44. Use this information to answer the following question.
July
1
Inventory
8
Purchase
17
Purchase
25
Purchase
Total sales
A periodic inventory system is used.
Cost of goods sold under FIFO is
a.
$858.
b.
$852.
c.
$904.
d.
$474.
45. Use this information to answer the following question.
July
1
Inventory
15 units @ $8.00
8
Purchase
60 units @ $8.80
17
Purchase
30 units @ $8.40
25
Purchase
45 units @ $9.60
Total sales
100 units
A periodic inventory system is used.
Ending inventory under LIFO is
a.
$904.
b.
$858.
c.
$428.
d.
$474.
46. Use this information to answer the following question.
July
1
Inventory
8
Purchase
17
Purchase
25
Purchase
Total sales
Assuming that the specific identification method is used and that ending inventory consists of 15 units
from each of the three purchases and five units from the January 1 inventory, cost of goods sold is
a.
$442.
b.
$836.
c.
$676.
d.
$890.
47. In a period of declining prices, which of the following inventory methods generally results in the
highest balance sheet figure for inventory?
a.
LIFO
b.
Cannot tell without more information
c.
FIFO
d.
Average-cost
48. In a period of rising prices, which of the following inventory methods generally results in the highest
gross margin figure?
a.
Cannot tell without more information
b.
LIFO
c.
FIFO
d.
Average-cost
49. Which inventory method generally best follows the matching principle?
a.
Average-cost
b.
LIFO
c.
Whichever method is used for tax purposes
d.
FIFO
50. Which inventory method generally results in the most realistic ending inventory figure?
a.
FIFO
b.
Whichever method produces the highest ending inventory figure
c.
LIFO
d.
Average-cost
51. In a period of declining prices, which inventory method is best to use for tax purposes?
a.
FIFO
b.
Average-cost
c.
Specific identification
d.
LIFO
52. Given equal circumstances, which inventory method probably would be the most time consuming?
a.
Specific identification
b.
FIFO
c.
Average-cost
d.
LIFO
53. In a period of rising prices, the liquidation of base-layer inventory will result in an unusually high
income tax liability under which of the following methods?
a.
Specific identification
b.
Average-cost
c.
LIFO
d.
FIFO
54. Which of the following inventory methods when used for income tax purposes must also be used for
reporting purposes?
a.
Specific identification
b.
LIFO
c.
FIFO
d.
Average-cost
55. Use this inventory information for the month of September to answer the following question.
Sept.
1
Beginning inventory
10 units @ $120
5
Purchase
60 units @ $112
14
Sale
40 units
21
Purchase
30 units @ $116
30
Sale
28 units
Assuming that a perpetual inventory system is used, what is ending inventory on a FIFO basis?
a.
$3,704
b.
$7,696
c.
More information is needed.
d.
$3,664
2 units @ $112
30 units @ $116
56. Use this inventory information for the month of September to answer the following question.
Sept.
1
Beginning inventory
10 units @ $120
5
Purchase
60 units @ $112
14
Sale
40 units
21
Purchase
30 units @ $116
30
Sale
28 units
Assuming that a perpetual inventory system is used, what is ending inventory (rounded) under the
average-cost method?
a.
$3,666
b.
$3,712
c.
$3,208
d.
$7,734
Beg. inventory
9/1
units @ $120
Purchase
9/5
units @ $112
Balance
9/5
units @ $113.14
7,920
57. Use this inventory information for the month of June to answer the following questions.
June
1
Beginning inventory
20 units @ $152
7
Purchase
70 units @ $160
18
Sale
25 units
22
Purchase
10 units @ $176
29
Sale
40 units
Assuming that a perpetual inventory system is used, what is ending inventory on a LIFO basis?
a.
More information is needed.
b.
$10,240
c.
$5,440
d.
$5,760
20 units @ $152
15 units @ $160
2,400
58. Use this inventory information for the month of June to answer the following questions.
June
1
Beginning inventory
20 units @ $152
7
Purchase
70 units @ $160
18
Sale
25 units
22
Purchase
10 units @ $176
29
Sale
40 units
Assuming that a perpetual inventory system is used, what is cost of goods sold (rounded) under the
average-cost method?
a.
$12,040
b.
$6,420
c.
$10,380
d.
$5,620
Beg. inventory
6/1
units @ $152
Purchase
6/7
units @ $160
Balance
6/7
units @ $158.22
Sale
9/14
units @ $113.14
4,526
Purchase
9/21
units @ $116
Balance
9/21
units @ $114.57
6,874
Sale
9/30
units @ $114.57
End. Inventory
9/30
units @ $114.57
59. Which of the following companies would be most likely to use the retail method?
a.
A dealer in heavy machinery
b.
A TV repair company
c.
A women’s dress shop
d.
A farm supply company
60. In which of the following cases would the gross profit method most likely be used?
a.
In a company with good accounting records
b.
In applying the average-cost method
c.
In estimating the market value of inventory for application of the lower-of-cost-or-market
rule
d.
In estimating an inventory loss from fire
61. When applying the retail method, which of the following would not be a component of the
cost-to-retail percentage?
a.
