A company with merchandise that has a high unit value and low volume turnover would

probably use a

double entry inventory system.

single entry inventory system.

periodic inventory system.

perpetual inventory system. perpetual inventory system

Cost of goods sold is determined at the end of an accounting period under a

periodic inventory system.

double entry inventory system.

perpetual inventory system.

single entry inventory system. periodic inventory system.

Which of the following statements about perpetual inventory systems is not true?

The cost of goods sold is determined by subtracting the cost of goods on hand from the cost of
goods purchased for the period.

A physical inventory is taken to determine any discrepancies between the recorded inventory
amount and the amount that is actually on hand.
The cost of goods sold is determined each time a sale occurs.

Detailed records of the cost of each inventory purchase and sale are maintained. The cost of
goods sold is determined by subtracting the cost of goods on hand from the cost of goods
purchased for the period

Martin Corporation purchases $4,200 of merchandise on March 1, with credit terms of 3/10,
n/30. If Martin pays on March 11, what is the cost of this purchase?

$3,780

$4,074

$4,200

$3,864 $4,074

Which of the following statements pertaining to the accounting for quantity discounts is correct?

When quantity discounts are applicable, both the buyer and the seller are required to make
separate entries to record the discount.

When quantity discounts are applicable, only the seller is required to make a separate entry to
record the discount.

When quantity discounts are applicable, only the buyer is required to make a separate entry to
record the discount.

Neither the buyer nor the seller are required to make separate entries for quantity discounts.
Neither the buyer nor the seller are required to make separate entries for quantity
discounts
Time Out Sports Bar has elected to take advantage of a purchase discount offered by one of its
beer suppliers. Time Out Sports Bar uses a perpetual inventory system. Its payment terms from
this supplier are 2/5, n/10. The bookkeeper is about to make the journal entry to record the
payment for a $1,700 purchase, which was made during the discount period. The correct journal
entry would be

a $1,666 debit to Beer Inventory, and a $1,666 credit to Accounts Payable.

a $1,700 credit to Beer Inventory, and a $1,700 debit to Accounts Payable.

a $1,700 debit to Accounts Payable, a $34 credit to Beer Inventory, and a $1,666 credit to Cash.

a $1,700 credit to Accounts Payable, a $1,666 debit to Beer Inventory, and a $34 debit to Cash.
a $1,700 debit to Accounts Payable, a $34 credit to Beer Inventory, and a $1,666 credit
to Cash

Which of the following items should appear on an invoice from a supplier?

invoice date

credit terms

quantity and type of goods sold

all of the above all of the above

When credit terms of 1/10, n/30 are offered, the discount period is

1 day.

10 days.
30 days.

20 days. 10 days

To record the sale of merchandise which cost $45,000 for cash of $85,000, the following journal
entry(ies) are required in a perpetual inventory system:

debit Cash, $85,000; credit Sales, $85,000.

first entry: debit Cash, $85,000; credit Sales, $85,000 and second entry: debit Cost of Goods
Sold, $45,000; credit Inventory, $45,000.

debit Cash, $45,000; credit Inventory, $45,000.

first entry: debit Cash, $45,000; credit Sales, $45,000 and second entry: debit Cost of Goods
Sold, $45,000; credit Inventory, $45,000. first entry: debit Cash, $85,000; credit Sales,
$85,000 and second entry: debit Cost of Goods Sold, $45,000; credit Inventory, $45,000

From the seller's point of view, a sales discount is based on

the invoice price less any sales returns and allowances.

the invoice price less any discounts.

the invoice price plus freight out costs.

the invoice price plus freight in costs.the invoice price less any sales returns and allowances

Myers and Company Limited sold $1,800 of merchandise on account to Oscar, Inc. on March 1
with credit terms of 2/10, n/30. Oscar returned $500 of the merchandise due to poor quality on
March 3 and Myers recorded the return that day. If Oscar pays for the purchase on March 11,
what entry should Myers make to record receipt of the payment?

