Valuation of Inventories: A Cost-Basis Approach
8 – 21
91. Risers Inc. reported total assets of $3,200,000 and net income of $255,000 for the current
year. Risers determined that inventory was understated by $69,000 at the beginning of the
year and $30,000 at the end of the year. What is the corrected amount for total assets and
net income for the year?
a. $3,230,000 and $285,000.
b. $3,170,000 and $294,000.
c. $3,230,000 and $216,000.
d. $3,200,000 and $255,000.
Use the following information for questions 92 through 94.
Hudson, Inc. is a calendar-year corporation. Its financial statements for the years 2015 and 2014
contained errors as follows:
2015 2014
Ending inventory $6,000 overstated $16,000 overstated
Depreciation expense $4,000 understated $12,000 overstated
92. Assume that the proper correcting entries were made at December 31, 2014. By how
much will 2015 income before taxes be overstated or understated?
a. $ 2,000 understated
b. $ 2,000 overstated
c. $ 4,000 overstated
d. $10,000 overstated
93. Assume that no correcting entries were made at December 31, 2014. Ignoring income
taxes, by how much will retained earnings at December 31, 2015 be overstated or
understated?
a. $ 2,000 understated
b. $15,000 overstated
c. $15,000 understated
d. $18,000 understated
94. Assume that no correcting entries were made at December 31, 2014, or December 31,
2015 and that no additional errors occurred in 2016. Ignoring income taxes, by how much
will working capital at December 31, 2016 be overstated or understated?
a. $0
b. $ 4,000 overstated
c. $ 4,000 understated
d. $10,000 understated
95. The following information is available for Naab Company for 2014:
Freight-in $ 30,000
Purchase returns 75,000
Selling expenses 230,000
Ending inventory 260,000
The cost of goods sold is equal to 400% of selling expenses. What is the cost of goods
available for sale?
a. $ 920,000.
b. $1,150,000.
c. $1,135,000.
d. $1,180,000.
Test Bank for Intermediate Accounting, Fifteenth Edition
8 – 22
Use the following information for questions 96 and 97.
Winsor Co. records purchases at net amounts. On May 5 Winsor purchased merchandise on
account, $40,000, terms 2/10, n/30. Winsor returned $3,000 of the May 5 purchase and received
credit on account. At May 31 the balance had not been paid.
96. The amount to be recorded as a purchase return is
a. $2,700.
b. $3,060
c. $3,000.
d. $2,940.
97. By how much should the account payable be adjusted on May 31?
a. $ 0.
b. $860.
c. $800.
d. $740.
Use the following information for questions 98 and 99.
The following information was available from the inventory records of Rich Company for January:
Units Unit Cost Total Cost
Balance at January 1 3,000 $9.77 $29,310
Purchases:
January 6 2,000 10.30 20,600
January 26 2,700 10.71 28,917
Sales:
January 7 (2,500)
January 31 (3,700)
Balance at January 31 1,500
98. Assuming that Rich does not maintain perpetual inventory records, what should be the
inventory at January 31, using the weighted-average inventory method, rounded to the
nearest dollar?
a. $15,757.
b. $15,356.
c. $15,390.
d. $15,540.
99. Assuming that Rich maintains perpetual inventory records, what should be the inventory
at January 31, using the moving-average inventory method, rounded to the nearest
dollar?
a. $15,757.
b. $15,356.
c. $15,390.
d. $15,540.
Valuation of Inventories: A Cost-Basis Approach
8 – 23
Use the following information for questions 100 and 101.
Niles Co. has the following data related to an item of inventory:
Inventory, March 1 200 units @ $2.10
Purchase, March 7 700 units @ $2.20
Purchase, March 16 140 units @ $2.25
Inventory, March 31 260 units
100. The value assigned to ending inventory if Niles uses LIFO is
a. $580.
b. $552.
c. $546.
d. $584.
101. The value assigned to cost of goods sold if Niles uses FIFO is
a. $ 580.
b. $ 552.
c. $1,724.
d. $1,696.
