16) Barry’s Books uses a periodic inventory system. Barry’s Books sold 45 copies of Helpful Hints during
September. Other data for September include:
Sep. 1
Balance
12 books @ $20
8
Purchased
10 books @ $21
17
Purchased
30 books @ $22
25
Purchased
15 books @ $24
Cost of goods sold under the FIFO method is:
A) $956.
B) $514.
C) $1,020.
D) some other number
17) Hawkeye Tack uses a periodic inventory system. Hawkeye Tack sold 80 sweaters during September.
Other data for September includes:
Sep. 1
Balance
40 @ $25
8
Purchased
12 @ 28
17
Purchased
25 @ 30
25
Purchased
35 @ 32
Cost of goods sold under the FIFO method is:
A) $800.
B) $2,406.
C) $1,024.
D) $2,182.
18) Lois’s Furniture uses a periodic inventory system. Lois sold 60 tables during August. Other data for
August includes:
Aug. 1
Balance
8 @ $15
9
Purchased
12 @ 18
18
Purchased
60 @ 20
Ending inventory under the LIFO method is:
A) $1,200.
B) $336.
C) $1,130.
D) $400.
19) Shayla’s Design uses a periodic inventory system. Shayla sold 33 artist kits during January. Other data
for January includes:
Jan. 1
Balance
12 kits @ $30
11
Purchased
20 kits @ $33
25
Purchased
26 kits @ $35
Ending inventory under the LIFO method is:
A) $1,141.
B) $1,055.
C) $875.
D) $789.
20) Shayla’s Design uses a periodic inventory system. Shayla sold 33 artist kits during January. Other data
for January includes:
Jan. 1
Balance
12 kits @ $30
11
Purchased
20 kits @ $33
25
Purchased
26 kits @ $35
Ending inventory under the FIFO method is:
A) $1,141.
B) $1,055.
C) $875.
D) $789.
21) Sterling Supply uses a periodic inventory system. Magnum sold 25 globes during March. Other data
for March includes:
Mar. 1
Balance
20 @ $12
11
Purchased
10 @ 11
25
Purchased
10 @ 10
Ending inventory under the weighted-average method is:
A) $281.25.
B) $155.00.
C) $180.00.
D) $168.75.
22) Sterling Supply uses a periodic inventory system. Magnum sold 25 globes during March. Other data
for March includes:
Mar. 1
Balance
20 @ $12
11
Purchased
10 @ 11
25
Purchased
10 @ 10
Cost of goods sold under the weighted-average method is:
A) $281.25.
B) $155.00.
C) $180.00.
D) $168.75.
23) Hall Novelty Shop uses a periodic inventory system. It sold 150 balloons during April. Other data for
April includes:
Apr. 1
Balance
50 @ $3.00
11
Purchased
80 @ 3.25
25
Purchased
30 @ 3.50
Cost of goods sold under the weighted-average method (rounded to the nearest dollar) is:
A) $52.
B) $483.
C) $501.
D) $48.
24) Goods that are consigned to another party:
A) belong to the other party because title has passed.
B) belong to the company that has consigned them.
C) belong to the consignor.
D) Both B and C are correct.
25) Which of the following should not be included in inventory costs?
A) Goods that are not resalable
B) Goods on consignment to you
C) Goods for sale at a value that is greater than cost
D) Both A and B are correct.
26) Which of the following goods should Pin Department Store include in its December 31 count?
A) Goods held on consignment from ABC Wholesale
B) Goods sold and shipped to Gray Brothers, in-transit F.O.B shipping point.
C) Goods that have been consigned to Dalton Brothers
D) Goods in transit purchased F.O.B. destination point
27) Which of the following goods should Nassen Company include in its December 31, 200X, count?
A) Goods held on consignment for Acorn Supply
B) Goods sold to Crishom, F.O.B. destination, and arrival date scheduled for January 5
C) Goods that are not salable
D) Goods in transit purchased F.O.B. destination
28) Goods on consignment to another company:
A) belong to the consignee because title has passed.
B) belong to the consignor because title has passed.
C) belong to the consignor because the consignee is merely selling them for the consignor.
D) belong to the consignee because the consignor is merely selling them for the consignee.
29) Which is not a good reason to use the specific invoice method?
A) The flow of goods and flow of cost are the same.
B) It can be used with goods with large sales volume.
C) It is simple to use if there is a small amount of high-cost unique goods.
D) Costs are matched with the sales they helped to produce.
30) Under the average-cost method, costs are matched with individual sale items.
31) The specific identification method is a compromise between LIFO and FIFO.
32) During a period of inflation, LIFO will produce the highest net income.
