65. Gotham 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 Gotham 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.
· The ending inventory balance of $412,000 did not include goods costing $48,000 that were
purchased by Gotham on December 28 and shipped FOB destination on that date. Gotham 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.
· The ending inventory balance of $412,000 included $43,000 of consigned inventory for
which Gotham was the consignee.
Based on this information, the correct balance for ending inventory on December 31 is:
A. $247,000
B. $341,000
C. $362,000
D. $309,000
E. $319,000
66. Costs included in the Merchandise Inventory account can include all of the following
except:
A. Invoice price minus any discount.
B. Transportation-in.
C. Storage.
D. Insurance.
E. Damaged inventory that cannot be sold.
67. Internal controls that should be applied when a business takes a physical count of
inventory should include all of the following except:
A. Prenumbered inventory tickets.
B. A manager does not confirm that all inventories are ticketed once, and only once.
C. Counters must confirm the validity of inventory existence, amounts, and quality.
D. Second counts by a different counter.
E. Counters of inventory should not be those who are responsible for the inventory.
68. Physical counts of inventory:
A. Are not necessary under the perpetual system.
B. Are necessary to adjust the Inventory account to the actual inventory available.
C. Must be taken at least once a month.
D. Requires the use of hand-held portable computers.
E. Are not necessary under the cost-to benefit constraint.
69. During a period of steadily rising costs, the inventory valuation method that yields the
lowest reported net income is:
A. Specific identification method.
B. Average cost method.
C. Weighted-average method.
D. FIFO method.
E. LIFO method.
70. The inventory valuation method that tends to smooth out erratic changes in costs is:
A. FIFO.
B. Weighted average.
C. LIFO.
D. Specific identification.
E. WIFO.
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71. 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:
A. FIFO.
B. Weighted average.
C. LIFO.
D. Specific identification.
E. All of the inventory valuation methods accomplish this.
72. The inventory valuation method that results in the lowest taxable income in a period of
inflation is:
A. LIFO method.
B. FIFO method.
C. Weighted-average cost method.
D. Specific identification method.
E. Gross profit method.
73. The consistency concept:
A. Prescribes a company to consistently apply the same accounting method of inventory
valuation, an exception being when a change from one method to another will improve its
financial reporting.
B. Requires a company to use one method of inventory valuation exclusively.
C. Requires that all companies in the same industry use the same accounting methods of
inventory valuation.
D. Is also called the full disclosure principle.
E. Is also called the matching principle.
74. The full disclosure principle:
A. Prescribes that when a change in inventory valuation method is made, the notes to the
statements report the type of change, its justification and its effect on net income.
B. Requires that companies use the same accounting method for inventory valuation period
after period.
C. Is not subject to the materiality principle.
D. Is only applied to retailers.
E. Is also called the consistency principle.
75. 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?
A. FIFO and LIFO
B. LIFO and weighted-average cost
C. Specific identification and FIFO
D. FIFO and weighted-average cost
E. LIFO and specific identification
76. If a period-end inventory amount is reported in error, it can cause a misstatement in all of
the following except:
A. Cost of goods sold.
B. Gross profit.
C. Net sales.
D. Current assets.
E. Net income.
77. An error in the period-end inventory causes an offsetting error in the next period and
therefore:
A. Managers can ignore the error.
B. It is sometimes said to be self-correcting.
C. It affects only income statement accounts.
D. If affects only balance sheet accounts.
E. Is immaterial for managerial decision making.
78. The understatement of the ending inventory balance causes:
A. Cost of goods sold to be overstated and net income to be understated.
B. Cost of goods sold to be overstated and net income to be overstated.
C. Cost of goods sold to be understated and net income to be understated.
D. Cost of goods sold to be understated and net income to be overstated.
E. Cost of goods sold to be overstated and net income to be correct.
79. The understatement of the beginning inventory balance causes:
A. Cost of goods sold to be understated and net income to be understated.
B. Cost of goods sold to be understated and net income to be overstated.
C. Cost of goods sold to be overstated and net income to be overstated.
D. Cost of goods sold to be overstated and net income to be understated.
E. Cost of goods sold to be overstated and net income to be correct.
80. Thelma 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
Thelma 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:
A. $291,000
B. $276,000
C. $264,000
D. $285,000
E. $249,000
6-28
Feedback: If ending inventory for Year 1 was reported at $130,000 but was understated by $15,000,
the correct ending inventory figure for Year 1 was $145,000. That amount becomes the beginning
inventory for Year 2. Add to that amount the $275,000 of cost of goods purchased in Year 2 and you
get cost of goods available for sale of $420,000. Finally, the reported ending inventory figure for Year
2 of $135,000 was overstated by $6,000. Thus, the correct ending inventory figure for Year 2 was
$129,000. Subtracting ending inventory of $129,000 from cost of goods available for sale of $420,000
yields cost of goods sold of $291,000.
81. Louise Company reported the following income statement information for Year 1 and
Year 2:
Year 1 Year 2
Sales $410,000 $550,000
Cost of goods sold:
Beginning inventory $132,000 $144,000
Cost of goods purchases 273,000 302,000
Cost of goods available for sale 405,000 446,000
Ending inventory 144,000 152,000
Cost of goods sold 261,000 294,000
Gross profit $149,000 $256,000
6-29
The beginning inventory balance for Year 1 is correct. The ending inventory balance for Year
2 is also correct. However, the ending inventory figure for Year 1 was overstated by $20,000.
