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WorksheetsInventory Estimation - Simulation
Total questions: 50
Worksheet time: 1hrs 20mins
How is the gross profit method used as it relates to inventory valuation?
Verify the accuracy of the perpetual inventory records.
Verity the accuracy of the physical inventory.
To estimate cost of goods sold.
To provide an inventory value of LIFO inventories.
Which of the following is not a basic assumption of the gross profit method?
The beginning inventory plus the purchases equal total goods to be accounted for.
Goods not sold must be on hand.
If the sales, reduced to the cost basis, are deducted from the sum of the opening inventory plus purchases, the result is the amount of inventory on hand.
The total amount of purchases and the total amount of sales remain relatively unchanged from the comparable previous period.
The gross profit method of inventory valuation is invalid when
a portion of the inventory is destroyed.
there is a substantial increase in inventory during the year.
there is no beginning inventory because it is the first year of operation.
none of these.
Which statement is not true about the gross profit method of inventory valuation?
It may be used to estimate inventories for interim statements.
It may be used to estimate inventories for annual statements.
It may be used by auditors.
None of these.
A major advantage of the retail inventory method is that it
provides reliable results in cases where the distribution of items in the inventory is different from that of items sold during the period.
hides costs from competitors and customers.
gives a more accurate statement of inventory costs than other methods.
provides a method for inventory control and facilitates determination of the periodic inventory for certain types of companies.
An inventory method which is designed to approximate inventory valuation at the lower of cost or net realizable value is
last-in, first-out.
first-in, first-out.
conventional retail method.
specific identification.
The retail inventory method is based on the assumption that the
final inventory and the total of goods available for sale contain the same proportion of high-cost and low-cost ratio goods.
ratio of gross margin to sales is approximately the same each period.
ratio of cost to retail changes at a constant rate.
proportions of markups and markdowns to selling price are the same.
Which statement is true about the retail inventory method?
It may not be used to estimate inventories for interim statements.
It may not be used to estimate inventories for annual statements.
It may not be used by auditors.
None of these.
When the conventional retail inventory method is used, markdowns are commonly ignored in the computation of the cost to retail ratio because
there may be no markdowns in a given year.
this tends to give a better approximation of the lower of cost or net realizable value.
markups are also ignored.
this tends to result in the showing of a normal profit margin in a period when no markdown goods have been sold.
To produce an inventory valuation which approximates the lower-of-cost-or-net realizable value using the conventional retail inventory method, the computation of the ratio of cost to retail should
include markups but not markdowns.
include markups and markdowns
ignore both markups and markdowns.
include markdowns but not markups.
Which of the following is not required when using the retail inventory method?
All inventory items must be categorized according to the retail markup percentage which reflects the item's selling price.
A record of the total cost and retail value of goods purchased.
A record of the total cost and retail value of the goods available for sale.
Total sales for the period.
Which of the following is not a reason the retail inventory method is used widely?
As a control measure in determining inventory shortages
For insurance information
To permit the computation of net income without a physical count of inventory
To defer income tax liability
What condition is not necessary in order to use the retail method to provide inventory results?
Retailer keeps a record of the total costs of products sold for the period.
Retailer keeps a record of the total costs and retail value of goods purchased.
Retailer keeps a record of the total costs and retail value of goods available for sale.
Retailer keeps a record of sales for the period.
What method yields results that are essentially the same as those of the conventional retail method?
FIFO.
Lower-of-average-cost-or-net realizable value.
Average cost.
LIFO.
What is the effect of net markups on the cost-retail ratio when using the conventional retail method?
Increases the cost-retail ratio.
No effect on the cost-retail ratio.
Depends on the amount of the net markdowns.
Decreases the cost-retail ratio.
What is the effect of freight-in on the cost-retail ratio when using the conventional retail method?
Increases the cost-retail ratio
No effect on the cost-retail ratio.
Depends on the amount of the net markups.
Decreases the cost-retail ratio.
