Chapter 6 – Inventories
70. Assuming that the company uses the perpetual inventory system, determine the ending inventory value for the month
of May using the FIFO inventory cost method.
a.
$364
b.
$372
c.
$324
d.
$320
71. Assuming that the company uses the perpetual inventory system, determine the gross profit for the sale of May 23
using the FIFO inventory cost method.
a.
$108
b.
$120
c.
$72
d.
$180
Chapter 6 – Inventories
72. Assuming that the company uses the perpetual inventory system, determine the ending inventory for the month of
May using the LIFO inventory cost method.
a.
$324
b.
$372
c.
$320
d.
$364
purchase = $40 + $24 + $300 = $364
LEARNING OBJECTIVES:
73. Assuming that the company uses the perpetual inventory system, determine the gross profit for the month of May
using the LIFO cost method.
a.
$348
b.
$452
c.
$444
d.
$356
LEARNING OBJECTIVES:
The following units of an inventory item were available for sale during the year. Use this information to answer the
following questions.
Beginning inventory
First purchase
Second purchase
Third purchase
The firm uses the periodic inventory system. During the year, 60 units of the item were sold.
Chapter 6 – Inventories
74. The value of ending inventory using FIFO is
a.
$1,250
b.
$1,350
c.
$1,375
d.
$1,150
75. The value of ending inventory using LIFO is
a.
$1,250
b.
$1,350
c.
$1,375
d.
$1,150
76. The value of ending inventory rounded to nearest dollar using average cost is:
a.
$1,353
b.
$1,263
c.
$1,375
d.
$1,150
Chapter 6 – Inventories
The following lots of Commodity Z were available for sale during the year. Use this information to answer the questions
that follow.
Beginning inventory
First purchase
Second purchase
Third purchase
77. The firm uses the periodic system, and there are 20 units of the commodity on hand at the end of the year. What is the
amount of inventory at the end of the year according to the LIFO method?
a.
$655
b.
$620
c.
$690
d.
$659
78. The firm uses the periodic system, and there are 20 units of the commodity on hand at the end of the year. What is the
amount of inventory at the end of the year according to the FIFO method?
a.
$655
b.
$620
c.
$690
d.
$659
Chapter 6 – Inventories
79. The firm uses the periodic system, and there are 20 units of the commodity on hand at the end of the year. What is the
amount of inventory at the end of the year rounded to nearest dollar according to the average cost method?
a.
$655
b.
$620
c.
$690
d.
$659
The following lots of a Commodity P were available for sale during the year. Use this information to answer the questions
that follow.
Beginning inventory
First purchase
Second purchase
Third purchase
The firm uses the periodic system, and there are 20 units of the commodity on hand at the end of the year.
80. What is the amount of cost of goods sold for the year according to the average cost method?
a.
$1,380
b.
$1,375
c.
$1,510
d.
$1,250
Chapter 6 – Inventories
81. What is the amount of cost of goods sold for the year according to the FIFO method?
a.
$1,380
b.
$1,375
c.
$1,510
d.
$1,250
82. What is the amount of cost of goods sold for the year according to the LIFO method?
a.
$1,380
b.
$1,375
c.
$1,510
d.
$1,250
83. Under a periodic inventory system
a.
accounting records continuously disclose the amount of inventory
b.
a separate account for each type of merchandise is maintained in a subsidiary ledger
c.
a physical inventory is taken at the end of the period
d.
inventory is debited when goods are returned to vendors
Chapter 6 – Inventories
The following lots of Commodity D were available for sale during the year. Use this information to answer the questions
that follow.
Beginning inventory
First purchase
Second purchase
Third purchase
The firm uses the periodic system, and there are 25 units of the commodity on hand at the end of the year.
84. What is the amount of the inventory at the end of the year using the FIFO method?
a.
$1,685
b.
$1,575
c.
$1,805
d.
$3,585
85. What is the amount of the inventory at the end of the year using the LIFO method?
a.
$1,685
b.
$1,575
c.
$1,805
d.
$3,815
Chapter 6 – Inventories
86. What is the amount of the inventory at the end of the year rounded to nearest dollar using the average cost method?
a.
$1,685
b.
$1,575
c.
$1,805
d.
$3,705
87. If Beginning Inventory (BI) + Purchases (P) – Ending Inventory (EI) = Cost of Goods Sold (COGS), an equivalent
equation can be written as
a.
BI + P = COGS – EI
b.
BI – P = COGS + EI
c.
BI + P = COGS + EI
d.
EI + P = COGS – BI
88. During a period of consistently rising prices, the method of inventory that will result in reporting the greatest cost of
goods sold is
a.
