
2. Which of the following is an inventory account for a retailer?
3. Which inventory account consists of partially finished products?
4. Which inventory account consists of goods in a relatively undeveloped state that will eventually be a major
part of the finished product?
5. Which inventory account consists of the completed products waiting for sale?
6. Inventory costs include all of the following, EXCEPT
7. Which of the following would NOT be included in ending inventory of the seller?
8. Inventory accounting is most complex in
9. When products are sold, their costs are removed from inventory and reported on the income statement as an
expense called
10. Which of the following is NOT an inventory in a manufacturing company?
11. The cost of finished goods inventory includes all BUT which of the following?
12. If the shipping terms indicate that the seller owns the goods until delivered to the buyer, this arrangement is
known as
13. If the shipping terms indicate that the buyer owns the goods upon shipment from the seller, this arrangement
is known as
14. Cost of goods sold is equal to
15. If goods shipped FOB destination are in transit at the end of the year, they should be included in the
inventory balance of the
16. Merchandise shipped FOB shipping point on the last day of the year should probably be included in
17. Conner Company’s inventory balance on December 31, 2012 was $3,100,000 before considering the
following transactions:
·
Goods were in transit from a vendor to Conner on December 31, 2012. The invoice price was $250,000, and the goods were shipped FOB
shipping point on December 29, 2012. The goods were received on January 4, 2013.
·
Goods were shipped to Conner FOB destination on December 20, 2012, from a vendor. The invoice price was $125,000. The goods were
received on January 1, 2013.
Given the above information, on December 31, 2012, Conner should report an inventory balance of
18. Conner Company’s accounts payable balance on December 31, 2012 was $1,400,000 before considering the
following transactions:
·
Goods were in transit from a vendor to Conner on December 31, 2012. The invoice price was $250,000, and the goods were shipped FOB
shipping point on December 29, 2012. The goods were received on January 4, 2013.
·
Goods were shipped to Conner FOB destination on December 20, 2012, from a vendor. The invoice price was $125,000. The goods were
received on January 1, 2013.
Given the above information, on December 31, 2012, Conner should report an accounts payable balance of
19. A perpetual inventory system is most often used when
20. A periodic inventory system is most often used when
21. When the periodic inventory method is used, the entry to record a return of defective merchandise to a
supplier would include a
22. When a company uses the perpetual inventory method, purchase returns are recorded by
23. A firm using the periodic inventory method returned defective merchandise costing $2,000 to one of its
suppliers. The entry to record this transaction would include a debit to
24. Which of the following accounts would be found on the income statement?
25. Which of the following statements is true under the periodic inventory method?
26. ACE Manufacturing pays a freight bill of $54 to United Trucking Company for merchandise purchased
from Jackson Sales, terms FOB shipping point. When recording the payment with the periodic inventory
method, ACE would debit the $54 cost of the freight to
27. ACE Manufacturing pays a freight bill of $54 to United Trucking Company for merchandise purchased
from Jackson Sales, terms FOB shipping point. When recording the payment with the perpetual inventory
method, ACE would debit the $54 cost of the freight to
28. A firm that uses the perpetual inventory method purchased $1,000 of inventory on terms 2/10, n/30. The
journal entry to record this transaction would include a debit to
29. A firm using the periodic inventory method purchased $2,000 of inventory on terms 2/10, n/30. The journal
entry to record this transaction would include a debit to
30. Company D makes the following entry in its accounting records:
Inventor
y
200
Cost of Goods Sold
200
This entry would be made when
31. The perpetual method of accounting for inventory
32. The entry (or entries) required to record a sales return by a customer when using the perpetual inventory
method would consist of
33. Which of the following accounts would NOT normally have a debit balance?
34. A firm using the perpetual inventory method returned defective merchandise costing $2,000 to one of its
suppliers. The entry to record this transaction will include a debit to
35. A firm using the perpetual inventory method returned defective merchandise costing $2,000 to one of its
suppliers. The entry to record this transaction will include a credit to
36. ABC Company purchased inventory on account with credit terms of 2/10, n/30. It paid the amount owed
within 10 days and recorded the following entry:
Account
A
800
Account B
784
Account C
16
Given this entry, and assuming that ABC company uses a periodic inventory system, what would be the nature of Account C?
37. Which of the following accounts would be debited when making closing entries?
38. Under the periodic inventory method, if merchandise is sold for cash on December 31 and is recorded as a
sale but is NOT shipped (and thus is included in the ending inventory count), the financial statements will
39. If a company sold merchandise for a profit, the accounting equation would show a(n)
40. Williston Cattle Company uses a perpetual inventory system. Williston purchased sheep from Little H
Ranch at a cost of $39,000, payable at time of delivery. The entry to record the delivery would be
41. Exhibit 7-1
Garfunkle Company had the following four transactions during January 2012:
January 3
Purchased 200 hair dryers from Hot Aire Corporation for $30 each, terms n/30.
5
Sold 50 hair dryers purchased on January 3 for $50 each, terms n/30.
15
Returned five of the hair dryers purchased on January 3 because they were defective.
