Question : 6) Bright Garden Center had the following data for May: Cost : 1177187

 

6) Bright Garden Center had the following data for May:

 

 

Cost Price

Retail Price

Beginning inventory

$1,000

$1,600

Purchases

2,500

4,650

Sales

 

4,850

 

The cost of the estimated inventory on May 31 under the retail method is:

A) $616.

B) $784.

C) $1,400.

D) $3,500.

7) Chocolate Heaven had the following data for November:

 

 

Cost Price

Retail Price

Beginning inventory

$8,000

$13,000

Purchases

18,000

25,000

Sales

 

30,000

 

The cost of the estimated inventory on November 30 under the retail method is:

A) $5,440.

B) $2,560.

C) $8,160.

D) $3,840.

 

8) Compute the cost of ending inventory using the retail method when goods available for sale at cost are $15,000, retail is $25,000, and sales at retail equal $20,000. What will the cost ratio be? What will the ending inventory be?

A) Cost ratio 60%; ending inventory $5,000

B) Cost ratio 75%; ending inventory $10,000

C) Cost ratio 70%; ending inventory $12,000

D) Cost ratio 60%; ending inventory $3,000

 

9) An overstatement of ending inventory in one period results in:

A) an overstatement of net income for the next period.

B) no effect on net income for the next period.

C) an overstatement of the ending inventory for the next period.

D) an understatement of net income for the next period.

 

10) As a result of understating ending inventory by $10,000 at the end of Year 1:

A) net income for Year 2 will be understated.

B) net income for Year 2 will be overstated.

C) ending inventory for Year 2 will be overstated.

D) there will be no effect on net income for Year 2.

11) If the ending inventory is overstated in period 1:

A) beginning inventory in period 2 is overstated.

B) goods available for sale in period 2 are overstated.

C) cost of goods sold in period 2 is overstated.

D) All of these answers are correct.

 

12) An understated cost of goods sold of $100 will cause:

A) income to be understated.

B) income to be overstated.

C) merchandise inventory to be understated.

D) None of these answers are correct.

 

13) The beginning inventory of this year is overstated. This error would cause:

A) the period’s net income to be overstated.

B) the period’s net income to be understated.

C) the period end assets to be understated.

D) None of these are correct.

 

14) Last year’s ending inventory was overstated. This error would cause:

A) this period’s net income to be overstated.

B) this period’s net income to be understated.

C) this period’s end assets to be overstated.

D) None of these are correct.

15) Possible reasons for a business estimating the value of the ending inventory should NOT include:

A) the inventory is destroyed by fire.

B) the business uses periodic system and needs to prepare interim financial statements.

C) the business uses perpetual system so a physical inventory is never needed.

D) All of the above are valid reasons for estimating inventory.