Financial Accounting Fundamentals 7th Edition By Wild – Test Bank

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Financial Accounting Fundamentals, 7e (Wild)

Chapter 5   Inventories and Cost of Sales

 

1) Goods in transit are automatically included in inventory regardless of whether title has passed to the buyer.

 

2) Goods on consignment are goods shipped by their owner, called the consignor, to another party called the consignee. The consignee sells goods for the owner.

 

3) If obsolete or damaged goods can be sold, they will be included in inventory at their original cost.

 

4) If the seller is responsible for paying freight charges, then ownership of inventory passes when goods arrive at their destination.

 

5) Net realizable value for damaged or obsolete goods is sales price less the cost of making the sale.

 

6) The cost of an inventory item includes its invoice cost minus any discount, plus any added or incidental costs necessary to put it in a place and condition for sale.

 

7) One application of internal control when taking a physical count of inventory is the use of pre-numbered inventory tickets.

 

8) Incidental costs for acquiring merchandise inventory, such as import duties, freight, storage, and insurance, should not be added to the cost of inventory.

 

9) The physical count of inventory is used to adjust the Inventory account balance to the actual inventory available.

 

10) Most companies do not take a physical count of inventory each year, but rather rely on inventory records to determine the inventory value.

 

11) According to the expense recognition principle, inventory costs are expensed as cost of goods sold when inventory is sold.

 

12) The weighted average method matches the costs of inventory items with the revenue generated by the sale of the inventory items.

 

13) Assuming items in inventory were purchased at different prices, the inventory cost method used affects net income.

 

14) Whether purchase costs are rising or falling, FIFO always will yield the highest gross profit and net income.

 

15) An advantage of the weighted average inventory method is that it tends to smooth out erratic changes in costs.

16) In a period of rising purchase costs, LIFO usually gives a lower taxable income and therefore, yields a tax advantage.

 

17) FIFO is preferred when purchase costs are rising and managers have incentives to report higher income for reasons such as bonus plans, job security, and reputation.

 

18) The LIFO method of inventory costing best matches current costs with revenues.

 

19) The choice of costing method will impact both the balance sheet and income statement.

 

20) An advantage of FIFO is that it assigns the most recent costs to cost of goods sold, and does a better job of matching current costs with revenues on the income statement.

 

21) According to IRS guidelines, companies may use FIFO for financial reporting and LIFO for tax reporting.

 

22) An error in the ending inventory balance will cause an error in the calculation of cost of goods sold.

 

23) Errors in the ending inventory balance only affect the current period’s records and financial statements.

 

24) Understating ending inventory understates both current and total assets.

 

25) An understatement of the ending inventory balance will overstate cost of goods sold and understate net income.

 

26) Overstating beginning inventory will understate cost of goods sold and net income.

 

27) An understatement of ending inventory will cause an understatement of assets and equity on the balance sheet.

 

28) An overstatement of ending inventory will cause an overstatement of assets and an understatement of equity on the balance sheet.

 

29) A merchandiser’s ability to pay its short-term obligations depends on many factors including how quickly it sells its merchandise inventory.

 

30) The inventory turnover ratio is computed by dividing cost of goods sold by average merchandise inventory.

 

31) The days’ sales in inventory ratio is computed by dividing ending inventory by cost of goods sold and multiplying the result by 365.

 

32) The simple rule for inventory turnover is that a low ratio is preferable.

 

 

33) It can be expected that companies selling perishable goods have a higher inventory turnover than companies selling nonperishable goods.

 

34) A company’s cost of goods sold was $15,500 and its average merchandise inventory was $4,500. Its inventory turnover equals 3.4.

 

35) Underwood had cost of goods sold of $8 million and its ending inventory was $2 million. Therefore, its days’ sales in inventory equals 25 days.

 

36) Determining the unit costs assigned to inventory items is one of the most important decisions in accounting for inventory.

 

37) When units are purchased at different costs over time, determining the cost per unit assigned to inventory items is simple.

 

38) LIFO assumes that inventory costs flow in the order incurred.

 

39) The assignment of costs to cost of goods sold and inventory using weighted average usually yields different results depending on whether a perpetual or periodic system is used.

 

40) The FIFO inventory method assumes that costs for the latest units purchased are the first to be charged to the cost of goods sold.

 

41) The cost flow method chosen must match the actual physical flow of the goods.

 

42) The assignment of costs to the cost of goods sold and to ending inventory using FIFO is the same for both the perpetual and periodic inventory systems.

 

43) Under FIFO, the most recent costs are assigned to ending inventory.

 

44) The choice of an inventory valuation method has little to no impact on gross profit and cost of sales.

 

45) In applying the lower of cost or market method to inventory valuation, market is defined as the current replacement cost for LIFO.

 

46) In applying the lower of cost or market method to inventory valuation, market is defined as the current selling price.

 

47) A company has inventory with a selling price of $451,000, a market value of $223,000, and a cost of $241,000. According to the lower of cost or market, the inventory should be written down to $223,000.

 

48) The lower of cost or market rule for inventory valuation is always applied to individual units separately rather than to major categories of inventory or to the entire inventory.

 

 

49) Accounting principles require that inventory be reported at the market value (cost) of replacing inventory when cost is lower than market value.

 

50) Accounting principles require that LIFO inventory be reported at the market value (cost) of replacing inventory when market value is lower than cost.

 

51) A company’s total cost of FIFO inventory was $329,000 and its current replacement cost is $307,000. Under the lower cost or market, the amount reported should be $329,000.

 

52) A company’s cost of inventory was $219,500. Due to phenomenal demand the market value of its inventory increased to $221,700. This company should record the inventory at its market value.

 

53) When LIFO is used with the periodic inventory system, cost of goods sold is assigned costs from the most recent purchases at the point of each sale, rather than from the most recent purchases for the period.

 

54) The retail inventory method estimates the cost of ending inventory by applying the gross profit ratio to net sales.

 

55) The reasoning behind the retail inventory method is that if we can get a good estimate of the cost-to-retail ratio, we can multiply ending inventory at retail by this ratio to estimate ending inventory at cost.

 

56) The reliability of the gross profit method depends on a good estimate of the gross profit ratio.

 

57) In the retail inventory method of inventory valuation, the retail amount of inventory is measured using selling prices of inventory items.

 

58) To avoid the time-consuming process of taking an inventory each year, most companies use the gross profit method to estimate ending inventory.

 

59) Using the retail inventory method, if the cost to retail ratio is 70% and ending inventory at retail is $145,000, then estimated ending inventory at cost is $207,143.

 

60) Damaged and obsolete goods that can be sold:

  1. A) Are never counted as inventory.
  2. B) Are included in inventory at their full cost.
  3. C) Are included in inventory at their net realizable value.
  4. D) Should be disposed of immediately.
  5. E) Are assigned a value of zero.

 

 

61) Merchandise inventory includes:

  1. A) All goods owned by a company and held for sale.
  2. B) All goods in transit.
  3. C) All goods on consignment.
  4. D) Only damaged goods.
  5. E) Only non-damaged goods.

 

62) Goods in transit are included in a purchaser’s inventory:

  1. A) At any time during transit.
  2. B) When the goods are shipped FOB shipping point.
  3. C) When the supplier is responsible for freight charges.
  4. D) If the goods are shipped FOB destination.
  5. E) After the half-way point between the buyer and seller.

 

63) Consignment goods are:

  1. A) Goods shipped by the owner to the consignee who sells the goods for the owner.
  2. B) Reported in the consignee’s books as inventory.
  3. C) Goods shipped to the consignor who sells the goods for the owner.
  4. D) Not reported in the consignor’s inventory since they do not have possession of the inventory.
  5. E) Always paid for by the consignee when they take possession.

 

64) Regardless of the inventory costing system used, cost of goods available for sale must be allocated at the end of the period between

  1. A) beginning inventory and net purchases during the period.
  2. B) ending inventory and beginning inventory.
  3. C) net purchases during the period and ending inventory.
  4. D) ending inventory and cost of goods sold.
  5. E) beginning inventory and cost of goods sold.

 

 

65) On December 31 of the current year, Plunkett Company reported an ending inventory balance of $215,000. The following additional information is also available:

 

  • Plunkett sold and shipped goods costing $38,000 to Savannah Enterprises on December 28 with shipping terms of FOB shipping point. The goods were not included in the ending inventory amount of $215,000.
  • Plunkett purchased goods costing $44,000 on December 29. The goods were shipped FOB destination and were received by Plunkett on January 2 of the following year. The shipment was a rush order that was supposed to arrive by December 31. These goods were included in the ending inventory balance of $215,000.
  • Plunkett’s ending inventory balance of $215,000 included $15,000 of goods being held on consignment from Carole Company. (Plunkett Company is the consignee.)
  • Plunkett’s ending inventory balance of $215,000 did not include goods costing $95,000 that were shipped to Plunkett on December 27 with shipping terms of FOB destination and were still in transit at year-end.

