Chapter 5: Inventories and Cost of Goods Sold
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
85. Blenham, Inc. sells merchandise on credit. If a customer pays its balance due after the discount period has passed,
what is the effect of the payment on Blenham’s accounting equation?
a.
Assets and stockholders’ equity decrease.
b.
Assets decrease and liabilities increase.
c.
Assets and stockholders’ equity increase.
d.
No net effect.
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.05-02 – LO: 05-02
KEYWORDS:
Bloom’s: Applying
86. Sales Discounts is classified as what type of account?
a.
a revenue
b.
an expense
c.
a contra-asset
d.
a contra-revenue
ANSWER:
d
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.05-02 – LO: 05-02
KEYWORDS:
Bloom’s: Remembering
87. When an inventory system updates the Inventory account at the time of each sale, this is known as:
a.
b.
c.
d.
ANSWER:
a
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.05-03 – LO: 05-03
KEYWORDS:
Bloom’s: Remembering
88. Cost of goods sold is equal to
a.
the cost of merchandise purchased plus transportation-in costs plus beginning inventory minus purchase
returns and allowances and purchase discounts minus ending inventory.
b.
the total amount of merchandise purchased during the year.
c.
the cost of merchandise purchased plus transportation-in costs less ending inventory.
d.
the cost of merchandise purchased plus transportation-in costs plus beginning inventory minus purchase
returns and allowances and purchase discounts.
ANSWER:
a
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.05-03 – LO: 05-03
KEYWORDS:
Bloom’s: Remembering
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
89. The recognition of cost of goods sold expense in the same period that sales revenue is recognized from the sale of
merchandise is a good example of the
a.
full disclosure principle
b.
matching principle
c.
historical cost principle
d.
revenue realization principle
ANSWER:
b
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.05-03 – LO: 05-03
KEYWORDS:
Bloom’s: Understanding
90. The following is from Goldman Inc.’s 2016 income statement.
Purchases
$172,000
Transportation-In
11,000
Inventory, January 1, 2016
26,500
Inventory, December 31, 2016
28,800
Purchase Returns and Allowances
8,400
How much will Goldman report as cost of goods purchased in its 2016 income statement?
a.
$180,400
b.
$174,600
c.
$183,000
d.
None of these choices
ANSWER:
b
RATIONALE:
$172,000 (Purchases) – $8,400 (Purchase returns and allowances) + $11,000 (Transportation-
in) = $174,600
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.05-03 – LO: 05-03
KEYWORDS:
Bloom’s: Analyzing
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
91. The following is from Goldman Inc.’s 2016 income statement.
Purchases
$172,000
Transportation-In
11,000
Inventory, January 1, 2016
26,500
Inventory, December 31, 2016
28,800
Purchase Returns and Allowances
8,400
How much will Goldman report as its cost of goods sold in its 2016 income statement?
a.
$172,300
b.
None of these choices
c.
$161,500
d.
$161,300
ANSWER:
a
RATIONALE:
$172,000 (Purchases) – $8,400 (Purchase returns and allowances) + $11,000 (Transportation-
in) + $26,500 (Inventory – January 1, 2016) – $28,800 (Inventory – December 31, 2016) =
$172,300
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.05-03 – LO: 05-03
KEYWORDS:
Bloom’s: Analyzing
92. In a periodic inventory system, the cost of purchases is recognized as
a.
an increase in an asset account.
b.
an increase in the inventory account.
c.
the only part of the calculation of cost of goods sold.
d.
an integral part of the calculation of cost of goods sold.
ANSWER:
d
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.05-03 – LO: 05-03
KEYWORDS:
Bloom’s: Understanding
93. The cost of goods sold is
a.
Purchases less beginning inventory plus ending inventory
b.
Equal to the amount of inventory on hand at the end of the accounting period
c.
Goods available for sale less ending inventory
d.
Reported on the balance sheet in the inventory account
ANSWER:
c
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.05-03 – LO: 05-03
KEYWORDS:
Bloom’s: Remembering
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
94. Which one of the following statements is false?
a.
The inventory account is updated after every sale and after every merchandise purchase under the perpetual
inventory system.
b.
The inventory account is updated only at the end of the accounting period under the periodic inventory system.
c.
A purchases account is used only under the periodic inventory system.
d.
A cost of goods sold account is updated after each sale of merchandise under the periodic inventory system.
