Financial and Managerial Accounting 7th Edition By Wild - Test Bank Instant Download - Complete Test Bank With Answers Sample Questions Are Posted Below Chapter 05 Inventories and Cost of Sales Answer Key True / False Questions 1. . Goods in transit are automatically included in inventory regardless of whether title …
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Financial and Managerial Accounting 7th Edition By Wild – Test Bank
Instant Download – Complete Test Bank With Answers
Sample Questions Are Posted Below
Chapter 05 Inventories and Cost of Sales Answer Key
True / False Questions
| 1. . | Goods in transit are automatically included in inventory regardless of whether title has passed to the buyer.
FALSE |
| AACSB: Communication AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-C1 Identify the items making up merchandise inventory. Topic: Determining Inventory Items |
| 2. . | Goods on consignment are goods shipped by their owner, called the consignor, to another party called the consignee. The consignee sells goods for the owner.
TRUE |
| AACSB: Communication AICPA: BB Industry AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-C1 Identify the items making up merchandise inventory. Topic: Determining Inventory Items |
| 3. | If obsolete or damaged goods can be sold, they will be included in inventory at their original cost.
FALSE |
| AACSB: Communication AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-C1 Identify the items making up merchandise inventory. Topic: Determining Inventory Items |
| 4. | If the seller is responsible for paying freight charges, then ownership of inventory passes when goods arrive at their destination.
TRUE |
| AACSB: Communication AICPA: BB Industry AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-C1 Identify the items making up merchandise inventory. Topic: Determining Inventory Items |
| 5. | Net realizable value for damaged or obsolete goods is sales price less the cost of making the sale.
TRUE |
| AACSB: Communication AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-C1 Identify the items making up merchandise inventory. Topic: Determining Inventory Items |
| 6. The cost of an inventory item includes its invoice cost minus any discount, plus any added or incidental costs necessary to put it in a place and condition for sale..
TRUE |
| AACSB: Communication AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-C2 Identify the costs of merchandise inventory. Topic: Determining Inventory Costs |
| . | 7. One application of internal control when taking a physical count of inventory is the use of pre-numbered inventory tickets.
TRUE |
| AACSB: Communication AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-C2 Identify the costs of merchandise inventory. Topic: Determining Inventory Costs |
| 8. | Incidental costs for acquiring merchandise inventory, such as import duties, freight, storage, and insurance, should not be added to the cost of inventory.
FALSE |
| AACSB: Communication AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-C2 Identify the costs of merchandise inventory. Topic: Determining Inventory Costs |
| 9. | The Inventory account is a controlling account for the inventory subsidiary ledger that contains a separate record for each separate product.
TRUE |
| AACSB: Communication AICPA: BB Industry AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-C2 Identify the costs of merchandise inventory. Topic: Determining Inventory Costs |
| 10. Most companies do not take a physical count of inventory each year, but rather rely on inventory records to determine the inventory value.
FALSE |
| AACSB: Communication AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-C2 Identify the costs of merchandise inventory. Topic: Determining Inventory Costs |
| 11. | The expense recognition (matching) principle is used to determine how much of the cost of goods available for sale is deducted from sales and how much is carried forward as inventory.
TRUE |
| AACSB: Communication AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-C2 Identify the costs of merchandise inventory. Topic: Determining Inventory Costs |
| 12. The consistency concept allows a company to use different accounting methods from period to period in order to maximize profits.
FALSE |
| AACSB: Communication AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-A1 Analyze the effects of inventory methods for both financial and tax reporting. Topic: Financial Statement Effects of Costing Methods |
| 13. A company must disclose any change in its inventory costing method in its financial statements.
TRUE |
| AACSB: Communication AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-A1 Analyze the effects of inventory methods for both financial and tax reporting. Topic: Financial Statement Effects of Costing Methods |
| 14. Whether purchase costs are rising or falling, FIFO always will yield the highest gross profit and net income.
FALSE |
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-A1 Analyze the effects of inventory methods for both financial and tax reporting. Topic: Financial Statement Effects of Costing Methods |
| 15. An advantage of the weighted average inventory method is that it tends to smooth out erratic changes in costs.
TRUE |
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-A1 Analyze the effects of inventory methods for both financial and tax reporting. Topic: Financial Statement Effects of Costing Methods |
| 16. | In a period of rising purchase costs, LIFO usually gives a lower taxable income and therefore, yields a tax advantage.
TRUE |
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-A1 Analyze the effects of inventory methods for both financial and tax reporting. Topic: Financial Statement Effects of Costing Methods |
| 17. | FIFO is preferred when purchase costs are rising and managers have incentives to report higher income for reasons such as bonus plans, job security, and reputation.
TRUE |
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-A1 Analyze the effects of inventory methods for both financial and tax reporting. Topic: Financial Statement Effects of Costing Methods |
| 18. | The LIFO method of inventory valuation can result in a company’s ending inventory being valued at less than the inventory’s replacement cost because LIFO inventory leaves the oldest costs in inventory.
TRUE |
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-A1 Analyze the effects of inventory methods for both financial and tax reporting. Topic: Financial Statement Effects of Costing Methods |
| 19. | The full disclosure principle requires that the notes to the financial statements report any change in the method of accounting for inventory.
TRUE |
| AACSB: Communication AICPA: BB Industry AICPA: FN Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-A1 Analyze the effects of inventory methods for both financial and tax reporting. Topic: Inventory Effects for Financial Statements |
| 20. | An advantage of FIFO is that it assigns the most recent costs to cost of goods sold, and does a better job of matching current costs with revenues on the income statement.
FALSE |
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-A1 Analyze the effects of inventory methods for both financial and tax reporting. Topic: Financial Statement Effects of Costing Methods |
| 21. | According to IRS guidelines, companies may use FIFO for financial reporting and LIFO for tax reporting.
FALSE |
| AACSB: Communication AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-A1 Analyze the effects of inventory methods for both financial and tax reporting. Topic: Financial Statement Effects of Costing Methods |
| 22. | An error in the period-end inventory balance will cause an error in the calculation of cost of goods sold.
TRUE |
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-A2 Analyze the effects of inventory errors on current and future financial statements. Topic: Financial Statement Effects of Inventory Errors |
| 23. | Errors in the period-end inventory balance only affect the current period’s records and financial statements.
FALSE |
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-A2 Analyze the effects of inventory errors on current and future financial statements. Topic: Financial Statement Effects of Inventory Errors |
| 24. | An inventory error is sometimes said to be self-correcting because it yields an offsetting error in the next period.
TRUE |
| AACSB: Communication AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-A2 Analyze the effects of inventory errors on current and future financial statements. Topic: Financial Statement Effects of Inventory Errors |
| 25. | An understatement of the ending inventory balance will overstate cost of goods sold and understate net income.
TRUE |
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-A2 Analyze the effects of inventory errors on current and future financial statements. Topic: Financial Statement Effects of Inventory Errors |
| 26. | Overstating beginning inventory will understate cost of goods sold and net income.
FALSE |
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-A2 Analyze the effects of inventory errors on current and future financial statements. Topic: Financial Statement Effects of Inventory Errors |
| 27. | An understatement of ending inventory will cause an understatement of assets and equity on the balance sheet.
TRUE |
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-A2 Analyze the effects of inventory errors on current and future financial statements. Topic: Financial Statement Effects of Inventory Errors |
| 28. | An overstatement of ending inventory will cause an overstatement of assets and an understatement of equity on the balance sheet.
FALSE |
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-A2 Analyze the effects of inventory errors on current and future financial statements. Topic: Financial Statement Effects of Inventory Errors |
| 29. | A merchandiser’s ability to pay its short-term obligations depends on many factors including how quickly it sells its merchandise inventory.
TRUE |
| AACSB: Communication AICPA: BB Industry AICPA: FN Risk Analysis Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-A3 Assess inventory management using both inventory turnover and days’ sales in inventory. Topic: Inventory Turnover and Days’ Sales in Inventory |
| 30. | The inventory turnover ratio is computed by dividing cost of goods sold by average merchandise inventory.
TRUE |
| AACSB: Communication AICPA: BB Industry AICPA: FN Risk Analysis Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-A3 Assess inventory management using both inventory turnover and days’ sales in inventory. Topic: Inventory Turnover and Days’ Sales in Inventory |
| 31. | The days’ sales in inventory ratio is computed by dividing ending inventory by cost of goods sold and multiplying the result by 365.
TRUE |
| AACSB: Communication AICPA: BB Industry AICPA: FN Risk Analysis Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-A3 Assess inventory management using both inventory turnover and days’ sales in inventory. Topic: Inventory Turnover and Days’ Sales in Inventory |
| 32. | The simple rule for inventory turnover is that a low ratio is preferable.
FALSE |
| AACSB: Communication AICPA: BB Industry AICPA: FN Risk Analysis Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-A3 Assess inventory management using both inventory turnover and days’ sales in inventory. Topic: Inventory Turnover and Days’ Sales in Inventory |
| 33. | It can be expected that companies selling perishable goods have a higher inventory turnover than companies selling nonperishable goods.
TRUE |
| AACSB: Communication AICPA: BB Industry AICPA: FN Risk Analysis Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-A3 Assess inventory management using both inventory turnover and days’ sales in inventory. Topic: Inventory Turnover and Days’ Sales in Inventory |
| 34. | A company’s cost of goods sold was $15,500 and its average merchandise inventory was $4,500. Its inventory turnover equals 3.4.
TRUE Inventory Turnover = Cost of Goods Sold/Average Merchandise Inventory |
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Risk Analysis Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard Learning Objective: 05-A3 Assess inventory management using both inventory turnover and days’ sales in inventory. Topic: Inventory Turnover and Days’ Sales in Inventory |
| 35. | Underwood had cost of goods sold of $8 million and its ending inventory was $2 million. Therefore, its days’ sales in inventory equals 25 days.
FALSE Days’ Sales in Inventory = Ending Inventory/Cost of Goods Sold * 365 |
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Risk Analysis Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard Learning Objective: 05-A3 Assess inventory management using both inventory turnover and days’ sales in inventory. Topic: Inventory Turnover and Days’ Sales in Inventory |
| 36. | Determining the unit costs assigned to inventory items is one of the most important decisions in accounting for inventory.
TRUE |
| AACSB: Communication AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-C2 Identify the costs of merchandise inventory Topic: Determining Inventory Costs |
| 37. | When units are purchased at different costs over time, determining the cost per unit assigned to inventory items is simple.
FALSE |
| AACSB: Communication AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-C2 Identify the costs of merchandise inventory Topic: Determining Inventory Costs |
| 38. | LIFO assumes that inventory costs flow in the order incurred.
FALSE |
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-C2 Identify the costs of merchandise inventory Topic: Determining Inventory Costs |
| 39. | The assignment of costs to cost of goods sold and inventory using weighted average usually yields different results depending on whether a perpetual or periodic system is used.
