Inventories Questions
Items 4 and 5 are based on the following:
21. Assuming no beginning inventory, what can be said about the trend of inventory prices if cost of
goods sold computed when inventory is valued using the FIFO method exceeds cost of goods sold when inventory is valued using the LIFO method?
What amount should be reported as cost of sales for 1991? a. $480,000 b. $487,500 c. $520,000 d. $525,000 a. Prices decreased.
b. Prices remained unchanged. c. Prices increased.
d. Price trend cannot be determined from
information given. 25. The Good Trader Company values its inventory by using the retail method (FIFO basis, lower of cost or market). The following information is available for the year 19X8.
22. On December 1, 1992, Alt Department Store received 505 sweaters on consignment from Todd. Todd’s cost for the sweaters was $80 each, and they were priced to sell at $100. Alt’s commission on consigned goods is 10%. At December 31, 1992, 5 sweaters remained. In its December 31, 1992, balance sheet, what amount should Alt report as payable for consigned goods?
Cost
a. $49,000 b. $45,400 c. $45,000 d. $40,400
23. Anders Co. uses the moving-average method to determine the cost of its inventory. During January 1992, Anders recorded the following information pertaining to its inventory:
Unit Total
Units cost cost
Balance on 1/1/92 40,000 $5 $200,000 Sold on 1/17/92 35,000
Purchased on 1/28/92 20,000 8 160,000 What amount of inventory should Anders report in its January 31, 1992, balance sheet?
a. $200,000 b. $185,000 c. $162,500 d. $150,000
24. Hutch, Inc., uses the conventional retail inventory method to account for inventory. The following information relates to 1991 operations:
Average
Cost Retail
Beginning inventory and
purchases $600,000 $920,000 Net markups 40,000 Net markdowns 60,000 Sales 780,000 Retail Beginning inventory $ 80,000 $140,000 Purchases 297,000 420,000 Freight-in 4,000 Shortages — 8,000 Markups (net) — 10,000 Markdowns (net) — 2,000 Sales — 400,000 At what amount would The Good Trader Company report its ending inventory?
a. $112,000. b. $113,400. c. $117,600. d. $119,000.
26. The double extension method and the linkchain method are two variations of which of the following inventory cost flow methods?
a. Moving average. b. FIFO.
c. Dollar value LIFO.
d. Conventional (lower of cost or market) retail. 27. During 1994, Kam Co. began offering its goods to selected retailers on a consignment basis. The following information was derived from Kam's 1994 accounting records: Beginning inventory $122,000 Purchases 540,000 Freight in 10,000 Transportation to consignees 5,000 Freight out 35,000 Ending inventory - held by Kam 145,000 - held by consignees 20,000
• Goods shipped to Kew F.O.B. destination on
December 20, 1990, were received on January 6, 1991. The invoice cost was $50,000.
In its 1994 income statement, what amount should Kam report as cost of goods sold?
a. $507,000
b. $512,000 What amount should Kew report as accounts payable in its December 31, 1990, balance sheet?
c. $527,000
d. $547,000 a. $2,170,000 b. $2,180,000 28. On October 20, 1989, Grimm Co. consigned 40
freezers to Holden Co. for sale at $1,000 each and paid $800 in transportation costs. On December 30, 1989, Holden reported the sale of 10 freezers and remitted $8,500. The remittance was net of the agreed 15% commission. What amount should Grimm recognize as consignment sales revenue for 1989?
c. $2,230,000 d. $2,280,000
31. The following information pertains to Deal Corp.’s 1992 cost of goods sold:
Inventory, 12/31/91 $ 90,000 1992 purchases 124,000 a. $7,700
1992 write-off of obsolete inventory 34,000 b. $8,500
Inventory, 12/31/92 30,000 c. $9,800
d. $10,000 The inventory written off became obsolete due to an unexpected and unusual technological advance by a competitor. In its 1992 income statement, what amount should Deal report as cost of goods sold? 29. On December 28, 1990, Kerr Manufacturing Co.
