Chapter 8 Sample Test - Principles of Accounting 1

True/False Indicate whether the statement is true or false. ____ ____ 1. Days' inventory on hand equals the inventory turnover divided by 365. 2. An understatement of ending inventory in a period will result in an overstatement of gross margin in the next period. 3. Inventory turnover is a measure expressed in terms of a percentage. 4. Goods in transit shipped FOB shipping point should not be included in the seller's ending inventory. 5. Goods held on consignment should be included in the consignee's ending inventory. 6. Merchandise inventory is valued on the balance sheet at the expected resale price. 7. In periods of rising prices, the FIFO method will result in a larger gross margin than the LIFO method. 8. In periods of falling prices, LIFO will result in a higher ending inventory valuation than FIFO. 9. The FIFO inventory method does not produce the most up-to-date figure for ending inventory.

____ ____ ____ ____ ____ ____ ____

____ 10. The average-cost method produces an ending inventory figure that is somewhere between the figures produced by FIFO and LIFO. ____ 11. When the average-cost method is applied to a perpetual inventory system, the sale of goods will change the unit cost of the goods that remain in inventory. ____ 12. Both the retail method and the gross profit method are useful in estimating the inventory cost. ____ 13. A cost-to-retail percentage must be calculated when applying the retail method. Multiple Choice Identify the choice that best completes the statement or answers the question. ____ 14. Average inventory equals $100,000, and cost of goods sold equals $221,000. Days' inventory on hand equals a. 165.2 days. b. 165.2 days. c. 154.3 days. d. 188.7 days. ____ 15. An understatement of ending inventory in one period results in a. an overstatement of the ending inventory of the next period. b. an understatement of gross margin of the next period. c. an overstatement of gross margin of the next period. d. no effect on gross margin of the next period.

____ 16. An understatement of year 1's beginning inventory will a. cause year 2's gross margin to be overstated. b. cause year 1's cost of goods sold to be understated. c. cause year 2's gross margin to be understated. d. have no effect on year 1's gross margin. ____ 17. Which of the following is an inventory costing method? a. Perpetual b. Lower-of-cost-or-market c. Specific identification d. Periodic ____ 18. A fur dealer probably would use which of the following inventory methods? a. Specific identification b. FIFO c. Average-cost d. LIFO ____ 19. Use this inventory information for the month of June to answer the following question. June 1 5 14 21 30 Beginning inventory Purchase Sale Purchase Sale 10 units @ $120 60 units @ $112 40 units 30 units @ $116 28 units

Assuming that a periodic inventory system is used, what is cost of goods sold under the average-cost method? a. $3,648 b. $7,752 c. $3,712 d. $7,888 ____ 20. Use this inventory information for the month of May to answer the following question. May 1 7 18 22 29 Beginning inventory Purchase Sale Purchase Sale 20 units @ $76 70 units @ $80 25 units 10 units @ $88 40 units

Assuming that a periodic inventory system is used, what is ending inventory (rounded) under the average-cost method? a. $5,200 b. $5,288 c. $2,848 d. $2,800 ____ 21. Use this inventory information for the month of May to answer the following question.

May

Beginning inventory

20 units @ $76

7 18 22 29

Purchase Sale Purchase Sale

70 units @ $80 25 units 10 units @ $88 40 units

Assuming that a periodic inventory system is used What is ending inventory under the LIFO method? a. $2,720 b. $2,800 c. More information is needed. d. $2,880 ____ 22. Use this information to answer the following question.

Feb.