Cash 1,764
Accounts Receivable 1,764

Cash 1,800
Sales Returns and Allowances 500
Accounts Receivable 1,300

Cash 1,274
Sales Discounts 26
Accounts Receivable 1,300

Cash 1,800
Sales Discounts 36
Accounts Receivable 1,764 Cash 1,274
Sales Discounts 26
Accounts Receivable 1,300

In a perpetual inventory system, what accounts are credited when a customer returns
merchandise to the seller that can be resold (i.e., the merchandise is not damaged and is
returned to inventory)?

Sales Returns and Allowances and Inventory

Sales Returns and Allowances and Accounts Receivable

Inventory and Cost of Goods Sold

Accounts Receivable and Cost of Goods Sold Accounts Receivable and Cost of Goods
Sold

All of the following business documents provide evidence of a sale except

a sales order.

a sales invoice.

a supplier invoice.

the cash register tape. a supplier invoice

Paper Clips sells office supplies and stationary products. The company sold inventory costing
$976 for $1,650 on account. Assuming the company uses the perpetual inventory system, what
would be the journal entry(s) to record the sale?

Accounts Receivable 976

Sales Revenue 976
Inventory 976
Cost of Goods Sold 976

Inventory 1,650
Sales Revenue 1,650
Accounts Receivable 1,650
Cost of Goods Sold 1,650

Accounts Receivable 1,650

Sales Revenue 1,650
Cost of Goods Sold 976
Inventory 976

Accounts Receivable 1,650

Sales Revenue 1,650
Inventory 976
Cost of Goods Sold 976 Accounts Receivable 1,650
Sales Revenue 1,650
Cost of Goods Sold 976
Inventory 976
Which of the following would be classified as a non-operating expense in a multiple-step income
statement?

Interest expense

Cost of goods sold

Advertising expense

Freight out Interest expense

Assume that sales are $450,000, sales discounts are $10,000, operating expenses are $85,000,
and cost of goods sold is $320,000. Gross profit and profit from operations are

$120,000 and $355,000 respectively.

$120,000 and $35,000 respectively.

$130,000 and $355,000 respectively.

$130,000 and $35,000 respectively. $120,000 and $35,000 respectively

A company has the following account balances: Sales $3,000,000; Sales Returns and
Allowances $325,000; Sales Discounts $75,000; and Cost of Goods Sold $1,850,000. The
company's gross profit margin is

38%.

46%.
71%.

29%. 29%

Calculate Profit Margin Net income / Sales

Calculate Gross Profit Gross Profit / Sales

What does gross profit measure?

The gross profit earned on each sale.

The gross margin earned on each sale.

The debt levels on each sale.

The profit earned on each sale. The gross profit earned on each sale

Which account is not used when recording inventory purchases under the periodic inventory
system?

Purchases

Freight In

Purchase Discounts

Inventory Inventory

When recording a sale under the periodic inventory system, the following entry is made:
debit Cost of Goods Sold, credit Inventory.

none of the above.

debit Accounts Receivable, credit Inventory.

debit Inventory, credit Cost of Goods Sold. none of the above

Identify all of the following that are characteristics of a merchandising company.

a. Holds work in process inventory

b. Can be a wholesaler or retailer

c. Generally, has a longer operating cycle than a manufacturer

d. Reports gross profit on its income statement

e. Makes products for sale to customers

f. May sell products directly to retailers

g. Reports cost of goods sold on its income statement

h. Holds raw materials inventory b. Can be a wholesaler or retailer

d. Reports gross profit on its income statement
f. May sell products directly to retailers
g. Reports cost of goods sold on its income statement

Of the following equations, select all that are expressed correctly.

f. Sales = Income (Loss) after tax + Operating Expenses + Cost of Goods Sold

g. Sales = Net Income + Income Tax Expense + Operating Expenses + Beginning Inventory +
Purchases - Ending Inventory.