TRUE |
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-P1 Compute inventory in a perpetual system using the methods of specific identification; FIFO; LIFO; and weighted average. Learning Objective: 05-P3 Appendix 5A-Compute inventory in a periodic system using the methods of specific identification; FIFO; LIFO; and weighted average. Topic: Inventory Costing Under a Perpetual System Topic: Inventory Costing under a Periodic System |
| 40. | The FIFO inventory method assumes that costs for the latest units purchased are the first to be charged to the cost of goods sold.
FALSE |
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-P1 Compute inventory in a perpetual system using the methods of specific identification; FIFO; LIFO; and weighted average. Topic: Inventory Costing Under a Perpetual System |
| 41. | The costs of goods purchased will vary under the different inventory methods of specific identification, FIFO, LIFO, and weighted average.
FALSE |
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-C2 Identify the costs of merchandise inventory Topic: Determining Inventory Costs |
| 42. | The assignment of costs to the cost of goods sold and to ending inventory using FIFO is the same for both the perpetual and periodic inventory systems.
TRUE |
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-P1 Compute inventory in a perpetual system using the methods of specific identification; FIFO; LIFO; and weighted average. Learning Objective: 05-P3 Appendix 5A-Compute inventory in a periodic system using the methods of specific identification; FIFO; LIFO; and weighted average. Topic: Inventory Costing Under a Perpetual System Topic: Inventory Costing under a Periodic System |
| 43. | Under FIFO, the most recent costs are assigned to ending inventory.
TRUE |
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-P1 Compute inventory in a perpetual system using the methods of specific identification; FIFO; LIFO; and weighted average. Topic: Inventory Costing Under a Perpetual System |
| 44. | The choice of an inventory valuation method has little to no impact on gross profit and cost of sales.
FALSE |
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-A1 Analyze the effects of inventory methods for both financial and tax reporting Topic: Financial Statement Effects of Costing Methods |
| 45. | In applying the lower of cost or market method to inventory valuation, market is defined as the current replacement cost.
TRUE |
| AACSB: Communication AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-P2 Compute the lower of cost or market amount of inventory. Topic: Lower of Cost or Market |
| 46. | In applying the lower of cost or market method to inventory valuation, market is defined as the current selling price.
FALSE |
| AACSB: Communication AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-P2 Compute the lower of cost or market amount of inventory. Topic: Lower of Cost or Market |
| 47. | A company has inventory with a selling price of $451,000, a market value of $223,000 and a cost of $241,000. According to the lower of cost or market, the inventory should be written down to $223,000.
TRUE |
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-P2 Compute the lower of cost or market amount of inventory. Topic: Lower of Cost or Market |
| 48. | The lower of cost or market rule for inventory valuation is always applied to individual units separately rather than to major categories of inventory or to the entire inventory.
FALSE |
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-P2 Compute the lower of cost or market amount of inventory. Topic: Lower of Cost or Market |
| 49. | Accounting principles require that inventory be reported at the market value (cost) of replacing inventory when cost is lower than market value.
FALSE |
| AACSB: Communication AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-P2 Compute the lower of cost or market amount of inventory. Topic: Lower of Cost or Market |
| 50. | Accounting principles require that inventory be reported at the market value (cost) of replacing inventory when market value is lower than cost.
TRUE |
| AACSB: Communication AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 05-P2 Compute the lower of cost or market amount of inventory. Topic: Lower of Cost or Market |
| 51. | A company’s total cost of inventory was $329,000 and its current replacement cost is $307,000. Under the lower cost or market, the amount reported should be $329,000.
FALSE |
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-P2 Compute the lower of cost or market amount of inventory. Topic: Lower of Cost or Market |
| 52. | A company’s cost of inventory was $219,500. Due to phenomenal demand the market value of its inventory increased to $221,700. This company should record the inventory at its market value.
FALSE |
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-P2 Compute the lower of cost or market amount of inventory. Topic: Lower of Cost or Market |
| 53. | When LIFO is used with the periodic inventory system, cost of goods sold is assigned costs from the most recent purchases at the point of each sale, rather than from the most recent purchases for the period.
FALSE |
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-P3 Appendix 5A-Compute inventory in a periodic system using the methods of specific identification; FIFO; LIFO; and weighted average. Topic: Inventory Costing under a Periodic System |
| 54. | The retail inventory method estimates the cost of ending inventory by applying the gross profit ratio to net sales.
FALSE |
| AACSB: Communication AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-P4 Appendix 5B-Apply both the retail inventory and gross profit methods to estimate inventory. Topic: Inventory Estimation Methods |
| 55. | The reasoning behind the retail inventory method is that if we can get a good estimate of the cost-to-retail ratio, we can multiply ending inventory at retail by this ratio to estimate ending inventory at cost.
TRUE |
| AACSB: Communication AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-P4 Appendix 5B-Apply both the retail inventory and gross profit methods to estimate inventory. Topic: Inventory Estimation Methods |
| 56. | The reliability of the gross profit method depends on a good estimate of the gross profit ratio.
TRUE |
| AACSB: Communication AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-P4 Appendix 5B-Apply both the retail inventory and gross profit methods to estimate inventory. Topic: Inventory Estimation Methods |
| 57. | In the retail inventory method of inventory valuation, the retail amount of inventory refers to its dollar amount measured using selling prices of inventory items.
TRUE |
| AACSB: Communication AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-P4 Appendix 5B-Apply both the retail inventory and gross profit methods to estimate inventory. Topic: Inventory Estimation Methods |
| 58. | To avoid the time-consuming process of taking an inventory each year, most companies use the gross profit method to estimate ending inventory.
FALSE |
| AACSB: Communication AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-P4 Appendix 5B-Apply both the retail inventory and gross profit methods to estimate inventory. Topic: Inventory Estimation Methods |
| 59. | Using the retail inventory method, if the cost to retail ratio is 70% and ending inventory at retail is $145,000, then estimated ending inventory at cost is $207,143.
FALSE $145,000 * 0.70 = $101,500 |
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard Learning Objective: 05-P4 Appendix 5B-Apply both the retail inventory and gross profit methods to estimate inventory. Topic: Inventory Estimation Methods |
Multiple Choice Questions
| 60. | Damaged and obsolete goods that can be sold:
|
| AACSB: Communication AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-C1 Identify the items making up merchandise inventory. Topic: Determining Inventory Items |
| 61. | Merchandise inventory includes:
|
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-C1 Identify the items making up merchandise inventory. Topic: Determining Inventory Items |
| 62. | Goods in transit are included in a purchaser’s inventory:
|
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-C1 Identify the items making up merchandise inventory. Topic: Determining Inventory Items |
| 63. | Consignment goods are:
|
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-C1 Identify the items making up merchandise inventory. Topic: Determining Inventory Items |
| 64. | Regardless of the inventory costing system used, cost of goods available for sale must be allocated at the end of the period between
|
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-C2 Identify the costs of merchandise inventory Topic: Determining Inventory Costs |
| 65. | On December 31 of the current year, Plunkett Company reported an ending inventory balance of $215,000. The following additional information is also available:
▪ Plunkett sold and shipped goods costing $38,000 to Savannah Enterprises on December 28 with shipping terms of FOB shipping point. The goods were not included in the ending inventory amount of $215,000. Based on the above information, the amount that Plunkett should report in ending inventory on December 31 is:
Start with beginning inventory of $215,000. The information in the first bullet point was handled correctly. No adjustment is needed for that merchandise. For the second bullet point, the $44,000 of goods should not have been included in ending inventory since the goods were shipped FOB destination. Subtract $44,000. For the third bullet point, ending inventory should not include goods held on consignment from another company. Subtract $15,000. The information in the fourth bullet point was handled correctly. No adjustment is needed. $215,000 – $44,000 – $15,000 = $156,000. |
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard Learning Objective: 05-C1 Identify the items making up merchandise inventory. Topic: Determining Inventory Items |
| 66. | Bedrock Company reported a December 31 ending inventory balance of $412,000. The following additional information is also available:
▪ The ending inventory balance of $412,000 included $72,000 of consigned inventory for which Bedrock was the consignor. Based on this information, the correct balance for ending inventory on December 31 is:
Start with beginning inventory of $412,000. The information in the first bullet point was handled correctly since inventory should include consigned goods for which the subject company is the consignor. No adjustment. With respect to the second bullet point, inventory should not include office supplies held for use. Subtract $22,000. Ending inventory should be $412,000 – $22,000 = $390,000. |
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-C1 Identify the items making up merchandise inventory. Topic: Determining Inventory Items |
| 67. | Buffalo Company reported a December 31 ending inventory balance of $412,000. The following additional information is also available:
▪ The ending inventory balance of $412,000 did not include goods costing $48,000 that were purchased by Buffalo on December 28 and shipped FOB destination on that date. Buffalo did not receive the goods until January 2 of the following year. Based on this information, the correct balance for ending inventory on December 31 is:
Start with beginning inventory of $412,000. The information in the first bullet point was handled correctly since inventory should not include goods shipped FOB destination that have not yet been received by the buyer. With respect to the second bullet point, damaged goods should not be included in inventory at their original cost if the net realizable value is materially below cost. Subtract $28,000 ($38,000 – $10,000). Ending inventory should be $412,000 – $28,000 = $384,000. |
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-C1 Identify the items making up merchandise inventory. Topic: Determining Inventory Items |
| 68. | Costs included in the Merchandise Inventory account can include all of the following except:
|
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-C2 Identify the costs of merchandise inventory. Topic: Determining Inventory Costs |
| 69. | Internal controls that should be applied when a business takes a physical count of inventory should include all of the following except:
|
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Risk Analysis Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-C2 Identify the costs of merchandise inventory. Topic: Determining Inventory Costs |
| 70. | Physical counts of inventory:
|
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Risk Analysis Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-C2 Identify the costs of merchandise inventory. Topic: Determining Inventory Costs |
| 71. | During a period of steadily rising costs, the inventory valuation method that yields the highest reported net income is:
|
| AACSB: Communication AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-A1 Analyze the effects of inventory methods for both financial and tax reporting. Topic: Financial Statement Effects of Costing Methods |
| 72. | The inventory valuation method that tends to smooth out erratic changes in costs is:
|
| AACSB: Communication AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-A1 Analyze the effects of inventory methods for both financial and tax reporting. Topic: Financial Statement Effects of Costing Methods |
| 73. | The inventory valuation method that has the advantages of assigning an amount to inventory on the balance sheet that approximates its current cost, and also mimics the actual flow of goods for most businesses is:
|
| AACSB: Communication AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-A1 Analyze the effects of inventory methods for both financial and tax reporting. Topic: Financial Statement Effects of Costing Methods |
| 74. | The inventory valuation method that results in the lowest taxable income in a period of inflation is:
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| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-A1 Analyze the effects of inventory methods for both financial and tax reporting. Topic: Financial Statement Effects of Costing Methods |
| 75. | The consistency concept:
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| AACSB: Communication AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-A1 Analyze the effects of inventory methods for both financial and tax reporting. Topic: Financial Statement Effects of Costing Methods |
| 76. | The full disclosure principle:
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| AACSB: Communication AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-A1 Analyze the effects of inventory methods for both financial and tax reporting. Topic: Financial Statement Effects of Costing Methods |
| 77. | Companies can and often do use different costing methods for financial reporting and tax reporting. An exception to this is the:
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| AACSB: Communication AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-A1 Analyze the effects of inventory methods for both financial and tax reporting.. Topic: Financial Statement Effects of Costing Methods |
| 78. | Which of the following inventory costing methods will always result in the same values for ending inventory and cost of goods sold regardless of whether a perpetual or periodic inventory system is used?