1 6 13 20 25

Inventory Purchase Purchase Purchase Purchase Total sales

200 units @ $6.00 300 units @ $6.60 100 units @ $7.20 200 units @ $7.80 40 units @ $8.40 620 units

A periodic inventory system is used. Using LIFO, the cost assigned to ending inventory is a. $1,740. b. $4,056. c. $1,332. d. $4,464. ____ 23. Use this information to answer the following question. Jan. 1 8 17 25 Inventory Purchase Purchase Purchase Total sales 15 units @ $4.00 60 units @ $4.40 30 units @ $4.20 45 units @ $4.80 100 units

A periodic inventory system is used. Cost of goods sold under FIFO is a. $429. b. $426. c. $452. d. $237. ____ 24. Given equal circumstances, which inventory method probably would be the most time consuming? a. Specific identification b. FIFO c. Average-cost d. LIFO

____ 25. Use this inventory information for the month of September to answer the following question. Sept. 1 5 14 21 30 Beginning inventory Purchase Sale Purchase Sale 10 units @ $120 60 units @ $112 40 units 30 units @ $116 28 units

Assuming that a perpetual inventory system is used, what is ending inventory (rounded) under the average-cost method? a. $3,666 b. $3,712 c. $3,208 d. $7,734 ____ 26. Use this inventory information for the month of March to answer the following question. Mar. 1 7 18 22 29 Beginning inventory Purchase Sale Purchase Sale 20 units @ $76 70 units @ $80 25 units 10 units @ $88 40 units

Assuming that a perpetual inventory system is used, what is cost of goods sold (rounded) under the average-cost method? a. $6,020 b. $3,210 c. $5,190 d. $2,810 ____ 27. Which of the following methods generally is used to determine the loss when inventory is destroyed or stolen? a. Retail method b. FIFO c. LIFO d. Gross profit method ____ 28. A company has cost of goods available for sale of $250,000, sales of $305,000, and a gross profit percentage of 30 percent. Using the gross profit method, what is the ending inventory? a. $95,000 b. $50,000 c. $36,500 d. $158,500 ____ 29. A retail store prices its goods to achieve a gross margin of 30 percent. Up to the date of a fire that destroyed the store's inventory, sales were $200,000 and cost of goods available for sale was $150,000. The estimated cost of the inventory destroyed is a. $10,000. b. $35,000. c. $60,000. d. $50,000.

____ 30. A company has goods available for sale of $250,000 at retail and $175,000 at cost. It also had sales of $210,000 for the period. What is the estimated cost of ending inventory, using the retail method? a. $38,000 b. $28,000 c. $40,000 d. $63,000 Short Answer 31. Assuming that ending inventory for 2009 was understated, indicate whether each of the following will be understated (U), overstated (O), or not affected (N). _____ 1. Beginning inventory for 2010 _____ 2. Cost of goods sold for 2009 _____ 3. Stockholders' equity at the end of 2010 _____ 4. Income before income taxes for 2010 _____ 5. Stockholders' equity at the end of 2009 _____ 6. Cost of goods sold for 2010 _____ 7. Income before income taxes for 2009 32. Given the following information about purchases and sales during the year, compute the cost to be assigned to ending inventory under each of three methods: (a) average-cost, (b) FIFO, and (c) LIFO. (Show your work.) Assuming that a periodic inventory system is used Jan. 1 Beginning inventory 150 items @ $3 = $ 450 May 1 Purchases 450 items @ $6 = 2,700 Totals 600 items $3,150 Total sales 300 items Dec. 31 Ending inventory 300 items 33. Up to the date of a fire that completely destroyed Singer's inventory, Singer had sales of $2,000,000, purchases of $1,800,000, and freight-in of $80,000. The cost of beginning inventory was $140,000 and the company's typical gross profit was 40 percent. Using the gross profit method, estimate Singer's inventory loss from the fire. (Show your work.) 34. Freyman's Shoe Store had net retail sales of $200,000 during the current year. The following additional information was obtained from the accounting records. At Cost $ 30,000 89,000 9,000 At Retail $ 63,000 193,000

Beginning inventory Net purchases for the period Freight-in

Estimate the company's ending inventory at cost using the retail method. (Show your work.)