a. Gross Profit = Sales - Cost of Goods Available for Sale + Ending Inventory

b. Cost of Goods Sold = Beginning Inventory + Purchases

e. Cost of Goods Available for Sale = Cost of Goods Sold + Ending Inventory

c. Gross Profit = Operating Expenses + Income (Loss) Before Income Tax

d. Purchases = Cost of Goods Available for Sale - Beginning Inventory g. Sales = Net
Income + Income Tax Expense + Operating Expenses + Beginning Inventory + Purchases -
Ending Inventory.
e. Cost of Goods Available for Sale = Cost of Goods Sold + Ending Inventory
c. Gross Profit = Operating Expenses + Income (Loss) Before Income Tax
d. Purchases = Cost of Goods Available for Sale - Beginning Inventory

Tele Industries Inc. resells used cell phones to discount stores. The company uses a perpetual
inventory system and reported the following T account balances on December 31, 2018.

Inventory
1,700
Accounts Payable
2,530
Accounts Receivable
1,795
Sales
9,800
Sales Returns and Allowances
700
Sales Discounts
540
During the month of December, the accountant for Tele Industries Inc. missed recording the
following transactions:

● It received payment from Discount Tech Ltd. On December 1 for a sale of phones made on
November 22 for $450 (terms 2/10, n/30). The original sale was recorded correctly in
November. Discount Carriers paid Tele Industries $441, taking advantage of the discount on
early payment.
● The company purchased phones on account at a cost of $450 from X-Tra Cell Phones on
December 2 . Tele Industries also paid shipping charges of $45 on December 2 related to the
phones purchased from X-Tra Cell Phones.
● Tele Industries Inc. returned faulty phones with a cost of $55 to X-Tra Cell Phones on
December 5. X-Tra paid the shipping costs of $15.
● On December 18th, Better Products Ltd. Returned 5 phones with a selling price of $240 that
they had purchased from Tele Industries in November on account. Better Products Ltd. has not
paid for the phones. The phones were damaged and not returned to inventory.
● On December 26, Tele Industries Inc. purchased 30 phones on account for $750 from Able
Phones Ltd, terms 2/10, n/30. Shipping costs on the Able Phones purchase which totalled $15,
FOB shipping point, were paid in cash on December 26.
● On December 28, Tele Industries paid for the phones purchased from Able Phones.
Indicate all of the following that are correct.

Entry field with incorrect answer

a. The balance in Accounts Receivable at December 31 is $1,105.

b. The balance in Sales Returns and Allowances at December 31 is $460.

c. The balance of Accounts Payable at December 31 is $2,940.

d. The balance in Inventory at December 31 is $2,890.

e. Sales for the year ending December 31 total $9,551.

f. The balance of Sales remains unchanged at December 31.

g. The balance in Inventory at December 31 is $2,860.

h. The balance of Accounts Payable at December 31 is $2,925. a. The balance in Accounts
Receivable at December 31 is $1,105.
d. The balance in Inventory at December 31 is $2,890.
f. The balance of Sales remains unchanged at December 31.
h. The balance of Accounts Payable at December 31 is $2,925.

Indicate all of the following items that would be found on the multiple-step income statement but
not on the single-step income statement.

Entry field with incorrect answer

a. Net Sales

b. Net Income

c. Cost of Goods Sold

d. Gross Profit

e. Income before Income Tax

f. Income from Operations

g. Sales Returns and Allowances

h.Operating Expenses c. Cost of Goods Sold

d. Gross Profit
f. Income from Operations
g. Sales Returns and Allowances
h.Operating Expenses

Boots and Bags Ltd. reported a gross profit margin of 25% in 2018. Indicate which of the
following items would result in an increase in the company's gross profit margin in 2019.
a. An increase in the number of boots and bags sold.

b. A decrease in the commission rate for selling each bag or pair of boots.

c. A decrease in the wholesale cost of bags.

d. A decrease in the number of customers paying promptly and not taking the company's 2%
discount for paying in under 10 days.

e. An increase in the selling price of boots.

f. An increase in freight in costs.

g. An increase in the wholesale cost of boots. c. A decrease in the wholesale cost of bags.
d. A decrease in the number of customers paying promptly and not taking the company's 2%
discount for paying in under 10 days.
e. An increase in the selling price of boots.