102. Emley Company has been using the LIFO method of inventory valuation for 10 years,
since it began operations. Its 2014 ending inventory was $50,000, but it would have been
$75,000 if FIFO had been used. Thus, if FIFO had been used, Emley’s income before
income taxes would have been
a. $25,000 greater over the 10-year period.
b. $25,000 less over the 10-year period.
c. $25,000 greater in 2014.
d. $25,000 less in 2014.
Use the following information for questions 103 through 106.
Transactions for the month of June were:
Purchases Sales
June 1 (balance) 1,600 @ $3.20 June 2 1,200 @ $5.50
3 4,400 @ 3.10 6 3,200 @ 5.50
7 2,400 @ 3.30 9 2,000 @ 5.50
15 3,600 @ 3.40 10 800 @ 6.00
22 1,000 @ 3.50 18 2,800 @ 6.00
25 400 @ 6.00
103. Assuming that perpetual inventory records are kept in units only, the ending inventory on
a LIFO basis is
a. $8,220.
b. $8,320.
c. $8,580.
d. $8,940.
104. Assuming that perpetual inventory records are kept in dollars, the ending inventory on a
LIFO basis is
a. $8,220.
b. $8,320.
c. $8,580.
d. $8,940.
Test Bank for Intermediate Accounting, Fifteenth Edition
8 – 24
105. Assuming that perpetual inventory records are kept in dollars, the ending inventory on a
FIFO basis is
a. $8,220.
b. $8,320.
c. $8,580.
d. $8,940.
106. Assuming that perpetual inventory records are kept in units only, the ending inventory on
an average-cost basis, rounded to the nearest dollar, is
a. $8,192.
b. $8,476.
c. $8,580.
d. $8,644.
107. Milford Company had 500 units of “Tank” in its inventory at a cost of $4 each. It
purchased, for $2,800, 300 more units of “Tank”. Milford then sold 400 units at a selling
price of $10 each, resulting in a gross profit of $1,600. The cost flow assumption used by
Milford
a. is FIFO.
b. is LIFO.
c. is weighted average.
d. cannot be determined from the information given.
108. Nichols Company had 500 units of “Dink” in its inventory at a cost of $5 each. It
purchased, for $2,400, 300 more units of “Dink”. Nichols then sold 600 units at a selling
price of $10 each, resulting in a gross profit of $2,100. The cost flow assumption used by
Nichols.
a. is FIFO.
b. is LIFO.
c. is weighted average.
d. cannot be determined from the information given.
109. June Corp. sells one product and uses a perpetual inventory system. The beginning
inventory consisted of 40 units that cost $20 per unit. During the current month, the
company purchased 240 units at $20 each. Sales during the month totaled 180 units for
$43 each. What is the number of units in the ending inventory?
a. 40 units.
b. 60 units.
c. 100 units.
d. 280 units.
110. June Corp. sells one product and uses a perpetual inventory system. The beginning
inventory consisted of 40 units that cost $20 per unit. During the current month, the
company purchased 240 units at $20 each. Sales during the month totaled 180 units for
$43 each. What is the cost of goods sold using the LIFO method?
a. $ 800.
b. $3,600.
c. $4,800.
d. $7,740.
Valuation of Inventories: A Cost-Basis Approach
8 – 25
111. Checkers uses the periodic inventory system. For the current month, the beginning
inventory consisted of 4,800 units that cost $12 each. During the month, the company
made two purchases: 2,000 units at $13 each and 8,000 units at $13.50 each. Checkers
also sold 8,600 units during the month. Using the average cost method, what is the
amount of cost of goods sold for the month?
a. $111,370.
b. $115,800.
c. $107,900.
d. $111,800.
112. Chess Top uses the periodic inventory system. For the current month, the beginning
inventory consisted of 360 units that cost $65 each. During the month, the company made
two purchases: 540 units at $68 each and 270 units at $70 each. Chess Top also sold 900
units during the month. Using the average cost method, what is the amount of ending
inventory?
a. $18,900.
b. $60,786.
c. $60,120.
d. $18,236.