Given this information, the correct gross profit figures for Year 1 and Year 2 would be:
A. $129,000 for Year 1 and $256,000 for Year 2.
B. $281,000 for Year 1 and $274,000 for Year 2.
C. $129,000 for Year 1 and $276,000 for Year 2.
D. $169,000 for Year 1 and $236,000 for Year 2.
E. $169,000 for Year 1 and $276,000 for Year 2.
82. An overstatement of ending inventory will cause
A. An overstatement of assets and equity on the balance sheet.
B. An understatement of assets and equity on the balance sheet.
C. An overstatement of assets and an understatement of equity on the balance sheet.
D. An understatement of assets and an overstatement of equity on the balance sheet.
E. No effect on the balance sheet.
83. The inventory turnover ratio:
A. Is used to analyze profitability.
B. Is used to measure solvency.
C. Reveals how many times a company turns over (sells) its merchandise inventory.
D. Validates the acid-test ratio.
E. Calculation depends on the company’s inventory valuation method.
84. Days’ sales in inventory:
A. Is also called days’ stock on hand.
B. Focuses on average inventory rather than ending inventory.
C. Is used to measure solvency.
D. Is calculated by dividing cost of goods sold by ending inventory.
E. Is a substitute for the acid-test ratio.
85. The inventory turnover ratio is calculated as:
A. Cost of goods sold divided by average merchandise inventory.
B. Sales divided by cost of goods sold.
C. Ending inventory divided by cost of goods sold.
D. Cost of goods sold divided by ending inventory.
E. Cost of goods sold divided by ending inventory times 365.
86. Days’ sales in inventory is calculated as:
A. Ending inventory divided by cost of goods sold.
B. Cost of goods sold divided by ending inventory.
C. Ending inventory divided by cost of goods sold times 365.
D. Cost of goods sold divided by ending inventory times 365.
E. Ending inventory times cost of goods sold.
87. Tops 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:
A. 0.21.
B. 4.51
C. 4.79.
D. 76.1 days.
E. 80.9 days.
6-33
88. Tops had cost of goods sold of $9,421 million, ending inventory of $2,089 million, and
average inventory turnover of $1,965 million. Its days’ sales in inventory equals:
A. 0.21.
B. 4.51.
C. 4.79.
D. 76.1 days.
E. 80.9.days.
89. Acceptable methods of assigning specific costs to inventory and cost of goods sold
include all of the following except:
A. LIFO method.
B. FIFO method.
C. Specific identification method.
D. Weighted average method.
E. Retail method.
90. Management decisions in accounting for inventory cost include all of the following
except:
A. Costing method.
B. Inventory system (perpetual or periodic).
C. Customer demand for inventory.
D. Use of market values or other estimates.
E. Items included in inventory and their costs.
91. The inventory valuation method that identifies each item in ending inventory with a
specific purchase and invoice is the:
A. Weighted average inventory method.
B. First-in, first-out method.
C. Last-in, first-out method.
D. Specific identification method
E. Retail inventory method.
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92. A company had the following purchases during the current year:
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?
A. $3,500.
B. $3,800.
C. $3,960.
D. $3,280.
E. $3,640.
93. 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?
A. $304
B. $296
C. $288
D. $280
E. $276
94. Axme Corporation uses a weighted-average perpetual inventory system.
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 was the amount of the cost of goods sold for this sale?
A. $148.00
B. $150.50
C. $158.40
D. $210.00
E. $330.00
95. A company has inventory of 10 units at a cost of $10 each on June 1. On June 3, it
purchased 20 units at $12 each. 12 units are sold on June 5. Using the FIFO perpetual
inventory method, what is the cost of the 12 units that were sold?
A. $120.
B. $124.
C. $128.
D. $130.
E. $140.
96. A company has inventory of 15 units at a cost of $12 each on August 1. On August 5, it
purchased 10 units at $13 per unit. On August 12 it purchased 20 units at $14 per unit. 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?
A. $140
B. $160
C. $210
D. $380
E. $590
97. A company had inventory of 5 units at a cost of $20 each on November 1. On November
2, it purchased 10 units at $22 each. On November 6 it purchased 6 units at $25 each. On
November 8, it sold 18 units for $54 each. Using the LIFO perpetual inventory method, what
was the cost of the 18 units sold?
A. $395
B. $410
C. $450
D. $510
E. $520
98. A company sells a climbing kit and uses the perpetual 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 $30 selling price each
January 20: Purchased 24 units at $17 each
January 27: Sold 27 units at $30 selling price each
If the ending inventory is reported at $276, what inventory method was used?
A. LIFO method.
B. FIFO method.
C. Weighted average method.
D. Specific identification method.
E. Retail inventory method.
99. Axme uses a weighted average perpetual inventory system.
August 2, 10 units were purchased at $12 per unit.
August 18, 15 units were purchased at $15 per unit.
August 29, 20 units were sold.
August 31, 14 units were purchased at $16 per unit.
What is the per-unit value of ending inventory on August 31?
A. $12.00
B. $13.80
C. $15.42
D. $16.00
E. $17.74