The average days to sell inventory is computed by dividing
365 days by the inventory turnover ratio.
the inventory turnover ratio by 365 days.
net sales by the inventory turnover ratio.
365 days by cost of goods sold.
The inventory turnover ratio is computed by dividing the cost of goods sold by
beginning inventory
ending inventory.
average inventory.
number of days in the year.
A fire destroyed Barton’s October 31 inventory, leaving undamaged inventory with a cost of $3,000. Using the gross profit method, the estimated ending inventory destroyed by fire is
$17,000.
$77,000.
$80,000.
$100,000
A fire destroyed Norton’s October 31 inventory, leaving undamaged inventory with a cost of $6,000. Using the gross profit method, the estimated ending inventory destroyed by fire is
$34,000.
$154,000.
$160,000
$200,000.
All merchandise is marked up to sell at its invoice cost plus 20%. Merchandise inventories at the beginning of each month are at 30% of that month's projected cost of goods sold. The cost of goods sold for the month of June is anticipated to be
$1,440,000.
$1,500,000.
$1,520,000.
$1,650,000.
All merchandise is marked up to sell at its invoice cost plus 20%. Merchandise inventories at the beginning of each month are at 30% of that month's projected cost of goods sold. Merchandise purchases for July are anticipated to be
$1,632,000.
$2,076,000.
$1,700,000.
$1,730,000.
Reyes Company had a gross profit of $360,000, total purchases of $420,000, and an ending inventory of $240,000 in its first year of operations as a retailer. Reyes’s sales in its first year must have been
$540,000.
$660,000.
$180,000.
$600,000.
A markup of 40% on cost is equivalent to what markup on selling price?
29%
40%
60%
71%
The estimate of the cost of inventory at March 31 would be
$84,000.
$144,000.
$159,000.
$112,000.
On January 1, 2010, the merchandise inventory of Glaus, Inc. was $800,000. During 2010 Glaus purchased $1,600,000 of merchandise and recorded sales of $2,000,000. The gross profit rate on these sales was 25%. What is the merchandise inventory of Glaus at December 31, 2010?
$400,000
$500,000.
$900,000.
$1,500,000.
For 2010, cost of goods available for sale for Tate Corporation was $900,000. The gross profit rate was 20%. Sales for the year were $800,000. What was the amount of the ending inventory?
$0.
$260,000.
$180,000.
$160,000.
The amount of the inventory loss is estimated to be
$60,000.
$30,000.
$75,000.
$50,000
The sales price for a product provides a gross profit of 25% of sales price. What is the gross profit as a percentage of cost?
25%.
20%
33%
Not enough information is provided to determine.
Gamma Ray Corp. has annual sales totaling $650,000 and an average gross profit of 20% of cost. What is the dollar amount of the gross profit?
$130,000.
$97,500
$108,333.
$162,500
On August 31, a hurricane destroyed a retail location of Vinny's Clothier including the entire inventory on hand at the location. The inventory on hand as of June 30 totaled $320,000. From June 30 until the time of the hurricane, the company made purchases of $85,000 and had sales of $250,000. Assuming the rate of gross profit to selling price is 40%, what is the approximate value of the inventory that was destroyed?
$320,000.
$181,500.
$205,000.
$255,000.
On October 31, a fire destroyed PH Inc.'s entire retail inventory. The inventory on hand as of January 1 totaled $680,000. From January 1 through the time of the fire, the company made purchases of $165,000 and had sales of $360,000. Assuming the rate of gross profit to selling price is 40%, what is the approximate value of the inventory that was destroyed?
$680,000.
$673,000
$485,000.
$629,000.
On March 15, a fire destroyed Interlock Company's entire retail inventory. The inventory on hand as of January 1 totaled $1,650,000. From January 1 through the time of the fire, the company made purchases of $683,000, incurred freight-in of $78,000, and had sales of $1,210,000. Assuming the rate of gross profit to selling price is 30%, what is the approximate value of the inventory that was destroyed?