Explain what an operating cycle is Operating cycle is the average time it takes to go from
cash to cash in producing revenues. The operating cycle for a merchandising company covers
the period of time between when you purchase your inventory, to when you sell it, and to when
you eventually collect the accounts receivable from a sale.

Explain how to make better use of a company's perpetual inventory system to address the
inventory concerns Use the perpetual inventory system to help determine which inventory
items are out-of-stock and which items are taking a long time to sell. By managing what
inventory is purchased, fewer markdowns of the selling price will be required, and sales should
increase as there will be less chance for a stock-out. Finally, the full 30 days should be taken on
the terms with your supplier, in order to have more cash on hand when needed.

Why would a company experience cash flow problems? Insufficient cash float available for
purchasing excessive supply at one time
Gross Profit problems? Inventory overload is a problem of reduced cash flow and gross
profit because some items will be in stock for a long period of time. This further extends the
operating cycle for those items.

Reasons for conducting an inventory count and advantage of frequency of counts. (perpetual
inventory system) Performing a physical count and checking it to the perpetual records is
necessary to detect any errors in record keeping and/or shortages in stock. Enforcing the
scanning procedure will strengthen internal control over cash receipts or unrecorded revenues
will reduce the gross profit performance

JOURNAL ENTRY REQUIRED

Jan. 2 Swifty purchased goods for $42,700 from Fundy Corp., terms 2/10, n/45, FOB
destination.
Jan 5 The appropriate company paid freight costs of $700.
Jan 6 Swifty returned $6,500 of the goods purchased on January 2, because they were not
needed.
Jan 11 Swifty paid the balance owed to Fundy. 2 Inventory 42,700
Accounts Payable 42,700
5 No Entry
No Entry
6 Accounts Payable 6,500
Inventory 6,500
11 Accounts Payable 36,200
Inventory 724
Cash 35,476

On August 24, Riverbed Corporation purchased inventory on account from Concord Inc. The
selling price of the goods is $34,800 and the cost of goods sold is $13,400. Both companies use
perpetual inventory systems. Record the above transactions on the books of both companies.
BUYER
Inventory 34,800
Accounts Payable 34,800
SELLER
Accounts Receivable 34,800
Sales 34,800
COGS 13,400
Inventory 13,400

Determine where the following items would appear on a single-step income statement and a
multiple-step income statement.
Depreciation Expense1 step - Expense
X step - Operating expense
Determine where the following items would appear on a single-step income statement and a
multiple-step income statement.
COGS 1 Step - Expense
x Step - COGS

Determine where the following items would appear on a single-step income statement and a
multiple-step income statement.
Freight out Expense
Operating Expense

Determine where the following items would appear on a single-step income statement and a
multiple-step income statement.
Income Tax Expense Income Tax Expense
Income Tax Expense

Determine where the following items would appear on a single-step income statement and a
multiple-step income statement.
Interest Expense Expense
Other Revenues and Expenses

Determine where the following items would appear on a single-step income statement and a
multiple-step income statement.
Rent Revenue Revenue
Other Revenues and Expenses

Determine where the following items would appear on a single-step income statement and a
multiple-step income statement.
Salaries Expense Expense
Operating Expense

Determine where the following items would appear on a single-step income statement and a
multiple-step income statement.
Sales Revenue
Sales Revenue

Determine where the following items would appear on a single-step income statement and a
multiple-step income statement.
Sales discounts Revenue
Sales Revenue

Determine where the following items would appear on a single-step income statement and a
multiple-step income statement.
Sales Returns and Allowances Revenue
Sales Revenue
In 2015, Canadian Tire reported sales revenue of $12,279.6 million, cost of goods sold of
$7,747.1 million, and net income of $735.9 million. In 2014, it reported sales revenue of
$12,462.9 million, cost of goods sold of $8,033.2 million, and net income of $639.3 million.
Calculate Gross Profit Margin in 2014 & 2015 36.9% & 35.5%