35. During the first quarter of 20x7, Blake Company sold 12,000 cases of Product T for $120,000. Facts related to its beginning inventory and purchases are as follows: Jan. Feb. Mar. 1 10 13 5 Beginning inventory Purchases Purchases Purchases 5,000 cases @ $4.00 3,000 cases @ $5.00 8,000 cases @ $4.50 2,000 cases @ $5.00

Assume the periodic inventory system is used For the quarter ended March 31, 20 7, compute the ending inventory, cost of goods sold, and gross margin under three methods: (a) average-cost, (b) FIFO, and (c) LIFO. (Show your work.)

Chapter 8 Sample Test - Principles of Accounting 1 Answer Section

TRUE/FALSE 1. ANS: LOC: 2. ANS: LOC: 3. ANS: LOC: 4. ANS: LOC: 5. ANS: LOC: 6. ANS: LOC: 7. ANS: LOC: 8. ANS: LOC: 9. ANS: LOC: 10. ANS: LOC: 11. ANS: LOC: 12. ANS: LOC: 13. ANS: LOC: F PTS: 1 Learning Type: Recall F PTS: 1 Learning Type: Analysis F PTS: 1 Learning Type: Comprehension T PTS: 1 Learning Type: Recall F PTS: 1 Learning Type: Recall F PTS: 1 Learning Type: Recall T PTS: 1 Learning Type: Comprehension T PTS: 1 Learning Type: Comprehension F PTS: 1 Learning Type: Recall T PTS: 1 Learning Type: Comprehension T PTS: 1 Learning Type: Comprehension T PTS: 1 Learning Type: Recall T PTS: 1 Learning Type: Comprehension OBJ: KEY: OBJ: KEY: OBJ: KEY: OBJ: KEY: OBJ: KEY: OBJ: KEY: OBJ: KEY: OBJ: KEY: OBJ: KEY: OBJ: KEY: OBJ: KEY: OBJ: KEY: OBJ: KEY: LO1 NAT: AACSB correlation: analytic ratio analysis LO1 NAT: AACSB correlation: analytic income statement LO1 NAT: AACSB correlation: analytic level of inventory LO2 NAT: AACSB correlation: analytic inventory cost and goods flow LO2 NAT: AACSB correlation: analytic inventory cost and Valuation LO2 NAT: AACSB correlation: analytic pricing methods LO4 NAT: AACSB correlation: analytic pricing methods LO4 NAT: AACSB correlation: analytic pricing methods LO4 NAT: AACSB correlation: analytic pricing methods LO4 NAT: AACSB correlation: analytic pricing methods SO5 NAT: AACSB correlation: analytic inventory systems SO6 NAT: AACSB correlation: analytic valuing inventory by estimation SO6 NAT: AACSB correlation: analytic valuing inventory by estimation

MULTIPLE CHOICE 14. ANS: LOC: 15. ANS: LOC: 16. ANS: LOC: 17. ANS: LOC: 18. ANS: LOC: 19. ANS: LOC: A PTS: 1 Learning Type: Application C PTS: 1 Learning Type: Comprehension B PTS: 1 Learning Type: Comprehension C PTS: 1 Learning Type: Recall A PTS: 1 Learning Type: Comprehension B PTS: 1 Learning Type: Application OBJ: KEY: OBJ: KEY: OBJ: KEY: OBJ: KEY: OBJ: KEY: OBJ: KEY: LO1 NAT: AACSB correlation: analytic level of inventory LO1 NAT: AACSB correlation: analytic inventory measurement LO1 NAT: AACSB correlation: analytic inventory measurement LO1 NAT: AACSB correlation: analytic pricing methods LO3 NAT: AACSB correlation: analytic pricing methods LO3 NAT: AACSB correlation: analytic pricing methods

20. ANS: LOC: 21. ANS: LOC: 22. ANS: LOC: 23. ANS: LOC: 24. ANS: LOC: 25. ANS: LOC: 26. ANS: LOC: 27. ANS: LOC: 28. ANS: LOC: 29. ANS: LOC: 30. ANS: LOC:

