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Exam 17: Merchandise Inventory

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Question 41

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Under the gross profit method of estimating inventory, the ending inventory is determined by subtracting the estimated cost of goods sold from the cost of goods available for sale.

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Question 42

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An increase above the initial retail price of merchandise is

A) net profit.
B) gross profit.
C) markup.
D) markon.

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Question 43

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A price reduction below the original markon is ________________.

Net Sales minus Gross Profit equals ___________________.

Distinguish between periodic inventory, perpetual inventory, and physical inventory.

If a business builds and sells yachts. The logical method for inventory costing is

A merchant who deals in one-of-a-kind items with large unit costs may account for inventory by the _________________________ method.

The use of the FIFO method of inventory valuation results in a matching of current inventory costs against current sales revenue.

A physical inventory should be taken at least annually to verify the goods on hand.

In periods of rising prices, the inventory valuation procedure that results in the highest net income is

Inventory cannot be valued at the lower of cost or market if the inventory cost was determined using the FIFO methods.

The FIFO method of inventory valuation focuses on the balance sheet; the most current costs are in ending inventory.

If a firm uses the FIFO method of inventory valuation for tax purposes, it must use the FIFO method for financial accounting.

Cost ratio is calculated by

The accountant for a company whose inventory was destroyed by fire determined from undamaged records that the cost of goods available for sale was $100,000 and the net sales were $80,000 up to the date of the fire. The accountant also determined that the company's normal gross profit rate is 40 percent of net sales. From this data, the accountant estimated the cost of the inventory destroyed by the fire to be

Explain what taking a physical inventory is and why it is done.

A matching of the most recent costs to revenue results from the use of

On July 1, a tornado destroyed the warehouse where The Brooks Boys Sports Equipment Company stored their inventory. The inventory was, for the most part, carried away by the force of the storm. The usual gross profit rate for the company was 30%. The beginning inventory of $220,000 was recorded on the prior year's financial reports. The net sales to date are known to be $886,450, and net purchases (including freight-in charges and purchases returns) were $580,000. Using the gross profit method of inventory valuation, determine the value of the inventory that was destroyed.