T Nation

Accounting Question



I am having trouble with two accounting questions and would appreciate any help/guidance anyone can provide.

Question 1:
The inventory account of Irick Company at December 31, 2010, included the following items:

                                                        Inventory amount

Merchandise out on consignment at sales price $15,000
(including markup of 40% on selling price)

Goods purchased, in transit (FOB shipping point) 12,000

Goods held on consignment by Irick 13,000
Goods out on approval (sales price $7,600, cost $6,400) 7,600

Based on the above the Dec 31 inventory should be reduced by:

A. $20,200
B. $22,600
C. $32,200
D. $32,000

Question 2:

Miles Company, a wholesaler, budgeted the following sales for the indicated months:

                        June         July        August

Sales on account $1,800,000 $1,840,000 $1,900,000
Cash Sales 180,000 200,000 260,000
Total Sales $1,980,000 $2,040,000 $2,160,000

All merchandise is marked up to sell at its invoice cost plus 20%. Merchandise inventories at the beginning of each month are at 30% of the months projected cost of goods sold.

Merchandise purchased for July are anticipated to be
A. $1,632,000
B. $2,076,000
C. $1,700,000
D. $1,730,000

Thanks in advance and if you wouldn't mind explaining the answer so I can try and learn this stuff that would be great.



Wow, I just had CPA exam flashbacks...



I'd like to see skaz take a shot at this. :wink:


I wish they were just flashbacks for me.


The second one is just math, and will be on BEC.

The first one you have to look up the rules, and will be on audit, possibly FAR.


i may be a little rusty, but i'll give the first one a go...you should prob check and verify

A. 20,200

Merchandise out on consignment at sales price $15,000
(including markup of 40% on selling price)
-since goods are on consignment...you still hold title, but you need to subtract out markup...subtract $6000

Goods purchased, in transit (FOB shipping point) 12,000
-fob shipping point means you acquire title at purchase..so this would be part of your inventory...no need to subtract out

Goods held on consignment by Irick 13,000
-you're holding someone elses goods...subtract out all $13,000

Goods out on approval (sales price $7,600, cost $6,400) 7,600
-you're letting a customer hold on to goods for a trial period...still part of your inventory...need to subtract out markup though..subtract $1,200

add up 6000, 13000, and 1200 to get $20,200


second one, i'm stuck and don't feel like thinking anymore

for july, subtract markup from total sales and thats your COGS, which is 1,632,000.

but then it says beg inv for that month is 30% of COGS at 1,632,000, which is 489,600.

since you already have 489,600 in your inventory that month, i would think you would just need to purchase the difference b/t beg inv and projected COGS, which is 1,142,400...but thats not an answer.

i don't know, maybe you need to incorporate the other months somehow, or i am interpreting the question wrong. have fun


Okay this looks pretty good. I figured the $13,000 and $1200, but was unsure about the $6,000.

Thanks for the help.



Yeah my brain is really killing me on this one.

I thought maybe if:

Beginning inventory is $510,000 (being 30% of COGS)
Sales are $2,040,000
Ending inventory is $540,000 (since $540,000 is 30% of August COGS sold so it is the beginning inventory for August and ending for July??)

then Purchases would be $2,070,000, but that isn't a choice. It is close though??


Thanks everyone for the help,



Yikes! Put me on the spot.

Outlaw already answered the first question, but I have never seen anything called "goods on approval" in my studies.

I admit that I'm stumped on the second one.


July sales are $2,040/1.2 (all merch marked up to cost + 20%) = $1,700
$1,700 x .3 (amount of july inv needed on hand already) = $510 beginning inventory at July
$1,700 - $510 = $1,190 July sales that wil need to be purchased in July
$,2160/1.2 = $1,800 (Total august sales at cost)
$1,800 x .3 (total august sales needed to be purchased in July) = $540

$540 + $1,190 = $1,730 (D)

Thanks and have a nice day. :wink:


I feel like a dumbass. I've got A LOT of studying to do.


ah nice..brain was not computing the "plus 20%"; now I can feel whole again


This is great. Thanks again everyone especially theOUTLAW and LankyMofo. I appreciate all the help.



Hey Outlaw, are you a CPA too?

And usmccds423, are you studying accounting?


lol, have you taken any parts yet?


Nope. I sent my application in this morning as a matter of fact. I signed up for the Becker review last week. They are doing a 0% financing deal right now.

This thread has me scared.


Just actually study and you'll be fine, but yeah those questions, are very similar to exam difficulty. For FAR and BEC you can work backwards from the answers sometimes.

What order are you taking them?


...used to be. I went inactive after I got into law.