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1. Merchandise shipped FOB shipping point on the last day of the year should ordinarily be added to A. the buyer’s inventory balance. B. the seller’s inventory balance. C. neither the buyer’s nor seller’s inventory balance. D. both the buyer’s and the seller’s inventory balances. 2. Miller Inc. is a wholesaler of office supplies. The activity for Model III calculators during August is shown below. Date Balance/ Transaction Units Cost August 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 If Miller Inc. uses a FIFO periodic inventory system, the ending inventory of Model III calculators at August 31 is reported as A. $150,080. B. $150,160. C. $152,288. D. $152,960. 3. The use of a discounts lost account implies that the recorded cost of a purchased inventory item is its A. invoice price. B. invoice price plus the purchase discount lost. C. invoice price less the purchase discount taken. D. invoice price less the purchase discount allowable whether taken or not. 4. A company sells four products: I, II, III, and IV. The company values all inventories using the lower-of-cost-or-market procedure. The company has consistently experienced a profit margin of 20 percent of sales and expects this rate to hold for the future. Additional information, shown below, is available for the most recent year as of December 31. Product Original Cost to Estimated Cost Expected Cost Replace to Sell Selling Prices I $60 $70 $10 $100 II 70 90 20 120 III 80 60 10 60 IV 90 80 20 90 Using the lower-of-cost-or-market procedure, what is the reported inventory value at December 31 for one unit of Product III? A. $50 B. $60 C. $70 D. $80 55 5. Ami Retailers purchased merchandise with a list price of $100,000, subject to a trade discount of 20 percent and credit terms of 2/10, n/30. If you use the gross method, at what amount should Ami record the cost of this merchandise? A. $100,000 B. $80,000 C. $98,000 D. $78,400 6. Elrond Company began operations in 2007. During the first two years of operations, Elrond made undiscovered errors in taking its year-end inventories, which overstated 2007 ending inventory by $50,000 and overstated 2008 ending inventory by $40,000. The combined effect of these errors on reported income is 2007 2008 2009 A. overstated $50,000 overstated $90,000 understated $40,000 B. overstated $50,000 overstated $40,000 not affected C. understated $50,000 understated $90,000 not affected D. overstated $50,000 understated $10,000 understated $40,000 7. Consider the following for the XYZ Corporation as of May 1, 2007: Beginning Inventory $ 500 Ending Inventory 1,500 Purchases 2,000 Cost of goods sold for May 1, 2007 would be A. $500. B. $1,000. C. $1,500. D. $3,500. 8. Jupiter Company prepares monthly income statements. A physical inventory is taken only at year-end; hence, month-end inventories must be estimated. All sales are made on account. The rate of markup on cost is 50 percent. The following information relates to the month of May. Accounts receivable, May 1 $20,000 Accounts receivable, May 31 30,000 Collection of accounts receivable during May 50,000 Inventory, May 1 36,000 Purchases of inventory during May 32,000 The estimated cost of the May 31 inventory is A. $24,000. B. $28,000. C. $38,000. D. $44,000. 9. The following information is available for Lyman Company. Cost of goods sold for 2007 $1,200,000 Inventories at December 31, 2006 350,000 Inventories at December 31, 2007 310,000 Assuming that a business year consists of 360 days, what was the number of days’ sale in average inventories for 2007? A. 49.5 B. 93 C. 99 D. 105 10. On October 31, a flood at Payne Company’s only warehouse caused severe damage to its entire inventory. Based on recent history, Payne has a gross profit of 25 percent of net sales. The following information is available from Payne’s records for the 10 months ended October 31. Inventory, January 1 $ 520,000 Purchases 4,120,000 Purchase returns 60,000 Sales 5,600,000 Sales discounts 400,000 A physical inventory disclosed usable damaged goods that Payne estimates it can sell for $70,000. Using the gross profit method, the estimated cost of goods sold for the 10 months ended October 31 should be A. $680,000. B. $3,830,000. C. $3,900,000. D. $4,200,000. Number of Units Unit Cost Total Cost Purchases January 1 500 $8 $4,000 March 10 200 $9 1,800 June 15 100 $6 600 Total Purchases 800 $6,400 57 11. Consider the following information. What is the weighted-average cost per unit? A. $15.00 B. $10.00 C. $8.00 D. $7.00 12. Which of the following refers to the difference between the catalog price and the selling price of a product? A. Cash discount B. Net discount C. Trade discount D. Purchase discount 13. The following information is available for Carter Corporation for the month of June. Beginning Inventory 8 units at $20.00 = $160 Purchased, June 3 5 units at $22.00 = $110 Purchased, June 5 7 units at $24.00 = $168 Sold, June 9 9 units Purchased, June 15 8 units at $26.00 = $208 Sold, June 19 7 units Given this information, the ending inventory balance using the average cost method is A. $276. B. $302.C. $368.D. $386. 14. The Fairbanks Department Store uses the LIFO method to approximate a LIFO value for ending inventory. Information relating to the computation of the inventory at December 31 is as follows: Cost Retail Inventory, January 1 $ 32,000 $ 80,000 Sales 640,000 Purchases 246,000 600,000 What is the ending inventory at cost at December 31 using the retail inventory method and a LIFO approximation? A. $16,000 B. $16,400 C. $32,000 D. $40,000 15. Goods on consignment are A. included in the consignee’s inventory. B. recorded in a consignment out account, which is an inventory account. C. recorded in a consignment in account, which is an inventory account. D. recorded as sales. 16. Excessive spoilage, idle capacity, and reprocessing are examples of A. product (inventoriable) costs. B. cost drivers. C. trade discounts. D. replacement costs. 17. The following information was taken from Frandsen Company’s accounting records. Increase in raw materials inventory $ 7,500 Decrease in finished goods inventory 17,500 Raw materials purchased 215,000 Direct-labor payroll 100,000 Factory overhead 150,000 Freight-out 22,500 There was no work-in-process inventory at the beginning or end of the year. Frandsen’s cost of goods sold is A. $497,500. B. $487,500. C. $482,500. D. $475,000. 18. The gross profit method can be calculated using which of the following formulas? A. [(Cost of Goods Sold – Sales)/Sales] B. [(Sales – Cost of Goods Sold)/Sales] C. [(Sales – Cost of Goods Sold)/Cost of Goods Sold] D. [(Cost of Goods Sold – Sales)/Cost of Goods Sold] 19. With LIFO, cost of goods sold is $195,000, and ending inventory is $45,000. If FIFO ending inventory is $65,000, how much is FIFO cost of goods sold? A. $215,000 B. $195,000 C. $175,000 D. $65,000 59 20. Western Manufacturing Company uses a perpetual inventory system for its raw materials. The inventory records reflect a raw materials balance of $378,500 at December 31. A physical inventory taken on that date revealed raw materials of $375,750. How will the $2,750 difference affect raw materials inventory and cost of goods sold, assuming it’s attributed to normal shrinkage? Raw Materials Cost of Goods Sold A. Increase Decrease B. Decrease No effect C. Decrease Increase D. No effect Increase