Question : 130.On December 31, a company needed to estimate its ending : 1258834

 

 

130.On December 31, a company needed to estimate its ending inventory to prepare its annual financial statements. The following information is currently available:Inventory as of January 1: $120,500Net sales for the year: $400,000Net purchases for the year: $270,500This company typically achieves a gross profit ratio of 15%. Ending Inventory under the gross profit method would be:   

A.$102,425.

 

B.$10,425.

 

C.$9,000.

 

D.$51,000.

 

E.$51,425.

COGS = $400,000 * 85% = $340,000Costs available for sale = $120,500 + $270,500 = $391,000EI = $391,000 – $340,000 = $51,000

 

 

 

131.Interim financial statements:   

A.Are required by the Congress.

 

B.Are necessary to achieve full disclosure about a business’s operations.

 

C.Are statements prepared for periods of less than one year.

 

D.Require the use of the perpetual method for inventories.

 

E.Cannot be prepared if the company follows the conservatism principle.

 

 

 

 

132.Jefferson Company has sales of $300,000 and cost of goods available for sale of $270,000. If the gross profit ratio is typically 30%, the estimated cost of the ending inventory under the gross profit method would be:    

A.$60,000

 

B.$180,000

 

C.$30,000

 

D.$90,000

 

E.$120,000

If sales for the period were $300,000 and the company’s typical gross profit ratio is 30%, gross profit would be approximately $90,000. That means that cost of goods sold must have been $210,000. Subtracting cost of goods sold of $210,000 from the $270,000 of cost of goods available for sale yields ending inventory of $60,000.

 

 

 

133.Oxford Packing Company reported net sales in November of the current year of $1,000,000. At the beginning of November, the company reported beginning inventory of $368,000. Cost of goods purchased during November amounted to $217,500. The company reported ending inventory at the end of November of $226,750.The company’s gross profit rate for November of the current year was:    

A.35.9%

 

B.18.8%

 

C.81.2%

 

D.64.1%

 

E.58.6%

Combining beginning inventory of $368,000 with purchases for the period of $217,500 yields cost of goods available for sale of $585,500. If we then subtract the ending inventory of $226,750, we get cost of goods sold of $358,750. Subtracting cost of goods sold ($358,750) from sales ($1,000,000) yields gross profit of $641,250. Dividing gross profit of $641,250 by sales of $1,000,000 yields a gross profit percentage of 64.125% or 64.1% rounded.

 

 

 

134.On April 24 of the current year, The Memphis Pecan Company experienced a tornado that destroyed the company’s entire inventory. At the beginning of April, the company reported beginning inventory of $226,750. Inventory purchased during April (until the date of the tornado) was $197,800. Sales for the month of April through April 24 were $642,500. Assuming the company’s typical gross profit ratio is 50%, estimate the amount of inventory destroyed in the tornado.   

A.$212,275

 

B.$103,300

 

C.$217,950

 

D.$321,250

 

E.$157,788

Beginning inventory on July 1 was $226,750. Purchases for the month of July amounted to $197,800, yielding cost of goods available for sale of $424,550. If the company’s typical gross profit ratio is 50% and if sales for the month of July were $642,500, then the cost of goods sold during July was $321,250. Subtracting that amount from the cost of goods available for sale yields ending inventory of $103,300.

 

 

 

135.Avanti purchases inventory from overseas and incurs the following costs: the merchandise cost is $50,000, credit terms 2/10, n/30 that apply only to the $50,000; FOB shipping point freight charges are $1,500; insurance during transit is $500; and import duties are $1,000. Avanti paid within the discount period and incurred additional costs of $1,200 for advertising and $5,000 for sales commissions. Compute the cost that should be assigned to the inventory.   

A.$50,000

 

B.$53,000

 

C.$52,000

 

D.$51,500

 

E.$53,200

$50,000 * .98 = $49,000 + $1,500 + $500 + $1,000 = $52,000

 

 

 

136.Hasham purchases inventory from overseas and incurs the following costs: the merchandise cost is $80,000, credit terms 1/10, n/30, applicable only to the $80,000; FOB shipping point freight charges are $2,500; insurance during transit is $300; and import duties are $1,500. Hasham paid within the discount period. Compute the cost that should be assigned to the inventory.   

A.$83,500

 

B.$79,200

 

C.$81,700

 

D.$84,300

 

E.$81,000

($80,000 * .99) + $2,500 + $300 + $1,500 = $83,500

 

 

 

137.Some companies choose to avoid assigning incidental costs of acquiring merchandise to inventory by recording them as cost of goods sold when incurred. The principle that supports this is called:   

A.The matching principle.

 

B.The materiality constraint.

 

C.The cost principle.

 

D.The conservation constraint principle.

 

E.The lower of cost or market principle.

 

 

 

 

138.All of the following statements related to goods on consignment are true except:   

A.Goods on consignment are goods provided by the owner, call the consignor.

 

B.A consignee sells goods for the owner.

 

C.The consignor continues to own the consigned goods.

 

D.The consignee reports the goods in its inventory until sold.

 

E.The consignor reports the goods in its inventory until sold.

 

 

 

 

139.When costs to purchase inventory regularly decline, which method of inventory costing will yield the lowest gross profit and income?   

A.FIFO.

 

B.LIFO.

 

C.Weighted average.

 

D.Specific identification.

 

E.Gross margin.