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| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-A1 Analyze the effects of inventory methods for both financial and tax reporting. Topic: Financial Statement Effects of Costing Methods |
| 79. | If a period-end inventory amount is reported in error, it can cause a misstatement in all of the following except:
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| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-A2 Analyze the effects of inventory errors on current and future financial statements. Topic: Financial Statement Effects of Inventory Errors |
| 80. | Since an error in the period-end inventory causes an offsetting error in the next period:
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| AACSB: Communication AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-A2 Analyze the effects of inventory errors on current and future financial statements. Topic: Financial Statement Effects of Inventory Errors |
| 81. | The understatement of the ending inventory balance causes:
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| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-A2 Analyze the effects of inventory errors on current and future financial statements. Topic: Financial Statement Effects of Inventory Errors |
| 82. | The understatement of the beginning inventory balance causes:
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| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-A2 Analyze the effects of inventory errors on current and future financial statements. Topic: Financial Statement Effects of Inventory Errors |
| 83. | Lucia Company reported cost of goods sold for Year 1 and Year 2 as follows:
Lucia Company made two errors: 1) ending inventory at the end of Year 1 was understated by $15,000 and 2) ending inventory at the end of Year 2 was overstated by $6,000. Given this information, the correct cost of goods sold figure for Year 2 would be:
If ending inventory for Year 1 was reported at $130,000 but was understated by $15,000, the correct ending inventory figure for Year 1 was $145,000. That amount becomes the beginning inventory for Year 2. Add to that amount the $275,000 of cost of goods purchased in Year 2 and you get cost of goods available for sale of $420,000. Finally, the reported ending inventory figure for Year 2 of $135,000 was overstated by $6,000. Thus, the correct ending inventory figure for Year 2 was $129,000. Subtracting ending inventory of $129,000 from cost of goods available for sale of $420,000 yields cost of goods sold of $291,000. |
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Blooms: Apply Difficulty: 3 Hard Learning Objective: 05-A2 Analyze the effects of inventory errors on current and future financial statements. Topic: Financial Statement Effects of Inventory Errors |
| 84. | Hull Company reported the following income statement information for the current year:
The beginning inventory balance is correct. However, the ending inventory figure was overstated by $20,000. Given this information, the correct gross profit would be:
If ending inventory of $144,000 was overstated by $20,000, the correct amount of ending inventory was $124,000. As a result, cost of goods sold was not $261,000 as reported, but rather $281,000. Thus, gross profit was $129,000 (Sales of $410,000 – Cost of Goods Sold of $281,000). |
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-A2 Analyze the effects of inventory errors on current and future financial statements. Topic: Financial Statement Effects of Inventory Errors |
| 85. | An understatement of ending inventory will cause
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| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-A2 Analyze the effects of inventory errors on current and future financial statements. Topic: Financial Statement Effects of Inventory Errors |
| 86. | The inventory turnover ratio:
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| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Risk Analysis Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-A3 Assess inventory management using both inventory turnover and days’ sales in inventory. Topic: Inventory Turnover and Days’ Sales in Inventory |
| 87. | Days’ sales in inventory:
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| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Risk Analysis Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-A3 Assess inventory management using both inventory turnover and days’ sales in inventory. Topic: Inventory Turnover and Days’ Sales in Inventory |
| 88. | The inventory turnover ratio is calculated as:
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| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Risk Analysis Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-A3 Assess inventory management using both inventory turnover and days’ sales in inventory. Topic: Inventory Turnover and Days’ Sales in Inventory |
| 89. | Days’ sales in inventory is calculated as:
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| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Risk Analysis Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-A3 Assess inventory management using both inventory turnover and days’ sales in inventory. Topic: Inventory Turnover and Days’ Sales in Inventory |
| 90. | Giorgio had cost of goods sold of $9,421 million, ending inventory of $2,089 million, and average inventory of $1,965 million. Its inventory turnover equals:
Inventory Turnover = Cost of Goods Sold/Average Inventory |
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Risk Analysis Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-A3 Assess inventory management using both inventory turnover and days’ sales in inventory. Topic: Inventory Turnover and Days’ Sales in Inventory |
| 91. | Perfection Company had cost of goods sold of $853,000, ending inventory of $70,500, and average inventory of $71,600. Its inventory turnover equals:
Inventory Turnover = Cost of Goods Sold/Average Inventory |
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Risk Analysis Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-A3 Assess inventory management using both inventory turnover and days’ sales in inventory. Topic: Inventory Turnover and Days’ Sales in Inventory |
| 92. | Beckenworth had cost of goods sold of $9,421 million, ending inventory of $2,089 million, and average inventory of $1,965 million. Its days’ sales in inventory equals:
Days’ Sales in Inventory = Ending Inventory/Cost of Goods Sold * 365 |
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Risk Analysis Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard Learning Objective: 05-A3 Assess inventory management using both inventory turnover and days’ sales in inventory. Topic: Inventory Turnover and Days’ Sales in Inventory |
| 93. | Ulrich had cost of goods sold of $6.7 million, ending inventory of $2.2 million, and average inventory of $1.9 million. Its days’ sales in inventory equals:
Days’ Sales in Inventory = Ending Inventory/Cost of Goods Sold * 365 |
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Risk Analysis Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard Learning Objective: 05-A3 Assess inventory management using both inventory turnover and days’ sales in inventory. Topic: Inventory Turnover and Days’ Sales in Inventory |
| 94. | Acceptable methods of assigning specific costs to inventory and cost of goods sold include all of the following except:
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| AACSB: Communication AICPA: BB Industry AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 05-P1 Compute inventory in a perpetual system using the methods of specific identification; FIFO; LIFO; and weighted average. Topic: Inventory Costing Under a Perpetual System |
| 95. | Decisions management must make in accounting for inventory cost include all of the following except:
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| AACSB: Communication AICPA: BB Industry AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-P1 Compute inventory in a perpetual system using the methods of specific identification; FIFO; LIFO; and weighted average. Topic: Inventory Costing Under a Perpetual System |
| 96. | The inventory valuation method that identifies each item in ending inventory with a specific purchase and invoice is the:
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| AACSB: Communication AICPA: BB Industry AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-P1 Compute inventory in a perpetual system using the methods of specific identification; FIFO; LIFO; and weighted average. Topic: Inventory Costing Under a Perpetual System |
| 97. | A company had the following purchases during its first year of operations:
On December 31, there were 26 units remaining in ending inventory. These 26 units consisted of 2 from January, 4 from February, 6 from May, 4 from September, and 10 from November. Using the specific identification method, what is the cost of the ending inventory?
Ending Inventory:
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| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-P1 Compute inventory in a perpetual system using the methods of specific identification; FIFO; LIFO; and weighted average. Topic: Inventory Costing Under a Perpetual System |
| 98. | A company had the following purchases and sales during its first year of operations:
On December 31, there were 26 units remaining in ending inventory. Using the Perpetual FIFO inventory valuation method, what is the cost of the ending inventory? (Assume all sales were made on the last day of the month.)
Ending Inventory:
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| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-P1 Compute inventory in a perpetual system using the methods of specific identification; FIFO; LIFO; and weighted average. Topic: Inventory Costing Under a Perpetual System |
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| 99. | A company had the following purchases and sales during its first year of operations:
On December 31, there were 26 units remaining in ending inventory. Using the Periodic FIFO inventory valuation method, what is the cost of the ending inventory? (Assume all sales were made on the last day of the month.)
Ending Inventory:
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| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-P3 Compute inventory in a periodic system using the methods of specific identification; FIFO; LIFO; and weighted average. Topic: Inventory Costing Under a Periodic System |
| 100. | A company had the following purchases and sales during its first year of operations:
On December 31, there were 26 units remaining in ending inventory. Using the Perpetual LIFO inventory valuation method, what is the cost of the ending inventory? (Assume all sales were made on the last day of the month.)
Ending Inventory:
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| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-P1 Compute inventory in a perpetual system using the methods of specific identification; FIFO; LIFO; and weighted average. Topic: Inventory Costing Under a Perpetual System
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| 101. | A company had the following purchases and sales during its first year of operations:
On December 31, there were 26 units remaining in ending inventory. Using the Periodic LIFO inventory valuation method, what is the cost of the ending inventory? (Assume all sales were made on the last day of the month.)
Ending Inventory:
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| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-P3 Compute inventory in a periodic system using the methods of specific identification; FIFO; LIFO; and weighted average. Topic: Inventory Costing Under a Periodic System
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| 102. | A company had the following purchases and sales during its first year of operations:
On December 31, there were 26 units remaining in ending inventory. Using the Perpetual FIFO inventory valuation method, what is the value of cost of goods sold? (Assume all sales were made on the last day of the month.)
Cost of goods sold:
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| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-P1 Compute inventory in a perpetual system using the methods of specific identification; FIFO; LIFO; and weighted average. Topic: Inventory Costing Under a Perpetual System |
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| 103. | A company had the following purchases and sales during its first year of operations:
On December 31, there were 26 units remaining in ending inventory. Using the Periodic FIFO inventory valuation method, what is the value of cost of goods sold? (Assume all sales were made on the last day of the month.)
Cost of goods sold:
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| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-P3 Compute inventory in a periodic system using the methods of specific identification; FIFO; LIFO; and weighted average. Topic: Inventory Costing Under a Periodic System |
| 104. | A company had the following purchases and sales during its first year of operations:
On December 31, there were 26 units remaining in ending inventory. Using the Perpetual LIFO inventory valuation method, what is the value of cost of goods sold? (Assume all sales were made on the last day of the month.)
Cost of goods sold:
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| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-P1 Compute inventory in a perpetual system using the methods of specific identification; FIFO; LIFO; and weighted average. Topic: Inventory Costing Under a Perpetual System
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| 108. . | A company had inventory on November 1 of 5 units at a cost of $20 each. On November 2, they purchased 10 units at $22 each. On November 6 they purchased 6 units at $25 each. On November 8, 8 units were sold for $55 each. Using the LIFO perpetual inventory method, what was the value of the inventory on November 8 after the sale?