22
A customer returned two hair dryers purchased on January 5 because they were defective.
Refer to Exhibit 7-1. Given the information above, with the perpetual inventory method, the entry to record the January 5 transaction would include
42. Exhibit 7-1
Garfunkle Company had the following four transactions during January 2012:
January 3
Purchased 200 hair dryers from Hot Aire Corporation for $30 each, terms n/30.
5
Sold 50 hair dryers purchased on January 3 for $50 each, terms n/30.
15
Returned five of the hair dryers purchased on January 3 because they were defective.
22
A customer returned two hair dryers purchased on January 5 because they were defective.
Refer to Exhibit 7-1. Given the information above, with the perpetual inventory method, the entry to record the January 15 transaction would
include a
43. Exhibit 7-2
Lindsey Corporation had the following account balances:
$200,000
40,000
80,000
3,000
1,000
30,000
2,000
Refer to Exhibit 7-2. Given the information above, gross margin is
44. Exhibit 7-2
Lindsey Corporation had the following account balances:
$200,000
40,000
80,000
3,000
1,000
30,000
2,000
Refer to Exhibit 7-2. Given the information above, and assuming that Lindsey’s total operating expenses (exclusive of cost of goods sold) are
$40,000, pretax income is
45. If a firm’s beginning inventory is $70,000, goods purchased during the period cost $260,000, and the cost of
goods sold is $300,000, what is the ending inventory?
46. With the perpetual inventory method, which of the following entries would be made when inventory costing
$3,600 is sold for $5,000?
47. If cost of goods sold is $12,000 and the ending inventory balance is $6,000, the
48. If a firm’s beginning inventory is $70,000, purchases are $320,000, and the cost of goods sold is $300,000,
what is its ending inventory?
49. An entry is made to close Purchases and Purchase Discounts as:
Account
A
35,000
Account
B
1,600
Account C
36,600
Based on this entry, total (gross) purchases for the year were
50. Chyna Corporation has the following income statement for the year ended December 31, 2012:
Sales
revenue
$100,000
Cost of
goods
sold:
Beginning inventory
$12,000
Purchases (net)
48,000
Cost of goods available for sale
$60,000
Cost of ending inventory
12,000
Cost of goods sold
48,000
Gross
margin
$ 52,000
Expense
s
30,000
Net
income
$ 22,000
Given this information, if ending inventory was $10,000 instead of $12,000, net income would be
51. For external reporting purposes, inventory shrinkage is usually combined with which account?
52. A physical count would be necessary at the end of the accounting period under which inventory system?
53. Under which inventory system would a company NOT be able to specifically determine the amount of
inventory lost or stolen?
54. The inventory shrinkage account is
55. If expenses are overstated on the income statement, net income
56. If the ending inventory is overstated, net income for the same period will be
57. When the current year’s ending inventory amount is overstated, the
58. If the ending inventory balance is understated, net income of the same period will be
59. An overstatement of ending inventory in period 1 would result in income of period 2 being
60. Which of the following will result if the current year’s ending inventory amount is understated in the cost of
goods sold calculation?
61. If ending inventory on December 31, 2011, is overstated by $60,000, what is the effect on net income for
2012?
62. Following are the account balances from Connery Company’s income statement:
$34,000
50,000
5,000
4,000
6,000
15,000
8,000
Given this information, the cost of goods sold during 2012 is
63. Following are the account balances from Samuel Company’s income statement:
$25,000
35,000
2,000
4,000
5,000
10,000
6,000
Given this information, the cost of merchandise available for sale during 2012 is
64. Exhibit 7-3
The following information is provided:
$ 64,000
128,000
9,600
12,800
?
176,000
?
70,400
Refer to Exhibit 7-3. Given the information above, determine the amount of freight-in.
65. Exhibit 7-3
The following information is provided:
$ 64,000
128,000
9,600
12,800
?
176,000
?
70,400
Refer to Exhibit 7-3. Given the information above, determine the amount of ending inventory.
66. Agassi Company is a wholesale electronics distributor. On December 31, 2012, it prepared the following
partial income statement:
Gross
sales
$500,400
Sales
discount
s
400
Net sales
$500,000
Cost of
goods
sold:
Beginnin
g
inventor
y
$200,000
Net
purchase
s
300,000
Given this information, if the ending inventory balance was $210,000, what would be its gross margin?
67. Montgomery Corporation has the following account balances:
$100,000
22,000
40,000
2,000
1,500
500
15,000
1,000
Given this information, total cost of goods available for sale is
68. The net sales figure of XYZ Company in 2012 was $300,000. If the cost of goods available for sale was
$280,000 and gross margin was 35 percent of net sales, ending inventory must have been
69. Which inventory cost flow assumption is most often used by businesses that sell a limited number of high-
priced items?
70. Which inventory cost flow assumption matches current costs against current revenues?
71. Which inventory cost flow assumption best reflects the current value of inventory on the balance sheet?
72. Which of the following would be true if inventory costs were increasing?
73. Which of the following will occur when inventory costs are decreasing?
74. During an inflationary period, which inventory costing alternative usually results in a firm paying the lowest
income taxes?