113. Checkers uses the periodic inventory system. For the current month, the beginning
inventory consisted of 4,800 units that cost $12 each. During the month, the company
made two purchases: 2,000 units at $13 each and 8,000 units at $13.50 each. Checkers
also sold 8,600 units during the month. Using the FIFO method, what is the ending
inventory?
a. $80,292.
b. $74,400.
c. $83,700.
d. $75,800.
114. Chess Top uses the periodic inventory system. For the current month, the beginning
inventory consisted of 360 units that cost $65 each. During the month, the company made
two purchases: 540 units at $68 each and 270 units at $70 each. Chess Top also sold 900
units during the month. Using the FIFO method, what is the amount of cost of goods sold
for the month?
a. $60,786.
b. $58,500.
c. $61,470.
d. $60,120.
115. Checkers uses the periodic inventory system. For the current month, the beginning
inventory consisted of 4,800 units that cost $12 each. During the month, the company
made two purchases: 2,000 units at $13 each and 8,000 units at $13.50 each. Checkers
also sold 8,600 units during the month. Using the LIFO method, what is the ending
inventory?
a. $80,292.
b. $74,400.
c. $83,700.
d. $75,800.
Test Bank for Intermediate Accounting, Fifteenth Edition
8 – 26
116. Chess Top uses the periodic inventory system. For the current month, the beginning
inventory consisted of 360 units that cost $65 each. During the month, the company made
two purchases: 540 units at $68 each and 270 units at $70 each. Chess Top also sold 900
units during the month. Using the LIFO method, what is the amount of cost of goods sold
for the month?
a. $60,786.
b. $58,500.
c. $61,470.
d. $60,120.
117. Black Corporation uses the FIFO method for internal reporting purposes and LIFO for
external reporting purposes. The balance in the LIFO Reserve account at the end of 2014
was $140,000. The balance in the same account at the end of 2015 is $210,000. Black’s
Cost of Goods Sold account has a balance of $1,050,000 from sales transactions
recorded during the year. What amount should Black report as Cost of Goods Sold in the
2015 income statement?
a. $ 980,000.
b. $1,050,000.
c. $1,120,000.
d. $1,260,000.
118. White Corporation uses the FIFO method for internal reporting purposes and LIFO for
external reporting purposes. The balance in the LIFO Reserve account at the end of 2014
was $160,000. The balance in the same account at the end of 2015 is $240,000. White’s
Cost of Goods Sold account has a balance of $1,200,000 from sales transactions
recorded during the year. What amount should White report as Cost of Goods Sold in the
2015 income statement?
a. $1,120,000.
b. $1,200,000.
c. $1,280,000.
d. $1,440,000.
119. Milford Company had 400 units of “Tank” in its inventory at a cost of $6 each. It purchased
600 more units of “Tank” at a cost of $9 each. Milford then sold 700 units at a selling price
of $15 each. The LIFO liquidation overstated normal gross profit by
a. $ -0-
b. $300.
c. $600.
d. $900.
120. Nichols Company had 400 units of “Dink” in its inventory at a cost of $12 each. It
purchased 600 more units of “Dink” at a cost of $18 each. Nichols then sold 700 units at a
selling price of $30 each. The LIFO liquidation overstated normal gross profit by
a. $ -0-
b. $ 600.
c. $1,200.
d. $1,800.
Valuation of Inventories: A Cost-Basis Approach
8 – 27
Use the following information for 121 and 122
RF Company had January 1 inventory of $200,000 when it adopted dollar-value LIFO. During the
year, purchases were $1,200,000 and sales were $2,000,000. December 31 inventory at year-
end prices was $286,720, and the price index was 112.
121. What is RF Company’s ending inventory?
a. $200,000.
b. $256,000.
c. $262,720.
d. $286,720.