purchased goods costing $50,000. The terms were F.O.B. destination. Some of the costs incurred in connection with the sale and delivery of the goods were as follows:
a. $218,000 b. $184,000 c. $150,000 d. $124,000 Packaging for shipment $1,000
Shipping 1,500
32. Dixon Menswear Shop regularly buys shirts from Colt Company and is allowed trade discounts of 20% and 10% from the list price. Dixon purchased shirts from Colt on May 27, and received an invoice with a list price amount of $5,000, and payment terms of 2/10, n/30. Dixon uses the net method to record purchases. Dixon should record the purchase at Special handling charges 2,000
These goods were received on December 31, 1990. In Kerr’s December 31, 1990, balance sheet, what amount of cost for these goods should be included in inventory? a. $54,500 b. $53,500 a. $3,600 c. $52,000 b. $3,528 d. $50,000 c. $3,500 d. $3,430 30. Kew Co.'s accounts payable balance at December
31, 1990, was $2,200,000 before considering the
following data: 33. Walt Co. adopted the dollar-value LIFO inventory method as of January 1, 1994, when its inventory was valued at $500,000. Walt's entire inventory constitutes a single pool. Using a relevant price index of 1.10, Walt determined that its December 31, 1994, inventory was $577,500 at current year cost, and $525,000 at base year cost. What was Walt's dollar-value LIFO inventory at December 31, 1994?
• Goods shipped to Kew F.O.B. shipping point on
December 22, 1990, were lost in transit. The invoice cost of $40,000 was not recorded by Kew. On January 7, 1991, Kew filed a $40,000 claim against the common carrier.
• On December 27, 1990, a vendor authorized Kew
to return, for full credit, goods shipped and billed at $70,000 on December 3, 1990. The returned goods were shipped by Kew on December 28, 1990. A $70,000 credit memo was received and recorded by Kew on January 5, 1991.
a. $525,000 b. $527,500 c. $552,500 d. $577,500
Trade accounts $ 96,000 34. The replacement cost of an inventory item is
below the net realizable value and above the net realizable value less the normal profit margin. The original cost of the inventory item is below the net realizable value less the normal profit margin. Under the lower of cost or market method, the inventory item should be valued at
Allowance for uncollectible accounts ( 2,000) Selling price of Mare's unsold goods
out on consignment, at 130% of cost, not included in Mare's
ending inventory 26,000 Total $120,000 a. Net realizable value.
b. Net realizable value less the normal profit
margin. At December 31, 1993, the total of Mare's current assets is c. Original cost. a. $224,000
d. Replacement cost. b. $230,000 c. $244,000 d. $270,000 35. For external reporting purposes, it is appropriate
to use estimated gross profit rates to determine the
cost of goods sold for 38. On January 1, 1992, Card Corp. signed a three- year, noncancelable purchase contract, which allows Card to purchase up to 500,000 units of a computer part annually from Hart Supply Co. at $.10 per unit and guarantees a minimum annual purchase of 100,000 units. During 1992, the part unexpectedly became obsolete. Card had 250,000 units of this inventory at December 31, 1992, and believes these parts can be sold as scrap for $.02 per unit. What amount of probable loss from the purchase commitment should Card report in its 1992 income statement?
Interim Year-end
financial reporting financial reporting
a. Yes Yes b. Yes No c. No Yes d. No No 36. Moss Co. has determined its December 31, 1992, inventory on a FIFO basis to be $400,000.
Information pertaining to that inventory follows: a. $24,000 Estimated selling price $408,000 b. $20,000 Estimated cost of disposal 20,000 c. $16,000 Normal profit margin 60,000 d. $8,000 Current replacement cost 360,000
Moss records losses that result from applying the lower of cost or market rule. At December 31, 1992, what should be the net carrying value of Moss’ inventory?
39. Union Corp. uses the first-in, first-out retail method of inventory valuation. The following information is available:
a. $400,000 Cost
b. $388,000 c. $360,000 d. $238,000
37. Mare Co.'s December 31, 1993, balance sheet reported the following current assets:
Cash $ 70,000 Accounts receivable 120,000 Inventories 60,000 Total $250,000 An analysis of the accounts disclosed that accounts receivable consisted of the following:
Retail
Beginning inventory $12,000 $ 30,000
Purchases 60,000 110,000 Net additional markups 10,000
Net markdowns 20,000 Sales revenue 90,000 If the lower of cost or market rule is disregarded, what would be the estimated cost of the ending inventory? a. $24,000 b. $20,800 c. $20,000 d. $19,200 3Q-6
44. The balance in Kemp Corp.'s accounts payable account at December 31, 1989, was $900,000 before any necessary year-end adjustment relating to the
ollowing: 40. Which of the following statements are correct
when a company applying the lower of cost or market method reports its inventory at replacement
cost? f
I. The original cost is less than replacement cost. • Goods were in transit to Kemp from a vendor on December 31, 1989. The invoice cost was $50,000. The goods were shipped F.O.B. shipping point on December 29, 1989, and were received on January 4, 1990.