Purchases
b.
Beginning inventory
c.
Sales
d.
Freight-in
62. Which of the following methods generally is used to determine the loss when inventory is destroyed or
stolen?
a.
Retail method
b.
FIFO
c.
LIFO
d.
Gross profit method
63. A retail company has goods available for sale of $1,000,000 at retail and $400,000 at cost and ending
inventory of $98,000 at retail. What is the estimated cost of goods sold?
a.
$302,000
b.
$380,400
c.
$360,800
d.
$341,200
64. A company has cost of goods available for sale of $500,000, sales of $574,000, and a gross profit
percentage of 30 percent. Using the gross profit method, what is the ending inventory?
a.
$226,000
b.
$10,000
c.
$98,200
d.
$327,800
65. A retail store has goods available for sale of $1 million at retail and $550,000 at cost, and ending
inventory of $80,000 at retail. What is the estimated cost of ending inventory?
a.
$64,000
b.
$80,000
c.
$55,000
d.
$44,000
66. A retail store prices its goods to achieve a gross margin of 30 percent. Up to the date of a fire that
destroyed the store’s inventory, sales were $400,000 and cost of goods available for sale was $300,000.
The estimated cost of the inventory destroyed is
a.
$20,000.
b.
$70,000.
c.
$120,000.
d.
$100,000.
67. A retail store has beginning inventory of $60,000, purchases of $440,000, sales of $400,000, and a
normal gross margin of 25 percent. What is estimated inventory based on these facts and the gross
profit method?
a.
$100,000
b.
$300,000
c.
$200,000
d.
$400,000
68. A company has goods available for sale of $250,000 at retail and $175,000 at cost. It also had sales of
$210,000 for the period. What is the estimated cost of ending inventory, using the retail method?
a.
$38,000
b.
$28,000
c.
$40,000
d.
$63,000
SHORT ANSWER
1. How is the matching rule applied when accounting for merchandise inventory?
2. Use the following figures (stated in millions of dollars) to compute the inventory
turnover and the days’ inventory on hand: (Round answers to one decimal place).
Cost of goods sold:
$13,168
Beginning inventory:
$1,830
Ending inventory:
$2,354
a. Inventory turnover = ___________________
b. Days’ inventory on hand = ___________________
3. What is the chief objective of supply-chain management? How is it accomplished?
4. Assuming that ending inventory for 2012 was understated, indicate whether each of the following will
be understated (U), overstated (O), or not affected (N).
_____ 1. Beginning inventory for 2013
_____ 2. Cost of goods sold for 2012
_____ 3. Stockholders’ equity at the end of 2013
_____ 4. Income before income taxes for 2013
_____ 5. Stockholders’ equity at the end of 2012
_____ 6. Cost of goods sold for 2013
_____ 7. Income before income taxes for 2012
U
O
U
O
U
N
U
5. Assuming that ending inventory for 2012 was overstated, indicate whether each of the following will
be understated (U), overstated (O), or not affected (N).
_____ 1. Beginning inventory for 2013
_____ 2. Cost of goods sold for 2012
_____ 3. Stockholders’ equity at the end of 2013
_____ 4. Income before income taxes for 2013
_____ 5. Stockholders’ equity at the end of 2012
_____ 6. Cost of goods sold for 2013
_____ 7. Income before income taxes for 2012
6. Why are cost flow assumptions made when accounting for merchandise inventory?
7. Explain how the accounting convention of conservatism applies to the lower–of-cost-or market rule.
8. Given the following information about purchases and sales during the year, compute the cost to be
assigned to ending inventory under each of three methods: (a) average-cost, (b) FIFO, and (c) LIFO.
Assume the periodic inventory system is used. (Show your work.)
Jan.
1
Beginning inventory
150 items @ $6 =
$ 900
April
1
Purchases
450 items @ $12 =
5,400
Totals
600 items
$6,300
Total sales
300 items
Dec.
31
Ending inventory
300 items
9. Given the following information about purchases and sales during the year, compute the cost to be
assigned to ending inventory under each of three methods: (a) average-cost, (b) FIFO, and (c) LIFO.
Assume the periodic inventory system is used. (Show your work.)
Jan.
1
Beginning inventory
100 items @ $4 =
$ 400
July
1
Purchases
300 items @ $8 =
2,400
Totals
400 items
$2,800
Total sales
240 items
Dec.
31
Ending inventory
160 items
10. Use the following information to calculate cost of goods sold under each of three methods: (a) FIFO,
(b) LIFO, and (c) average-cost. Assume the periodic inventory system is used. (Show your work.)
Apr.
1
Beginning inventory
90 units @ $40
8
Sales
70 units
17
Purchases
150 units @ $42
24
Sales
110 units
30
Purchases
60 units @ $44
3,780
11. Under rising prices, why will the FIFO method produce a higher ending inventory than LIFO?
12.
What is a LIFO liquidation, and what is its effect on income before income taxes?
13. Why are the amounts determined for ending inventory and cost of goods sold the same under both the
periodic and perpetual inventory systems when FIFO is used but not when LIFO is used?