33) LIFO reflects most recent costs for inventory on the balance sheet.
34) FIFO provides an up–to-date ending inventory on the balance sheet because it uses the latest
purchases to calculate ending inventory.
35) A company should use the specific invoice method to value items such as automobiles for retail sale.
36) In assigning a cost to ending inventory, the cost flow must follow the physical flow.
37) If a change is made in the inventory valuation method, full disclosure should be indicated.
38) A beginning inventory and purchases of computer parts follow:
Beginning inventory 6 @ $12
First purchase 15 @ 11
Second purchase 10 @ 14
Required: Determine the cost of an ending inventory of 6 computer parts remaining in the periodic
inventory under each of the assumptions listed.
a) ________ FIFO
b) ________ LIFO
c) ________ Weighted-average
39) Calculate the cost of goods sold under each of the following methods given the information below
about purchases and sales during the year. Assume a periodic inventory system.
May 1 Beginning inventory 50 @ $25
10 Purchases 100 @ 28
19 Purchases 20 @ 30
May 1-31 Sales 130 units
a) ________ FIFO
b) ________ LIFO
c) ________ Weighted-average
40) Calculate the ending inventory under each of the following methods given the information below
about purchases and sales during the year. Assume a periodic inventory system.
April 1 Beginning inventory 20 units @ $30
11 Purchases 70 units @ $32
21 Purchases 50 units @ $35
Sales for April: 115 units
a) ________ FIFO
b) ________ LIFO
c) ________ Weighted-average
41) Calculate the cost of goods sold under each of the following methods given the information below
about purchases and sales during the year. Assume a periodic inventory system.
April 1 Beginning inventory 20 units @ $30
11 Purchases 70 units @ $32
21 Purchases 50 units @ $35
Sales for April: 115 units
a) ________ FIFO
b) ________ LIFO
c) ________ Weighted-average
42) The ________ holds the merchandise of another business to be sold.
43) If merchandise is purchased ________, the buyer becomes the owner when the merchandise is placed
on the carrier.
44) Items that are very similar, such as canned goods in a grocery store would be costed using the
________ system of inventory valuation.
15.4 Learning Objective 15-4
1) A method that uses average gross profit rate and net sales to compute inventory is:
A) the retail method.
B) the LIFO.
C) the weighted-average method.
D) None of these answers are correct.
2) Chewy Candy has a beginning inventory of $1,000. June purchases were $3,000, and retail sales were
$5,000. The store has a normal gross profit of 50%. What is the June 30 estimated ending inventory at cost
under the gross profit method?
A) $2,100
B) $2,000
C) $1,700
D) $1,500
3) Chewy Candy has a beginning inventory of $1,000 with a retail value of $1,800. June purchases were
$3,000, with a retail value of $4,700 and retail sales were $4,200.What is the June 30 estimated ending
inventory at cost under the retail method?
A) $351
B) $949
C) $4,161
D) $1,416
4) St. Paul Corporation has a normal gross profit of 45%. The current year’s beginning inventory was
$2,500, purchases were $9,000, and retail sales were $15,000. The estimated ending inventory under the
gross profit method is:
A) $4,750.
B) $3,250.
C) $8,220.
D) $4,050.
5) St. Paul Corporation had a beginning inventory of $2,500 which would retail for $4,000. They made
$9,000 in purchases which would retail at $14,400. The sales for the period were $15,000. What is the
estimated cost of ending inventory under the retail inventory method?
A) $1,500
B) $3,400
C) $4,000
D) $2,125
6) Bright Garden Center had the following data for May:
Cost Price
Retail Price
Beginning inventory
$1,000
$1,600
Purchases
2,500
4,650
Sales
4,850
The cost of the estimated inventory on May 31 under the retail method is:
A) $616.
B) $784.
C) $1,400.
D) $3,500.
7) Chocolate Heaven had the following data for November:
Cost Price
Retail Price
Beginning inventory
$8,000
$13,000
Purchases
18,000
25,000
Sales
30,000
The cost of the estimated inventory on November 30 under the retail method is:
A) $5,440.
B) $2,560.
C) $8,160.
D) $3,840.
8) Compute the cost of ending inventory using the retail method when goods available for sale at cost are
$15,000, retail is $25,000, and sales at retail equal $20,000. What will the cost ratio be? What will the
ending inventory be?
A) Cost ratio 60%; ending inventory $5,000
B) Cost ratio 75%; ending inventory $10,000
C) Cost ratio 70%; ending inventory $12,000
D) Cost ratio 60%; ending inventory $3,000
9) An overstatement of ending inventory in one period results in:
A) an overstatement of net income for the next period.