In 2015, Canadian Tire reported sales revenue of $12,279.6 million, cost of goods sold of
$7,747.1 million, and net income of $735.9 million. In 2014, it reported sales revenue of
$12,462.9 million, cost of goods sold of $8,033.2 million, and net income of $639.3 million.
Calculate Profit Margin in 2014 $ 2015 6.0% & 5.1%

Goods that belong to other parties but are being held in order to sell them for a fee are known
as what type of goods?

in transit

FOB destination

consigned goods

FOB shipping point consigned goods

Dallas Tools Inc. counted its inventory on December 31 and arrived at a total inventory amount
of $54,500. This count did not include the following:

Goods purchased in transit, shipping FOB shipping point, $3,500

Goods sold in transit, shipped FOB destination, $1,000
Goods at a customer's location on approval, $300

The correct amount of inventory at December 31 is

$59,300.

$58,300.
$54,500.

$55,800. $59,300

Which of the following is most likely to employ the average cost formula?

department store

gasoline station

jewellery store

grocery store gasoline station

Formula for - Cost of goods available for sale Beginning inventory + Cost of goods
purchased
or. Cost of goods sold + Ending inventory

Calculation of weighted average unit cost Cost of Goods Available for sale / units available for
sale

Which of the following statements is correct?

FIFO costs allocated to both ending inventory and cost of goods sold tend to be understated
during deflationary periods.

None of the above.

FIFO costs allocated to ending inventory approximate current prices during inflationary periods.

FIFO costs allocated to both ending inventory and cost of goods sold tend to be overstated
during deflationary periods. FIFO costs allocated to ending inventory approximate current
prices during inflationary periods
In a period of rising prices, which method of inventory cost formula will result in the greatest
amount of pre-tax cash flow?

average

none of these

FIFO

specific identification none of these

Which inventory cost formula shows the highest reported profit in a period of declining prices?

first-in, first-out

average cost in a perpetual inventory system

average cost in a periodic inventory system

cannot be determined average cost in a periodic inventory system

Which of the following statements is correct?

An overstatement of cost of goods sold will produce an understatement in gross profit.

An understatement of cost of goods sold will also produce an understatement in gross profit.

If ending inventory is overstated, cost of goods sold will also be overstated.

If beginning inventory is overstated, cost of goods sold will be understated. An
overstatement of cost of goods sold will produce an understatement in gross profit

Which of the following statements pertaining to inventory errors is correct?

An error in beginning inventory of one period will have no effect on Retained Earnings at the
end of the second period.

Inventory errors are irreversible and can only be corrected through a Retained Earnings
adjustment.

Inventory errors affect a company's pre-tax cash flow.

Inventory errors have no effect on profit because only statement of financial position accounts
are affected. An error in beginning inventory of one period will have no effect on Retained
Earnings at the end of the second period

Formula for Net Realizable Value (NRV) Selling price - preparation cost

The following information was taken from the financial records of the Wilkens Corporation at
December 31, 2018: Sales $1,800,000; Beginning Inventory $160,000; Ending Inventory
$240,000; and Gross Profit $600,000. Wilkens' inventory turnover ratio for 2018 is

2.5 times.

3.0 times.

3.8 times.

6.0 times. 6.0 times

The following information was taken from the financial records of the Wilkens Corporation at
December 31, 2018: Sales $1,800,000; Beginning Inventory $160,000; Ending Inventory
$240,000; and Gross Profit $600,000. Wilkens' days in inventory ratio for 2018 is

122 days.

146 days.

97 days.

61 days. 61 days

Red Rover Runners Limited has cost of goods sold totaling $175,000 for the year ended March
31. During the same period, the company had beginning inventory of $35,000 and ending
inventory of $45,000. What is the company's inventory turnover ratio?

3.9 times

0.2 times

4.4 times

5 times4.4 times

Inventory turnover is calculated to

determine gross profit for the period.

determine the value of inventory at the end of the period.

help manage levels of inventory.

help manage inventory prices. help manage levels of inventory

Parkay Corporation uses the periodic inventory system to record its inventory. During the period
the cost of goods sold equals $20,000, purchases were $15,000 and ending inventory is
$35,000. The beginning inventory in a periodic inventory system would be

$40,000.