Units available = 5 + 10 + 6 = 21 units |
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Blooms: Apply Difficulty: 3 Hard Learning Objective: 05-P1 Compute inventory in a perpetual system using the methods of specific identification; FIFO; LIFO; and weighted average. Topic: Inventory Costing Under a Perpetual System |
| 109. | Marquis Company uses a weighted-average perpetual inventory system and has the following purchases and sales:
What is the amount of the cost of goods sold for this sale? (Round average cost per unit to 2 decimal places.)
Average cost = [(10 * $12) + (15 * $14)]/25 units = $13.20/unit |
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-P1 Compute inventory in a perpetual system using the methods of specific identification; FIFO; LIFO; and weighted average. Topic: Inventory Costing Under a Perpetual System |
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| 111. | Monarch Company uses a weighted-average perpetual inventory system and has the following purchases and sales:
What is the value of cost of goods sold?
Cost of goods sold = 12 units * $10 per unit = $120 |
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| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-P1 Compute inventory in a perpetual system using the methods of specific identification; FIFO; LIFO; and weighted average. Topic: Inventory Costing Under a Perpetual System
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| 113. | Eastview Company uses a perpetual LIFO inventory system, and has the following purchases and sales:
What is the value of ending inventory?
Ending inventory = (30 units * $9) + (10 units * $11) = $380 |
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| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-P1 Compute inventory in a perpetual system using the methods of specific identification; FIFO; LIFO; and weighted average. Topic: Inventory Costing Under a Perpetual System
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| 116. | Grays Company has inventory of 10 units at a cost of $10 each on August 1. On August 3, it purchased 20 units at $12 each. 12 units are sold on August 6. Using the FIFO perpetual inventory method, what amount will be reported as cost of goods sold for the 12 units that were sold?
(10 units * $10) + (2 * $12) = $124 |
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-P1 Compute inventory in a perpetual system using the methods of specific identification; FIFO; LIFO; and weighted average. Topic: Inventory Costing Under a Perpetual System |
| 117. | McCarthy Company has inventory of 8 units at a cost of $200 each on October 1. On October 2, it purchased 20 units at $205 each. 11 units are sold on October 4. Using the FIFO perpetual inventory method, what amount will be reported as cost of goods sold for the 11 units that were sold?
(8 units * $200) + (3 * $205) = $2,215 |
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-P1 Compute inventory in a perpetual system using the methods of specific identification; FIFO; LIFO; and weighted average. Topic: Inventory Costing Under a Perpetual System |
| 118. | McCarthy Company has inventory of 8 units at a cost of $200 each on October 1. On October 2, it purchased 20 units at $205 each. 11 units are sold on October 4. Using the FIFO perpetual inventory method, what is the value of inventory after the October 4 sale?
Units in inventory = 8 + 20 – 11 = 17 |
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-P1 Compute inventory in a perpetual system using the methods of specific identification; FIFO; LIFO; and weighted average. Topic: Inventory Costing Under a Perpetual System |
| 119. | Starlight Company has inventory of 8 units at a cost of $200 each on October 1. On October 2, it purchased 20 units at $205 each. 11 units are sold on October 4. Using the LIFO perpetual inventory method, what amount will be reported in cost of goods sold for the 11 units that were sold?
11 * $205 = $2,255 |
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-P1 Compute inventory in a perpetual system using the methods of specific identification; FIFO; LIFO; and weighted average. Topic: Inventory Costing Under a Perpetual System |
| 120. | Starlight Company has inventory of 8 units at a cost of $200 each on October 1. On October 2, it purchased 20 units at $205 each. 11 units are sold on October 4. Using the LIFO perpetual inventory method, what is the value of inventory after the October 4 sale?
Units in inventory = 8 + 20 – 11 = 17 |
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-P1 Compute inventory in a perpetual system using the methods of specific identification; FIFO; LIFO; and weighted average. Topic: Inventory Costing Under a Perpetual System |
| 121. | A company’s inventory records report the following:
On August 15, it sold 30 units. Using the FIFO perpetual inventory method, what is the value of the inventory at August 15 after the sale?
Units available for sale = 15 + 10 + 20 = 45 units |
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-P1 Compute inventory in a perpetual system using the methods of specific identification; FIFO; LIFO; and weighted average. Topic: Inventory Costing Under a Perpetual System |
| 122. | A company’s inventory records report the following in November of the current year:
On November 8, it sold 12 units for $54 each. Using the LIFO perpetual inventory method, what was the amount recorded in the cost of goods sold account for the 12 units sold?
254
(2 × $20) + (10 × $22) = $260 |
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-P1 Compute inventory in a perpetual system using the methods of specific identification; FIFO; LIFO; and weighted average. Topic: Inventory Costing Under a Perpetual System |
| 123. | A company’s inventory records report the following in November of the current year:
On November 8, it sold 12 units for $54 each. Using the LIFO perpetual inventory method, what amount of gross profit was earned from the 12 units sold?
648
260
Sales = 12 * $54 = $648 |
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Blooms: Apply Difficulty: 3 Hard Learning Objective: 05-P1 Compute inventory in a perpetual system using the methods of specific identification; FIFO; LIFO; and weighted average. Topic: Inventory Costing Under a Perpetual System |
| 124. | A company sells garden hoses and uses the perpetual inventory system to account for its merchandise. The beginning balance of the inventory and its transactions during September were as follows:
September 1: Beginning balance of 18 units at $13 each If the ending inventory is reported at $276, what inventory method was used?
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| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Blooms: Apply Difficulty: 3 Hard Learning Objective: 05-P1 Compute inventory in a perpetual system using the methods of specific identification; FIFO; LIFO; and weighted average. Topic: Inventory Costing Under a Perpetual System |
| 125. | Jammer Company uses a weighted average perpetual inventory system and reports the following:
What is the per-unit value of ending inventory on August 31?
*$345/25 units = $13.80/unit |
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| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Blooms: Apply Difficulty: 3 Hard Learning Objective: 05-P1 Compute inventory in a perpetual system using the methods of specific identification; FIFO; LIFO; and weighted average. Topic: Inventory Costing Under a Perpetual System |
| 126. | Given the following information, determine the cost of the inventory at June 30 using the LIFO perpetual inventory method.
The cost of the ending inventory is:
333333333333
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| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Blooms: Apply Difficulty: 3 Hard Learning Objective: 05-P1 Compute inventory in a perpetual system using the methods of specific identification; FIFO; LIFO; and weighted average. Topic: Inventory Costing Under a Perpetual System |
| 127. | In applying the lower of cost or market method to inventory valuation, market is defined as:
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| AACSB: Communication AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-P2 Compute the lower of cost or market amount of inventory. Topic: Lower of Cost or Market |
128. Raleigh Co. has the following products in its ending inventory. Compute the lower of cost or market total for inventory applied separately to each product.
Jelly = 150 * $2.00 = $300 |
| AACSB: Communication AICPA: BB Industry AICPA: FN Measurement Blooms: Remember Difficulty: 3 Hard Learning Objective: 05-P2 Compute the lower of cost or market amount of inventory. Topic: Lower of Cost or Market |
| 129. | Generally accepted accounting principles require that the inventory of a company be reported at:
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| AACSB: Communication AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-P2 Compute the lower of cost or market amount of inventory. Topic: Lower of Cost or Market |
| 130. | The conservatism constraint prescribes that:
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| AACSB: Communication AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-P2 Compute the lower of cost or market amount of inventory. Topic: Lower of Cost or Market |
| 131. | A company’s normal selling price for its product is $20 per unit. However, due to market competition, the selling price has fallen to $15 per unit. This company’s current inventory consists of 200 units purchased at $16 per unit. Replacement cost has fallen to $13 per unit. Calculate the value of this company’s inventory at the lower of cost or market.
200 units @ $13 per unit = $2,600 |
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-P2 Compute the lower of cost or market amount of inventory. Topic: Lower of Cost or Market |
| 132. | A company normally sells its product for $20 per unit. However, the selling price has fallen to $15 per unit. This company’s current inventory consists of 200 units purchased at $16 per unit. Replacement cost has now fallen to $13 per unit. What is the amount of the lower cost of market adjustment the company must make as a result of this decline in value?
200 units * ($16 – $13) = $600 |
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-P2 Compute the lower of cost or market amount of inventory. Topic: Lower of Cost or Market |
| 133. | A company’s current inventory consists of 5,000 units purchased at $6 per unit. Replacement cost has now fallen to $5 per unit. What is the entry the company must record to adjust inventory to market?
5,000 units * ($6 – $5) = $5,000 |
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-P2 Compute the lower of cost or market amount of inventory. Topic: Lower of Cost or Market |
| 134. A company has the following per unit original costs and replacement costs for its inventory. LCM is applied to individual items.
Part A: 50 units with a cost of $5, and replacement cost of $4.50 Under the lower of cost or market method, the total value of this company’s ending inventory is:
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| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-P2 Compute the lower of cost or market amount of inventory. Topic: Lower of Cost or Market |
| 135. | A company has beginning inventory of 10 units at a cost of $10 each on February 1. On February 3, it purchases 20 units at $12 each. 12 units are sold on February 5. Using the FIFO periodic inventory method, what is the cost of the 12 units that are sold?
(10 units * $10) + (2 * $12) = $124 |
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-P3 Appendix 5A-Compute inventory in a periodic system using the methods of specific identification; FIFO; LIFO; and weighted average. Topic: Inventory Costing under a Periodic System |
| 136. | A company has beginning inventory of 15 units at a cost of $12 each on October 1. On October 5, it purchases 10 units at $13 per unit. On October 12 it purchases 20 units at $14 per unit. On October 15, it sells 30 units. Using the FIFO periodic inventory method, what is the value of the inventory at October 15 after the sale?
Units available for sale = 15 + 10 + 20 = 45 units |
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-P3 Appendix 5A-Compute inventory in a periodic system using the methods of specific identification; FIFO; LIFO; and weighted average. Topic: Inventory Costing Under a Periodic System |
| 137. | A company had beginning inventory of 10 units at a cost of $20 each on March 1. On March 2, it purchased 10 units at $22 each. On March 6 it purchased 6 units at $25 each. On March 8, it sold 22 units for $54 each. Using the FIFO perpetual inventory method, what was the cost of the 22 units sold?
(10 * $20) + (10 * $22) + (2 * $25) = $470 |
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-P1 Compute inventory in a perpetual system using the methods of specific identification; FIFO; LIFO; and weighted average. Topic: Inventory Costing Under a Perpetual System |
| 138. | A company uses the periodic inventory system and had the following activity during the current monthly period.
