Under the retail inventory method companies compute a

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Under the retail inventory method, companies compute a cost-to-retail ratio by dividing the cost of goods available for sale by the retail value of the goods available for sale. They then apply this ratio to the ending inventory at retail to determine the estimated cost of the ending inventory. GLOSSARY FOR APPENDIX 6B Gross profit method A method for estimating the cost of the ending inventory by applying a gross profit rate to net sales and subtracting estimated cost of goods sold from cost of goods available for sale. (p. 275). Retail inventory method A method for estimating the cost of the ending inventory by applying a cost-to-retail ratio to the ending inventory at retail. (p. 276). SELF-STUDY QUESTIONS Answers are at the end of the chapter. 1. Which of the following should not be included in the physical inventory of a company? a. Goods held on consignment from another company. b. Goods shipped on consignment to another company. c. Goods in transit from another company shipped FOB shipping point. d. None of the above. 2. As a result of a thorough physical inventory, Railway Company determined that it had inventory worth $180,000 at December 31, 2010. This count did not take into consideration the following facts: Rogers Consignment store currently has goods worth $35,000 on its sales floor that belong to Railway but are being sold on consignment by Rogers.The selling price of these goods is $50,000. Railway purchased $13,000 of goods that were shipped on December 27, FOB destination, that will be received by Railway on January 3. Determine the correct amount of inventory that Railway should report. a. $230,000. b. $215,000. c. $228,000. d. $193,000. 3. Cost of goods available for sale consist of two elements: beginning inventory and a. ending inventory. b. cost of goods purchased. c. cost of goods sold. d. all of the above. 4. Tinker Bell Company has the following: Units Unit Cost Inventory, Jan. 1 8,000 $11 Purchase, June 19 13,000 12 Purchase, Nov. 8 5,000 13 * Note: All asterisked Questions, Exercises, and Problems relate to material in the appendices to the chapter. PDF Watermark Remover DEMO : Purchase from to remove the watermark
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278 Chapter 6 Inventories If Tinker Bell has 9,000 units on hand at December 31, the cost of the ending inventory under FIFO is: a. $99,000. c. $113,000. b. $108,000. d. $117,000. 5. Using the data in Question 4 above, the cost of the end- ing inventory under LIFO is: a. $113,000. c. $99,000. b. $108,000. d. $100,000. 6. Davidson Electronics has the following: Units Unit Cost Inventory, Jan. 1 5,000 $ 8 Purchase,April 2 15,000 $10 Purchase,Aug. 28 20,000 $12 If Davidson has 7,000 units on hand at December 31, the cost of ending inventory under the average-cost method is: a. $84,000. c. $56,000. b. $70,000. d. $75,250. 7. In periods of rising prices, LIFO will produce: a. higher net income than FIFO. b. the same net income as FIFO. c. lower net income than FIFO. d. higher net income than average costing.
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