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.05-03 – LO: 05-03
KEYWORDS:
Bloom’s: Understanding
95. Chamberlain Company buys designer clothing to sell in its retail stores. Since much of the merchandise comes from
Dallas and Europe, Chamberlain Company must pay freight charges to get the merchandise shipped in. Which statement
is true?
a.
Transportation-in is added to net purchases to determine cost of goods purchased in a periodic system.
b.
Transportation-in, paid by Chamberlain Company, is subtracted from purchases under the periodic system.
c.
Freight charges are only paid by a buyer in a periodic system.
d.
Transportation-in, paid by Chamberlain Company, is added to the inventory account under the periodic
system.
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.05-03 – LO: 05-03
KEYWORDS:
Bloom’s: Understanding
96. In order to determine inventory for its balance sheet, it is best for a company to count the inventory at the end of its
accounting period for
a.
The perpetual inventory system
b.
The periodic inventory system
c.
Both the periodic and perpetual inventory systems
d.
Neither the periodic nor perpetual inventory systems
ANSWER:
c
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.05-03 – LO: 05-03
KEYWORDS:
Bloom’s: Understanding
97. Which one of the following is correct?
a.
Inventory losses can be identified and controlled better under the perpetual system.
b.
The perpetual system eliminates the need for an annual inventory count.
c.
There is no difference in cost to implement a perpetual as compared to a periodic system.
d.
Inventory can only be sold at the end of an accounting period under the periodic system.
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.05-03 – LO: 05-03
KEYWORDS:
Bloom’s: Understanding
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
98. Texas Inc. sold merchandise to Fagin Corp. on December 28, 2016, with shipping terms of FOB destination. Fagin
Corp. received the merchandise on January 3, 2017. Which one of the following statements is true?
a.
Texas should record sales revenue on December 28, 2016.
b.
Fagin Corp. should include the merchandise in its inventory at December 31, 2016.
c.
Fagin Corp. should record a liability for the purchase on January 3, 2017.
d.
Fagin Corp. should pay the transportation costs.
ANSWER:
c
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.05-03 – LO: 05-03
KEYWORDS:
Bloom’s: Applying
99. How are purchase discounts and purchase returns recorded by a company using the periodic inventory system?
a.
As a direct reduction to the Purchases account
b.
As miscellaneous expenses
c.
In contra accounts to the Purchases account
d.
As operating expenses
ANSWER:
c
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.05-03 – LO: 05-03
KEYWORDS:
Bloom’s: Understanding
100. Park, Inc. purchased merchandise from Jay Zee Music Company on June 5, 2016. The goods were shipped the same
day. The merchandise’s selling price was $15,000. The credit terms were 1/10, n/30. The shipping terms were FOB
shipping point. Park received the merchandise on June 10, 2016. Park paid the amount due on June 13, 2016.
Park uses a perpetual inventory system. When will the cost of merchandise sold be recorded as an expense?
a.
The end of the accounting period
b.
The date the merchandise was purchased
c.
The date the merchandise is sold
d.
Cannot be determined without further information
ANSWER:
c
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.05-03 – LO: 05-03
KEYWORDS:
Bloom’s: Applying
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
101. Park, Inc. purchased merchandise from Jay Zee Music Company on June 5, 2016. The goods were shipped the same
day. The merchandise’s selling price was $15,000. The credit terms were 1/10, n/30. The shipping terms were FOB
shipping point. Park received the merchandise on June 10, 2016. Park paid the amount due on June 13, 2016.
Park uses the periodic inventory system. What effect does recording the purchase of merchandise on June 5, 2016 have on
Park’s accounting equation?
a.
Liabilities and stockholders’ equity decrease.
b.
Liabilities increase and stockholders’ equity decreases.
c.
Assets and liabilities increase.
d.
Assets and stockholders’ equity increase.
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.05-03 – LO: 05-03
KEYWORDS:
Bloom’s: Applying
102. Park, Inc. purchased merchandise from Jay Zee Music Company on June 5, 2016. The goods were shipped the same
day. The merchandise’s selling price was $15,000. The credit terms were 1/10, n/30. The shipping terms were FOB
shipping point. Park received the merchandise on June 10, 2016. Park paid the amount due on June 13, 2016.