Using the weighted-average inventory method, the company’s ending inventory would be:
Weighted average cost per unit: $6,600/300 units = $22 |
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Blooms: Apply Difficulty: 3 Hard Learning Objective: 05-P3 Appendix 5A-Compute inventory in a periodic system using the methods of specific identification; FIFO; LIFO; and weighted average. Topic: Inventory Costing Under a Periodic System |
| 139. | Health Defense sells first aid kits and uses the periodic inventory system to account for its merchandise. The beginning balance of the inventory and its transactions during January were as follows:
January 1: Beginning balance of 18 units at $13 each If the ending inventory is reported at $357, what inventory method was used?
|
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Blooms: Apply Difficulty: 3 Hard Learning Objective: 05-P3 Appendix 5A-Compute inventory in a periodic system using the methods of specific identification; FIFO; LIFO; and weighted average. Topic: Inventory Costing under a Periodic System |
| 140. | A company’s warehouse contents were destroyed by a flood on September 12. The following information was the only information that was salvaged:
1. Inventory, beginning: $28,000 The company’s average gross profit ratio is 35%. What is the estimated cost of the lost inventory?
COGS = ($55,000 – $700) * 65% = $35,295 |
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard Learning Objective: 05-P4 Appendix 5B-Apply both the retail inventory and gross profit methods to estimate inventory. Topic: Inventory Estimation Methods |
| 141. | A company reports the following information regarding its inventory.
Beginning inventory: cost is $80,000; retail is $130,000 The year-end inventory shows $135,000 worth of merchandise available at retail prices. What is the cost of the ending inventory calculated using the retail inventory method?
Cost/retail ratio $145,000/$250,000 = 58% |
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Blooms: Apply Difficulty: 3 Hard Learning Objective: 05-P4 Appendix 5B-Apply both the retail inventory and gross profit methods to estimate inventory. Topic: Inventory Estimation Methods |
| 142. | On March 31 a company needed to estimate its ending inventory to prepare its first quarter financial statements. The following information is available:
Beginning inventory, January 1: $4,000 The company’s gross margin ratio is 25%. Using the gross profit method, the cost of goods sold would be:
75% * $80,000 = $60,000 |
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard Learning Objective: 05-P4 Appendix 5B-Apply both the retail inventory and gross profit methods to estimate inventory. Topic: Inventory Estimation Methods
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| 144. | Big Box Store has operated with a 30% average gross profit ratio for a number of years. It had $100,000 in sales during the second quarter of this year. If it began the quarter with $18,000 of inventory at cost and purchased $72,000 of inventory during the quarter, its estimated ending inventory by the gross profit method is:
COGS = $100,000 * 70% = $70,000 |
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard Learning Objective: 05-P4 Appendix 5B-Apply both the retail inventory and gross profit methods to estimate inventory. Topic: Inventory Estimation Methods |
| 145. | On January 31, a company needed to estimate its ending inventory to prepare its monthly financial statements. The following information is currently available:
Inventory as of January 1: $120,500 This company typically achieves a gross profit ratio of 15%. Ending Inventory under the gross profit method would be:
COGS = $400,000 * 85% = $340,000 |
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard Learning Objective: 05-P4 Appendix 5B-Apply both the retail inventory and gross profit methods to estimate inventory. Topic: Inventory Estimation Methods |
| 146. | Interim financial statements:
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| AACSB: Communication AICPA: BB Industry AICPA: FN Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-P4 Appendix 5B-Apply both the retail inventory and gross profit methods to estimate inventory. Topic: Inventory Estimation Methods |
| 147. | Jefferson Company has sales of $300,000 and cost of goods available for sale of $270,000. If the gross profit ratio is typically 30%, the estimated cost of the ending inventory under the gross profit method would be:
If sales for the period were $300,000 and the company’s typical gross profit ratio is 30%, gross profit would be approximately $90,000. That means that cost of goods sold must have been $210,000. Subtracting cost of goods sold of $210,000 from the $270,000 of cost of goods available for sale yields ending inventory of $60,000. |
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard Learning Objective: 05-P4 Appendix 5B-Apply both the retail inventory and gross profit methods to estimate inventory. Topic: Inventory Estimation Methods |
| 148. | Oxford Packing Company reported net sales in November of the current year of $1,000,000. At the beginning of November, the company reported beginning inventory of $368,000. Cost of goods purchased during November amounted to $217,500. The company reported ending inventory at the end of November of $226,750. The company’s gross profit rate for November of the current year was:
Combining beginning inventory of $368,000 with purchases for the period of $217,500 yields cost of goods available for sale of $585,500. If we then subtract the ending inventory of $226,750, we get cost of goods sold of $358,750. Subtracting cost of goods sold ($358,750) from sales ($1,000,000) yields gross profit of $641,250. Dividing gross profit of $641,250 by sales of $1,000,000 yields a gross profit percentage of 64.125% or 64.1% rounded. |
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard Learning Objective: 05-P4 Appendix 5B-Apply both the retail inventory and gross profit methods to estimate inventory. Topic: Inventory Estimation Methods |
| 149. | On April 24 of the current year, The Memphis Pecan Company experienced a tornado that destroyed the company’s entire inventory. At the beginning of April, the company reported beginning inventory of $226,750. Inventory purchased during April (until the date of the tornado) was $197,800. Sales for the month of April through April 24 were $642,500. Assuming the company’s typical gross profit ratio is 50%, estimate the amount of inventory destroyed in the tornado.
Beginning inventory on April 1 was $226,750. Purchases for the month of April amounted to $197,800, yielding cost of goods available for sale of $424,550. If the company’s typical gross profit ratio is 50% and if sales for the month of April were $642,500, then the cost of goods sold during April was $321,250. Subtracting that amount from the cost of goods available for sale yields ending inventory of $103,300. |
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard Learning Objective: 05-P4 Appendix 5B-Apply both the retail inventory and gross profit methods to estimate inventory. Topic: Inventory Estimation Methods |
| 150. | Avanti purchases inventory from overseas and incurs the following costs: the merchandise cost is $50,000, credit terms 2/10, n/30 that apply only to the $50,000; FOB shipping point freight charges are $1,500; insurance during transit is $500; and import duties are $1,000. Avanti paid within the discount period and incurred additional costs of $1,200 for advertising and $5,000 for sales commissions. Compute the cost that should be assigned to the inventory.
$50,000 * .98 = $49,000 + $1,500 + $500 + $1,000 = $52,000 |
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard Learning Objective: 05-C2 Identify the costs of merchandise inventory. Topic: Determining Inventory Costs |
| 151. | Hasham purchases inventory from overseas and incurs the following costs: the merchandise cost is $80,000, credit terms 1/10, n/30, applicable only to the $80,000; FOB shipping point freight charges are $2,500; insurance during transit is $300; and import duties are $1,500. Hasham paid within the discount period. Compute the cost that should be assigned to the inventory.
($80,000 * .99) + $2,500 + $300 + $1,500 = $83,500 |
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-C2 Identify the costs of merchandise inventory. Topic: Determining Inventory Costs |
| 152. | Some companies choose to avoid assigning incidental costs of acquiring merchandise to inventory by recording them as cost of goods sold when incurred. The principle that supports this is called:
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| AACSB: Communication AICPA: BB Industry AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-C2 Identify the costs of merchandise inventory. Topic: Determining Inventory Costs |
| 153. | All of the following statements related to goods on consignment are true except:
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| AACSB: Communication AICPA: BB Industry AICPA: FN Decision Making Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-C1 Identify the items making up merchandise inventory. Topic: Determining Inventory Items |
| 154. | When costs to purchase inventory regularly decline, which method of inventory costing will yield the lowest gross profit and income?
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| AACSB: Communication AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 05-A1 Analyze the effects of inventory methods for both financial and tax reporting. Topic: Financial Statement Effects of Costing Methods |
| 155. | When costs to purchase inventory regularly decline, which method of inventory costing will yield the lowest cost of goods sold?
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| AACSB: Communication AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 2 Medium Learning Objective: 05-A1 Analyze the effects of inventory methods for both financial and tax reporting. Topic: Financial Statement Effects of Costing Methods |
| 156. | IFRS reporting currently does not allow which method of inventory costing?
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| AACSB: Communication AICPA: BB Global AICPA: FN Reporting Accessibility: Keyboard Navigation Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-A1 Analyze the effects of inventory methods for both financial and tax reporting. Topic: Financial Statement Effects of Costing Methods |
| 157. | All of the following statements regarding U.S. GAAP and IFRS are true except:
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| AACSB: Communication AICPA: BB Global AICPA: FN Reporting Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-A1 Analyze the effects of inventory methods for both financial and tax reporting. Topic: Financial Statement Effects of Costing Methods |
| 158. | Sandoval needs to determine its year-end inventory. The warehouse contains 20,000 units, of which 3,000 were damaged by flood and are not sellable. Another 2,000 units were purchased from Markor Company, FOB shipping point, and are currently in transit. The company also consigns goods and has 4,000 units at a consignee’s location. How many units should Sandoval include in its year-end inventory?
20,000 – 3,000 + 2,000 + 4,000 = 23,000 |
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard Learning Objective: 05-C1 Identify the items making up merchandise inventory. Topic: Determining Inventory Items |
| 159. | Salmone Company reported the following purchases and sales of its only product. Salmone uses a perpetual inventory system. Determine the cost assigned to the ending inventory using FIFO.
(140 * $12 = $1,680) + (100 * $13 = $1,300) = $2,980 |
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-P1 Compute inventory in a perpetual system using the methods of specific identification; FIFO; LIFO; and weighted average. Topic: Inventory Costing Under a Perpetual System |
| 160. | Salmone Company reported the following purchases and sales of its only product. Salmone uses a perpetual inventory system. Determine the cost assigned to cost of goods sold using FIFO.
(140 * $10 = $1,400) + [(10 * $10 = $100) + (80 * $12 = $960)] = $2,460 |
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-P1 Compute inventory in a perpetual system using the methods of specific identification; FIFO; LIFO; and weighted average. Topic: Inventory Costing Under a Perpetual System |
| 161. | Salmone Company reported the following purchases and sales of its only product. Salmone uses a perpetual inventory system. Determine the cost assigned to ending inventory using LIFO.
(150 * $10 = $1,500) + (80 * $12 = $960) + (10 * $13 = $130) = $2,590 |
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-P1 Compute inventory in a perpetual system using the methods of specific identification; FIFO; LIFO; and weighted average. Topic: Inventory Costing Under a Perpetual System |
| 162. | Salmone Company reported the following purchases and sales for its only product. Salmone uses a perpetual inventory system. Determine the cost assigned to cost of goods sold using LIFO.
(140 * $12 = $1,680) + (90 * $13 = $1,170) = $2,850 |
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-P1 Compute inventory in a perpetual system using the methods of specific identification; FIFO; LIFO; and weighted average. Topic: Inventory Costing Under a Perpetual System
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| 167. | On September 1 of the current year, Scots Company experienced a flood that destroyed the company’s entire inventory. Because the company had not completed its month end reporting for August, it must estimate the amount of inventory lost using the gross profit method. At the beginning of August, the company reported beginning inventory of $215,450. Inventory purchased during August was $192,530. Sales for the month of August were $542,500. Assuming the company’s typical gross profit ratio is 40%, estimate the amount of inventory destroyed in the flood.