FIFO
b.
LIFO
c.
average cost
d.
weighted average
Chapter 6 – Inventories
89. During times of rising prices, which of the following is not an accurate statement?
a.
Average costing will yield results that are between those of FIFO and LIFO.
b.
LIFO will result in a higher cost of goods sold than FIFO.
c.
FIFO will result in a higher net income than LIFO.
d.
LIFO will result in higher income taxes than FIFO.
90. If the revenues are correctly reported and the gross profit of a company is understated, what is the effect on
stockholders’ equity?
a.
understated
b.
overstated
c.
correctly stated
d.
none of these
91. If inventory is being valued at cost and the price level is steadily rising, the method of costing that will yield the
highest net income is
a.
periodic
b.
LIFO
c.
FIFO
d.
average cost
Chapter 6 – Inventories
92. If inventory is being valued at cost and the purchase price is steadily falling, which method of costing will yield the
largest net income?
a.
average cost
b.
LIFO
c.
FIFO
d.
weighted average
93. Which of the following will be the same amount regardless of the cost flow assumption adopted?
a.
number of items ordered
b.
gross profit
c.
cost of goods sold
d.
ending inventory
94. FIFO reports higher gross profit and net income than the LIFO method when
a.
prices are increasing
b.
prices are decreasing
c.
prices remain stable
d.
prices are reduced by 50%
Chapter 6 – Inventories
95. During a period of falling prices, which of the following inventory methods generally results in the lowest balance
sheet amount for inventory?
a.
average cost method
b.
LIFO method
c.
FIFO method
d.
cannot tell without more information
96. Damaged merchandise that can be sold only at prices below cost should be valued at
a.
net realizable value
b.
LIFO
c.
FIFO
d.
average cost
97. If a manufacturer ships merchandise to a retailer on consignment, the unsold merchandise should be included in the
inventory of the
a.
consignee
b.
retailer
c.
manufacturer
d.
shipper
Chapter 6 – Inventories
98. Inventory at the end of the year was inadvertently overstated. Which of the following statements correctly states the
effect of the error on net income, assets, and stockholders’ equity?
a.
net income is overstated, assets are overstated, and stockholders’ equity is understated
b.
net income is overstated, assets are overstated, and stockholders’ equity is overstated
c.
net income is understated, assets are understated, and stockholders’ equity is understated
d.
net income is understated, assets are understated, and stockholders’ equity is overstated
99. Inventory at the end of the year was understated. Which of the following statements correctly states the effect of the
error?
a.
net income is understated
b.
net income is overstated
c.
cost of goods sold is understated
d.
inventory reported on the balance sheet is overstated
100. Inventory at the end of the year is overstated. Which of the following statements correctly states the effect of the
error?
a.
stockholders’ equity is overstated
b.
cost of goods sold is overstated
c.
gross profit is understated
d.
net income is understated
Chapter 6 – Inventories
101. If the cost of an item of inventory is $60 and the current replacement cost is $75, the amount included in inventory
according to the lower of cost or market is
a.
$15
b.
$60
c.
$75
d.
$135
102. Kristin’s Boutiques has identified the following items for possible inclusion in its December 31 inventory. Which of
the following would not be included in the year-end inventory?
a.
Merchandise purchased FOB shipping point was picked up by the freight company but had still not arrived at
Kristin’s Boutique as of December 31.
b.
Kristin has in its warehouse merchandise on consignment from Abby Co.
c.
Kristin has sent merchandise to various retailers on a consignment basis.
d.
Kristin has inventory on hand which has been returned by customers because of wrong size.
103. During the taking of its physical inventory on December 31, 2014, Barry’s Bike Shop incorrectly counted its
inventory as $350,000 instead of the correct amount of $280,000. The effect on the balance sheet and income statement
would be
a.
assets overstated by $70,000; retained earnings understated by $70,000; and net income statement understated
by $70,000
b.
assets overstated by $70,000; retained earnings understated by $70,000; and no effect on the income statement
c.
assets, retained earnings, and net income all overstated by $70,000
d.
assets and retained earnings overstated by $70,000; and net income understated by $70,000
Chapter 6 – Inventories
104. If a company mistakenly counts more items during a physical inventory than actually exist, how will the error affect
their bottom line?
a.
no change to net income
b.
net income will be overstated
c.
net income will be understated
d.
only gross profit will be affected
105. If a company mistakenly counts less items during a physical inventory than actually exist, how will the error affect
the cost of goods sold?
a.
understated
b.
overstated
c.