If Park uses the periodic inventory system, the effect of recording the payment on June 13, 2016, will include
a.
a decrease to Accounts Payable for $15,000.
b.
a decrease to Purchases for $15,000.
c.
a decrease to Cash for $15,000.
d.
an increase to Inventory for $14,850.
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.05-03 – LO: 05-03
KEYWORDS:
Bloom’s: Applying
103. Park, Inc. purchased merchandise from Jay Zee Music Company on June 5, 2016. The goods were shipped the same
day. The merchandise’s selling price was $15,000. The credit terms were 1/10, n/30. The shipping terms were FOB
shipping point. Park received the merchandise on June 10, 2016. Park paid the amount due on June 13, 2016.
When did title to the merchandise transfer from Jay Zee Music Company to Park?
a.
June 10, 2016
b.
June 5, 2016
c.
June 13, 2016
d.
Cannot be determined from the information provided
ANSWER:
b
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.05-03 – LO: 05-03
KEYWORDS:
Bloom’s: Applying
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
104. Park, Inc. purchased merchandise from Jay Zee Music Company on June 5, 2016. The goods were shipped the same
day. The merchandise’s selling price was $15,000. The credit terms were 1/10, n/30. The shipping terms were FOB
shipping point. Park received the merchandise on June 10, 2016. Park paid the amount due on June 13, 2016.
Who is responsible for payment of the transportation costs on the merchandise sold by Jay Zee Music to Park?
a.
Split equally between the two companies
b.
Jay Zee Music Company
c.
Park, Inc.
d.
Cannot be determined from the information provided
ANSWER:
c
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.05-03 – LO: 05-03
KEYWORDS:
Bloom’s: Applying
105. Herndon Corp. purchased merchandise on account from Likert Corp. on November 18, 2016. On November 21,
2016, Herndon returned damaged merchandise to Likert and was granted an adjustment on its account. Herndon uses the
periodic inventory system. What effect does the merchandise return have on Herndon’s accounting equation?
a.
Assets and liabilities decrease.
b.
Assets and stockholders’ equity decrease.
c.
Liabilities and stockholders’ equity decrease.
d.
Liabilities decrease and stockholders’ equity increases.
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.05-03 – LO: 05-03
KEYWORDS:
Bloom’s: Applying
106. Transportation-in is
a.
part of cost of goods purchased.
b.
an operating expense.
c.
added to transportation-out as part of the calculation of cost of goods sold.
d.
part of purchases.
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.05-03 – LO: 05-03
KEYWORDS:
Bloom’s: Remembering
107. Which one of the following is not a contra account?
a.
Accumulated Depreciation
b.
Sales Discounts
c.
Transportation-in
d.
Purchase Returns and Allowances
ANSWER:
c
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.05-03 – LO: 05-03
KEYWORDS:
Bloom’s: Understanding
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
108. Sherman, Inc. counted its ending inventory as $178,000 at year-end, January 31, 2016. Upon review of the records, it
was noted that the following items were in transit during the count:
A)
$2,000 of goods shipped by a supplier to Sherman sent FOB destination on January 31
were received February 5, and were not counted by Sherman.
B)
$5,000 of goods shipped by a supplier to Sherman sent FOB shipping point on January 30
were received February 2, and were not counted by Sherman.
C)
$6,000 of goods shipped by Sherman to a customer FOB shipping point on January 31
were received by the customer February 3, and were counted by Sherman.
Determine the correct inventory balance at January 31.
a.
$172,000
b.
$174,000
c.
$178,000
d.
$177,000
ANSWER:
d
RATIONALE:
$177,000 $178,000 + 0 (Item A) + $5,000 (Item B) – $6,000 (Item C) = $177,000
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.05-03 – LO: 05-03
KEYWORDS:
Bloom’s: Analyzing
109. At the year end inventory count, if goods in transit are shipped FOB destination, they should be included in the
inventory count of
a.
The seller
b.
The buyer
c.
Neither the buyer nor the seller
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.05-03 – LO: 05-03
KEYWORDS:
Bloom’s: Analyzing
110. At the year end inventory count, if goods in transit are shipped FOB shipping point, they should be included in the
inventory count of
a.
The seller
b.
The buyer
c.
Both the seller and the buyer
d.