 

Based on the above information, the amount that Plunkett should report in ending inventory on December 31 is:

  1. A) $194,000
  2. B) $209,000
  3. C) $200,000
  4. D) $171,000
  5. E) $156,000

66) Bedrock Company reported a December 31 ending inventory balance of $412,000. The following additional information is also available:

 

  • The ending inventory balance of $412,000 included $72,000 of consigned inventory for which Bedrock was the consignor.
  • The ending inventory balance of $412,000 included $22,000 of office supplies that were stored in the warehouse and were to be used by the company’s supervisors and managers during the coming year.

 

Based on this information, the correct balance for ending inventory on December 31 is:

  1. A) $412,000
  2. B) $340,000
  3. C) $318,000
  4. D) $362,000
  5. E) $390,000

 

 

 

67) Buffalo Company reported a December 31 ending inventory balance of $412,000. The following additional information is also available:

 

  • The ending inventory balance of $412,000 did not include goods costing $48,000 that were purchased by Buffalo on December 28 and shipped FOB destination on that date. Buffalo did not receive the goods until January 2 of the following year.
  • The ending inventory balance of $412,000 included damaged goods at their original cost of $38,000. The net realizable value of the damaged goods was $10,000.

 

Based on this information, the correct balance for ending inventory on December 31 is:

  1. A) $374,000
  2. B) $384,000
  3. C) $460,000
  4. D) $422,000
  5. E) $438,000

68) Costs included in the Merchandise Inventory account can include all of the following except:

  1. A) Invoice price minus any discount.
  2. B) Transportation-in.
  3. C) Storage.
  4. D) Insurance.
  5. E) Damaged inventory that cannot be sold.

 

69) Internal controls that should be applied when a business takes a physical count of inventory should include all of the following except:

  1. A) Prenumbered inventory tickets.
  2. B) A manager confirms that all inventories are ticketed only once.
  3. C) Counters confirm the validity of inventory existence, amounts, and quality.
  4. D) Second counts by a different counter.
  5. E) Counters of inventory should be those who are responsible for the inventory.

 

70) Physical counts of inventory:

  1. A) Are not necessary under the perpetual system.
  2. B) Are necessary to adjust the Inventory account to the actual inventory available.
  3. C) Must be taken at least once a month.
  4. D) Requires the use of hand-held portable computers.
  5. E) Are not necessary under the cost-to benefit constraint.

 

71) During a period of steadily rising costs, the inventory valuation method that yields the highest reported net income is:

  1. A) Specific identification method.
  2. B) Average cost method.
  3. C) Weighted-average method.
  4. D) FIFO method.
  5. E) LIFO method.

 

 

 

72) The inventory valuation method that tends to smooth out erratic changes in costs is:

  1. A) FIFO.
  2. B) Weighted average.
  3. C) LIFO.
  4. D) Specific identification.
  5. E) WIFO.

73) The inventory valuation method that has the advantages of assigning an amount to inventory on the balance sheet that approximates its current cost, and also mimics the actual flow of goods for most businesses is:

  1. A) FIFO.
  2. B) Weighted average.
  3. C) LIFO.
  4. D) Specific identification.
  5. E) Lower of cost or market.

 

74) The inventory valuation method that results in the lowest taxable income in a period of inflation is:

  1. A) LIFO method.
  2. B) FIFO method.
  3. C) Weighted-average cost method.
  4. D) Specific identification method.
  5. E) Gross profit method.

 

75) The LIFO conformity rule:

  1. A) Requires when LIFO is used for tax reporting, it is also used for financial reporting.
  2. B) Requires a company to use one method of inventory valuation exclusively.
  3. C) Requires that all companies in the same industry use the same accounting methods of inventory valuation.
  4. D) Is also called the taxation principle.
  5. E) Is only applicable to the automotive industry.

 

76) The selected inventory costing method impacts:

  1. A) Gross profit and ending inventory.
  2. B) Sales.
  3. C) The physical flow of goods.
  4. D) Amount of inventory on hand.
  5. E) The shipping terms to the buyer.

 

77) Companies can and often do use different costing methods for financial reporting and tax reporting. An exception to this is the:

  1. A) Full disclosure principle.
  2. B) Consistency concept.
  3. C) FIFO inventory valuation method.
  4. D) LIFO conformity rule.
  5. E) Matching principle.

78) Which of the following inventory costing methods will always result in the same values for ending inventory and cost of goods sold regardless of whether a perpetual or periodic inventory system is used?

  1. A) FIFO and LIFO
  2. B) LIFO and weighted-average cost
  3. C) Specific identification and FIFO
  4. D) FIFO and weighted-average cost
  5. E) LIFO and specific identification

 

79) If a period-end inventory amount is reported in error, it can cause a misstatement in all of the following except:

  1. A) Cost of goods sold.
  2. B) Gross profit.
  3. C) Net sales.
  4. D) Current assets.
  5. E) Net income.

 

80) An error in ending inventory causes an error in the next period’s:

  1. A) Sales.
  2. B) Beginning inventory.
  3. C) Accounts payable.
  4. D) Accounts receivable.
  5. E) Shipping costs.

 

81) The understatement of the ending inventory balance causes:

  1. A) Cost of goods sold to be overstated and net income to be understated.
  2. B) Cost of goods sold to be overstated and net income to be overstated.
  3. C) Cost of goods sold to be understated and net income to be understated.
  4. D) Cost of goods sold to be understated and net income to be overstated.
  5. E) Cost of goods sold to be overstated and net income to be correct.

 

82) The understatement of the beginning inventory balance causes:

  1. A) Cost of goods sold to be understated and net income to be understated.
  2. B) Cost of goods sold to be understated and net income to be overstated.
  3. C) Cost of goods sold to be overstated and net income to be overstated.
  4. D) Cost of goods sold to be overstated and net income to be understated.
  5. E) Cost of goods sold to be overstated and net income to be correct.

 

 

83) Lucia Company reported cost of goods sold for Year 1 and Year 2 as follows:

 

    Year 1     Year 2  
Beginning inventory $ 120,000   $ 130,000  
Cost of goods purchased   250,000     275,000  
Cost of goods available for sale   370,000     405,000  
Ending inventory   130,000     135,000  
Cost of goods sold $ 240,000   $ 270,000  

 

Lucia Company made two errors: 1) ending inventory at the end of Year 1 was understated by $15,000 and 2) ending inventory at the end of Year 2 was overstated by $6,000. Given this information, the correct cost of goods sold figure for Year 2 would be:

  1. A) $291,000
  2. B) $276,000
  3. C) $264,000
  4. D) $285,000
  5. E) $249,000

 

84) Hull Company reported the following income statement information for the current year:

       
Sales $ 410,000  
Cost of goods sold:      
Beginning inventory $ 132,000  
Cost of goods purchased   273,000  
Cost of goods available for sale   405,000  
Ending inventory   144,000  
Cost of goods sold   261,000  
Gross profit $ 149,000  

 

The beginning inventory balance is correct. However, the ending inventory figure was overstated by $20,000. Given this information, the correct gross profit would be:

  1. A) $149,000.
  2. B) $169,000.
  3. C) $129,000.
  4. D) $142,000.
  5. E) $112,000.

85) An understatement of ending inventory will cause:

  1. A) An overstatement of assets and equity on the balance sheet.
  2. B) An understatement of assets and equity on the balance sheet.
  3. C) An overstatement of assets and an understatement of equity on the balance sheet.
  4. D) An understatement of assets and an overstatement of equity on the balance sheet.
  5. E) No effect on the balance sheet.

 

 

 

86) The inventory turnover ratio:

  1. A) Is used to analyze collectability.
  2. B) Is used to measure solvency.
  3. C) Reveals how many times a company sells its merchandise inventory during a period.
  4. D) Reveals how many days a company can sell inventory if no new merchandise is purchased.
  5. E) Calculation depends on the company’s inventory valuation method.

 

87) Days’ sales in inventory:

  1. A) Shows the buffer against out-of-stock inventory.
  2. B) Focuses on average inventory rather than ending inventory.
  3. C) Is used to measure solvency.
  4. D) Is calculated by dividing cost of goods sold by ending inventory.
  5. E) Is a substitute for the acid-test ratio.

 

88) The inventory turnover ratio is calculated as:

  1. A) Cost of goods sold divided by average merchandise inventory.
  2. B) Sales divided by cost of goods sold.
  3. C) Ending inventory divided by cost of goods sold.
  4. D) Cost of goods sold divided by ending inventory.
  5. E) Cost of goods sold divided by ending inventory times 365.

 

89) Days’ sales in inventory is calculated as:

  1. A) Ending inventory divided by cost of goods sold.
  2. B) Cost of goods sold divided by ending inventory.
  3. C) Ending inventory divided by cost of goods sold times 365.
  4. D) Cost of goods sold divided by ending inventory times 365.
  5. E) Ending inventory times cost of goods sold.

90) Giorgio had cost of goods sold of $9,421 million, ending inventory of $2,089 million, and average inventory of $1,965 million. Its inventory turnover equals:

  1. A) 0.21.
  2. B) 4.51.
  3. C) 4.79.
  4. D) 76.1 days.
  5. E) 80.9 days.

 

91) Perfection Company had cost of goods sold of $853,000, ending inventory of $70,500, and average inventory of $71,600. Its inventory turnover equals:

  1. A) 11.9.
  2. B) 1.0.
  3. C) 6.0.
  4. D) 30.6.
  5. E) 14.0.

 

 

 

92) Beckenworth had cost of goods sold of $9,421 million, ending inventory of $2,089 million, and average inventory of $1,965 million. Its days’ sales in inventory equals: (Use 365 days a year.)