$50,000.

$20,000.

$25,000. $40,000

Indicate whether the merchandise will be included in the value of inventory as of December 31,
2018 for Angel's Boutique Ltd., a women's clothing outlet which carries both consignment and
new clothing.

a. Consignment clothing totalling $25,000 for sale in Angel's Boutique.

b. New clothing purchased on December 28th totalling $105,000. The goods were shipped on
December 29th, FOB destination, and have not been received yet.

c. Clothing that Angel's consigned to Great Design Inc. totalling $45,000 in December. Angel's
was unable to sell the clothing themselves.

d. Consignment clothing totalling $14,000 sold by Angel's on December 27th and shipped to the
purchaser, FOB destination. They will arrive at the destination on January 7, 2019.

e. Clothing currently held in Angel's Boutique totalling $25,000 that was purchased on
December 1st from Betty's Fashions, a competitor that is closing its doors.

f. Merchandise totalling $15,000 sold to a dance studio, Turning Pointe, which were shipped on
December 15th, FOB shipping point. The goods have not arrived at the studio yet.
g. New clothing purchased on December 26th with terms FOB shipping point. The goods are
expected to be received by Angel's on January 2, 2019. Excluded, Excluded, Included,
Excluded, Included Excluded, Included

Identify all of the following statements that are correct with regards to inventory systems.

Entry field with incorrect answer

a. The key difference between a perpetual inventory system and a periodic inventory system is
under a periodic inventory system, inventory counts must be completed.

b. Inventory items that are in transit, with terms FOB shipping point, are included in the balance
of inventory in the inventory system of the company buying the goods.

c. The accounting records, under a perpetual inventory system, are continuously updated with
changes in the inventory volumes and values.

d. The main reasons a physical inventory may not equal the inventory balance under a
perpetual inventory system are shrinkage and/or theft.

e. Inventory items that are in transit, with terms FOB destination, should be included the balance
of inventory in the inventory system of the company buying the goods.

f. A physical count of inventory may only be necessary under the perpetual inventory system if
the company is concerned about theft.

g. A company that is selling consigned goods in its stores should not include the value of
consigned inventory in its physical inventory count. b. Inventory items that are in transit, with
terms FOB shipping point, are included in the balance of inventory in the inventory system of the
company buying the goods.
c. The accounting records, under a perpetual inventory system, are continuously updated with
changes in the inventory volumes and values.
d. The main reasons a physical inventory may not equal the inventory balance under a
perpetual inventory system are shrinkage and/or theft.
g. A company that is selling consigned goods in its stores should not include the value of
consigned inventory in its physical inventory count.
Choose the inventory valuation formula the company is most likely using: specific identification,
FIFO or average cost.

a. The cost per unit at any point in time is determined by dividing the cost of goods available for
sale by the units available for sale.

b. The value of the ending inventory of the company is based on the last goods purchased.

c. The company's inventory is homogenous, with older goods being sold before the shelves are
restocked.

d. The company manufactures cardboard boxes for sale to moving companies and self-move
truck rental companies.

e. Each item of inventory is specially marked with its unit cost and inventory items are tracked
individually.

f. The cost of the oldest goods on hand is allocated to the cost of goods first.

g. The company sells high unit per unit products that are unique. Average, FIFO, FIFO,
Average, Specific Inventory, FIFO, Specific Inventory

From the following, identify if the transaction results in an understatement or overstatement of

net income reported on the income statement for the year ended December 31, 2018 for
Jackson Enterprises Ltd, or if net income is unaffected. Jackson Enterprises Ltd. Uses a
periodic inventory system and the FIFO formula for determining the cost of inventory.

a. During a physical inventory count at the end of the year, Jackson employees missed counting
an entire shelf of merchandise.

b. Goods purchased by Jackson in December were shipped FOB shipping point but have not
been received by Jackson at December 31. Jackson employees included these goods in
inventory.

c. The inventory count on December 31st did not include $50,000 in merchandise sold that was
in transit, FOB destination

d. A transposition error was made when recording an inventory purchase in December.