122. What is RF Company’s gross profit?
a. $856,000.
b. $862,720.
c. $886,920.
d. $1,737,280.
Use the following information for 123 and 124
Hay Company had January 1 inventory of $180,000 when it adopted dollar-value LIFO. During
the year, purchases were $1,080,000 and sales were $1,800,000. December 31 inventory at
year-end prices was $227,700, and the price index was 110.
123. What is Hay Company’s ending inventory?
a. $198,000.
b. $207,000.
c. $209,700.
d. $227,700.
124. What is Hay Company’s gross profit?
a. $747,000.
b. $749,700.
c. $767,700.
d. $1,590,300.
Use the following information for questions 125 through 127.
Gross Corporation adopted the dollar-value LIFO method of inventory valuation on December 31,
2013. Its inventory at that date was $550,000 and the relevant price index was 100. Information
regarding inventory for subsequent years is as follows:
Inventory at Current
Date Current Prices Price Index
December 31, 2014 $642,000 107
December 31, 2015 725,000 125
December 31, 2016 812,500 130
125. What is the cost of the ending inventory at December 31, 2014 under dollar-value LIFO?
a. $600,000.
b. $642,000.
c. $603,500.
d. $588,500.
Test Bank for Intermediate Accounting, Fifteenth Edition
8 – 28
126. What is the cost of the ending inventory at December 31, 2015 under dollar-value LIFO?
a. $580,000.
b. $578,500.
c. $582,100.
d. $600,000.
127. What is the cost of the ending inventory at December 31, 2016 under dollar-value LIFO?
a. $640,600.
b. $637,000.
c. $625,000.
d. $658,500.
128. Wise Company adopted the dollar-value LIFO method on January 1, 2014, at which time
its inventory consisted of 6,000 units of Item A @ $5.00 each and 3,000 units of Item B @
$16.00 each. The inventory at December 31, 2014 consisted of 12,000 units of Item A and
7,000 units of Item B. The most recent actual purchases related to these items were as
follows:
Quantity
Items Purchase Date Purchased Cost Per Unit
A 12/7/14 2,000 $ 6.00
A 12/11/14 10,000 5.75
B 12/15/14 7,000 17.00
Using the double-extension method, what is the price index for 2014 that should be
computed by Wise Company?
a. 108.33%
b. 109.59%
c. 111.05%
d. 220.51%
129. Web World began using dollar-value LIFO for costing its inventory last year. The base
year layer consists of $400,000. Assuming the current inventory at end of year prices
equals $552,000 and the index for the current year is 1.10, what is the ending inventory
using dollar-value LIFO?
a. $552,000.
b. $512,000.
c. $501,818.
d. $607,200.
130. Willy World began using dollar-value LIFO for costing its inventory two years ago. The
ending inventory for the past two years in end–of-year dollars was $180,000 and $270,000
and the year-end price indices were 1.0 and 1.2, respectively. Assuming the current
inventory at end of year prices equals $387,000 and the index for the current year is 1.25,
what is the ending inventory using dollar-value LIFO?
a. $319,500.
b. $335,520.
c. $342,000.
d. $339,750.
Valuation of Inventories: A Cost-Basis Approach
8 – 29
131. Opera Corp. uses the dollar-value LIFO method of computing its inventory cost. Data for
the past three years is as follows:
Year ended Inventory at Price
December 31. End-of-year Prices Index
2013 $390,000 1.00
2014 756,000 1.05
2015 810,000 1.10
What is the 2013 inventory balance using dollar-value LIFO?
a. $390,000.
b. $371,424.
c. $736,362.
d. $810,000.
132. Opera Corp. uses dollar-value LIFO method of computing its inventory cost. Data for the
past three years is as follows:
Year ended Inventory at Price
December 31. End-of-year Prices Index
2013 $ 390,000 1.00
2014 756,000 1.05
2015 810,000 1.10
What is the 2014 inventory balance using dollar-value LIFO?
a. $756,000.
b. $771,000.
c. $736,500.
d. $754,500.