  1. A) 0.21.
  2. B) 4.51.
  3. C) 4.79.
  4. D) 76.1 days.
  5. E) 80.9 days.

 

93) Ulrich had cost of goods sold of $6.7 million, ending inventory of $2.2 million, and average inventory of $1.9 million. Its days’ sales in inventory equals (round your final answer to the nearest whole number):

  1. A) 120.
  2. B) 104.
  3. C) 60.
  4. D) 35.
  5. E) 180.

 

94) Acceptable methods of assigning specific costs to inventory and cost of goods sold include all of the following except:

  1. A) LIFO method.
  2. B) FIFO method.
  3. C) Specific identification method.
  4. D) Weighted average method.
  5. E) Retail method.

95) Decisions management must make in accounting for inventory cost include all of the following except:

  1. A) Costing method.
  2. B) Perpetual or periodic inventory system.
  3. C) Customer demand for inventory.
  4. D) Damage or obsolescence
  5. E) Items included in inventory and their costs.

 

96) The inventory valuation method that identifies each item in ending inventory with a specific purchase and invoice is the:

  1. A) Weighted average inventory method.
  2. B) First-in, first-out method.
  3. C) Last-in, first-out method.
  4. D) Specific identification method.
  5. E) Retail inventory method.

 

 

 

97) A company had the following purchases during its first year of operations:

 

  Purchases
January: 10 units at $120
February: 20 units at $130
May: 15 units at $140
September: 12 units at $150
November: 10 units at $160

 

On December 31, there were 26 units remaining in ending inventory. These 26 units consisted of 2 from January, 4 from February, 6 from May, 4 from September, and 10 from November. Using the specific identification method, what is the cost of the ending inventory?

  1. A) $3,500.
  2. B) $3,800.
  3. C) $3,960.
  4. D) $3,280.
  5. E) $3,640.

98) A company had the following purchases and sales during its first year of operations:

 

  Purchases Sales
January: 10 units at $120 6 units
February: 20 units at $125 5 units
May: 15 units at $130 9 units
September: 12 units at $135 8 units
November: 10 units at $140 13 units

 

On December 31, there were 26 units remaining in ending inventory. Using the perpetual FIFO inventory costing method, what is the cost of the ending inventory? (Assume all sales were made on the last day of the month.)

  1. A) $3,405.
  2. B) $3,200.
  3. C) $3,365.
  4. D) $3,540.
  5. E) $3,270.

 

 

 

99) A company had the following purchases and sales during its first year of operations:

 

  Purchases Sales
January: 10 units at $120 6 units
February: 20 units at $125 5 units
May: 15 units at $130 9 units
September: 12 units at $135 8 units
November: 10 units at $140 13 units

 

On December 31, there were 26 units remaining in ending inventory. Using the periodic FIFO inventory costing method, what is the cost of the ending inventory? (Assume all sales were made on the last day of the month.)

  1. A) $3,405.
  2. B) $3,200.
  3. C) $3,445.
  4. D) $3,540.
  5. E) $3,270.

100) A company had the following purchases and sales during its first year of operations:

 

  Purchases Sales
January: 10 units at $120 6 units
February: 20 units at $125 5 units
May: 15 units at $130 9 units
September: 12 units at $135 8 units
November: 10 units at $140 13 units

 

On December 31, there were 26 units remaining in ending inventory. Using the perpetual LIFO inventory costing method, what is the cost of the ending inventory? (Assume all sales were made on the last day of the month.)

  1. A) $3,405.
  2. B) $3,270.
  3. C) $3,200.
  4. D) $3,364.
  5. E) $5,400.

 

 

 

101) A company had the following purchases and sales during its first year of operations:

 

  Purchases Sales
January: 10 units at $120 6 units
February: 20 units at $125 5 units
May: 15 units at $130 9 units
September: 12 units at $135 8 units
November: 10 units at $140 13 units

 

On December 31, there were 26 units remaining in ending inventory. Using the periodic LIFO inventory costing method, what is the cost of the ending inventory? (Assume all sales were made on the last day of the month.)

  1. A) $3,405.
  2. B) $3,270.
  3. C) $3,200.
  4. D) $3,364.
  5. E) $5,400.

102) A company had the following purchases and sales during its first year of operations:

 

  Purchases Sales
January: 10 units at $120 6 units
February: 20 units at $125 5 units
May: 15 units at $130 9 units
September: 12 units at $135 8 units
November: 10 units at $140 13 units

 

On December 31, there were 26 units remaining in ending inventory. Using the perpetual FIFO inventory costing method, what is the value of cost of goods sold? (Assume all sales were made on the last day of the month.)

  1. A) $8,670.
  2. B) $3,540.
  3. C) $5,400.
  4. D) $5,130.
  5. E) $3,270.

 

 

 

103) A company had the following purchases and sales during its first year of operations:

 

  Purchases Sales
January: 10 units at $120 6 units
February: 20 units at $125 5 units
May: 15 units at $130 9 units
September: 12 units at $135 8 units
November: 10 units at $140 13 units

 

On December 31, there were 26 units remaining in ending inventory. Using the periodic FIFO inventory costing method, what is the value of cost of goods sold? (Assume all sales were made on the last day of the month.)

  1. A) $8,670.
  2. B) $3,540.
  3. C) $5,400.
  4. D) $5,130.
  5. E) $3,270.

104) A company had the following purchases and sales during its first year of operations:

 

  Purchases Sales
January: 10 units at $120 6 units
February: 20 units at $125 5 units
May: 15 units at $130 9 units
September: 12 units at $135 8 units
November: 10 units at $140 13 units

 

On December 31, there were 26 units remaining in ending inventory. Using the perpetual LIFO inventory costing method, what is the value of cost of goods sold? (Assume all sales were made on the last day of the month.)

  1. A) $8,670.
  2. B) $5,400.
  3. C) $5,470.
  4. D) $5,130.
  5. E) $5,305.

 

 

 

105) A company had the following purchases and sales during its first month of operations:

   
January 1 Purchased 10 units at $4.00 per unit
January 9 Sold 6 units at $12.00 per unit
January 17 Purchased 8 units at $5.50 per unit
January 27 Sold 7 units at $12.00 per unit

 

Using the perpetual weighted average method, what is the value of cost of goods sold? (Round weighted average costs per unit to 2 decimal places.)

  1. A) $40.00.
  2. B) $59.00.
  3. C) $25.00.
  4. D) $24.00.
  5. E) $23.35.

106) A company had the following purchases and sales during its first year of operations:

 

  Purchases Sales
January: 10 units at $120 6 units
February: 20 units at $125 5 units
May: 15 units at $130 9 units
September: 12 units at $135 8 units
November: 10 units at $140 13 units

 

On December 31, there were 26 units remaining in ending inventory. Using the periodic LIFO inventory costing method, what is the value of cost of goods sold? (Assume all sales were made on the last day of the month.)

  1. A) $8,670.
  2. B) $5,400.
  3. C) $5,470.
  4. D) $3,200.
  5. E) $5,130.

 

 

 

107) A company had the following purchases and sales during its first month of operations:

   
January 1 Purchased 10 units at $4.00 per unit
January 9 Sold 6 units at $12.00 per unit
January 17 Purchased 8 units at $5.50 per unit
January 27 Sold 7 units at $12.00 per unit

 

Using the Periodic weighted average method, what is the value of cost of goods sold? (Round weighted average cost per unit to 2 decimal places, and final answer to the nearest whole dollar.)

  1. A) $84.
  2. B) $61.
  3. C) $23.
  4. D) $27.
  5. E) $5.

108) A company had inventory on November 1 of 5 units at a cost of $20 each. On November 2, they purchased 10 units at $22 each. On November 6 they purchased 6 units at $25 each. On November 8, 8 units were sold for $55 each. Using the LIFO perpetual inventory method, what was the value of the inventory on November 8 after the sale?

  1. A) $304
  2. B) $296
  3. C) $288
  4. D) $280
  5. E) $276

 

109) Marquis Company uses a weighted-average perpetual inventory system and has the following purchases and sales:

 

August 2 10 units were purchased at $12 per unit.
August 18 15 units were purchased at $14 per unit.
August 29 12 units were sold.

 

What is the amount of the cost of goods sold for this sale? (Round average cost per unit to 2 decimal places.)

  1. A) $148.00
  2. B) $150.50
  3. C) $158.40
  4. D) $210.00
  5. E) $330.00

 

 

110) Monarch Company uses a weighted-average perpetual inventory system, and has the following purchases and sales:

 

January 1 20 units were purchased at $10 per unit.
January 12 12 units were sold.
January 20 18 units were purchased at $11 per unit.

 

What is the value of ending inventory? (Round average cost per unit to 2 decimal places and final answer to the nearest dollar.)