Neither the seller no the buyer
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.05-03 – LO: 05-03
KEYWORDS:
Bloom’s: Analyzing
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
111. Many companies assign only the net invoice price for merchandise to inventory and cost of goods sold. All other
costs, including transportation and other costs of bringing merchandise to the place of business, are charged to expense of
the period in which they are incurred. Which accounting principle or concept is applied in this example?
a.
Historical cost
b.
Conservatism
c.
Matching
d.
Cost/Benefit
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.05-03 – LO: 05-03
KEYWORDS:
Bloom’s: Understanding
112. In order to evaluate a company’s gross profit ratio,
a.
the ratio should be compared with other companies in the same industry.
b.
the ratio should be compared with those of both prior years and competitors.
c.
the ratio should be compared with forecasted financial statements.
d.
the ratio should be compared with those of prior years.
ANSWER:
b
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.05-04 – LO: 05-04
KEYWORDS:
Bloom’s: Understanding
113. All of the following statements regarding the gross profit ratio are true except:
a.
Managers, investors, and creditors use the gross profit ratio to measure one aspect of profitability.
b.
The gross profit ratio alone is sufficient to determine a company’s profitability.
c.
If a company’s net sales were $200,000 and cost of goods sold were $120,000, its gross profit ratio would be
40%.
d.
The gross profit ratio explains how many cents on every dollar are available to cover
expenses other than cost of goods sold and to earn a profit.
ANSWER:
b
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.05-04 – LO: 05-04
KEYWORDS:
Bloom’s: Understanding
114. The ending inventory balance represents
a.
The cost of goods sold during the current period and is reported on the balance sheet as an asset.
b.
Unexpired costs and is reported on the balance sheet as an asset.
c.
Expired costs and is reported on the income statement as an expense
d.
Expired costs and is reported on the balance sheet as an asset.
ANSWER:
b
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.05-05 – LO: 05-05
KEYWORDS:
Bloom’s: Understanding
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
115. Cost of goods sold represents
a.
Expired costs during a period and is reported on the income statement.
b.
Expired costs and is reported on the balance sheet as an expense.
c.
Unexpired costs and is reported on the balance sheet as an asset.
d.
The cost of goods that will be purchased during the next operating cycle and is reported on the balance sheet
as an asset.
ANSWER:
a
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.05-05 – LO: 05-05
KEYWORDS:
Bloom’s: Remembering
116. The Ramien Store held inventory items at the end of 2016. Which items should Ramien include as part of its total
inventory cost?
a.
Freight incurred in shipping goods to customers.
b.
Cost of storing inventory before it is sold.
c.
Cost of salaries of clerks that sell the inventory items.
d.
Annual income taxes paid for operations.
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.05-05 – LO: 05-05
KEYWORDS:
Bloom’s: Applying
117. Which one of the following statements is true?
a.
Accountants have developed methods which make assumptions concerning how costs should be assigned to
inventory and cost of goods sold.
b.
Alternative inventory cost flow assumptions have the same effect on the amount of net income reported.
c.
Accounting standards require that merchandise costs be specifically traced to units left in inventory and to
units that have been sold.
d.
The flow of inventory costs should match the physical flow of the merchandise.
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.05-05 – LO: 05-05
KEYWORDS:
Bloom’s: Understanding
118. Which method assigns the cost of the most recent items purchased to ending inventory?
a.
LIFO
b.
FIFO
c.
Specific identification
d.
Weighted average cost
ANSWER:
b
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.05-06 – LO: 05-06
KEYWORDS:
Bloom’s: Understanding
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
119. Which method assigns the cost of the most recent items purchased to cost of goods sold?
a.
LIFO
b.
Specific identification
c.
Weighted average cost
d.
FIFO
ANSWER:
a
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.05-06 – LO: 05-06
KEYWORDS:
Bloom’s: Understanding
120. Roki Inc. uses the periodic inventory system.
June
1
On hand, 50 units @ $15.00 each
$ 750.00
5
Purchased 115 units @ $15.10 each
1,736.50
14
Purchased 75 units @ $15.20 each
1,140.00
Total cost of goods available for sale
$3,626.50
30
On hand, 90 units
If the June 30th inventory included 45 units from the June 5th purchase and 45 units from the June 14th purchase, Roki’s
cost of goods sold for June under the specific identification method would be
a.
$2,945.00
b.
$3,626.50
c.
$2,263.00
d.
