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Financial Accounting, 4e (Kemp)
Chapter 5 Inventory
5.1 Describe the four different inventory costing methods
1) Merchandise inventory represents the goods that a merchandiser has available to sell to its
customers.
Question Type: Concept
2) Inventory is probably the retailer’s smallest (by value) current asset.
Question Type: Concept
3) Manufacturers have three different kinds of inventory.
Question Type: Concept
4) GAAP allows two different kinds of inventory costing methods.
Question Type: Concept
5) A piece of artwork would probably be inventoried using the specific–identification method.
Question Type: Concept
6) The Classics Collectibles, an antique shop, would most likely use the FIFO method of
accounting for inventory.
Question Type: Concept
7) Grocery stores are required to use the FIFO method because they sell the oldest stock first to
avoid spoilage.
Question Type: Concept
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8) Under the specific-identification method, the flow of costs through the accounting records
will:
A) be nearly the opposite of the physical flow of goods through the business.
B) closely match the physical flow of goods through the business.
C) exactly match the physical flow of goods through the business.
D) have no relationship to the physical flow of goods through the business.
Question Type: Concept
9) Under the LIFO method, the flow of costs through the accounting records will:
A) be nearly the opposite of the physical flow of goods through the business.
B) closely match the physical flow of goods through the business.
C) exactly match the physical flow of goods through the business.
D) have no relationship to the physical flow of goods through the business.
Question Type: Concept
10) Under the average cost method, the flow of costs through the accounting records will:
A) be nearly the opposite of the physical flow of goods through the business.
B) closely match the physical flow of goods through the business.
C) exactly match the physical flow of goods through the business.
D) have no relationship to the physical flow of goods through the business.
Question Type: Concept
11) Under the FIFO method, the flow of costs through the accounting records will:
A) be nearly the opposite of the physical flow of goods through the business.
B) closely match the physical flow of goods through the business.
C) exactly match the physical flow of goods through the business.
D) have no relationship to the physical flow of goods through the business.
Question Type: Concept
12) An inventory layer is synonymous with a separate:
A) sale of merchandise.
B) purchase of merchandise.
C) return of merchandise.
D) customer return of merchandise.
Question Type: Concept
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13) The quantity purchased and purchase price is tracked through:
A) inventory charting.
B) FIFO and LIFO only.
C) specific identification method only.
D) inventory layers.
Question Type: Concept
14) When using LIFO, an accounting department only needs to know:
A) how many units were sold, not which units were sold.
B) which units were sold, not how many units were sold.
C) the specific price of a specific unit.
D) the average price of a specific unit.
Question Type: Concept
15) The inventory system whereby the merchandise inventory account balance is merely a record
of the most recent physical inventory count is called the:
A) periodic system.
B) perpetual system.
C) LIFO system.
D) FIFO system.
Question Type: Concept
16) The inventory system that uses the merchandise inventory account as an active account is
called the:
A) periodic system.
B) perpetual system.
C) LIFO system.
D) FIFO system.
Question Type: Concept
17) A method of valuing inventory based on the average of units is called the:
A) LIFO method.
B) average cost method.
C) specific-unit-cost method.
D) FIFO method.
Question Type: Concept
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18) A method of valuing inventory based on the costs for each individual item is called the:
A) LIFO method.
B) average cost method.
C) specific identification method.
D) FIFO method.
Question Type: Concept
19) A method of valuing inventory based on the assumption that the oldest goods will be sold
first is called the:
A) LIFO method.
B) average cost method.
C) specific-unit-cost method.
D) FIFO method.
Question Type: Concept
20) A method of valuing inventory based on the assumption that the newest goods will be sold
first is called the:
A) LIFO method.
B) average cost method.
C) specific identification method.
D) FIFO method.
Question Type: Concept
21) A manufacturer uses ________ inventory to produce the goods it sells.
A) raw materials
B) purchases
C) finished goods
D) work–in-process
Question Type: Concept
22) A manufacturer‘s goods available for sale represents:
A) work-in–process inventory.
B) raw materials inventory.
C) cost of goods sold inventory.
D) finished goods inventory.
Question Type: Concept
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23) Goods such as milk, bread, and cheese need to be sold quickly due to potential spoilage.
Therefore, they would probably be costed using the:
A) LIFO method of inventory costing.
B) FIFO method of inventory costing.
C) average cost method of inventory costing.
D) any method as the physical flow and the cost flow are different.
Question Type: Application
24) New technology, like the latest cell phones and HDTV, would probably be costed using the:
A) LIFO method of inventory costing.
B) FIFO method of inventory costing.
C) moving average method of inventory costing.
D) any method as the physical flow and the cost flow are different.
Question Type: Application
25) A custom boat shop would probably cost its inventory using the:
A) LIFO method of inventory costing.
B) FIFO method of inventory costing.
C) moving average method of inventory costing.
D) specific-identification method of inventory costing.
Question Type: Application
26) C&S Petstore purchased 50 cases of dog food on January 1 and 25 cases of dog food on
January 5. Right away, 50 cases were sold, so they purchased an additional 50 cases of dog food
on January 15. How many inventory layers were created from these purchases?