  1. A) $278.
  2. B) $272.
  3. C) $126.
  4. D) $398.
  5. E) $120.

 

111) Monarch Company uses a weighted-average perpetual inventory system and has the following purchases and sales:

 

January 1 20 units were purchased at $10 per unit.
January 12 12 units were sold.
January 20 18 units were purchased at $11 per unit.

 

What is the value of cost of goods sold?

  1. A) $278.
  2. B) $272.
  3. C) $126.
  4. D) $398.
  5. E) $120.

112) Eastview Company uses a perpetual LIFO inventory system, and has the following purchases and sales:

 

January 1 150 units were purchased at $9 per unit.
January 17 120 units were sold.
January 20 160 units were purchased at $11 per unit.
January 29 150 units were sold.

 

What is the value of cost of goods sold?

  1. A) $2,730.
  2. B) $2,750.
  3. C) $2,670.
  4. D) $440.
  5. E) $380.

 

113) Eastview Company uses a perpetual LIFO inventory system, and has the following purchases and sales:

 

January 1 150 units were purchased at $9 per unit.
January 17 120 units were sold.
January 20 160 units were purchased at $11 per unit.
January 29 150 units were sold.

 

What is the value of ending inventory?

  1. A) $2,730.
  2. B) $2,750.
  3. C) $2,670.
  4. D) $440.
  5. E) $380.

114) Eastview Company uses a periodic LIFO inventory system, and has the following purchases and sales:

 

January 1 150 units were purchased at $9 per unit.
January 17 120 units were sold.
January 20 160 units were purchased at $11 per unit.
January 29 150 units were sold.

 

What is the value of cost of goods sold?

  1. A) $2,730.
  2. B) $2,750.
  3. C) $2,670.
  4. D) $440.
  5. E) $380.

 

115) Eastview Company uses a periodic LIFO inventory system, and has the following purchases and sales:

 

January 1 150 units were purchased at $9 per unit.
January 17 120 units were sold.
January 20 160 units were purchased at $11 per unit.
January 29 150 units were sold.

 

What is the value of ending inventory?

  1. A) $2,730.
  2. B) $2,750.
  3. C) $2,670.
  4. D) $440.
  5. E) $360.

116) Grays Company has inventory of 10 units at a cost of $10 each on August 1. On August 3, it purchased 20 units at $12 each. 12 units are sold on August 6. Using the FIFO perpetual inventory method, what amount will be reported as cost of goods sold for the 12 units that were sold?

  1. A) $120.
  2. B) $124.
  3. C) $128.
  4. D) $130.
  5. E) $140.

117) McCarthy Company has inventory of 8 units at a cost of $200 each on October 1. On October 2, it purchased 20 units at $205 each. 11 units are sold on October 4. Using the FIFO perpetual inventory method, what amount will be reported as cost of goods sold for the 11 units that were sold?

  1. A) $2,239.
  2. B) $2,255.
  3. C) $2,200.
  4. D) $2,228.
  5. E) $2,215.

 

118) McCarthy Company has inventory of 8 units at a cost of $200 each on October 1. On October 2, it purchased 20 units at $205 each. 11 units are sold on October 4. Using the FIFO perpetual inventory method, what is the value of inventory after the October 4 sale?

  1. A) $3,485.
  2. B) $3,445.
  3. C) $3,500.
  4. D) $3,472.
  5. E) $3,461.

 

119) Starlight Company has inventory of 8 units at a cost of $200 each on October 1. On October 2, it purchased 20 units at $205 each. 11 units are sold on October 4. Using the LIFO perpetual inventory method, what amount will be reported in cost of goods sold for the 11 units that were sold?

  1. A) $2,239.
  2. B) $2,255.
  3. C) $2,200.
  4. D) $2,228.
  5. E) $2,215.

 

120) Starlight Company has inventory of 8 units at a cost of $200 each on October 1. On October 2, it purchased 20 units at $205 each. 11 units are sold on October 4. Using the LIFO perpetual inventory method, what is the value of inventory after the October 4 sale?

  1. A) $3,485.
  2. B) $3,445.
  3. C) $3,500.
  4. D) $3,472.
  5. E) $3,461.

121) A company’s inventory records report the following:

 

August 1 Beginning balance 15 units @ $12
August 5 Purchase 10 units @ $13
August 12 Purchase 20 units @ $14

 

On August 15, it sold 30 units. Using the FIFO perpetual inventory method, what is the value of the inventory at August 15 after the sale?

  1. A) $140
  2. B) $160
  3. C) $210
  4. D) $380
  5. E) $590

 

122) A company’s inventory records report the following in November of the current year:

     
Beginning November 1 5 units @ $20
Purchase November 2 10 units @ $22
Purchase November 12 6 units @ $25

 

On November 8, it sold 12 units for $54 each. Using the LIFO perpetual inventory method, what was the amount recorded in the cost of goods sold account for the 12 units sold?

  1. A) $254
  2. B) $260
  3. C) $282
  4. D) $188
  5. E) $210

123) A company’s inventory records report the following in November of the current year:

     
Beginning November 1 5 units @ $20
Purchase November 2 10 units @ $22
Purchase November 12 6 units @ $25

 

On November 8, it sold 12 units for $54 each. Using the LIFO perpetual inventory method, what amount of gross profit was earned from the 12 units sold?

  1. A) $577
  2. B) $260
  3. C) $366
  4. D) $438
  5. E) $388

 

 

 

124) A company sells garden hoses and uses the perpetual inventory system to account for its merchandise. The beginning balance of the inventory and its transactions during September were as follows:

 

September 1: Beginning balance of 18 units at $13 each

September 12: Purchased 30 units at $14 each

September 19: Sold 24 units at $30 selling price each

September 20: Purchased 24 units at $17 each

September 27: Sold 27 units at $30 selling price each

 

If the ending inventory is reported at $276, what inventory method was used?

  1. A) LIFO method.
  2. B) FIFO method.
  3. C) Weighted average method.
  4. D) Specific identification method.
  5. E) Retail inventory method.

125) Jammer Company uses a weighted average perpetual inventory system and reports the following:

     
August 2 Purchase 10 units at $12 per unit.
August 18 Purchase 15 units at $15 per unit.
August 29 Sale 20 units.
August 31 Purchase 14 units at $16 per unit.

 

What is the per-unit value of ending inventory on August 31?

  1. A) $12.00
  2. B) $13.80
  3. C) $15.42
  4. D) $16.00
  5. E) $17.74

 

126) Given the following information, determine the cost of the inventory at June 30 using the LIFO perpetual inventory method.

     
June 1 Beginning inventory 15 units at $20 each
June 15 Sale of 6 units for $50 each  
June 29 Purchase 8 units at $25 each

 

The cost of the ending inventory is:

  1. A) $200
  2. B) $220
  3. C) $380
  4. D) $275
  5. E) $300

 

127) In applying the lower of cost or market method to LIFO inventory valuation, market is defined as:

  1. A) Historical cost.
  2. B) Current replacement cost.
  3. C) Current sales price.
  4. D) FIFO.
  5. E) LIFO.

128) Raleigh Co. has the following products in its ending inventory. Compute the lower of cost or market total for inventory applied separately to each product.

 

Product Quantity Cost per unit   Market per unit
Jelly 150 $ 2.00     2.15  
Jam 370 $ 2.65     2.50  
Marmalade 260 $ 3.10     3.05  

 

  1. A) $2,040.50.
  2. B) $2,086.50.
  3. C) $2,018.00.
  4. D) $2,109.00.
  5. E) $2,053.50.

 

129) Generally accepted accounting principles require that the inventory of a company be reported at:

  1. A) Market value.
  2. B) Historical cost.
  3. C) Lower of cost or market.
  4. D) Replacement cost.
  5. E) Retail value.

 

130) Lower of cost or market:

  1. A) Is applied to each individual item, major categories of items, or the whole inventory.
  2. B) Is only applicable to companies using FIFO.
  3. C) Records only an increase in inventory value.
  4. D) Is only applicable to companies using LIFO.
  5. E) Reports all inventory items at full cost.

 

131) A company’s normal selling price for its product is $20 per unit. However, due to market competition, the selling price has fallen to $15 per unit. This company’s current FIFO inventory consists of 200 units purchased at $16 per unit. Net realizable value has fallen to $13 per unit. Calculate the value of this company’s inventory at the lower of cost or market.

  1. A) $2,550.
  2. B) $2,600.
  3. C) $2,700.
  4. D) $3,000.
  5. E) $3,200.

132) A company normally sells its product for $20 per unit. However, the selling price has fallen to $15 per unit. This company’s current FIFO inventory consists of 200 units purchased at $16 per unit. Net realizable value has now fallen to $13 per unit. What is the amount of the lower cost of market adjustment the company must make as a result of this decline in value?

  1. A) $1,000.
  2. B) $1,400.
  3. C) $400.
  4. D) $600.
  5. E) $800.

 

133) A company’s current LIFO inventory consists of 5,000 units purchased at $6 per unit. Replacement cost has now fallen to $5 per unit. What is the entry the company must record to adjust inventory to market?

