Select the appropriate response.
1. Inventory accounts should be classified in which section of a balance sheet?
a. Current assets
b. Investments
c. Property, plant, and equipment
d. Intangible assets
2. Ritz Company agreed to purchase certain inventory items from Hostess Corporation. Hostess shipped the goods F.O.B. destination. On December 31, Ritz's accounting year-end, Ritz was aware that the goods had been shipped and would be received any day.
a. Ritz should include the goods in its inventory calculated on December 31.
b. Ritz should include the goods in its inventory calculated on December 31, but should not record the obligation to pay for them.
c. Ritz should not include the goods in its inventory calculated on December 31, but should include the related payable on its balance sheet at December 31.
d. Ritz should not include the goods in its inventory calculated on December 31, and should not include the related payable on its balance sheet at December 31.
3. Hefty Company wants to know the effect of different inventory methods on financial statements. Given below is information about beginning inventory and purchases for the current year.
| January 2 | Beginning Inventory | 500 units at $3.00 |
| April 7 | Purchased | 1,100 units at $3.20 |
| June 30 | Purchased | 400 units at $4.00 |
| December 7 | Purchased | 1,600 units at $4.40 |
Sales during the year were 2,700 units at $5.00. If Hefty used the first-in, first-out method, ending inventory would be:
a. $2,780
b. $3,960
c. $9,700
d. $10,880
4. Hefty Company wants to know the effect of different inventory methods on financial statements. Given below is information about beginning inventory and purchases for the current year.
| January 2 | Beginning Inventory | 500 units at $3.00 |
| April 7 | Purchased | 1,100 units at $3.20 |
| June 30 | Purchased | 400 units at $4.00 |
| December 7 | Purchased | 1,600 units at $4.40 |
Sales during the year were 2,700 units at $5.00. If Hefty used the periodic LIFO method, cost of goods sold would be:
a. $2,780
b. $3,960
c. $9,700
d. $10,880
5. Hefty Company wants to know the effect of different inventory methods on financial statements. Given below is information about beginning inventory and purchases for the current year.
| January 2 | Beginning Inventory | 500 units at $3.00 |
| April 7 | Purchased | 1,100 units at $3.20 |
| June 30 | Purchased | 400 units at $4.00 |
| December 7 | Purchased | 1,600 units at $4.40 |
Sales during the year were 2,700 units at $5.00. If Hefty used the weighted-average method, gross profit would be:
a. $3,255
b. $3,415
c. $10,245
d. $13,500
6. Which of the following inventory methods will always produce the same results under both a periodic and perpetual system?
a. FIFO
b. LIFO
c. Average
d. All of these
7. An inventory pricing procedure in which the oldest costs incurred rarely have an effect on the ending inventory valuation is:
a. FIFO
b. LIFO
c. Retail
d. Weighted-average
8. Bernstein Corporation recently experienced a fire which destroyed all of its inventory. The following data have been reconstructed from partial accounting information, and pertain to the year up to the date of the fire.
| Beginning inventory | $20,000 |
| Net purchases | $45,000 |
| Sales | $80,000 |
| Gross profit rate | 40% |
Using the gross profit method, estimate the dollar amount of inventory which was destroyed in the fire.
a. $17,000
b. $33,000
c. $48,000
d. $65,000
9. Gerber Department Store utilizes the retail inventory method. Gerber's beginning inventory cost $140,000 and retailed for $280,000. Purchases for the period amounted to $390,000 and were priced to sell at twice that amount. Sales for the period, all at normal retail, were $600,000. How much is the cost of Gerber's estimated ending inventory?
a. $115,000
b. $150,000
c. $230,000
d. $300,000
10. Wonder Corporation failed to record the purchase of merchandise on account. The merchandise and related accounts payable should have been recorded but were not. What is the effect of these errors on assets, liabilities, retained earnings, and net income, respectively?
a. Understated, understated, no effect, no effect
b. Understated, understated, understated, understated
c. Understated, overstated, overstated, understated
d. Overstated, overstated, understated, overstated
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