B) no effect on net income for the next period.
C) an overstatement of the ending inventory for the next period.
D) an understatement of net income for the next period.
10) As a result of understating ending inventory by $10,000 at the end of Year 1:
A) net income for Year 2 will be understated.
B) net income for Year 2 will be overstated.
C) ending inventory for Year 2 will be overstated.
D) there will be no effect on net income for Year 2.
11) If the ending inventory is overstated in period 1:
A) beginning inventory in period 2 is overstated.
B) goods available for sale in period 2 are overstated.
C) cost of goods sold in period 2 is overstated.
D) All of these answers are correct.
12) An understated cost of goods sold of $100 will cause:
A) income to be understated.
B) income to be overstated.
C) merchandise inventory to be understated.
D) None of these answers are correct.
13) The beginning inventory of this year is overstated. This error would cause:
A) the period’s net income to be overstated.
B) the period’s net income to be understated.
C) the period end assets to be understated.
D) None of these are correct.
14) Last year’s ending inventory was overstated. This error would cause:
A) this period’s net income to be overstated.
B) this period’s net income to be understated.
C) this period’s end assets to be overstated.
D) None of these are correct.
15) Possible reasons for a business estimating the value of the ending inventory should NOT include:
A) the inventory is destroyed by fire.
B) the business uses periodic system and needs to prepare interim financial statements.
C) the business uses perpetual system so a physical inventory is never needed.
D) All of the above are valid reasons for estimating inventory.
16) A business uses the retail inventory method to estimate the value of the ending inventory. For the
month of May, the cost of goods available for sale is $15,625 at cost and $21,550 at retail. The cost ratio is:
A) 72.5%.
B) 27.5%.
C) 37.9%.
D) None of these are correct.
17) The ending inventory for this year is understated. This error would cause:
A) the period’s net income to be overstated.
B) the period’s net income to be understated.
C) the period end assets to be overstated.
D) None of these are correct.
18) A business has sales of $100,250 and a normal gross profit of 30%. The estimated cost of goods sold is:
A) $30,075.
B) $70,175.
C) $60,150.
D) Cannot be determined.
19) To use the gross profit method to estimate the value of the ending inventory, the company needs the
following information:
A) average gross profit rate, net sales, ending inventory, and net purchases
B) average gross profit rate, net sales, beginning inventory at cost, and net purchases at retail
C) average gross profit rate, net sales, ending inventory at retail, and net purchases at retail
D) average gross profit rate, net sales, beginning inventory at cost, and net purchases at cost
20) To use the retail method to estimate inventory, you need to know the goods available for sale at retail.
21) The retail inventory method can be used to estimate the amount of inventory destroyed by fire.
22) If a mistake is made in calculating ending inventory, it will take three accounting periods to be self–
correcting.
23) The retail method is used by many merchandising businesses to estimate the amount of inventory.
24) An incorrect inventory figure will affect only the income statement.
25) Determine the estimated cost of the ending inventory for Hawkeye Tack as of September 30 by the
retail method from the following data:
Cost Retail
Sep. 1 Beginning inventory $ 500 $ 800
September purchases 3,750 6,000
September sales 5,500
26) Tack Room Clothing uses the retail method to estimate cost of ending inventory for its interim
reports. From the following facts, estimate Tack Room’s ending inventory at cost at August 31.
August 1 inventory at cost $ 900
August 1 inventory at retail 1,200
Net purchases at cost 9,000
Net purchases at retail 12,000
Net sales at retail 12,500
27) Nicki’s Pet Supply needs to estimate its ending inventory. Using the data below, compute Nicki’s
estimated cost of ending inventory for the month of April.
Beginning inventory April 1 $ 2,000
Purchases for April 12,000
Retail sales during April 13,000
Normal gross profit average 40%
28) Assume that in Year 1, the ending merchandise inventory is overstated by $30,000. If this is the only
error in Year 1, fill in the items below, indicating which items will be understated, overstated, or correctly
stated for Year 1.
Ending merchandise inventory Year 1 ________
Beginning merchandise inventory Year 1 ________
Cost of goods sold Year 1 ________
Gross profit Year 1 ________
Net income Year 1 ________
Ending owner’s capital Year 1 ________
29) Assume that in Year 1, the ending merchandise inventory is overstated by $30,000. If this is the only
error in Years 1 and 2, fill in the items below, indicating which items will be understated, overstated, or
correctly stated for Year 2.
Ending merchandise inventory Year 2 ________
Beginning merchandise inventory Year 2 ________
Cost of goods sold Year 2 ________
Gross profit Year 2 ________
Net income Year 2 ________
Ending owner’s capital Year 2 ________