  1. A) Debit Merchandise Inventory $25,000; credit Cost of Goods Sold $25,000.
  2. B) Debit Cost of Goods Sold $30,000; credit Merchandise Inventory $30,000.
  3. C) Debit Cost of Goods Sold $5,000; credit Merchandise Inventory $5,000.
  4. D) Debit Loss on Inventory $5,000; credit Cost of Goods Sold $5,000.
  5. E) Debit Merchandise Inventory $30,000; credit Cost of Goods Sold $25,000.

 

134) A company has the following per unit original costs and market values for its inventory. Lower of cost or market is applied to individual items.

 

Part A: 50 units with a cost of $5, and replacement cost of $4.50

Part B: 75 units with a cost of $6, and replacement cost of $6.50

Part C: 160 units with a cost of $3, and replacement cost of $2.50

 

Under the lower of cost or market method, the total value of this company’s ending inventory is:

  1. A) $1,180.00.
  2. B) $1,075.00.
  3. C) $1,112.50.
  4. D) $1,217.50.
  5. E) $1,137.50.

 

135) A company has beginning inventory of 10 units at a cost of $10 each on February 1. On February 3, it purchases 20 units at $12 each. 12 units are sold on February 5. Using the FIFO periodic inventory method, what is the cost of the 12 units that are sold?

  1. A) $120
  2. B) $124
  3. C) $128
  4. D) $130
  5. E) $140

 

 

136) A company has beginning inventory of 15 units at a cost of $12 each on October 1. On October 5, it purchases 10 units at $13 per unit. On October 12 it purchases 20 units at $14 per unit. On October 15, it sells 30 units. Using the FIFO periodic inventory method, what is the value of the inventory at October 15 after the sale?

  1. A) $140
  2. B) $160
  3. C) $210
  4. D) $380
  5. E) $590

 

137) A company had beginning inventory of 10 units at a cost of $20 each on March 1. On March 2, it purchased 10 units at $22 each. On March 6 it purchased 6 units at $25 each. On March 8, it sold 22 units for $54 each. Using the FIFO perpetual inventory method, what was the cost of the 22 units sold?

  1. A) $470
  2. B) $490
  3. C) $450
  4. D) $570
  5. E) $520

 

138) A company uses the periodic inventory system and had the following activity during the current monthly period.

     
November 1: Beginning inventory 100 units @ $20
November 5: Purchased 100 units @ $22
November 8: Purchased 50 units @ $23
November 16: Sold 200 units @ $45
November 19: Purchased 50 units @ $25

 

Using the weighted-average inventory method, the company’s ending inventory would be:

  1. A) $2,000
  2. B) $2,200
  3. C) $2,250
  4. D) $2,400
  5. E) $4,400

 

 

139) Health Defense sells first aid kits and uses the periodic inventory system to account for its merchandise. The beginning balance of the inventory and its transactions during January were as follows:

 

January 1: Beginning balance of 18 units at $13 each

January 12: Purchased 30 units at $14 each

January 19: Sold 24 units at a selling price of $30 each

January 20: Purchased 24 units at $17 each

January 27: Sold 27 units at a selling price of $30 each

 

If the ending inventory is reported at $357, what inventory method was used?

  1. A) LIFO.
  2. B) FIFO.
  3. C) Weighted average.
  4. D) Specific identification.
  5. E) Retail inventory method.

 

140) A flood destroyed a company’s warehouse contents on September 12. The following information was the only information that was salvaged:

 

  • Inventory, beginning: $28,000
  • Purchases for the period: $17,000
  • Sales for the period: $55,000
  • Sales returns for the period: $700

 

The company’s average gross profit ratio is 35%. What is the estimated cost of the lost inventory using the gross profit method?

  1. A) $9,705.
  2. B) $25,995.
  3. C) $29,250.
  4. D) $44,000.
  5. E) $45,000.

141) A company reports the following information regarding its inventory.

 

Beginning inventory: cost is $80,000; retail is $130,000

Net purchases: cost is $65,000; retail is $120,000

Sales at retail: $145,000

 

The year-end inventory shows $105,000 worth of merchandise available at retail prices. What is the cost of the ending inventory calculated using the retail inventory method?

  1. A) $135,000.
  2. B) $73,125.
  3. C) $60,900.
  4. D) $72,900.
  5. E) $105,000.

142) On March 31 a company needed to estimate its ending inventory to prepare its first quarter financial statements. The following information is available:

 

Beginning inventory, January 1: $4,000

Net sales: $80,000

Net purchases: $78,000

 

The company’s gross margin ratio is 25%. Using the gross profit method, the cost of goods sold would be:

  1. A) $60,000.
  2. B) $20,000.
  3. C) $58,500.
  4. D) $63,000.
  5. E) $19,500.

 

143) On March 31 a company needed to estimate its ending inventory to prepare its first quarter financial statements. The following information is available:

 

Beginning inventory, January 1: $4,000

Net sales: $80,000

Net purchases: $78,000

 

The company’s gross margin ratio is 25%. Using the gross profit method, the estimated ending inventory value would be:

  1. A) $82,000.
  2. B) $60,000.
  3. C) $20,000.
  4. D) $22,000.
  5. E) $19,500.

144) Big Box Store has operated with a 30% average gross profit ratio for a number of years. It had $100,000 in sales during the second quarter of this year. If it began the quarter with $18,000 of inventory at cost and purchased $72,000 of inventory during the quarter, its estimated ending inventory by the gross profit method is:

  1. A) $30,000.
  2. B) $21,000.
  3. C) $20,000.
  4. D) $18,000.
  5. E) $27,000.

 

 

 

145) On January 31, a company needed to estimate its ending inventory to prepare its monthly financial statements. The following information is currently available:

 

Inventory as of January 1: $120,500

Net sales for January: $400,000

Net purchases for January: $270,500

 

This company typically achieves a gross profit ratio of 15%. Ending Inventory under the gross profit method would be:

  1. A) $102,425.
  2. B) $10,425.
  3. C) $9,000.
  4. D) $51,000.
  5. E) $51,425.

 

146) Interim financial statements:

  1. A) Are required by the Congress.
  2. B) Are necessary to achieve full disclosure about a business’s operations.
  3. C) Are statements prepared for periods of less than one year.
  4. D) Require the use of the perpetual method for inventories.
  5. E) Cannot be prepared if the company follows the conservatism principle.

 

147) Jefferson Company has sales of $300,000 and cost of goods available for sale of $270,000. If the gross profit ratio is typically 30%, the estimated cost of the ending inventory under the gross profit method would be:

  1. A) $60,000
  2. B) $180,000
  3. C) $30,000
  4. D) $90,000
  5. E) $120,000

148) Oxford Packing Company reported net sales in November of the current year of $1,000,000. At the beginning of November, the company reported beginning inventory of $368,000. Cost of goods purchased during November amounted to $217,500. The company reported ending inventory at the end of November of $226,750.

 

The company’s gross profit rate for November of the current year was:

  1. A) 35.9%
  2. B) 18.8%
  3. C) 81.2%
  4. D) 64.1%
  5. E) 58.6%

 

 

 

149) On April 24 of the current year, The Memphis Pecan Company experienced a tornado that destroyed the company’s entire inventory. At the beginning of April, the company reported beginning inventory of $226,750. Inventory purchased during April (until the date of the tornado) was $197,800. Sales for the month of April through April 24 were $642,500. Assuming the company’s typical gross profit ratio is 50%, estimate the amount of inventory destroyed in the tornado.

  1. A) $212,275
  2. B) $103,300
  3. C) $217,950
  4. D) $321,250
  5. E) $157,788

 

150) Avanti purchases inventory from overseas and incurs the following costs: the merchandise cost is $50,000, credit terms 2/10, n/30 that apply only to the $50,000; FOB shipping point freight charges are $1,500; insurance during transit is $500; and import duties are $1,000. Avanti paid within the discount period and incurred additional costs of $1,200 for advertising and $5,000 for sales commissions. Compute the cost that should be assigned to the inventory.

  1. A) $50,000
  2. B) $53,000
  3. C) $52,000
  4. D) $51,500
  5. E) $53,200

151) Hasham purchases inventory from overseas and incurs the following costs: the merchandise cost is $80,000, credit terms 1/10, n/30, applicable only to the $80,000; FOB shipping point freight charges are $2,500; insurance during transit is $300; and import duties are $1,500. Hasham paid within the discount period. Compute the cost that should be assigned to the inventory.

  1. A) $83,500
  2. B) $79,200
  3. C) $81,700
  4. D) $84,300
  5. E) $81,000

 

152) A company decides which inventory amounts to record to cost of goods sold and which amounts remain in ending inventory:

  1. A) Through application of the cost-benefit constraint.
  2. B) By selecting one of four possible inventory costing methods.
  3. C) By selecting the cost principle.
  4. D) Through application of the conservation constraint principle.
  5. E) Is the lower of cost or market principle.

 

 

 

153) All of the following statements related to goods on consignment are true except:

  1. A) Goods on consignment are goods provided by the owner, call the consignor.
  2. B) A consignee sells goods for the owner.
  3. C) The consignor continues to own the consigned goods.
  4. D) The consignee reports the goods in its inventory until sold.
  5. E) The consignor reports the goods in its inventory until sold.