Merchandise available for sale — $215,450 + $192,530 = $407,980 |
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Accessibility: Keyboard Navigation Blooms: Apply Difficulty: 3 Hard Learning Objective: 05-P4 Appendix 5B-Apply both the retail inventory and gross profit methods to estimate inventory. Topic: Inventory Estimation Methods |
| 168. | Use the following information for Shafer Company to compute inventory turnover for year 2.
Inventory Turnover = Cost of Goods Sold/Average Inventory |
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Blooms: Apply Difficulty: 3 Hard Learning Objective: 05-A3 Assess inventory management using both inventory turnover and days’ sales in inventory. Topic: Inventory Turnover and Days’ Sales in Inventory |
| 169. | Use the following information for Davis Company to compute inventory turnover for Year 2.
Inventory Turnover = Cost of Goods Sold/Average Inventory |
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-A3 Assess inventory management using both inventory turnover and days’ sales in inventory. Topic: Inventory Turnover and Days’ Sales in Inventory |
| 170. | Use the following information for Ephron Company to compute days’ sales in inventory for Year 2.
Days’ Sales in Inventory = Ending Inventory/Cost of Goods Sold * 365 |
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Blooms: Apply Difficulty: 3 Hard Learning Objective: 05-A3 Assess inventory management using both inventory turnover and days’ sales in inventory. Topic: Days’ Sales in Inventory |
Matching Questions
| 171. | Match each of the following terms with the appropriate definition.
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| AACSB: Communication AICPA: BB Industry AICPA: FN Measurement Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-A3 Assess inventory management using both inventory turnover and days’ sales in inventory. Learning Objective: 05-C1 Identify the items making up merchandise inventory. Learning Objective: 05-P1 Compute inventory in a perpetual system using the methods of specific identification; FIFO; LIFO; and weighted average. Learning Objective: 05-P2 Compute the lower of cost or market amount of inventory. Learning Objective: 05-P4 Appendix 5B-Apply both the retail inventory and gross profit methods to estimate inventory. Topic: Determining Inventory Items Topic: Inventory Costing Under a Perpetual System Topic: Inventory Estimation Methods Topic: Inventory Turnover and Days’ Sales in Inventory Topic: Lower of Cost or Market |
| 172. | Match the following terms with the appropriate definition.
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| AACSB: Communication AICPA: BB Industry AICPA: FN Decision Making AICPA: FN Measurement Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-A3 Assess inventory management using both inventory turnover and days’ sales in inventory. Learning Objective: 05-C1 Identify the items making up merchandise inventory. Learning Objective: 05-P1 Compute inventory in a perpetual system using the methods of specific identification; FIFO; LIFO; and weighted average. Learning Objective: 05-P2 Compute the lower of cost or market amount of inventory. Learning Objective: 05-P4 Appendix 5B-Apply both the retail inventory and gross profit methods to estimate inventory. Topic: Determining Inventory Items Topic: Inventory Costing Under a Perpetual System Topic: Inventory Estimation Methods Topic: Inventory Turnover and Days’ Sales in Inventory Topic: Lower of Cost or Market |
Short Answer Questions
| 173. | Match the inventory valuation method from the list below that is being described in each situation in letters a-e. In all cases, assume a period of rising prices.
_________ a. The method that is used if each inventory item can be matched with a specific purchase and invoice. a. SI; b. LIFO; c. FIFO; d. FIFO; e. WA |
| AACSB: Communication AICPA: BB Industry AICPA: FN Measurement Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-A1 Analyze the effects of inventory methods for both financial and tax reporting. Learning Objective: 05-P1 Compute inventory in a perpetual system using the methods of specific identification; FIFO; LIFO; and weighted average. Topic: Financial Statement Effects of Costing Methods Topic: Inventory Costing Under a Perpetual System |
| 174. | Identify the items that are included in merchandise inventory. (In your answer address the special situations of goods in transit, consigned goods, and damaged goods.)
Merchandise inventory consists of goods owned by a company and held for resale. Three special cases involving ownership decisions are goods in transit, consigned goods, and damaged goods. Goods in transit are included in the inventory of the company that owns the goods. Consigned goods are included in the inventory of the consignor. Damaged goods are valued at net realizable value. |
| AACSB: Communication AICPA: BB Industry AICPA: FN Measurement Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-C1 Identify the items making up merchandise inventory. Topic: Determining Inventory Items |
| 175. | What specific costs and deductions are used to determine the final cost of merchandise inventory? Identify all costs including the incidental costs.
The costs of merchandise inventory include the invoice price minus any discounts, plus any added or incidental costs necessary to put the inventory in a place and condition for sale. Incidental costs include import duties, freight costs, storage, insurance, and costs of aging. |
| AACSB: Communication AICPA: BB Industry AICPA: FN Measurement Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-C2 Identify the costs of merchandise inventory. Topic: Costs of Merchandise Inventory |
| 176. | Describe the internal controls that must be applied when taking a physical count of inventory.
The internal controls should include (1) prenumbered tickets that are all accounted for; (2) counters who are not responsible for the inventory; (3) counters who must confirm the validity of inventory’s existence, amounts, and quality; (4) a second count by a different counter; and (5) confirmation that all inventories are ticketed once and only once by a manager. |
| AACSB: Communication AICPA: BB Industry AICPA: FN Risk Analysis Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-C2 Identify the costs of merchandise inventory. Topic: Determining Inventory Costs |
| 177. | Explain the effects of inventory valuation methods on the cost of ending inventory, income, and income taxes.
The specific identification method exactly identifies the costs of the inventory items sold. The weighted average method tends to smooth out erratic changes in costs by “averaging” inventory costs. However, LIFO and FIFO provide different amounts in periods of rising or falling costs. For example, in periods of rising costs, LIFO provides a lower income and thus lower taxes. In periods of falling costs, LIFO provides a higher income and thus higher taxes. FIFO calculations provide both higher income and taxes in periods of rising costs and lower income and taxes in periods of declining costs. |
| AACSB: Communication AICPA: BB Industry AICPA: FN Measurement Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-A1 Analyze the effects of inventory methods for both financial and tax reporting. Topic: Financial Statement Effects of Costing Methods |
| 178. | How do the consistency concept and the full disclosure principle affect inventory valuation?
The consistency concept requires that companies use the same accounting method for inventory valuation from period to period so that the financial statements are comparable across periods. The only exception is when a change from one method to another will improve its financial reporting. The consistency principle does not require a company to use one inventory valuation method for all categories of inventory. The full disclosure principle requires that in cases where a company does change its inventory valuation method, the notes to the financial statements report the type of change, its justification, and its effect on net income. |
| AACSB: Communication AICPA: BB Industry AICPA: FN Measurement Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-A1 Analyze the effects of inventory methods for both financial and tax reporting. Topic: Financial Statement Effects of Costing Methods |
| 179. | What is the effect of an error in the ending inventory balance on the accounts reported in the income statement?
An inventory error causes misstatements in cost of goods sold, gross profit, net income, current assets, and equity. It also causes misstatements in the next period’s cost of goods sold and net income. However, the inventory error is said to be self-correcting because the error in the first period is offset by the error in the second period. |
| AACSB: Communication AICPA: BB Industry AICPA: FN Measurement Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-A2 Analyze the effects of inventory errors on current and future financial statements. Topic: Financial Statement Effects of Inventory Errors |
| 180. | Explain how the inventory turnover ratio and the days’ sales in inventory ratio are used to evaluate inventory management.
A merchandiser’s ability to pay its short term obligations depends, among other factors, on how quickly it sells its merchandise inventory. The inventory turnover ratio reveals how many times a company turns over (sells) its inventory during a period. A low ratio compared to competitors suggests the company may be holding more inventory than necessary to support its sales volume. On the other hand, a ratio that is too high compared to competitors may suggest that the inventory level is too low and customers may have to back order merchandise. The days’ sales in inventory ratio helps to better interpret inventory turnover. It can be interpreted as the number of days one can sell from inventory if no new items are purchased, and can be viewed as a measure of the buffer against out-of-stock inventory. |
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Risk Analysis Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-A3 Assess inventory management using both inventory turnover and days’ sales in inventory. Topic: Inventory Turnover and Days’ Sales in Inventory |
| 181. | Identify and describe the four inventory valuation methods.
The specific identification method assigns costs to each inventory item based on specific invoice costs. The weighted average method assigns costs by using the total balance in inventory and dividing it by the number of units to arrive at a cost per unit at each sale. This cost per unit is then multiplied by the number of units in ending inventory. The first-in-first-out method assigns cost to items sold assuming that the first units purchased are the first to be sold. The last-in-first out method assumes that the last units purchased are the first to be sold. |
| AACSB: Communication AICPA: BB Industry AICPA: FN Measurement Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-P1 Compute inventory in a perpetual system using the methods of specific identification; FIFO; LIFO; and weighted average. Topic: Inventory Costing Under a Perpetual System |
| 182. | Explain why the lower of cost or market rule is used to value inventory.
The concept of conservatism requires that if there is more than one estimate of the value of an asset, then the lower of the two should be used. The lower of cost or market rule compares the acquisition cost of inventory with the current replacement cost. The lower of these two values is then selected as the amount to be reported. Lower of cost or market can be used on the inventory as a whole, major categories of inventory, or on individual items of inventory. |
| AACSB: Communication AICPA: BB Industry AICPA: FN Measurement Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-P2 Compute the lower of cost or market amount of inventory. Topic: Lower of Cost or Market |
| 183. | Discuss the important accounting features of a periodic inventory system including accounts and procedures used.
Each purchase of merchandise is debited to the Purchases account. Cost of goods sold is not recorded at the time of sale. Instead, a physical count of inventory at the end of the accounting period is used to determine the amount of inventory sold. Certain costs of inventory such as transportation-in, purchases discounts, and purchases returns and allowances are recorded in separate accounts. These separate accounts are then used to help compute inventory and cost of goods sold at the end of the period. |
| AACSB: Communication AICPA: BB Industry AICPA: FN Measurement Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-P3 Appendix 5A-Compute inventory in a periodic system using the methods of specific identification; FIFO; LIFO; and weighted average. Topic: Inventory Costing Under a Periodic System |
| 184. | Explain the reason a company might use the retail inventory method for valuing inventory.
The retail method is generally used to prepare interim statements because it avoids the time-consuming and expensive process of taking a physical inventory. It uses the cost to retail ratio to give an estimated ending inventory at cost. Some companies use the retail inventory to prepare annual statements, and may also estimate inventory for audit purposes or when inventory is damaged or destroyed. |
| AACSB: Communication AICPA: BB Industry AICPA: FN Measurement Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-P4 Appendix 5B-Apply both the retail inventory and gross profit methods to estimate inventory. Topic: Inventory Estimation Methods |
| 185. | Explain the reason a company might use gross profit inventory method for valuing inventory.