75. During a period of continuing inflation, which inventory cost flow alternative usually results in the highest
reported net income?
76. Purchases and sales during a recent period for Bottineau Inc. were
Purchases During the Period
Sales During the
Period
1st purchase
1,400
units ´ $ 4
1st sale
800
units ´ $14
2nd purchase
2,000
units ´ $ 6
2nd sale
1,500
units ´ $16
3rd purchase
1,000
units ´ $ 8
3rd sale
1,000
units ´ $18
4th purchase
1,000
units ´ $10
4th sale
1,000
units ´ $20
5,400
units
4,300
units
Beginning inventory was 200 units at $2 each. Given this information, what is the ending inventory if the periodic FIFO costing alternative is used?
77. Exhibit 7-4
Purchases and sales during a recent period for Casora Inc. were as follows:
Purchases During the Period
Sales During the
Period
1st purchase
500
units ´ $2
1st sale
600
units ´ $ 7
2nd purchase
1,000
units ´ $3
2nd sale
750
units ´ $ 8
3rd purchase
500
units ´ $4
3rd sale
500
units ´ $ 9
4th purchase
500
units ´ $5
4th sale
500
units ´ $10
2,500
units
2,350
units
Refer to Exhibit 7-4. Beginning inventory was 100 units at $2 each. Given this information, what is the ending inventory if the periodic LIFO
costing alternative is used?
78. Exhibit 7-4
Purchases and sales during a recent period for Casora Inc. were as follows:
Purchases During the Period
Sales During the
Period
1st purchase
500
units ´ $2
1st sale
600
units ´ $ 7
2nd purchase
1,000
units ´ $3
2nd sale
750
units ´ $ 8
3rd purchase
500
units ´ $4
3rd sale
500
units ´ $ 9
4th purchase
500
units ´ $5
4th sale
500
units ´ $10
2,500
units
2,350
units
Refer to Exhibit 7-4. Beginning inventory was 100 units at $1 each. Given this information, what is the average cost per unit available for sale
during the year if the periodic inventory method is used (rounded to the nearest cent)?
79. The following information is available for Harvey Corporation for the month of June:
Beginning inventory
32 units ´ $80 = $2,560
Purchased, June 3
20 units ´ $88 = $1,760
Purchased, June 5
28 units ´ $96 = $2,688
Sold, June 9
36 units
Purchased, June 15
32 units ´ $64 = $2,048
Sold, June 19
24 units
Given this information, the average (periodic) ending inventory balance is approximately
80. Exhibit 7-5
Warren Clothing Store sells jeans. During January, its inventory records of one brand of designer jeans were as
follows:
Beginning inventory
10 pairs ´ $22 = $220
January 6 purchase
4 pairs ´ $25 = $100
January 10 sale
5 pairs
January 15 purchase
7 pairs ´ $30 = $210
January 20 sale
10 pairs
January 25 purchase
4 pairs ´ $30 = $120
Refer to Exhibit 7-5. Using the information above, periodic FIFO cost of goods sold is
81. Exhibit 7-5
Warren Clothing Store sells jeans. During January, its inventory records of one brand of designer jeans were as
follows:
Beginning inventory
10 pairs ´ $22 = $220
January 6 purchase
4 pairs ´ $25 = $100
January 10 sale
5 pairs
January 15 purchase
7 pairs ´ $30 = $210
January 20 sale
10 pairs
January 25 purchase
4 pairs ´ $30 = $120
Refer to Exhibit 7-5. Using the information above, periodic LIFO cost of goods sold is
82. Exhibit 7-5
Warren Clothing Store sells jeans. During January, its inventory records of one brand of designer jeans were as
follows:
Beginning inventory
10 pairs ´ $22 = $220
January 6 purchase
4 pairs ´ $25 = $100
January 10 sale
5 pairs
January 15 purchase
7 pairs ´ $30 = $210
January 20 sale
10 pairs
January 25 purchase
4 pairs ´ $30 = $120
Refer to Exhibit 7-5. Using the information above, average (periodic) cost of goods sold is
83. Exhibit 7-6
Martin Inc. is a wholesaler of office supplies. The activity for supply number 47519 during October is shown
below:
Date
Balance/Transaction
Units
Cost
October 1
Inventory
2,000
$36.00
7
Purchase
3,000
37.20
12
Sales
3,600
21
Purchase
4,800
38.00
22
Sales
3,800
29
Purchase
1,600
38.60
Refer to Exhibit 7-6. If Martin Inc. uses a FIFO periodic inventory system, the ending inventory of supply number 47519 at October 31 is reported
as
84. Exhibit 7-6
Martin Inc. is a wholesaler of office supplies. The activity for supply number 47519 during October is shown
below:
Date
Balance/Transaction
Units
Cost
October 1
Inventory
2,000
$36.00
7
Purchase
3,000
37.20
12
Sales
3,600
21
Purchase
4,800
38.00
22
Sales
3,800
29
Purchase
1,600
38.60