 

154) When costs to purchase inventory regularly decline, which method of inventory costing will yield the lowest gross profit and income?

  1. A) FIFO.
  2. B) LIFO.
  3. C) Weighted average.
  4. D) Specific identification.
  5. E) Gross margin.

 

155) When costs to purchase inventory regularly decline, which method of inventory costing will yield the lowest cost of goods sold?

  1. A) FIFO.
  2. B) LIFO.
  3. C) Weighted average.
  4. D) Specific identification.
  5. E) Gross margin.

156) All of the following statements regarding the financial statement impact of inventory costing are true except.

  1. A) When purchase prices are changing, the methods to assign inventory costs result in different amounts for cost of goods sold.
  2. B) Inventory on the balance sheet approximates current cost when FIFO is used.
  3. C) The weighted average method smooths out erratic changes in costs.
  4. D) Selected costing method does not impact net income.
  5. E) Cost of goods sold on the income statement approximates current cost when LIFO is used.

 

157) Sandoval needs to determine its year-end inventory. The warehouse contains 20,000 units, of which 3,000 were damaged by flood and are not sellable. Another 2,000 units were purchased from Markor Company, FOB shipping point, and are currently in transit. The company also consigns goods and has 4,000 units at a consignee’s location. How many units should Sandoval include in its year-end inventory?

  1. A) 29,000
  2. B) 21,000
  3. C) 23,000
  4. D) 19,000
  5. E) 26,000

 

 

 

158) Salmone Company reported the following purchases and sales of its only product. Salmone uses a perpetual inventory system. Determine the cost assigned to the ending inventory using FIFO.

 

Date Activities Units Acquired at Cost Units Sold at Retail
May 1 Beginning Inventory 150 units @ $10.00  
5 Purchase 220 units @ $12.00  
10 Sales   140 units @ $20.00
15 Purchase 100 units @ $13.00  
24 Sales   90 units @ $21.00

 

  1. A) $2,980
  2. B) $2,460
  3. C) $2,850
  4. D) $2,590
  5. E) $2,860

159) Salmone Company reported the following purchases and sales of its only product. Salmone uses a perpetual inventory system. Determine the cost assigned to cost of goods sold using FIFO.

 

 

Date Activities Units Acquired at Cost Units Sold at Retail
May 1 Beginning Inventory 150 units @ $10.00  
5 Purchase 220 units @ $12.00  
10 Sales   140 units @ $20.00
15 Purchase 100 units @ $13.00  
24 Sales   90 units @ $21.00

 

  1. A) $2,980
  2. B) $2,460
  3. C) $2,850
  4. D) $2,590
  5. E) $5,440

 

 

 

160) Salmone Company reported the following purchases and sales of its only product. Salmone uses a perpetual inventory system. Determine the cost assigned to ending inventory using LIFO.

 

Date Activities Units Acquired at Cost Units Sold at Retail
May 1 Beginning Inventory 150 units @ $10.00  
5 Purchase 220 units @ $12.00  
10 Sales   140 units @ $20.00
15 Purchase 100 units @ $13.00  
24 Sales   90 units @ $21.00

 

  1. A) $5,440
  2. B) $2,460
  3. C) $2,590
  4. D) $2,980
  5. E) $2,860

161) Salmone Company reported the following purchases and sales for its only product. Salmone uses a perpetual inventory system. Determine the cost assigned to cost of goods sold using LIFO.

 

Date Activities Units Acquired at Cost Units Sold at Retail
May 1 Beginning Inventory 150 units @ $10.00  
5 Purchase 220 units @ $12.00  
10 Sales   140 units @ $20.00
15 Purchase 100 units @ $13.00  
24 Sales   90 units @ $21.00

 

  1. A) $2,860
  2. B) $2,460
  3. C) $2,590
  4. D) $2,850
  5. E) $2,980

 

 

 

162) Salmone Company reported the following purchases and sales of its only product. Salmone uses a periodic inventory system. Determine the cost assigned to the ending inventory using FIFO.

 

Date Activities Units Acquired at Cost Units Sold at Retail
May 1 Beginning Inventory 150 units @ $10.00  
5 Purchase 220 units @ $12.00  
10 Sales   140 units @ $20.00
15 Purchase 100 units @ $13.00  
24 Sales   90 units @ $21.00

 

  1. A) $2,980
  2. B) $5,440
  3. C) $2,460
  4. D) $2,850
  5. E) $2,590

163) Salmone Company reported the following purchases and sales of its only product. Salmone uses a periodic inventory system. Determine the cost assigned to cost of goods sold using FIFO.

 

Date Activities Units Acquired at Cost Units Sold at Retail
May 1 Beginning Inventory 150 units @ $10.00  
5 Purchase 220 units @ $12.00  
10 Sales   140 units @ $20.00
15 Purchase 100 units @ $13.00  
24 Sales   90 units @ $21.00

 

  1. A) $2,460
  2. B) $2,860
  3. C) $2,980
  4. D) $2,850
  5. E) $2,590

 

 

 

164) Salmone Company reported the following purchases and sales of its only product. Salmone uses a periodic inventory system. Determine the cost assigned to ending inventory using LIFO.

 

Date Activities Units Acquired at Cost Units Sold at Retail
May 1 Beginning Inventory 150 units @ $10.00  
5 Purchase 220 units @ $12.00  
10 Sales   140 units @ $20.00
15 Purchase 100 units @ $13.00  
24 Sales   90 units @ $21.00

 

  1. A) $2,260
  2. B) $3,180
  3. C) $2,580
  4. D) $3,580
  5. E) $2,100

165) Salmone Company reported the following purchases and sales for its only product. Salmone uses a periodic inventory system. Determine the cost assigned to cost of goods sold using LIFO.

 

Date Activities Units Acquired at Cost Units Sold at Retail
May 1 Beginning Inventory 150 units @ $10.00  
5 Purchase 220 units @ $12.00  
10 Sales   140 units @ $20.00
15 Purchase 100 units @ $13.00  
24 Sales   90 units @ $21.00

 

  1. A) $2,590
  2. B) $2,850
  3. C) $2,580
  4. D) $2,860
  5. E) $2,460

 

166) On September 1 of the current year, Scots Company experienced a flood that destroyed the company’s entire inventory. Because the company had not completed its month end reporting for August, it must estimate the amount of inventory lost using the gross profit method. At the beginning of August, the company reported beginning inventory of $215,450. Inventory purchased during August was $192,530. Sales for the month of August were $542,500. Assuming the company’s typical gross profit ratio is 40%, estimate the amount of inventory destroyed in the flood.

  1. A) $87,480
  2. B) $134,520
  3. C) $109,980
  4. D) $82,480
  5. E) $81,480

 

 

167) Use the following information for Shafer Company to compute inventory turnover for year 2.

 

    Year 2   Year 1
Net sales $ 647,500 $ 582,000
Cost of goods sold   389,500   360,840
Ending inventory   76,700   79,380

 

  1. A) 9.98
  2. B) 5.08
  3. C) 4.99
  4. D) 8.30
  5. E) 8.44

 

168) Use the following information for Davis Company to compute inventory turnover for Year 2.

 

  Year 2 Year 1
Cost of goods sold 279,500 291,800
Ending inventory 47,700 49,350

 

  1. A) 5.86
  2. B) 5.76
  3. C) 5.67
  4. D) 11.77
  5. E) 5.89

169) Use the following information for Ephron Company to compute days’ sales in inventory for Year 2.

    Year 2   Year 1
Net sales $ 547,500 $ 572,000
Cost of goods sold   348,500   370,840
Ending inventory   75,700   81,400

 

  1. A) 52.4
  2. B) 82.3
  3. C) 50.5
  4. D) 76.8
  5. E) 79.3

 

 

 

170) Match the following terms with the appropriate definition.

 

1. How many times a company turns over (sells) its inventory in a period. Gross profit method  
2. An inventory valuation method where each item in inventory is identified with a specific purchase and invoice. Net realizable value

 

 
3. Market value used to apply the lower of cost or market rule to FIFO, weighted average, or specific identification inventory. Retail inventory method

 

 
4. An inventory costing method that assumes the unit prices of the beginning inventory and of each purchase are weighted by the number of total units. Days’ sales in inventory

 

 

 
5. A method for estimating an ending inventory based on the ratio of the amount of goods for sale at cost to the amount of goods for sale at retail price. Weighted average inventory method

 

 

 
6. An estimate of the number of days one can sell from inventory if no new items are purchased . Interim statements

 

 

 
7. An inventory valuation method that assumes that inventory items are sold in the order acquired. LIFO method

 

 

 
8. Financial statements prepared for periods of less than one year.

 

Specific identification method  
9. A method for estimating cost of ending inventory by applying the gross profit ratio to net sales. FIFO method

 

 

 
10. An inventory valuation method that assumes costs for the most recent items purchased are sold first and charged to cost of goods sold. Inventory turnover

 

 

 

 

 

 

 

171) Match the following terms with the appropriate definition.