II. The net realizable value is greater than replacement cost.
a. I only b. II only.
c. Both I and II. • Goods shipped F.O.B. destination on December
21, 1989, from a vendor to Kemp were received on January 6, 1990. The invoice cost was $25,000.
d. Neither I nor II.
41. Herc Co.'s inventory at December 31, 1993, was $1,500,000 based on a physical count priced at cost, and before any necessary adjustment for the following:
• On December 27, 1989, Kemp wrote and
recorded checks to creditors totaling $40,000 that were mailed on January 10, 1990.
In Kemp's December 31, 1989, balance sheet, the accounts payable should be
• Merchandise costing $90,000, shipped FOB shipping point from a vendor on December 30, 1993, was received and recorded on January 5, 1994.
a. $940,000 b. $950,000 c. $975,000 • Goods in the shipping area were excluded from
inventory although shipment was not made until January 4, 1994. The goods, billed to the customer FOB shipping point on December 30, 1993, had a cost of $120,000.
d. $990,000
45. Dalton Company adopted the dollar value LIFO inventory method on January 1, 1990. In applying the LIFO method Dalton uses internal price indexes and the multiple-pools approach. The following data were available for Inventory Pool No. 1 for the two years following the adoption of LIFO:
What amount should Herc report as inventory in its December 31, 1993, balance sheet?
a. $1,500,000 b. $1,590,000 c. $1,620,000 d. $1,710,000
Current inventory Internal At current At base price
year cost
42. How should the following costs affect a retailer's inventory?
Interest on Freight in inventory loan
a. Increase No effect b. Increase Increase c. No effect Increase d. No effect No effect
43. Which of the following inventory cost flow methods involves computations based on broad inventory pools of similar items?
a. Regular quantity of goods LIFO. b. Dollar-value LIFO.
c. Weighted average. d. Moving average.
year cost index
1/1/90 $100,000 $100,000 1.00 12/31/90 126,000 120,000 1.05 12/31/91 140,800 128,000 1.10 Under the dollar value LIFO method the inventory at December 31, 1991, should be
a. $128,000 b. $129,800 c. $130,800 d. $140,800
46. The following balances were reported by Mall Co. at December 31, 1991 and 1990:
12/31/91 12/31/90
Inventory $260,000 $290,000
A physical inventory taken on December 31, 1986, resulted in an ending inventory of $575,000. Dart's gross profit on sales has remained constant at 25% in recent years. Dart suspects some inventory may have been taken by a new employee. At December 31, 1986, what is the estimated cost of missing inventory?
Accounts payable 75,000 50,000 Mall paid suppliers $490,000 during the year ended December 31, 1991. What amount should Mall report for cost of goods sold in 1991?
a. $25,000 b. $100,000 c. $175,000 a. $545,000 d. $225,000 b. $495,000 c. $485,000
d. $435,000 50. At December 31, 1988, the following information was available from Huff Co.'s accounting records:
Cost
47. When the double extension approach to the dollar value LIFO inventory cost flow method is used, the inventory layer added in the current year is multiplied by an index number. How would the following be used in the calculation of this index number?
Ending inventory Ending inventory at current year at base year
cost cost
a. Numerator Denominator b. Numerator Not Used c. Denominator Numerator d. Not Used Denominator 48. The original cost of an inventory item is below the net realizable value and above the net realizable value less a normal profit margin. The inventory item's replacement cost is below the net realizable value less a normal profit margin. Under the lower of cost or market method, the inventory item should be valued at
a. Original cost. b. Replacement cost. c. Net realizable value.
d. Net realizable value less normal profit margin. 49. Dart Company's accounting records indicated the following information: Inventory, 1/1/86 $ 500,000 Purchases during 1986 2,500,000 Sales during 1986 3,200,000 Retail Inventory, 1/1/88 $147,000 $ 203,000 Purchases 833,000 1,155,000 Additional markups — 42,000 Available for sale $980,000 $1,400,000 Sales for the year totaled $1,106,000. Markdowns amounted to $14,000. Under the approximate lower of average cost or market retail method, Huff's inventory at December 31, 1988, was
a. $308,000 b. $280,000 c. $215,600 d. $196,000
51. In January 1991 Huff Mining Corporation purchased a mineral mine for $3,600,000 with removable ore estimated by geological surveys at 2,160,000 tons. The property has an estimated value of $360,000 after the ore has been extracted. Huff incurred $1,080,000 of development costs preparing the property for the extraction of ore. During 1991, 270,000 tons were removed and 240,000 tons were sold. For the year ended December 31, 1991, Huff should include what amount of depletion in its cost of goods sold? a. $360,000 b. $405,000 c. $480,000 d. $540,000 3Q-8