$2,048,000
$1,486,000
$1,564,000
$2,411,000.
Dicer uses the conventional retail method to determine its ending inventory at cost. Assume the beginning inventory at cost (retail) were $130,000 ($198,000), purchases during the current year at cost (retail) were $685,000 ($1,100,000), freight-in on these purchases totaled $43,000, sales during the current year totaled $1,050,000, and net markups (markdowns) were $24,000 ($36,000). What is the ending inventory value at cost?
$153,164.
$156,165.
$157,412.
$236,000.
Boxer Inc. uses the conventional retail method to determine its ending inventory at cost. Assume the beginning inventory at cost (retail) were $65,500 ($99,000), purchases during the current year at cost (retail) were $568,000 ($865,600), freight-in on these purchases totaled $26,500, sales during the current year totaled $811,000, and net markups were $69,000. What is the ending inventory value at cost?
$222,600.
$174,366.
$142,241
$152,308.
Barker Pet supply uses the conventional retail method to determine its ending inventory at cost. Assume the beginning inventory at cost (retail) were $265,600 ($326,900), purchases during the current year at cost (retail) were $1,068,600 ($1,386,100), freight-in on these purchases totaled $63,900, sales during the current year totaled $1,302,000, and net markups (markdowns) were $2,000 ($96,300). What is the ending inventory value at cost?
$316,700.
$258,111.
$411,000.
$246,667.
If the ending inventory is to be valued at the lower-of-cost-or-net realizable value, what is the cost to retail ratio?
$177,500 ÷ $250,000
$177,500 ÷ $258,500
$175,000 ÷ $260,000
$177,500 ÷ $248,500
The ending inventory at retail should be
$74,000.
$60,000.
$64,000.
$42,000.
If the ending inventory is to be valued at approximately the lower of cost or market, the calculation of the cost to retail ratio should be based on goods available for sale at (1) cost and (2) retail, respectively of
$279,000 and $410,000.
$279,000 and $396,000.
$279,000 and $390,000
$273,000 and $390,000.
What is Drake’s ending inventory at retail?
$54,400.
$56,000
$57,600.
$58,400
What is Goren’s ending inventory at retail?
$34,400.
$36,000.
$37,600.
$38,400
If the ending inventory is to be valued at approximately lower-of-average-cost-or-net realizable value, the calculation of the cost ratio should be based on cost and retail of
$300,000 and $430,000.
$300,000 and $428,000.
$373,000 and $550,000.
$378,000 and $552,000.
The ending inventory at retail should be
$160,000.
$150,000.
$144,000.
$140,000.
The approximate cost of the ending inventory by the conventional retail method is
$95,900.
$94,920.
$98,000.
$102,480.
The average days to sell inventory for Fry are
58.4 days.
67.6 days.
73.0 days.
87.6 days.
The average days to sell inventory for East are
56.9 days.
63.1 days.
66.4 days.
75.8 days.
The 2010 financial statements of Sito Company reported a beginning inventory of $80,000, an ending inventory of $120,000, and cost of goods sold of $600,000 for the year. Sito’s inventory turnover ratio for 2010 is
7.5 times.
6.0 times.
5.0 times.
4.3 times.
Boxer Inc. reported inventory at the beginning of the current year of $360,000 and at the end of the current year of $411,000. If net sales for the current year are $2,214,600 and the corresponding cost of sales totaled $1,879,400, what is the inventory turnover ratio for the current year?
5.74.
4.57
5.39.
4.88
Lower-of-cost-or-net realizable value
gives the lowest valuation if applied to the total inventory.
gives the lowest valuation if applied to major groups of inventory.
gives the lowest valuation if applied to individual items of inventory.
must be applied to major groups for taxes.
Net realizable value is
fair value plus estimated costs to complete and make a sale.
selling price.
selling price plus estimated costs to complete and make a sale.
selling price less estimated costs to complete and make a sale.