D PTS: 1 Learning Type: Application A PTS: 1 Learning Type: Application C PTS: 1 Learning Type: Application A PTS: 1 Learning Type: Application A PTS: 1 Learning Type: Comprehension A PTS: 1 Learning Type: Application C PTS: 1 Learning Type: Application D PTS: 1 Learning Type: Recall C PTS: 1 Learning Type: Application A PTS: 1 Learning Type: Application B PTS: 1 Learning Type: Application

OBJ: KEY: OBJ: KEY: OBJ: KEY: OBJ: KEY: OBJ: KEY: OBJ: KEY: OBJ: KEY: OBJ: KEY: OBJ: KEY: OBJ: KEY: OBJ: KEY:

LO3 NAT: AACSB correlation: analytic pricing methods LO3 NAT: AACSB correlation: analytic pricing methods LO3 NAT: AACSB correlation: analytic pricing methods LO3 NAT: AACSB correlation: analytic pricing methods LO4 NAT: AACSB correlation: analytic pricing methods SO5 NAT: AACSB correlation: analytic pricing methods SO5 NAT: AACSB correlation: analytic pricing methods SO6 NAT: AACSB correlation: analytic valuing inventory by estimation SO6 NAT: AACSB correlation: analytic valuing inventory by estimation SO6 NAT: AACSB correlation: analytic valuing inventory by estimation SO6 NAT: AACSB correlation: analytic valuing inventory by estimation

SHORT ANSWER 31. ANS: 1. U 2. O 3. N 4. 5. 6. O U U 7. U

PTS: 1 OBJ: LO1 NAT: AACSB correlation: analytic LOC: Learning Type: Analysis KEY: inventory measurement 32. ANS: a. Average-cost: $1,575 [($3,150 600) 300] b. FIFO: $1,800 (300 $6) c. LIFO: $1,350 [(150 $3) + (150 $6)] PTS: 1 OBJ: LO3 LOC: Learning Type: Application 33. ANS: Beginning inventory at cost Purchases at cost Freight-in Cost of goods available for sale Less estimated cost of goods sold Sales at selling price Less estimated gross profit, 40% NAT: AACSB correlation: analytic KEY: pricing methods $ $1,800,000 80,000 140,000

1,880,000 $2,020,000

$2,000,000 800,000

1,200,000

Estimated cost of ending inventory (estimated loss in fire) PTS: 1 OBJ: SO6 LOC: Learning Type: Application 34. ANS: Beginning inventory Net purchases for the period Freight-in Merchandise available for sale Ratio of cost to retail price: $128,000 $256,000 = 50% Net sales during the period Estimated ending inventory at retail Ratio of cost to retail Estimated cost of ending inventory PTS: 1 OBJ: SO6 LOC: Learning Type: Application 35. ANS: Ending Inventory a. Average-cost $27,0001 b. FIFO method $28,0004 c. LIFO method $25,0007 1 [(5,000 $4) + (3,000 2 $81,000 $27,000 3 $120,000 $54,000 4 [(2,000 $5) + (4,000 5 $81,000 $28,000 6 $120,000 $53,000 7 [(5,000 $4) + (1,000 8 $81,000 $25,000 9 $120,000 $56,000 $5) + (8,000

820,000

NAT: AACSB correlation: analytic KEY: valuing inventory by estimation Cost $ 30,000 89,000 9,000 $128,000 Retail $ 63,000 193,000 $256,000

200,000 $ 56,000 50% $ 28,000 NAT: AACSB correlation: analytic KEY: valuing inventory by estimation Cost of Goods Sold $54,0002 $53,0005 $56,0008 $4.50) + (2,000 Gross Margin $66,0003 $67,0006 $64,0009 6,000

$5)] = $81,000 18,000 = $4.50

$4.50)]

$5)]

PTS: 1 OBJ: LO3 LOC: Learning Type: Application

NAT: AACSB correlation: analytic KEY: pricing methods