The gross profit method is often used when inventory is destroyed, lost or stolen. The cost of ending inventory is estimated by applying the gross profit ratio to net sales at retail. Companies may need an estimate of inventory to file a claim on a loss with its insurer. The method can also be used to see whether inventory amounts from physical counts are reasonable. |
| AACSB: Communication AICPA: BB Industry AICPA: FN Measurement Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-P4 Appendix 5B-Apply both the retail inventory and gross profit methods to estimate inventory. Topic: Inventory Estimation Methods |
| 186. | Sarbanes Oxley (SOX) demands that companies safeguard inventory and properly report it. List methods that companies should use to safeguard inventory and accounting procedures that should be used to properly report inventory.
Safeguards include restricted access, use of authorized requisitions, security measures, and controlled environments to prevent damage. Proper accounting includes matching inventory received with purchase order terms and quality requirements, preventing misstatements, and controlling access to inventory records. |
| AACSB: Communication AICPA: BB Industry AICPA: BB Legal AICPA: FN Measurement Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-A1 Analyze the effects of inventory methods for both financial and tax reporting. Topic: Financial Statement Effects of Costing Methods |
| 187. | The company’s inventory manager receives compensation that includes a bonus based on gross profit. You discover that the inventory manager has knowingly overstated ending inventory by $2 million. What effect does this error have on the financial statements of the company and specifically gross profit? Why would the manager knowingly overstate ending inventory? Would this be considered an ethics violation?
By overstating ending inventory, the cost of goods sold is understated, causing the gross profit to be overstated and net income to be overstated. By overstating the gross profit, this would increase the manager’s bonus. The assets and equity would also be overstated. Since the manager’s bonus is based on gross profit, the error would result in a larger bonus since gross profit would be overstated. Yes, this would be considered an ethics violation since the manager intentionally overstated ending inventory and the financial statements would contain errors that could affect decisions made by the users of the financial statements. |
| AACSB: Ethics AICPA: BB Industry AICPA: FN Measurement Blooms: Analyze Difficulty: 3 Hard Learning Objective: 05-A1 Analyze the effects of inventory methods for both financial and tax reporting. Learning Objective: 05-A2 Analyze the effects of inventory errors on current and future financial statements. Topic: Financial Statement Effects of Costing Methods Topic: Financial Statement Effects of Inventory Errors |
| 188. | Mary’s Antiques does not have its own retail location, instead maintains inventory in its warehouse and sells merchandise through Oldtime Antique Mall. Oldtime does not assume responsibility for goods until they are sold to customers at which time it takes a commission for items sold and sends the sale proceeds to Mary’s. Identify which company has the role of the consignor and the consignee. Which company should include any unsold goods as part of its inventory?
Mary’s Antiques is the consignor; Oldtime Antiques Mall is the consignee. Mary’s Antiques should include any unsold goods as part of its inventory. |
| AACSB: Communication AICPA: BB Industry AICPA: FN Measurement Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-A1 Analyze the effects of inventory methods for both financial and tax reporting. Topic: Financial Statement Effects of Costing Methods |
| 189. | What advantages does a perpetual inventory system have over periodic inventory system?
Advances in technology have greatly reduced the cost, and effort to manage, a perpetual inventory system. The perpetual inventory system updates the inventory balance as transactions affecting inventory occur, the balance is increased for purchases and decreased for sales. The subsidiary ledger also enables companies to get detailed records for each inventory item without a lot of extra effort. Knowing the exact amount of inventory may avoid the risk of lost sales and also help management reduce the level of inventory, thereby increasing the inventory turnover and decreasing the required number of days’ sales in inventory. The reduced level of inventory also reduces costs. Many companies are now asking whether they can afford not to have a perpetual inventory system because timely access to inventory information is a competitive advantage. |
| AACSB: Technology AICPA: BB Leveraging Technology AICPA: FN Leveraging Technology Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-C2 Identify the costs of merchandise inventory. Topic: Determining Inventory Costs |
| 190. | Patrick Randall of Sports Supplies finds that maintaining appropriate levels of inventories while controlling costs is a major challenge. What are the challenges Patrick refers to?
Any entrepreneur who sells inventory must constantly balance the need to have adequate inventory available to meet customers’ demands while also minimizing the amount of investment in inventory. Maintaining too little inventory can result in stock-outs (lost sales due to a lack of available inventory) but maintaining too much inventory wastes the company’s resources (by requiring funds be invested in inventory and not in other more productive assets). Randy knew that to meet his customers’ needs, he would need sound inventory accounting. By implementing inventory management tools, he learned how to fill orders, collect money, and maintain the right inventory. |
| AACSB: Communication AICPA: BB Industry AICPA: FN Decision Making Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-C2 Identify the costs of merchandise inventory. Topic: Determining Inventory Costs |
Essay Questions
| 191. | Carolina Company uses the LIFO method for valuing its ending inventory. The following financial statement information is available for its first year of operation:
Carolina’s ending inventory using the LIFO method was $8,700. Carolina’s accountant determined that had the company used FIFO, the ending inventory would have been $9,100. a. Determine what the income before taxes would have been, had Carolina used the FIFO method of inventory valuation instead of LIFO. a. If ending inventory is $400 higher using FIFO ($9,100 – $8,700), then the cost of goods sold would be $400 lower, gross profit $400 higher, and income before taxes would be $400 higher. Therefore, income before taxes would be $24,000 + $400 = $24,400.
Income taxes would be $120 higher using FIFO than LIFO. |
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| AACSB: Analytical Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Blooms: Apply Difficulty: 3 Hard Learning Objective: 05-A1 Analyze the effects of inventory methods for both financial and tax reporting. Topic: Financial Statement Effects of Costing Methods |
| 192. | Evaluate each inventory error separately and determine whether it overstates or understates cost of goods sold and net income.
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| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Blooms: Apply Difficulty: 3 Hard Learning Objective: 05-A2 Analyze the effects of inventory errors on current and future financial statements. Topic: Financial Statement Effects of Inventory Errors |
| 193. | The Community Store reported the following amounts on their financial statements for Year 1, Year 2, and Year 3:
It was discovered early in Year 4 that the ending inventory on December 31, Year 1 was overstated by $6,000, and the ending inventory on December 31, Year 2 was understated by $2,500. The ending inventory on December 31, Year 3 was correct. Ignoring income taxes determine the correct amounts of cost of goods sold, net income, total current assets, and equity for each of the years Year 1, Year 2, and Year 3.
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| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Blooms: Apply Difficulty: 3 Hard Learning Objective: 05-A2 Analyze the effects of inventory errors on current and future financial statements. Topic: Financial Statement Effects of Inventory Errors |
| 194. | A company reported the following data:
Required: 1. Calculate the company’s merchandise inventory turnover for each year. 1. Year 1 $317,500/72,000 = 4.41 |
| AACSB: Analytical Thinking AICPA: BB Critical Thinking AICPA: FN Risk Analysis Blooms: Analyze Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-A3 Assess inventory management using both inventory turnover and days’ sales in inventory. Topic: Inventory Turnover and Days’ Sales in Inventory |
| 195. | A company reported the following data:
Required: 1. Calculate the days’ sales in inventory for each year. 1. Year 1 ($140,000/$425,000) * 365 = 120 days |
| AACSB: Analytical Thinking AICPA: BB Critical Thinking AICPA: FN Risk Analysis Blooms: Analyze Blooms: Apply Difficulty: 3 Hard Learning Objective: 05-A3 Assess inventory management using both inventory turnover and days’ sales in inventory. Topic: Inventory Turnover and Days’ Sales in Inventory |
| 196. | A company made the following purchases during the year:
On December 31, there were 28 units in ending inventory. These 28 units consisted of 2 from the January 10 purchase, 3 from the March 15 purchase, 4 from the April 25 purchase, 11 from the July 30 purchase, and 8 from the October 10 purchase. Using specific identification, calculate the cost of the ending inventory.
|
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-P1 Compute inventory in a perpetual system using the methods of specific identification; FIFO; LIFO; and weighted average. Topic: Inventory Costing Under a Perpetual System |
| 197. | A company’s inventory records indicate the following data for the month of July:
If the company uses the weighted average inventory valuation method and the perpetual inventory system, what would be the cost of its ending inventory? (Round average cost per unit to 2 decimals, and final answer to the nearest dollar.) Note: As a result of rounding the cost per unit to two decimal places, the sum of cost of goods sold plus ending inventory may not exactly equal cost of goods available for sale.
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| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Blooms: Apply Difficulty: 3 Hard Learning Objective: 05-P1 Compute inventory in a perpetual system using the methods of specific identification; FIFO; LIFO; and weighted average. Topic: Inventory Costing Under a Perpetual System |
| 198. | A company’s inventory records indicate the following data for the month of April:
If the company uses the first-in, first-out (FIFO) method and the perpetual inventory system, what would be the cost of the ending inventory?
|
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| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Blooms: Apply Difficulty: 3 Hard Learning Objective: 05-P1 Compute inventory in a perpetual system using the methods of specific identification; FIFO; LIFO; and weighted average. Topic: Inventory Costing Under a Perpetual System |
| 199. | A company’s inventory records indicate the following data for the month of January:
If the company uses the last-in, first-out perpetual inventory system, what would be the cost of the ending inventory?
|
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| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Blooms: Apply Difficulty: 3 Hard Learning Objective: 05-P1 Compute inventory in a perpetual system using the methods of specific identification; FIFO; LIFO; and weighted average. Topic: Inventory Costing Under a Perpetual System |
| 200. | A company’s inventory records indicate the following data for the month of January:
If the company uses the last-in, first-out perpetual inventory system, what is the amount of cost of goods sold for January?
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| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Blooms: Apply Difficulty: 3 Hard Learning Objective: 05-P1 Compute inventory in a perpetual system using the methods of specific identification; FIFO; LIFO; and weighted average. Topic: Inventory Costing Under a Perpetual System |
| 201. | A company’s inventory records indicate the following data for the month of April:
If the company uses the first-in, first-out (FIFO) method and the perpetual inventory system, what is the amount of cost of goods sold for April?
|
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| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Blooms: Apply Difficulty: 3 Hard Learning Objective: 05-P1 Compute inventory in a perpetual system using the methods of specific identification; FIFO; LIFO; and weighted average. Topic: Inventory Costing Under a Perpetual System |
| 202. | Calculate the ending inventory using FIFO for a company that uses a perpetual inventory system, using the information given below.
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| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-P1 Compute inventory in a perpetual system using the methods of specific identification; FIFO; LIFO; and weighted average. Topic: Inventory Costing Under a Perpetual System |
| 203. | Calculate the ending inventory using LIFO for a company that uses a perpetual inventory system, using the information given below.
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| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-P1 Compute inventory in a perpetual system using the methods of specific identification; FIFO; LIFO; and weighted average. Topic: Inventory Costing Under a Perpetual System |
| 204. | Using the information given below for a company that uses a perpetual inventory system, calculate the ending inventory using weighted average.