133. Opera Corp. uses dollar-value LIFO method of computing its inventory cost. Data for the
past three years is as follows:
Year ended Inventory at Price
December 31. End-of-year Prices Index
2013 $ 390,000 1.00
2014 756,000 1.05
2015 810,000 1.10
What is the 2015 inventory balance using dollar-value LIFO?
a. $810,000.
b. $771,000.
c. $736,500.
d. $754,500.
Test Bank for Intermediate Accounting, Fifteenth Edition
8 – 30
Multiple Choice Answers—Computational
Item
Ans.
Item
Ans.
Item
Ans.
Item
Ans.
Item
Ans.
Item
Ans.
Item
Ans.
MULTIPLE CHOICE—CPA Adapted
134. How should the following costs affect a retailer’s inventory valuation?
Freight-in Interest on Inventory Loan
a. Increase No effect
b. Increase Increase
c. No effect Increase
d. No effect No effect
135. The following information applied to Howe, Inc. for 2014:
Merchandise purchased for resale $380,000
Freight-in 8,000
Freight-out 5,000
Purchase returns 2,000
Howe’s 2014 inventoriable cost was
a. $380,000.
b. $383,000.
c. $386,000.
d. $391,000.
136. The following information was derived from the 2014 accounting records of Perez Co.:
Perez’s Goods
Perez’s Central Warehouse Held by Consignees
Beginning inventory $130,000 $ 14,000
Purchases 525,000 70,000
Freight-in 10,000
Transportation to consignees 5,000
Freight-out 30,000 8,000
Ending inventory 145,000 20,000
Valuation of Inventories: A Cost-Basis Approach
8 – 31
Perez’s 2014 cost of sales was
a. $520,000.
b. $550,000.
c. $584,000.
d. $589,000.
137. Dole Corp.’s accounts payable at December 31, 2014, totaled $750,000 before any
necessary year-end adjustments relating to the following transactions:
• On December 27, 2014, Dole wrote and recorded checks to creditors totaling
$350,000 causing an overdraft of $100,000 in Dole’s bank account at December 31,
2014. The checks were mailed out on January 10, 2015.
• On December 28, 2014, Dole purchased and received goods for $150,000, terms
2/10, n/30. Dole records purchases and accounts payable at net amounts. The invoice
was recorded and paid January 3, 2015.
• Goods shipped f.o.b. destination on December 20, 2014 from a vendor to Dole were
received January 2, 2015. The invoice cost was $65,000.
At December 31, 2014, what amount should Dole report as total accounts payable?
a. $1,312,000.
b. $1,247,000.
c. $1,000,000.
d. $900,000.
138. The balance in Moon Co.’s accounts payable account at December 31, 2014 was
$950,000 before any necessary year-end adjustments relating to the following:
• Goods were in transit to Moon from a vendor on December 31, 2014. The invoice cost
was $40,000. The goods were shipped f.o.b. shipping point on December 29, 2014
and were received on January 4, 2015.
• Goods shipped f.o.b. destination on December 21, 2014 from a vendor to Moon were
received on January 6, 2015. The invoice cost was $25,000.
• On December 27, 2014, Moon wrote and recorded checks to creditors totaling
$30,000 that were mailed on January 10, 2015.
In Moon’s December 31, 2014 balance sheet, the accounts payable should be
a. $ 980,000.
b. $ 990,000.
c. $1,015,000.
d. $1,020,000.
139. Kerr Co.’s accounts payable balance at December 31, 2014 was $1,400,000 before
considering the following transactions:
• Goods were in transit from a vendor to Kerr on December 31, 2014. The invoice price
was $70,000, and the goods were shipped f.o.b. shipping point on December 29,
2014. The goods were received on January 4, 2015.
• Goods shipped to Kerr, f.o.b. shipping point on December 20, 2014, from a vendor
were lost in transit. The invoice price was $50,000. On January 5, 2015, Kerr filed a
$50,000 claim against the common carrier.