 

1. The required method of reporting inventory at market when market is lower than cost. Consignor

 

 
2. An inventory valuation method where each item in inventory is identified with a specific purchase and invoice. Gross profit method

 

 
3. A procedure for estimating inventory where the past gross profit rate is used to estimate the cost of goods sold, which is then subtracted from the cost of goods available for sale to determine the estimated ending inventory. Expense recognition principle

 

 

 
4. An owner of goods who ships them to another party who will then sell the goods for the owner. Days’ sales in inventory  
5. One who receives and holds goods owned by another for purposes of selling the goods for the owner. Consignee

 

 

 
6. Sales price minus the cost of making the sale.

 

 

Specific identification method  
7. How many times a company turns over (sells) its inventory in a period. Inventory turnover  
8. An estimate of the number of days one can sell from inventory if no new items are purchased. Lower of cost or market  
9. A method for estimating inventory based on the ratio of the amount of goods for sale at cost to the amount of goods for sale at retail prices. Retail inventory method

 

 
10. The accounting principle that says inventory costs are expensed as cost of goods sold when inventory is sold. Net realizable value

 

 

 

172) Match the inventory costing method from the list below that is being described in each situation in letters a-e. In all cases, assume a period of rising prices.

 

FIFO First in, first out
LIFO Last in, first out
WA Weighted average
SI Specific identification

 

_________ a. The method that is used if each inventory item can be matched with a specific purchase and invoice.

_________ b. The method that will cause the company to have the lowest income taxes. _________ c. The method that will cause the company to have the lowest cost of goods sold. _________ d. The method that will assign a value to inventory that approximates current cost. _________ e. The method that will tend to smooth out erratic changes in costs.

173) Identify the items that are included in merchandise inventory. (In your answer address the special situations of goods in transit, consigned goods, and damaged goods.)

 

174) What specific costs and deductions are used to determine the final cost of merchandise inventory? Identify all costs including the incidental costs.

 

175) Describe the internal controls that must be applied when taking a physical count of inventory.

 

176) Explain the effects of inventory valuation methods on the cost of ending inventory, income, and income taxes.

 

177) What is the LIFO conformity rule?

 

178) What is the effect of an error in the ending inventory balance on the accounts reported in the income statement?

 

179) Explain how the inventory turnover ratio and the days’ sales in inventory ratio are used to evaluate inventory management.

 

180) Identify and describe the four inventory valuation methods.

 

181) Explain how the lower of cost or market rule is used to value inventory.

 

182) Discuss the important accounting features of a periodic inventory system including accounts and procedures used.

183) Explain the reason a company might use the retail inventory method for valuing inventory.

 

184) Explain the reason a company might use gross profit inventory method for valuing inventory.

 

185) When inventory costs are declining, explain the impact to the balance sheet and income statement using the FIFO method.

 

186) The company’s inventory manager receives compensation that includes a bonus based on gross profit. You discover that the inventory manager has knowingly overstated ending inventory by $2 million. What effect does this error have on the financial statements of the company and specifically gross profit? Why would the manager knowingly overstate ending inventory? Would this be considered an ethics violation?

 

187) Mary’s Antiques does not have its own retail location, instead maintains inventory in its warehouse and sells merchandise through Oldtime Antique Mall. Oldtime does not assume responsibility for goods until they are sold to customers at which time it takes a commission for items sold and sends the sale proceeds to Mary’s. Identify which company has the role of the consignor and the consignee. Which company should include any unsold goods as part of its inventory?

188) What advantages does a perpetual inventory system have over periodic inventory system?

 

189) Patrick Randall of Sports Supplies finds that maintaining appropriate levels of inventories while controlling costs is a major challenge. What are the challenges Patrick refers to?

190) Carolina Company uses the perpetual LIFO method for valuing its ending inventory. The following financial statement information is available for its first year of operation:

 

Carolina Company

Income Statement

For the year ended December 31

Sales $60,000
Cost of goods sold  23,000
Gross profit $37,000
Expenses  13,000
Income before taxes $24,000

 

Carolina’s ending inventory using the perpetual LIFO method was $8,700. Carolina’s accountant determined that had the company used perpetual FIFO, the ending inventory would have been $9,100.

  1. Determine what the income before taxes would have been, had Carolina used the FIFO method of inventory valuation instead of LIFO.
  2. What would be the difference in income taxes between LIFO and FIFO, assuming a 30% tax rate?
  3. If Carolina wanted to lower the amount of income taxes to be paid, which method would it choose?

 

191) Evaluate each inventory error separately and determine whether it overstates or understates cost of goods sold and net income.

 

Inventory error: Cost of goods sold is: Net income is:
Understatement of beginning inventory ________ ________
Understatement of ending inventory ________ ________
Overstatement of beginning inventory ________ ________
Overstatement of ending inventory ________ ________

 

 

 

192) The Community Store reported the following amounts on their financial statements for Year 1, Year 2, and Year 3:

 

  For the year ended December 31
  Year 1 Year 2 Year 3
Cost of goods sold $75,000 $87,000 $77,000
Net income  22,000  25,000  21,000
Total current assets 155,000 165,000 110,000
Equity 287,000 295,000 304,000

 

It was discovered early in Year 4 that the ending inventory on December 31, Year 1 was overstated by $6,000, and the ending inventory on December 31, Year 2 was understated by $2,500. The ending inventory on December 31, Year 3 was correct. Ignoring income taxes determine the correct amounts of cost of goods sold, net income, total current assets, and equity for each of the years Year 1, Year 2, and Year 3.

 

193) A company reported the following data:

 

  Year 1 Year 2
Cost of goods sold $317,500 $279,100
Average inventory 72,000 93,000

 

Required:

  1. Calculate the company’s merchandise inventory turnover for each year.
  2. Comment on the company’s efficiency in managing its inventory.

 

194) A company reported the following data:

 

  Year 1 Year 2
Cost of goods sold $425,000 $486,000
Ending inventory   140,000   175,000

 

Required:

  1. Calculate the days’ sales in inventory for each year.
  2. Comment on the trend in inventory management.

 

 

195) A company made the following purchases during the year:

 

Jan. 10 15 units @ $360 each
Mar. 15 25 units @ $390 each
Apr. 25 10 units @ $420 each
July 30 20 units @ 450 each
Oct. 10 15 units @ $480 each

 

On December 31, there were 28 units in ending inventory. These 28 units consisted of 2 from the January 10 purchase, 3 from the March 15 purchase, 4 from the April 25 purchase, 11 from the July 30 purchase, and 8 from the October 10 purchase. Using specific identification, calculate the cost of the ending inventory.

 

196) A company’s inventory records indicate the following data for the month of July:

 

July 1 Beginning 380 units at $15 each
July 5 Purchase 270 units at $17 each
July 10 Sale 400 units at $50 each
July 20 Purchase 300 units at $22 each
July 25 Sale 400 units at $50 each

 

If the company uses the weighted average inventory valuation method and the perpetual inventory system, what would be the cost of its ending inventory? (Round average cost per unit to 2 decimals, and final answer to the nearest dollar.)

 

197) A company’s inventory records indicate the following data for the month of April:

 

April 1 Beginning 350 units at $18 each
April 5 Purchase 290 units at $20 each
April 9 Sale 500 units at $55 each
April 14 Purchase 250 units at $22 each
April 20 Sale 200 units at $55 each
April 30 Purchase 240 units at $25 each

 

If the company uses the first-in, first-out (FIFO) method and the perpetual inventory system, what would be the cost of the ending inventory?

 

 

198) A company’s inventory records indicate the following data for the month of January:

 

Jan. 1 Beginning 180 units at $9 each
Jan. 5 Purchase 170 units at $10 each
Jan. 9 Sale 300 units at $35 each
Jan. 14 Purchase 200 units at $11 each
Jan. 20 Sale 150 units at $35 each
Jan. 30 Purchase 230 units at $12 each

 

If the company uses the LIFO perpetual inventory system, what would be the cost of the ending inventory?

 

199) A company’s inventory records indicate the following data for the month of January:

 

Jan. 1 Beginning 180 units at $9 each
Jan. 5 Purchase 170 units at $10 each
Jan. 9 Sale 300 units at $35 each
Jan. 14 Purchase 200 units at $11 each
Jan. 20 Sale 150 units at $35 each
Jan. 30 Purchase 230 units at $12 each

 

If the company uses the LIFO perpetual inventory system, what is the amount of cost of goods sold for January?

 

200) A company’s inventory records indicate the following data for the month of April:

 

April 1 Beginning 350 units at $18 each
April 5 Purchase 290 units at $20 each
April 9 Sale 500 units at $55 each
April 14 Purchase 250 units at $22 each
April 20 Sale 200 units at $55 each
April 30 Purchase 240 units at $25 each

 

If the company uses the first-in, first-out (FIFO) method and the perpetual inventory system, what would be the cost of the ending inventory?

201) Calculate the ending inventory using FIFO for a company that uses a perpetual inventory system, using the information given below.

 

  Units Unit Cost
Beginning inventory 100 $10
Aug. 5 purchase 40 12
Aug. 10 sale 60
Aug. 15 purchase 70 13
Aug. 25 sale 50

202) Calculate the ending inventory using LIFO for a company that uses a perpetual inventory system, using the information given below.

