Estimating ending inventory to prepare financial statements


Response to the following:

1. Goods on consignment:

A)Are always paid for by the consignee when they take possession of the goods

B)Are goods shipped by the owner to the consignee who sells the goods for the owner
C)Are goods shipped to the consignor who sells the goods for the owner
D)Are reported in the consignee's books as inventory
E)Are not reported in the consignor's inventory since they do not have possession of the inventory

2. Damaged and obsolete goods

A)Are assigned a value of zero

B)Should be disposed of immediately
C)Are included in inventory at their full cost
D)Are included in inventory at their net realizable value
E)Are never included in inventory

3. On June 30 a company needed to estimate its ending inventory to prepare its second quarter financial statements. The following information is available: Beginning inventory, April 1: $6,000Net sales: $70,000Net purchases: $36,000The company's gross margin ratio is 12%. Using the gross profit method, the cost of goods sold would be:

A)$61,600
B)$35,200
C)$40,000
D)$8,400

Show the correct answer and the steps.

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Accounting Basics: Estimating ending inventory to prepare financial statements
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