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Consignment Inventory Chapters 6 & 7

Ladies Resale Is a consignment store that sells ladies used clothing. Dorothy May took clothes to the resale shop on December 15 to be sold on consignment. The clothes have not been sold as of December 31. Which company should include the inventory on its December 31 balance sheet?

  1. Ladies Resale
  2. Dorothy May

FOB Destination Chapters 6 & 7

Michael Company shipped merchandise to PJ Sales on December 31, Year 1, terms FOB destination. The merchandise arrives at PJ’s on January 4, Year 2. Which company should include the inventory on its December 31, Year 1 balance sheet?

  1. Michael Company
  2. PJ Sales
  • Solution Locked

Inventory Set Aside Chapters 6 & 7

Allied Company purchased goods from Baker Company on December 28. Allied agreed to pick up the goods from Baker. On December 31 the goods were in Baker’s warehouse separated and identified as Allied’s. Which company should include the inventory on its December 31 balance sheet?

  1. Allied Company
  2. Baker Company

Loss On Inventory Chapters 6 & 7

Determine the effect on a company’s Assets and Net Income from the following transaction: a loss on inventory is recorded as an adjusting entry.

Assets Net Income
A Decreased Decreased
B Decreased No effect
C Increased No effect
D Increased Increased
E None of the above
  • Solution Locked

FOB Shipping Chapters 6 & 7

Determine the effect on a company’s Assets and Net Income from the following transaction: a company using the perpetual inventory method ships goods costing $5,000 to a customer FOB shipping point. The sale price is $8,000.

Assets Net Income
A Decreased Decreased
B Decreased No effect
C Increased No effect
D Increased Increased
E None of the above
  • Solution Locked

FOB Shipping Chapters 6 & 7

Ancient Inc. shipped merchandise to Cantor Company on December 26, Year 1, FOB shipping point. The merchandise arrived at Cantor on January 2, Year 2. Which company should include the inventory on its December 31, Year 1 balance sheet?

  1. Ancient Inc.
  2. Cantor Company
  • Solution Locked

Inventory Costing Chapters 6 & 7

A company uses the periodic inventory system to account for inventories. Information related to the company’s inventory for the month of October is given below:

Date Units Unit Cost Total Cost
Beginning 150 2.20 330
Oct. 2 600 2.40 1,440
Oct. 10 500 2.50 1,250
Oct. 17 500 2.60 1,300
Oct. 28 700 2.70 1,890

During October the company sold 1,400 units at $6.00 per unit.

  1. Determine the value of Cost of Goods Sold using the Average Cost Method of inventory valuation.
    • $2,661
    • $3,472
    • $3,690
    • $3,548
  2. Determine Gross Profit for the month of October using the FIFO cost assumption.
    • $4,990
    • $4,710
    • $5,600
    • $3,410
  3. Determine Ending Inventory using the LIFO cost assumption
    • $2,800
    • $3,410
    • $2,520
    • $,3690
  • Solution Locked

Calculating Operating Income Chapters 6 & 7

A company began operations at the start of Year 1.

During the year, it had cash sales of $50,000 and credit sales of $450,000. The company collected $420,000 in cash from the credit sales. The company purchased inventory costing $250,000 and paid $18,000 in dividends. The company incurred the following expenses:

Cost of goods sold 210,000 Rent expense 6,000
Salary expense 80,000 Depreciation expense 4,000
Interest expense 5,000 Income tax expense 57,000

Using this information, answer the following questions.

  1. What would Operating Income on the Dec. 31, Year 1 Income Statement be reported as?
  2. As of Dec. 31, Year 1, determine the ending balance in the Accounts Receivable
  3. Determine Ending Retained Earnings as of December 31, Year 1
  • Solution Locked

The Effect of Inventory Errors Chapters 6 & 7

A company discovered in Year 3 that the following inventory errors had occurred:

  • Ending Inventory for Year 1 was understated by $5,000.
  • Ending Inventory for Year 2 was overstated by $7,000.

Determine the effect those errors would have on the Year 1 and Year 2 financial statements:

  1. How do the errors above affect Assets reported on the Year 1 financial statements? Assets would be...
    • a. Overstated by $2,000
    • b. Overstated by $5,000
    • c. Overstated by $7,000
    • d. Understated by $5,000
    • e. Understated by $12,000
  2. How do the errors above affect Net Income reported on the Year 1 financial statements? Net income would be...
    • a. Overstated by $2,000
    • b. Overstated by $5,000
    • c. Overstated by $7,000
    • d. Understated by $5,000
    • e. Understated by $12,000
  3. How do the errors above affect Assets reported on the Year 2 financial statements? Assets would be...
    • a. No effect on assets
    • b. Overstated by $2,000
    • c. Overstated by $7,000
    • d. Understated by $2,000
    • e. Understated by $7,000
  4. How do the errors above affect Net Income and Shareholders’ Equity reported on the Year 2 financial statements? Net Income and Shareholders’ Equity would be...
    Net Income Shareholders’ Equity
    A Understated by $12,000 Understated by $7,000
    B Overstated by $5,000 No effect
    C Overstated by $7,000 Overstated by $2,000
    D Overstated by $7,000 Overstated by $7,000
    E Overstated by $12,000 Overstated by $7,000
  • Solution Locked