 

  Units Unit Cost
Beginning inventory 100 $10
Aug. 5 purchase 40 12
Aug. 10 sale 60
Aug. 15 purchase 70 13
Aug. 25 sale 50  

 

203) Using the information given below for a company that uses a perpetual inventory system, calculate the ending inventory using weighted average.

 

  Units Unit Cost
Beginning inventory 100 $10
Jan. 5 purchased 40 12
Jan. 10 sold 60
Jan. 15 purchased 70 13
Jan. 25 sold 50

 

204) Use the information below to determine the sales revenue, cost of goods sold and gross profit that would be reported for the company related to the March 16 sale assuming the company uses FIFO inventory valuation and a perpetual inventory system.

 

January 1: Purchased 100 units at $10 per unit.
February 5: Purchased 60 units at $12 per unit.
March 16: Sold 40 units for $16 per unit.

 

205) Use the information below to determine the sales revenue, cost of goods sold and gross profit that would be reported for the company related to the March 16 sale assuming the company uses LIFO inventory valuation and a perpetual inventory system.

 

January 1: Purchased 100 units at $10 per unit.
February 5: Purchased 60 units at $12 per unit.
March 16: Sold 40 units for $16 per unit.

 

206) Use the information below to determine the sales revenue, cost of goods sold and gross profit that would be reported for the company related to the March 16 sale assuming the company uses weighted average inventory valuation and a perpetual inventory system.

 

January 1: Purchased 100 units at $10 per unit.
February 5: Purchased 60 units at $12 per unit.
March 16: Sold 40 units for $16 per unit.

 

 

207) A company reported the following data related to its ending inventory:

 

Product Units Available Cost Market
849 100 $10 $11
842 75 16 14
847 60 14 13
860 40 16 20

 

Calculate the lower-of-cost-or-market on the inventory applied separately to each product.

 

208) A company had the following ending inventory costs:

 

Product Units of Hand Unit Cost Market Value
A 10 $5 $6
B 50 8 7
C 35 10 11

 

Required:

 

Calculate the lower of cost or market (LCM) value for each individual item.

209) A company uses the periodic inventory system, and the following information is available. All purchases and sales are on credit. The selling price for the merchandise is $11 per unit.

 

    Units Unit Cost Total Cost
6/01 Inventory Balance 30 $3 $90
6/06 Purchase 70 4 280
6/11 Purchase 45 5 225
6/16 Purchase 50 6 300
  Goods available 195   $895
6/12 Sale 100    
6/20 Sale 60    
  Goods sold 160    
6/31 Inventory Balance 35    

 

Required:

 

Determine the cost of the ending inventory and the cost of goods sold for June using the LIFO method.

 

 

 

210) A company made the following merchandise purchases and sales during the month of May:

 

May 1 Purchased 380 units at $15 each
May 5 Purchased 270 units at $17 each
May 10 Sold 400 units at $50 each
May 20 Purchased 300 units at $22 each
May 25 Sold 400 units at $50 each

 

There was no beginning inventory. If the company uses the weighted average periodic method, what would be the cost of the ending inventory?

 

211) A company made the following merchandise purchases and sales during the month of May:

 

May 1 Purchased 380 units at $15 each
May 5 Purchased 270 units at $17 each
May 10 Sold 400 units at $50 each
May 20 Purchased 300 units at $22 each
May 25 Sold 400 units at $50 each

 

There was no beginning inventory. If the company uses the LIFO periodic inventory method, what would be the cost of the ending inventory?

212) A company made the following merchandise purchases and sales during the month of May:

 

May 1 Purchased 380 units at $15 each
May 5 Purchased 270 units at $17 each
May 10 Sold 400 units at $50 each
May 20 Purchased 300 units at $22 each
May 25 Sold 400 units at $50 each

 

There was no beginning inventory. If the company uses the FIFO periodic inventory method, what would be the cost of the ending inventory?

 

213) A company’s store was destroyed by an earthquake on February 10 of the current year. The only information for the current period that could be salvaged included the following:

 

Beginning inventory, January 1: $44,000
Purchases to date: $198,000
Sales to date: $310,000

 

Historically, the company’s gross profit ratio has been 30%. Estimate the value of the destroyed inventory using the gross profit method.

 

 

 

214) Apply the retail method to the following company information to estimate the cost of the ending inventory for the current period.

 

  Cost Retail
Beginning inventory $20,224 $31,600
Net purchases 59,508 97,000
Sales   89,000

 

215) A company uses the retail inventory method and has the following information available concerning its most recent accounting period:

 

  At Cost At Retail
Beginning-of-period inventory $148,600 $245,200
Net purchases 677,400 1,229,800
Sales   1,200,000

 

  1. What is the cost-to-retail ratio using the retail method?
  2. What is the estimated cost of the ending inventory?

216) Forever Young Game Stores (FYG) has taken a physical count of its inventory at March 31, its fiscal year-end. After reviewing the accounting records and documentation, the following items have been discovered:

 

(a) An invoice from Shreck Co. indicates that $30,000 of games were shipped to FYG on March 27, terms FOB shipping point. The games and invoice did not arrive at FYG until April 2 and were not included in the physical count.

(b) An invoice from Gamers, Inc. indicates that $8,000 of games were shipped to FYG on March 29, terms FOB destination. The games and invoice did not arrive at FYG until April 2 and were not included in the physical count.

The physical count and cost assignment on March 31 prior to these two items is $440,000. The cost of goods sold for FYG is $2,100,000.

  1. Calculate the amount that should be reported as ending inventory for FYG.
  2. Calculate the days’ sales in inventory before and after the appropriate adjustments for inventory.

 

 

 

217) A company reported the current month purchase and sales data for its only product and uses the perpetual inventory system. Determine the cost assigned to ending inventory and cost of goods sold using FIFO.

 

Date Activities Units Acquired at Cost Units Sold at Retail
April 1 Beginning Inventory 175 units @ $15.00  
4 Purchase 150 units @ $16.00  
7 Sales   160 units @ $30.00
10 Purchase 200 units @ $17.00  
16 Sales   250 units @ $30.00
25 Purchase 160 units @ $18.00  
28 Sales   150 units @ $32.00

 

218) A company reported the current month purchase and sales data for its only product and uses the perpetual inventory system. Determine the cost assigned to ending inventory and cost of goods sold using LIFO.

 

Date Activities Units Acquired at Cost Units Sold at Retail
April 1 Beginning Inventory 175 units @ $15.00  
4 Purchase 150 units @ $16.00  
7 Sales   160 units @ $30.00
10 Purchase 200 units @ $17.00  
16 Sales   250 units @ $30.00
25 Purchase 160 units @ $18.00  
28 Sales   150 units @ $32.00

 

219) A company uses the retail inventory method and has the following information available concerning its most recent accounting period:

 

  At Cost At Retail
January 1 beginning inventory $167,340 $304,240
Cost of goods purchased  561,850 1,021,560
Sales   940,400
Sales returns   40,200

 

  1. Use the retail inventory method to estimate the company’s year-end inventory at cost.
  2. A year-end physical count at retail prices yields a total inventory of $404,800. Prepare a calculation showing the company’s loss from shrinkage at cost and at retail.

 

220) Goods that are in transit and were shipped FOB shipping point should be included in the inventory records of the ________.

 

221) Goods that are in transit and were shipped FOB destination should be included in the inventory records of the ________.

 

222) Goods on consignment are goods that are shipped by the owner, called the ________, to another party called the ________ that will sell the goods for the owner.

 

223) ________ is the estimated sales price of damaged goods minus the cost of making the sale.

 

224) A ________ is recorded when inventory damage or obsolescence occurs.

225) The cost of an inventory item includes the ________, plus ________ costs necessary to put it in a place and condition for sale.

 

226) When purchase costs regularly rise, the ________ method of inventory valuation yields the highest gross profit and net income.

 

227) When purchase costs regularly rise, the ________ method of inventory valuation yields the lowest gross profit and net income, providing a tax advantage.

 

228) An advantage of the ________ method of inventory valuation is that it tends to smooth out the effect of erratic changes in costs.

 

229) An overstated beginning inventory will ________ cost of goods sold and ________ net income.

 

230) The ________ ratio reflects how much inventory is available in terms of days’ sales.

 

231) The ________ is a measure of how many times a company sells its inventory in a period.

 

232) The ________ method of assigning costs to inventory and cost of goods sold exactly matches the costs of particular items with the revenues they generate and would be used when items can be easily traced to the purchase invoice cost.

 

233) The ________ method of assigning costs to inventory and cost of goods sold assumes that the inventory items are sold in the order acquired.

 

234) The ________ method of assigning costs to inventory and cost of goods sold assumes that the most recent purchases are sold first.

 

235) The ________ method of assigning costs to inventory and cost of goods sold requires that we divide the cost of goods available for sale by the units of inventory available at the time of each sale.

 

236) Regardless of what inventory method or system is used, cost of goods available for sale must be allocated between ________ and ________.

 

237) When applying the lower of cost or market method of inventory valuation for LIFO, market is defined as the ________.

 

 

 

238) The ________ method is commonly used to estimate the value of inventory that has been destroyed, lost, or stolen.

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