$2.373.00
ANSWER:
c
RATIONALE:
(50 × $15 – On hand June 1) + (70 × $15.10 – June 5 purchase) + (30 × $15.20 – June 14
purchase) = $2,263.00
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.05-06 – LO: 05-06
KEYWORDS:
Bloom’s: Analyzing
121. Which method assigns the same cost to all units whether sold or left in ending inventory?
a.
FIFO
b.
LIFO
c.
Weighted average cost
d.
Specific identification
ANSWER:
c
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.05-06 – LO: 05-06
KEYWORDS:
Bloom’s: Understanding
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
122. For which type of inventory would a company most likely use the specific identification method?
a.
Custom designed diamond rings
b.
Barbie dolls
c.
Cartons of milk
d.
Gasoline in storage tanks at a gasoline station
ANSWER:
a
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.05-06 – LO: 05-06
KEYWORDS:
Bloom’s: Applying
123. Roki Inc. uses the periodic inventory system.
June
1
On hand, 50 units @ $15.00 each
$ 750.00
5
Purchased 115 units @ $15.10 each
1,736.50
14
Purchased 75 units @ $15.20 each
1,140.00
Total cost of goods available for sale
$3,626.50
30
On hand, 90 units
If Roki uses the FIFO inventory method, the amount assigned to the June 30 inventory would be
a.
$1,354.00
b.
$1,590.42
c.
$1,594.00
d.
$1,366.50
ANSWER:
d
RATIONALE:
(75 × $15.20 – June 14 Purchase) + (15 × $15.10 – June 5 Purchase) = $1,366.50
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.05-06 – LO: 05-06
KEYWORDS:
Bloom’s: Analyzing
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
124. Roki Inc. uses the periodic inventory system.
June
1
On hand, 50 units @ $15.00 each
$ 750.00
5
Purchased 115 units @ $15.10 each
1,736.50
14
Purchased 75 units @ $15.20 each
1,140.00
Total cost of goods available for sale
$3,626.50
30
On hand, 90 units
If Roki uses the weighted average cost inventory method, the amount assigned to the June 30th inventory would be
a.
$1,359.90
b.
$1,549.00
c.
$1,486.50
d.
$1,591.50
ANSWER:
a
RATIONALE:
$3,626.50/240 = $15.11; $15.11 × 90 = $1,359.90
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.05-06 – LO: 05-06
KEYWORDS:
Bloom’s: Analyzing
125. Roki Inc. uses the periodic inventory system.
June
1
On hand, 50 units @ $15.00 each
$ 750.00
5
Purchased 115 units @ $15.10 each
1,736.50
14
Purchased 75 units @ $15.20 each
1,140.00
Total cost of goods available for sale
$3,626.50
30
On hand, 90 units
If Roki uses the LIFO inventory method, the cost of goods sold for June would be
a.
$2,200.00
b.
$2,272.50
c.
$2,296.08
d.
$1,354.00
ANSWER:
b
RATIONALE:
($15.20 × 75) + ($15.10 × 75) = $2,272.50
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.05-06 – LO: 05-06
KEYWORDS:
Bloom’s: Analyzing
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
126. Roki Inc. uses the periodic inventory system.
June
1
On hand, 50 units @ $15.00 each
$ 750.00
5
Purchased 115 units @ $15.10 each
1,736.50
14
Purchased 75 units @ $15.20 each
1,140.00
Total cost of goods available for sale
$3,626.50
30
On hand, 90 units
How many units did Roki, Inc. sell during June?
a.
90
b.
100
c.
150
d.
50
ANSWER:
c
RATIONALE:
50 + 115 + 75 – 90 = 150
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.05-06 – LO: 05-06
KEYWORDS:
Bloom’s: Analyzing
127. Quan uses a periodic inventory system. At the end of April, Quan had 20 units on hand.
April 1
On hand, 10 units @ $2 each
$ 20
19
Purchased 90 units @ $3 each
270
Goods available for sale
$290
If Quan, Inc. uses FIFO inventory costing, how much is cost of goods sold for April?
a.
$250
b.
$232
c.
$230
d.
$240
ANSWER:
c
RATIONALE:
($2 × 10) + ($3 × 70) = $230
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.05-06 – LO: 05-06
KEYWORDS:
Bloom’s: Analyzing
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
128. Quan uses a periodic inventory system. At the end of April, Quan had 20 units on hand.
April 1
On hand, 10 units @ $2 each
$ 20
19
Purchased 90 units @ $3 each
270
Goods available for sale
$290
If Quan, Inc. uses the weighted average cost inventory method, how much is cost of goods sold for April?
a.