no change
d.
only inventory will be affected
106. Too much inventory on hand
a.
ties up funds that could be used to improve operations
b.
increases the cost to safeguard the assets
c.
increases the losses due to price declines
d.
all of these
Chapter 6 – Inventories
107. Which of the following is used to analyze the efficiency and effectiveness of inventory management?
a.
inventory turnover only
b.
number of days’ sales in inventory only
c.
both inventory turnover and number of days’ sales in inventory
d.
neither inventory turnover or number of days’ sales in inventory
108. Which of the following measures the relationship between cost of goods sold and the amount of inventory carried
during the period?
a.
inventory turnover
b.
fixed asset turnover
c.
retail method of inventory costing
d.
gross profit method of inventory costing
109. Which of the following measures the length of time it takes to acquire, sell, and replace inventory?
a.
inventory turnover
b.
number of days’ sales in inventory
c.
retail method of inventory costing
d.
gross profit method of inventory costing
Chapter 6 – Inventories
110. Excess inventory results in all of the following except
a.
tied-up funds that could be used to improve operations
b.
lost sales
c.
increased storage expense
d.
increased risk of loss due to damage
111. The number of days’ sales in inventory measures
a.
the length of time it takes to acquire, sell, and replace the inventory
b.
the length of time it takes to acquire and receive payment for the inventory
c.
the number of days inventory is on hand prior to sale
d.
the number of days inventory takes to arrive after ordering
112. For the year ended December 31, Depot Max’s cost of goods sold was $56,900. Inventory at the beginning of the
year was $6,540. Ending inventory was $7,250. Compute Depot Max’s inventory turnover for the year.
a.
8.7
b.
7.8
c.
8.3
d.
44.0
Chapter 6 – Inventories
113. For the year ended December 31, Depot Max’s cost of goods sold was $56,900. Inventory at the beginning of the
year was $6,540. Ending inventory was $7,250. Depot Max’s number of days’ sales in inventory is closest to
a.
42
b.
46
c.
8
d.
44
Goods Sold = [($6,540 + $7,250) ÷ 2] ÷ [$56,900 ÷ 365] = $6,895 ÷ 156 = 44
114. The method of estimating inventory that uses records of the selling prices of the merchandise is called
a.
retail method
b.
gross profit method
c.
inventory turnover method
d.
average cost method
115. On the basis of the following data, what is the estimated cost of the inventory on May 31 using the retail method?
Cost
Retail
May 1
Inventory
$125,000
$166,667
May 1-31
Purchases
235,000
313,333
May 1-31
Sales
230,000
a.
$250,000
b.
$360,000
c.
$172,500
d.
$187,500
Chapter 6 – Inventories
116. If the estimated rate of gross profit is 30%, what is the estimated cost of the inventory on September 30, based on the
following data?
Sep. 1
Inventory (at cost)
$125,000
Sep. 1-30
Purchases, net (at cost)
300,000
Sep. 1-30
Sales
150,000
a.
$320,000
b.
$192,500
c.
$275,000
d.
$105,000
117. All of the following are reasons to use an estimated method of costing inventory except
a.
Perpetual inventory records are not maintained.
b.
Purchase records are not maintained.
c.
A disaster has destroyed the inventory records and the inventory.
d.
Interim financial statements are required but physical inventory is only taken at the end of the financial
accounting period.
Chapter 6 – Inventories
118. Garrison Company uses the retail method of inventory costing. It started the year with an inventory that had a retail
cost of $45,000. During the year, Garrison purchased an inventory with a retail sales value of $300,000. After
performing a physical inventory, Garrison calculated the inventory at retail to be $80,000. The markup is 100% of
cost. Determine the ending inventory at its estimated cost.
a.
$160,000
b.
$80,000
c.
$40,000
d.
$45,000
119. A company will most likely use an estimated method of determining inventory when
a.
the company decides not to do a physical inventory
b.
a natural disaster has destroyed most of the inventory
c.
the company has not kept up with its inventory records
d.
the company is preparing annual financial statements
Chapter 6 – Inventories
120. Stevens Company started the year with an inventory cost of $145,000. During the month of January, Stevens
purchased inventory that cost $53,000. January sales totaled $140,000. Estimated gross profit is 35%. The estimated
ending inventory as of January 31 is
a.
$58,000
b.
$91,000
c.
$107,000
d.
$69,300
121. Determine the total value of the merchandise using net realizable value.
Item
Quantity
Selling Price
Commission
Doll
10
$7
$2
Horse
5
9
3
a.
$35
b.
$80
c.
$115
d.
$25