Multiple Choice Questions

1. Moore Company carries product A in inventory on December 31, 2007 at its unit cost of $7.50. Because of a sharp decline in demand for the product, the selling price was reduced to $8.00 per unit. Moore's normal profit margin on product A is $1.60, disposal costs are $1.00 per unit, and the replacement cost is $5.30. Under the rule of cost or market, whichever is lower, Moore's December 31, 2007 inventory of product A should be valued at a unit cost of

a. $5.30

b. $5.40

c. $7.00

d. $7.50

2. Under the retail inventory method, freight-in would be included in the calculation of the goods available for sale for which of the following?

Cost Retail

a. No....No

b. No....Yes

c. Yes....No

d. Yes....Yes

3. The following information is available for the Silver Company for the three months ended March 31, 2007:

Merchandise inventory, January 1, 2007 .......$ 900,000

Purchases ....................3,400,000

Freight-in .................... 200,000

Sales ......................4,800,000

The gross margin recorded was 25% of sales. What should be the merchandise inventory at March 31, 2007?

a. $700,000

b. $900,000

c. $1,125,000

d. $1,200,000

4. The retail inventory method would include which of the following in the calculation of the goods available for sale at both cost and retail?

a. Freight-in

b. Purchases returns

c. Markups

d. Markdowns

5. During 2007 R Corp., a manufacturer of chocolate candies, contracted to purchase 100,000 pounds of cocoa beans at $1.00 per pound, delivery to be made in the spring of 2008. Because a record harvest is predicted for 2008, the price per pound for cocoa beans had fallen to $.80 by December 31, 2007. Of the following journal entries, the one that would properly reflect in 2007 the effect of the commitment of R Corp. to purchase the 100,000 pounds of cocoa is

6. The replacement cost of an inventory item is below the net realizable value and above the net realizable value less the normal profit margin. The original cost of the inventory item is above the replacement cost and below the net realizable value. As a result, under the lower of cost or market method, the inventory item should be valued at the
a. Net realizable value
b. Original cost
c. Replacement cost
d. Net realizable value less the normal profit margin
7. At December 31, 2007 the following information was available from Crisford Company's books:

Sales for the year totaled $110,600; markdowns amounted to $1,400. Under the approximate lower of average cost or market retail method, Crisford's inventory at December 31, 2007 was
a. $30,800
b. $28,000
c. $21,560
d. $19,600
8. Hestor Company's records indicate the following information:
Merchandise inventory, January 1, 2007 ...........$ 550,000
Purchases, January 1 through December 31, 2007 ........2,250,000
Sales, January 1 through December 31, 2007 ..........3,000,000
On December 31, 2007 a physical inventory determined that ending inventory of $600,000 was in the warehouse. Hestors gross profit on sales has remained constant at 30%. Hestor suspects some of the inventory may have been taken by some new employees. At December 31, 2007 what is the estimated cost of missing inventory?
a. $100,000
b. $200,000
c. $300,000
d. $700,000
9. Estimates of price-level changes for specific inventories are required for which of the following inventory methods?
a. Conventional retail
b. Weighted average cost
c. FIFO
d. Dollar-value retail LIFO
10. A company forgets to record a purchase on credit in the Purchases account, but ending inventory is correct. The effect of this mistake in the current year is:

Cost of Accounts Retained
Income goods sold payable earnings__
a. Overstated Understated Understated Overstated
b. UnderstatedOverstatedOverstated Understated
c. Overstated Understated Overstated Understated
d. UnderstatedOverstated UnderstatedOverstated

Transcribed Image Text:

Debit Credit 100,000 Accounts Payable 100,000 b. Cocoa Inventory 80,000 Loss on Purchase Commit- ments (an expense account) 20,000 Accounts Payable 100,000 Loss on Purchase Commit- ments (an expense account) c. 20,000 Accrued Loss on Purchase Commitments (a liability account) 20,000 d. No entry would be necessary in 2007 Cost Retail Inventory, 1/1/07 Purchases Additional markups Available for sale $14,700 20,300 83,300 5,500 4,200 $98,000 $140,000