$240
b.
$250
c.
$230
d.
$232
ANSWER:
d
RATIONALE:
($290/100) × 80 = $232
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.05-06 – LO: 05-06
KEYWORDS:
Bloom’s: Analyzing
129. Quan uses a periodic inventory system. At the end of April, Quan had 20 units on hand.
April 1
On hand, 10 units @ $2 each
$ 20
19
Purchased 90 units @ $3 each
270
Goods available for sale
$290
If Quan uses the LIFO inventory method, how much is inventory on the balance sheet as of April 30?
a.
$50
b.
$40
c.
$60
d.
$58
ANSWER:
a
RATIONALE:
($2 × 10) + ($3 × 10) = $50
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.05-06 – LO: 05-06
KEYWORDS:
Bloom’s: Analyzing
130. A major advantage of the weighted average method of inventory costing is that
a.
Cost flows correspond with the physical flow of merchandise.
b.
Recent costs are assigned to the ending inventory balance.
c.
It is relatively easy to apply.
d.
It matches current costs with revenues.
ANSWER:
c
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.05-06 – LO: 05-06
KEYWORDS:
Bloom’s: Understanding
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
131. Which method of inventory costing is not acceptable for financial accounting purposes?
a.
Specific Identification
b.
LIFO
c.
FIFO
d.
Replacement Cost
ANSWER:
d
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.05-06 – LO: 05-06
KEYWORDS:
Bloom’s: Understanding
132. Which inventory costing method results in the highest inventory balance during a period of rising prices?
a.
LIFO
b.
Weighted average cost
c.
FIFO
d.
Both FIFO and LIFO result in the same inventory balance
ANSWER:
c
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.05-07 – LO: 05-07
KEYWORDS:
Bloom’s: Understanding
133. Which method might allow a company to make significant inventory purchases at year end for the purpose of
manipulating income?
a.
FIFO
b.
Weighted Average Cost
c.
LIFO
d.
Specific Identification
ANSWER:
c
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.05-07 – LO: 05-07
KEYWORDS:
Bloom’s: Understanding
134. Which inventory costing method results in the lowest income tax expense during a period of decreasing prices?
a.
Specific Identification
b.
LIFO
c.
FIFO
d.
Weighted Average Cost
ANSWER:
c
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.05-07 – LO: 05-07
KEYWORDS:
Bloom’s: Understanding
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
135. During a period of increasing cost prices, which inventory costing method will yield the lowest cost of goods sold?
a.
Any method in which the company uses a periodic inventory system
b.
Weighted Average Cost
c.
LIFO
d.
FIFO
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.05-07 – LO: 05-07
KEYWORDS:
Bloom’s: Applying
136. Xu Corp. started business at the beginning of 2016. Xu selected the FIFO method for its inventory. In order to
maximize its profits for 2016 under this method, prices must be
a.
Stable
b.
Decreasing
c.
Increasing
d.
Fluctuating up and down at the same amount consistently over the year
ANSWER:
c
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.05-07 – LO: 05-07
KEYWORDS:
Bloom’s: Remembering
137. Federal income tax rules allow businesses to use different inventory costing methods for tax reporting and financial
reporting with one exception. Which of the following situations is not allowed by federal income tax rules?
Inventory Method Inventory Method
for Tax Reporting for Financial Reporting
a.
FIFO LIFO
b.
LIFO FIFO
c.
Weighted Average FIFO
d.
LIFO LIFO
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.05-07 – LO: 05-07
KEYWORDS:
Bloom’s: Applying
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
138. Summer, Inc. has been in business for 20 years. During that time the company has consistently used the LIFO
inventory costing method. Because of inflation, prices for merchandise have increased consistently over the 20 years. The
company has maintained the same inventory quantities over the 20-year period. Which one of the following statements is
true?
a.
Summer, Inc. will have paid more income taxes over the past 20 years than it would have if it had used the
FIFO method.
b.
Summer, Inc.’s total net income for the past 20 years is greater than it would have reported using another
inventory method.
c.
Summer will have to continue using the LIFO method indefinitely because of generally accepted accounting
principles and federal income tax rules.
d.
