Chapter 7: Inventories
Addison, Inc. uses a perpetual inventory system. The following is information about one inventory item for the
month of September:
Sep. 1
Inventory
20 units at $20
4
Sold
10 units
10
Purchased
30 units at $25
17
Sold
20 units
30
Purchased
10 units at $30
64.
If Addison uses FIFO, the cost of the ending merchandise inventory on September 30 is
a. $800
b. $650
c. $750
d. $700
65.
If Addison uses LIFO, the cost of the ending merchandise inventory on September 30 is
a. $800
b. $650
c. $750
d. $700
Chapter 7: Inventories
66.
When using a perpetual inventory system, the journal entry to record the cost of merchandise sold is:
a.
debit Cost of Merchandise Sold; credit Sales
b.
debit Cost of Merchandise Sold; credit Merchandise Inventory
c.
debit Merchandise Inventory; credit Cost of Merchandise Sold
d.
No journal entry is made to record the cost of merchandise sold.
67.
Under the inventory method, accounting records maintain a continuously updated inventory value.
a.
retail
b.
periodic
c.
physical
d.
perpetual
Chapter 7: Inventories
68.
The inventory data for an item for November are:
Nov. 1
Inventory
20 units at $19
4
Sold
10 units
10
Purchased
30 units at $20
17
Sold
20 units
30
Purchased
10 units at $21
Using a perpetual system, what is the cost of the merchandise sold for November if the company uses LIFO?
a. $610
b. $600
c. $590
d. $580
69.
The inventory data for an item for November are:
Nov. 1
Inventory
20 units at $19
4
Sold
10 units
10
Purchased
30 units at $20
17
Sold
20 units
30
Purchased
10 units at $21
Using a perpetual system, what is the cost of the merchandise sold for November if the company uses FIFO?
a. $610
b. $600
c. $590
d. $580
Chapter 7: Inventories
Use the information below to answer the following questions.
The Boxwood Company sells blankets for $60 each. The following was taken from the inventory records
during
May. The company had no beginning inventory on May 1.
Date
Blankets
Units
Cost
May 3
Purchase
5
$20
10
Sale
3
17
Purchase
10
$24
20
Sale
6
23
Sale
3
30
Purchase
10
$30
70.
Assuming that the company uses the perpetual inventory system, determine the cost of merchandise sold for
the
sale of May 20 using the LIFO inventory cost method.
a. $136
b. $144
c. $180
d. $120
71.
Assuming that the company uses the perpetual inventory system, determine the cost of merchandise sold for
the
sale of May 20 using the FIFO inventory cost method.
a. $120
b. $180
c. $136
d. $144
Chapter 7: Inventories
72.
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
73.
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
74.
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
Chapter 7: Inventories
75.
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
The following units of an inventory item were available for sale during the year:
Beginning inventory 10 units at $55
First purchase 25 units at $60
Second purchase 30 units at $65
Third purchase 15 units at $70
The firm uses the periodic inventory system. During the year, 60 units of the item were sold.
76.
The value of ending inventory using FIFO is
a. $1,250
b. $1,350
c. $1,375
d. $1,150
Chapter 7: Inventories
77.
The value of ending inventory using LIFO is
a. $1,250
b. $1,350
c. $1,375
d. $1,150
78.
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
The following lots of a particular commodity were available for sale during the year:
Beginning inventory 10 units at $30
First purchase 25 units at $32
Second purchase 30 units at $34
Third purchase 10 units at $35
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 according to the LIFO method?
a. $655
b. $620
c. $690
d. $659
Chapter 7: Inventories
80.
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
81.
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
Chapter 7: Inventories
The following lots of a particular commodity were available for sale during the year:
Beginning inventory 5 units at $61
First purchase 15 units at $63
Second purchase 10 units at $74
Third purchase 10 units at $77
The firm uses the periodic system and there are 20 units of the commodity on hand at the end of the year.
82.
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
83.
What is the amount of cost of merchandise sold for the year according to the FIFO method?
a. $1,380
b. $1,375
c. $1,510
d. $1,250
84.
What is the amount of cost of merchandise sold for the year according to the LIFO method?
a. $1,380
b. $1,375
c. $1,510
d. $1,250
Chapter 7: Inventories
85.
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.
merchandise inventory is debited when goods are returned to vendors
86.
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
Chapter 7: Inventories
87.
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
88.
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
89.
If Beginning Inventory (BI) + Purchases (P) – Ending Inventory (EI) = Cost of Merchandise Sold (COMS), an
equivalent equation can be written as
a.
BI + P = COMS – EI
b.
BI – P = COMS + EI
c.
BI + P = COMS + EI
d.
EI + P = COMS – BI
Chapter 7: Inventories
90.
During a period of consistently rising prices, the method of inventory that will result in reporting the greatest cost
of
merchandise sold is
a.
FIFO
b.
LIFO
c.
average cost
d.
weighted average
91.
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 merchandise sold than FIFO.
c.
FIFO will result in a higher net income than LIFO.
d.
LIFO will result in higher income taxes than FIFO.
92.
If the revenues are correctly reported and the gross profit of a company is understated, what is the effect on owner’s
equity?
a.
understated
b.
overstated
c.
correctly stated
d.
none of these
Chapter 7: Inventories
93.
If merchandise 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
94.
If merchandise 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
95.
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 merchandise inventory
Chapter 7: Inventories
96.
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%
97.
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
98.
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
Chapter 7: Inventories
99.
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
100.
Merchandise 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 owner’s equity?
a.
net income is overstated, assets are overstated, and owner’s equity is understated
b.
net income is overstated, assets are overstated, and owner’s equity is overstated
c.
net income is understated, assets are understated, and owner’s equity is understated
d.
net income is understated, assets are understated, and owner’s equity is overstated
101.
Merchandise 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 merchandise sold is understated
d.
merchandise inventory reported on the balance sheet is overstated
Chapter 7: Inventories
102.
Merchandise inventory at the end of the year is overstated. Which of the following statements correctly states
the
effect of the error?
a.
owner’s equity is overstated
b.
cost of merchandise sold is overstated
c.
gross profit is understated
d.
net income is understated
103.
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
104.
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 merchandise on hand which has been returned by customers because of wrong size.
Chapter 7: Inventories
105.
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
106.
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
107.
If a company mistakenly counts less items during a physical inventory than actually exist, how will the error
affect
the cost of merchandise sold?
a.
understated
b.
overstated
c.
no change
d.
only inventory will be affected
Chapter 7: Inventories
108.
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
109.
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
110.
Which of the following measures the relationship between cost of merchandise 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
Chapter 7: Inventories
111.
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
112.
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
113.
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
Chapter 7: Inventories
114.
For the year ended December 31, Depot Max’s cost of merchandise 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
115.
For the year ended December 31, Depot Max’s cost of merchandise 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
116.
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