Inventory was recorded as $55,400 when it should have been $54,500.

e. Jackson included in its ending inventory for the year goods with a cost of $24,000 that they
are selling on consignment for JTT Industries.
f. Jackson consigned goods that they were unable to sell to Hobbit Company totalling $37,000.
These consigned goods were included in inventory. Unaffected, Understated, Unaffected,
Understated, Overstated, Unaffected

From the following list, choose all of the items that a company is required to disclose in its
financial statements or the notes to the statements.

a. the total amount of inventory in units

b. the dollar amount of cost of goods sold

c. the amount of inventory shrinkage

d. the costing formula used (i.e. specific identification, FIFO, or average cost)

e. the amount of any writedown to net realizable value

f. the amount of inventory theft

g. the amount of any inventory pledged as security

h. the amount of reversals of previous writedowns, including the reason why the writedown was
reversed b. the dollar amount of cost of goods sold
d. the costing formula used (i.e. specific identification, FIFO, or average cost)
e. the amount of any writedown to net realizable value
g. the amount of any inventory pledged as security
h. the amount of reversals of previous writedowns, including the reason why the writedown was
reversed

The Sheffield Hat Shop Limited counted the entire inventory in its store on July 31 and arrived at
a total inventory cost of $87,900. The count included $7,500 of inventory held on consignment
for a local designer; $510 of inventory that was being held for customers who were deciding if
they actually wanted to purchase the merchandise; and $1,100 of inventory that had been sold
to customers but was being held for alterations. There were two shipments of inventory received
on September 1. The first shipment cost $5,100. It had been shipped on July 30, terms FOB
destination. The second shipment cost $4,450, plus freight charges of $240. It had been
shipped on July 27, terms FOB shipping point. Neither of these shipments was included in the
July 31 count.

Calculate the correct cost of the inventory on July 31. $83,990

On January 3, Martinez Corp. purchased 3 portable electronic keyboards for $589 each. On
January 20, it purchased 2 more of the same model keyboards for $492 each. During the
month, it sold 2 keyboards; 1 was purchased on January 3 and the other was purchased on
January 20.

Calculate the cost of goods sold and ending inventory for the month using specific identification.
COGS - $1,081
Ending Inventory - $1,671

Indigo Outdoor Stores Inc. uses a perpetual inventory system and has a beginning inventory, as
at April 1, of 152 tents. This consists of 50 tents at a cost of $212 each and 102 tents at a cost
of $226 each. During April, the company had the following purchases and sales of tents:
Purchases Sales
Date Units Cost Units Price
3 75 $409
10 194 $273
17 238 409
24 295 292
30 205 409 COGS - $136,838
Cost of Ending Inventory - $35,916

Calculate Indigo Outdoors's gross profit and gross profit margin for the month of April.
Purchases Sales
Date Units Cost Units Price
3 75 $409
10 194 $273
17 238 409
24 295 292
30 205 409 Gross Profit - $75,074
Gross Profit Margin - 35.4%

Is the gross profit determined in part (b) higher or lower than it would be if Indigo Outdoors had
used the average cost formula?

The gross profit is _____ than if the average cost formula had been used in a perpetual
inventory system because cost of goods sold is ____ under FIFO in a period of ____ prices than
it would be using the average cost formula. Under FIFO, ending inventory is ____, cost of goods
sold is ____ and gross profit is ____.Higher, Lower, Rising, Higher Lower, Higher
In its year-end physical inventory count, Tire Track Corporation forgot to count tires it had stored
outside its warehouse in a trailer. As a result, ending inventory was understated by $7,000.
Assuming that this error was not subsequently discovered and corrected, what is the impact of
this error on assets, liabilities, and shareholders' equity at the end of the current year? At the
end of the next year? Current Year Next Year
Assets Understated No Impact
Liabilities No Impact No Impact
SHE Understated No Impact

Formula for Inventory Turnover COGS / Average Inventory