A) 1
B) 3
C) 75
D) 125
Question Type: Application
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5.2 Compute inventory costs using first-in, first-out (FIFO), last-in, first-out (LIFO), and
average cost methods and journalize inventory transactions
1) The journal entries to record the purchases of inventory on account are different based on the
costing method chosen.
Question Type: Concept
2) The various inventory costing methods will still produce the same cost of goods sold value.
Question Type: Concept
3) The sum of ending inventory and cost of goods available for sale equals cost of goods sold.
Question Type: Concept
4) Beginning inventory plus net purchases equals cost of goods sold.
Question Type: Concept
5) The objective of inventory tracking is to allocate the cost of goods available for sale between
the cost of units sold and the cost of unsold inventory.
Question Type: Concept
6) Cost of goods sold is shown on the:
A) Balance Sheet as an asset.
B) Income Statement before gross profit.
C) Statement of Retained Earnings.
D) Income Statement after gross profit.
Question Type: Concept
7) Inventory is shown on the:
A) Balance Sheet as a long-term asset.
B) Income Statement before gross profit.
C) Balance Sheet as a current asset.
D) Income Statement after gross profit.
Question Type: Concept
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8) The amount of cost of goods sold is MOST influenced by the:
A) cost of the items sold.
B) cost of the unsold items.
C) inventory costing method used.
D) number of items sold.
Question Type: Concept
9) The LEAST widely used of the four inventory valuation methods is:
A) FIFO.
B) LIFO.
C) average cost.
D) specific-identification.
Question Type: Concept
10) The journal entry to record the purchase of $7,500 of inventory on account under the
perpetual inventory system is:
A) debit Inventory, $7,500; credit Cash, $7,500.
B) debit Purchases, $7,500; credit Accounts Payable, $7,500.
C) debit Inventory, $7,500; credit Accounts Payable, $7,500.
D) debit Cost of Goods Sold, $7,500; credit Inventory, $7,500.
Question Type: Application
11) Part of the journal entry to record the cost of an item for $28 that sold for $42 cash under the
perpetual inventory system is:
A) debit Sales, $42; credit Cost of Goods Sold, $28; credit Cash, $14.
B) debit Cost of Goods Sold, $42; sales, $42.
C) debit Cash, $42; credit Inventory $42.
D) debit Cost of Goods Sold $28; credit Inventory, $28.
Question Type: Application
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12) When merchandise is sold and the perpetual system of inventory is used, the journal entry to
record a sale of merchandise on account would include:
A) debiting Accounts Receivable and crediting Sales.
B) debiting Accounts Receivable and crediting Inventory.
C) debiting Accounts Receivable and crediting Cost of Goods Sold.
D) debiting Cost of Goods Sold and crediting Accounts Receivable.
Question Type: Application
13) Liberty, Inc. has the following list of inventory:
Item
Unit Cost
Selling Price
ELF
$6,307
$20,332
ICF
$6,850
$7,184
CKS
$18,282
$19,793
PCC
$9,434
$11,284
CRD
$27,444
$33,459
Under specific-identification, what is Liberty’s ending inventory if ICF and CRD are not sold
during the current period?
A) $34,294
B) $40,643
C) $34,023
D) $51,409
Question Type: Application
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14) Liberty, Inc. has the following list of inventory:
Item
Unit Cost
Selling Price
ELF
$13,287
$20,342
ICF
$6,760
$7,214
CKS
$18,282
$19,723
PCC
$9,434
$11,234
CRD
$27,464
$33,419
Under specific-identification, what is Liberty’s cost of goods sold if ICF and CRD were not sold
during the current period?
A) $34,224
B) $40,633
C) $41,003
D) $51,299
Question Type: Application
15) Lionworks Enterprises had the following inventory data:
Date
Quantity
Unit Cost
July 1
Beginning inventory
5
$49
July 4
Purchase
10
$57
July 7
Sale
12
July 11
Purchase
9
$54
July 14
Sale
8
Assuming FIFO, what is the cost of goods sold for the July 7 sale?
A) $588
B) $668
C) $652
D) $644
Question Type: Application
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16) Lionworks Enterprises had the following inventory data:
Date
Quantity
Unit Cost
July 1
Beginning inventory
5
$51
July 4
Purchase
10
$53
July 7
Sale
12
July 11
Purchase
9
$54
July 14
Sale
8
Assuming LIFO, what is the cost of goods sold for the July 7 sale? (Round your final answer to
the nearest dollar.)
A) $628
B) $632
C) $636
D) $626
17) Lionworks Enterprises had the following inventory data:
Date
Quantity
Unit Cost
July 1
Beginning inventory
5
$52
July 4
Purchase
10
$58
July 7
Sale
12
July 11
Purchase
9
$57
July 14
Sale
8
Assuming average cost, what is the cost of goods sold for the July 7 sale? (Round any
intermediary calculations to the nearest cent and round your final answer to the nearest dollar.)
A) $660
B) $684
C) $672
D) $666
Question Type: Application