Test Bank for Intermediate Accounting, Fifteenth Edition
8 – 32
In its December 31, 2014 balance sheet, Kerr should report accounts payable of
a. $1,520,000.
b. $1,470,000.
c. $1,450,000.
d. $1,400,000.
140. Walsh Retailers purchased merchandise with a list price of $125,000, subject to trade
discounts of 20% and 10%, with no cash discounts allowable. Walsh should record the
cost of this merchandise as
a. $87,500.
b. $90,000.
c. $97,500.
d. $125,000.
141. On June 1, 2014, Penny Corp. sold merchandise with a list price of $50,000 to Linn on
account. Penny allowed trade discounts of 30% and 20%. Credit terms were 2/15, n/40
and the sale was made f.o.b. shipping point. Penny prepaid $1,000 of delivery costs for
Linn as an accommodation. On June 12, 2014, Penny received from Linn a remittance in
full payment amounting to
a. $27,440.
b. $28,420.
c. $28,440.
d. $27,990.
142. Groh Co. recorded the following data pertaining to raw material X during January 2014:
Units
Date Received Cost Issued On Hand
1/1/14 Inventory $6.00 3,200
1/11/14 Issue 1,600 1,600
1/22/14 Purchase 4,000 $7.05 5,600
The moving-average unit cost of X inventory at January 31, 2014 is
a. $6.52.
b. $6.63.
c. $6.75.
d. $7.05.
143. During periods of rising prices, a perpetual inventory system would result in the same
dollar amount of ending inventory as a periodic inventory system under which of the
following inventory cost flow methods?
FIFO LIFO
a. Yes No
b. Yes Yes
c. No Yes
d. No No
Valuation of Inventories: A Cost-Basis Approach
8 – 33
144. Hite Co. was formed on January 2, 2014, to sell a single product. Over a two-year period,
Hite’s acquisition costs have increased steadily. Physical quantities held in inventory were
equal to three months’ sales at December 31, 2014, and zero at December 31, 2015.
Assuming the periodic inventory system, the inventory cost method which reports the
highest amount of each of the following is
Inventory Cost of Sales
December 31, 2014 2015
a. LIFO FIFO
b. LIFO LIFO
c. FIFO FIFO
d. FIFO LIFO
145. Keck Co. had 150 units of product A on hand at January 1, 2014, costing $21 each.
Purchases of product A during January were as follows:
Date Units Unit Cost
Jan. 10 200 $22
18 250 23
28 100 24
A physical count on January 31, 2014 shows 200 units of product A on hand. The cost of
the inventory at January 31, 2014 under the LIFO method is
a. $4,700.
b. $4,450.
c. $4,250.
d. $4,100.
146. When the double-extension approach to the dollar-value LIFO inventory cost flow method
is used, the inventory layer added in the current year is multiplied by an index number.
How would the following be used in the calculation of this index number?
Ending inventory Ending inventory
at current year cost at base year cost
a. Numerator Denominator
b. Numerator Not used
c. Denominator Numerator
d. Not used Denominator
147. Farr Co. adopted the dollar-value LIFO inventory method on December 31, 2014. Farr’s
entire inventory constitutes a single pool. On December 31, 2014, the inventory was
$640,000 under the dollar-value LIFO method. Inventory data for 2015 are as follows:
12/31/15 inventory at year-end prices $880,000
Relevant price index at year end (base year 2014) 110
Using dollar value LIFO, Farr’s inventory at December 31, 2015 is
a. $704,000.
b. $816,000.
c. $800,000.
d. $880,000.
Test Bank for Intermediate Accounting, Fifteenth Edition
8 – 34
Multiple Choice Answers—CPA Adapted
Item
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Item
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Item
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Item
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Item
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Item
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Item
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DERIVATIONS — Computational
No. Answer Derivation
Valuation of Inventories: A Cost-Basis Approach
8 – 35
No. Answer Derivation
Test Bank for Intermediate Accounting, Fifteenth Edition
8 – 36
No. Answer Derivation