Class Notes (834,037)
Canada (508,290)
MGTA01H3 (348)
Lecture

Chapter_8_Inventory_Review_Question_and_Solution_V2.pdf

11 Pages
81 Views
Unlock Document

Department
Management (MGT)
Course
MGTA01H3
Professor
G.Quan Fun
Semester
Fall

Description
Question 1 1. In the last 4 years, Evergreen Ltd. has changed its method of inventory valuation from FIFO to weighted average, then back to FIFO. This selection of accounting principles would be in contravention of which of the following generally accepted accounting principles? a) Matching principle b) Consistency principle c) Cost principle d) Going-concern principle 2. Donny Company’s unadjusted merchandise inventory account balance at year end was $23,000, but a physical count of the inventory revealed a balance of $22,500. Donny uses a perpetual inventory system. Which of the following would be included in the adjusting entry? a) A debit of $500 to merchandise inventory b) A debit of $500 to cost of goods sold c) A credit of $500 to purchase allowances d) A credit of $500 to purchases 3. Bayview Swim Company had accumulated the following cost and market data at November 30. Inventory Categories Cost Market Swim suits $ 10,000 $10,500 Swim caps 3,000 2,000 Goggles 5,000 6,000 What is the lower-of-cost-or-market value for the inventory by major category? a) $17,000 b) $18,000 c) $18,500 d) $19,500 4. Clarence Corporation’s ending inventory is understated by $5,000. What are the effects of this error on the current year’s assets and cost of goods sold? a) Assets are understated; cost of goods sold are understated. b) Assets are overstated; cost of goods sold are understated. c) Assets are understated; cost of goods sold are overstated. d) Assets are overstated; cost of goods sold are overstated. 5. In a periodic inventory system, a purchase return would be recorded by which of the following journal entries? a) Inventory.................................................................................................... XX Accounts payable................................................................................ XX b) Purchase returns......................................................................................... XX Accounts payable................................................................................ XX c) Accounts payable....................................................................................... XX Inventory............................................................................................. XX d) Accounts payable....................................................................................... XX Purchase returns.................................................................................. XX 6. In a periodic inventory system, transportation-in would be recorded by which of the following journal entries? a) Inventory.................................................................................................... XX Accounts payable................................................................................ XX b) Transportation-in ....................................................................................... XX Accounts payable................................................................................ XX c) Accounts payable....................................................................................... XX Inventory............................................................................................. XX d) Accounts payable....................................................................................... XX Transportation-in ................................................................................ XX 7. Foothills Company had net sales of $160,000 for the month of January. The beginning inventory on January 1 was $40,000, and during January the cost of goods purchased totalled $90,000. If the gross profit ratio is 25%, what is the cost of ending inventory at January 31 under the gross profit method? a) $10,000 b) $30,000 c) $32,500 d) $40,000 8. McEwan Services sells merchandise inventory at a gross profit of 20% of sales price. In March 2011, a flood destroyed the company’s entire inventory. From the accounting records, it was determined that beginning inventory was $850,000 and purchases during the year before the flood totalled $5,860,000. Sales for the year before the flood were $7,390,000. What was the value of the destroyed inventory? a) $ 798,000 b) $1,478,000 c) $5,912,000 d) $6,710,000 9. On April 4, Vito Company bought merchandise on account from Davis Company for $2,000, terms 1/10, n/30. On April 8, Vito returned merchandise worth $400 to Davis. On April 13, Vito paid Davis the balance due. What was the amount of cash paid? a) $1,584 b) $1,600 c) $1,980 d) $2,000 10. Maple Leaf Company uses a periodic inventory system. If Maple Leaf has beginning inventory of $40,000, cost of goods sold of $150,000, and ending inventory of $80,000, how much inventory did Maple Leaf purchase during the year? a) $110,000 b) $190,000 c) $230,000 d) $270,000 Question 2 Khan Limited uses a periodic inventory system and has a December 31 year end. On December 30, 2011, Khan received an $8,000 shipment of merchandise inventory. The merchandise was correctly included in the December 31, 2011 ending inventory, but was incorrectly omitted from the 2011 purchases. The invoice for the merchandise was received and processed on January 15, 2012, and the merchandise was incorrectly included in the 2012 purchases. A second inventory error subsequently discovered was that $3,000 of merchandise had inadvertently been omitted from the December 31, 2011 ending inventory. Required For each of the financial statement items in parts (a) through (f), indicate the combined impact the two errors will have for the years 2011 and 2012. State whether the errors will have no effect (NE), or the dollar amount of the overstatement (O) or understatement (U). Current assets — December 31 Accounts payable — December 31 Cost of goods sold Retained earnings — December 31 Net income Cash flow from operations Note: In your examination booklet, use the format shown in the following example to answer this question. Example 2011 2012 x. Item $4,000 U NE Question 2 2011 2012 a) Current assets — December 31 $3,000 U NE b) Accounts payable — December 31 $8,000 U NE c) Cost of goods sold $5,000 U $5,000 O d) Retained earnings — December 31 $5,000 O NE e) Net income $5,000 O $5,000 U f) Cash flow from operations NE NE Question 3 Rice Department Stores has the following inventory information relating to purchases and sales of Brand X dress shoes for the month of August. The company uses a perpetual inventory system. Number of Units Unit Price Inventory, August 1 40 units $60 Sales, August 1-3 8 units Purchases, August 4 200 units $72 Sales, August 5-31 162 units The shoes sell for $120 per unit. Required a. Determine the dollar value assigned to cost of goods sold for the month ended August 31, assuming the company uses weighted-average inventory pricing. You must show your calculations to receive marks. b. Prepare the journal entry(ies) required to record sales for August 5-31, assuming the company uses weighted average inventory pricing. c. If the company used a periodic inventory system instead of a perpetual inventory system, calculate the company’s ending inventory at August 31, assuming it uses weighted average pricing. d. In performing the August 31 inventory count in the furniture department, employees of the company failed to include several sofas that had a total cost of $20,000. What effect would this error have on each of assets, liabilities, and owner’
More Less

Related notes for MGTA01H3

Log In


OR

Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


OR

By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.


Submit