The ending inventory figure reported on the balance sheet may be significantly lower than its current value.
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.05-07 – LO: 05-07
KEYWORDS:
Bloom’s: Understanding
139. Which one of the following statements regarding changing inventory methods is true?
a.
A change in inventory methods can be justified if the change is made to better match profits with revenue.
b.
One place that the reader of an annual report would be able to identify that a company changed inventory
methods is the statement of stockholders’ equity.
c.
Changing inventory methods affects consistency.
d.
Tax advantages are valid justification for changing inventory methods.
ANSWER:
c
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.05-07 – LO: 05-07
KEYWORDS:
Bloom’s: Analyzing
140. If cost of goods sold under FIFO was $8,000 and was $10,000 under LIFO, assuming a tax rate of 40%, how much
tax savings resulted from using LIFO?
a.
$ 1,200
b.
$ 800
c.
$ 2,000
d.
There would be no tax savings.
ANSWER:
b
RATIONALE:
$2,000 (Difference) × 40% = $800
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.05-07 – LO: 05-07
KEYWORDS:
Bloom’s: Understanding
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
141. Which one of the following statements is false?
a.
The primary determinant in selecting an inventory costing method should be the ability of the method to
accurately reflect the net income of the period.
b.
The amount of cash to acquire inventory is the same for companies that use LIFO as for those companies that
use FIFO.
c.
Differences in cash flows between LIFO and FIFO inventory methods are caused by differences in taxes.
d.
Differences in cash flows between LIFO and FIFO inventory methods are a direct result of the differences in
the purchases
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.05-07 – LO: 05-07
KEYWORDS:
Bloom’s: Understanding
142. When would LIFO liquidation occur?
a.
As a result of selling less units than are purchased during the period.
b.
As a result of selling the same number of units that are purchased during the period.
c.
As a result of selling more units than are purchased during the period.
d.
Not enough information.
ANSWER:
c
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.05-07 – LO: 05-07
KEYWORDS:
Bloom’s: Understanding
143. Accountants should be aware that LIFO liquidations can potentially result in which of the following?
a.
If older less costly layers are liquidated, a correspondingly lower cost of goods sold will result.
b.
If older less costly layers are liquidated, the company may be faced with higher taxes for those deferred in
previous periods.
c.
If older less costly layers are liquidated, a correspondingly higher gross profit will result.
d.
All of these could result.
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.05-07 – LO: 05-07
KEYWORDS:
Bloom’s: Analyzing
144. Zebra Company overstated its December 31, 2016 inventory by $5,200. Which statement is true concerning Zebra’s
financial statement amounts for 2016?
a.
The current ratio is overstated.
b.
Cost of goods sold is overstated.
c.
Working capital is understated.
d.
Net income is understated.
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.05-08 – LO: 05-08
KEYWORDS:
Bloom’s: Understanding
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
145. If the amount assigned to ending inventory is incorrect,
a.
The balance sheet is affected, but the income statement is not.
b.
The income statement is affected, but the balance sheet is not.
c.
The balance sheet is affected, but cost of goods sold is not.
d.
Both the balance sheet and the income statement are affected.
ANSWER:
d
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.05-08 – LO: 05-08
KEYWORDS:
Bloom’s: Applying
146. A company fails to record one storeroom full of inventory in its year-end inventory records. As a result, this will
cause:
a.
an overstatement of cost of goods sold for the current year.
b.
an overstatement of inventory on the year-end balance sheet.
c.
an overstatement of retained earnings at the end of the year.
d.
an understatement of gross profit in the following year.
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.05-08 – LO: 05-08
KEYWORDS:
Bloom’s: Applying
147. Hawk Store counted some of its inventory twice. As a result, its operating expenses will be
a.
Understated
b.
Correct only if Hawk Store calculates it cost of goods sold correctly
c.
Overstated
d.
Correct since operating expenses are not affected by inventory costs
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.05-08 – LO: 05-08
KEYWORDS:
Bloom’s: Applying
148. If a company overstates its ending inventory for the current year, what are the effects on cost of goods sold and net
income for the current year?
Effect on Cost of Goods Sold Effect on Net Income
a.
Understated Overstated
b.
Overstated No effect
c.
Understated Understated
d.
Overstated Overstated
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.05-08 – LO: 05-08
KEYWORDS:
Bloom’s: Applying