*$1,480/140 units = $10.57/unit |
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| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Blooms: Apply Difficulty: 3 Hard Learning Objective: 05-P1 Compute inventory in a perpetual system using the methods of specific identification; FIFO; LIFO; and weighted average. Topic: Inventory Costing Under a Perpetual System
|
| 205. | Use the information below to determine the sales revenue, cost of goods sold and gross profit that would be reported for the company related to the March 16 sale assuming the company uses FIFO inventory valuation and a perpetual inventory system.
Sales = 40 * $16 = $640 |
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-P1 Compute inventory in a perpetual system using the methods of specific identification; FIFO; LIFO; and weighted average. Topic: Inventory Costing Under a Perpetual System |
| 206. | Use the information below to determine the sales revenue, cost of goods sold and gross profit that would be reported for the company related to the March 16 sale assuming the company uses LIFO inventory valuation and a perpetual inventory system.
Sales = 40 * $16 = $640 |
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-P1 Compute inventory in a perpetual system using the methods of specific identification; FIFO; LIFO; and weighted average. Topic: Inventory Costing Under a Perpetual System |
| 207. | Use the information below to determine the sales revenue, cost of goods sold and gross profit that would be reported for the company related to the March 16 sale assuming the company uses weighted average inventory valuation and a perpetual inventory system.
Sales = 40 * $16 = $640 *[(100 * $10) + (60 * $12)]/160 = $10.75 |
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-P1 Compute inventory in a perpetual system using the methods of specific identification; FIFO; LIFO; and weighted average. Topic: Inventory Costing Under a Perpetual System |
| 208. | A company reported the following data related to its ending inventory:
Calculate the lower-of-cost-or-market on the inventory applied separately to each product.
|
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-P2 Compute the lower of cost or market amount of inventory. Topic: Lower of Cost or Market |
| 209. | A company had the following ending inventory costs:
Required: Calculate the lower of cost or market (LCM) value for each individual item.
|
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-P2 Compute the lower of cost or market amount of inventory. Topic: Lower of Cost or Market |
| 210. | A company uses the periodic inventory system, and the following information is available. All purchases and sales are on credit. The selling price for the merchandise is $11 per unit.
Required: Determine the cost of the ending inventory and the cost of goods sold for June using the LIFO method. Ending Inventory:
Cost of goods sold:
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| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Blooms: Apply Difficulty: 2 Medium Learning Objective: 05-P3 Appendix 5A-Compute inventory in a periodic system using the methods of specific identification; FIFO; LIFO; and weighted average. Topic: Inventory Costing under a Periodic System |
| 211. | A company made the following merchandise purchases and sales during the month of May:
There was no beginning inventory. If the company uses the weighted average periodic method, what would be the cost of the ending inventory?
|
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Blooms: Apply Difficulty: 3 Hard Learning Objective: 05-P3 Appendix 5A-Compute inventory in a periodic system using the methods of specific identification; FIFO; LIFO; and weighted average. Topic: Inventory Costing under a Periodic System |
| 212. | A company made the following merchandise purchases and sales during the month of May:
There was no beginning inventory. If the company uses the LIFO periodic inventory method, what would be the cost of the ending inventory?
|
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Blooms: Apply Difficulty: 3 Hard Learning Objective: 05-P3 Appendix 5A-Compute inventory in a periodic system using the methods of specific identification; FIFO; LIFO; and weighted average. Topic: Inventory Costing under a Periodic System |
| 213. | A company made the following merchandise purchases and sales during the month of May:
There was no beginning inventory. If the company uses the FIFO periodic inventory method, what would be the cost of the ending inventory?
Cost of ending inventory = 150 * $22 each = $3,300 |
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Blooms: Apply Difficulty: 3 Hard Learning Objective: 05-P3 Appendix 5A-Compute inventory in a periodic system using the methods of specific identification; FIFO; LIFO; and weighted average. Topic: Inventory Costing under a Periodic System |
| 214. | A company’s store was destroyed by an earthquake on February 10 of the current year. The only information for the current period that could be salvaged included the following:
Historically, the company’s gross profit ratio has been 30%. Estimate the value of the destroyed inventory using the gross profit method.
|
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Blooms: Apply Difficulty: 3 Hard Learning Objective: 05-P4 Appendix 5B-Apply both the retail inventory and gross profit methods to estimate inventory. Topic: Inventory Estimation Methods |
| 215. | Apply the retail method to the following company information to calculate the cost of the ending inventory for the current period.
|
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Blooms: Apply Difficulty: 3 Hard Learning Objective: 05-P4 Appendix 5B-Apply both the retail inventory and gross profit methods to estimate inventory. Topic: Inventory Estimation Methods |
| 216. | A company uses the retail inventory method and has the following information available concerning its most recent accounting period:
1. What is the cost-to-retail ratio using the retail method?
|
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Blooms: Apply Difficulty: 3 Hard Learning Objective: 05-P4 Appendix 5B-Apply both the retail inventory and gross profit methods to estimate inventory. Topic: Inventory Estimation Methods |
| 217. | Forever Young Game Stores (FYG) has taken a physical count of its inventory at March 31, its fiscal year-end. After reviewing the accounting records and documentation, the following items have been discovered:
(a) An invoice from Shreck Co. indicates that $30,000 of games were shipped to FYG on March 27, terms FOB shipping point. The games and invoice did not arrive at FYG until February 2 and were not included in the physical count. 1. Calculate the amount that should be reported as ending inventory for FYG. 1. The ending inventory should be adjusted to $470,000. Only the $30,000 invoice needs to be added since it was shipped FOB shipping point, the owner (FYG) should include the inventory in the ending balance. ($440,000 + $30,000 = $470,000) |
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement AICPA: FN Risk Analysis Blooms: Apply Difficulty: 3 Hard Learning Objective: 05-A3 Assess inventory management using both inventory turnover and days’ sales in inventory. Learning Objective: 05-C1 Identify the items making up merchandise inventory. Topic: Determining Inventory Items Topic: Inventory Turnover and Days’ Sales in Inventory |
| 218. | A company reported the current month purchase and sales data for its only product and uses the perpetual inventory system. Determine the cost assigned to ending inventory and cost of goods sold using FIFO.
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| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Blooms: Apply Difficulty: 3 Hard Learning Objective: 05-P1 Compute inventory in a perpetual system using the methods of specific identification; FIFO; LIFO; and weighted average. Topic: Inventory Costing Under a Perpetual System |
| 219. | A company reported the current month purchase and sales data for its only product and uses the perpetual inventory system. Determine the cost assigned to ending inventory and cost of goods sold using LIFO.
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| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Blooms: Apply Difficulty: 3 Hard Learning Objective: 05-P1 Compute inventory in a perpetual system using the methods of specific identification; FIFO; LIFO; and weighted average. Topic: Inventory Costing Under a Perpetual System |
| 220. | A company uses the retail inventory method and has the following information available concerning its most recent accounting period:
1. Use the retail inventory method to estimate the company’s year-end inventory at cost. 1.
2.
|
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Blooms: Apply Difficulty: 3 Hard Learning Objective: 05-P4 Appendix 5B-Apply both the retail inventory and gross profit methods to estimate inventory. Topic: Inventory Estimation Methods |
Fill in the Blank Questions
| 221. | Goods that are in transit and were shipped FOB shipping point should be included in the inventory records of the _______________________.
purchaser or buyer |
| AACSB: Communication AICPA: BB Industry AICPA: FN Decision Making Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-C1 Identify the items making up merchandise inventory. Topic: Determining Inventory Items |
| 222. | Goods that are in transit and were shipped FOB destination should be included in the inventory records of the _______________________.
seller |
| AACSB: Communication AICPA: BB Industry AICPA: FN Decision Making Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-C1 Identify the items making up merchandise inventory. Topic: Determining Inventory Items |
| 223. | Goods on consignment are goods that are shipped by the owner, called the _______________, to another party called the ______________________ that will sell the goods for the owner.
consignor; consignee answers must appear in this order |
| AACSB: Communication AICPA: BB Industry AICPA: FN Measurement Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-C1 Identify the items making up merchandise inventory. Topic: Determining Inventory Items |
| 224. | _______________________ is the estimated sales price of damaged goods minus the cost of making the sale.
Net realizable value |
| AACSB: Communication AICPA: BB Industry AICPA: FN Measurement Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-C1 Identify the items making up merchandise inventory. Topic: Determining Inventory Items |
| 225. | Some companies use the __________________ constraint to avoid assigning incidental costs of acquiring merchandise to inventory.
matching; cost-to-benefit (or materiality) answers can appear in any order |
| AACSB: Communication AICPA: BB Industry AICPA: FN Measurement Blooms: Remember Difficulty: 2 Medium Learning Objective: 05-C1 Identify the items making up merchandise inventory. Topic: Determining Inventory Items |
| 226. | The cost of an inventory item includes the _____________, plus ______________ costs necessary to put it in a place and condition for sale.
invoice price minus any discount; any added or incidental answers must appear in this order |
| AACSB: Communication AICPA: BB Industry AICPA: FN Measurement Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-C2 Identify the costs of merchandise inventory. Topic: Costs of Merchandise Inventory |
| 227. | When purchase costs regularly rise, the ___________________ method of inventory valuation yields the highest gross profit and net income.
First in, first out (FIFO) |
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-A1 Analyze the effects of inventory methods for both financial and tax reporting. Topic: Financial Statement Effects of Costing Methods |
| 228. | When purchase costs regularly rise, the ___________________ method of inventory valuation yields the lowest gross profit and net income, providing a tax advantage.
Last in, first out (LIFO) |
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-A1 Analyze the effects of inventory methods for both financial and tax reporting. Topic: Financial Statement Effects of Costing Methods |
| 229. | An advantage of the _________________ method of inventory valuation is that it tends to smooth out the effect of erratic changes in costs.
weighted average |
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-A1 Analyze the effects of inventory methods for both financial and tax reporting. Topic: Financial Statement Effects of Costing Methods |
| 230. | An overstated beginning inventory will ______________ cost of goods sold and _____________ net income.
overstate; understate answers must appear in this order |
| AACSB: Analytical Thinking AICPA: BB Industry AICPA: FN Measurement Blooms: Analyze Difficulty: 3 Hard Learning Objective: 05-A2 Analyze the effects of inventory errors on current and future financial statements. Topic: Financial Statement Effects of Inventory Errors |
| 231. | The ________________________ ratio reflects how much inventory is available in terms of days’ sales.
days’ sales in inventory |
| AACSB: Communication AICPA: BB Industry AICPA: FN Risk Analysis Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-A3 Assess inventory management using both inventory turnover and days’ sales in inventory. Topic: Inventory Turnover and Days’ Sales in Inventory |
| 232. | The _____________________ is a measure of how quickly a merchandiser sells its merchandise inventory.
inventory turnover |
| AACSB: Communication AICPA: BB Industry AICPA: FN Risk Analysis Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-A3 Assess inventory management using both inventory turnover and days’ sales in inventory. Topic: Inventory Turnover and Days’ Sales in Inventory |
| 233. | The ______________________ method of assigning costs to inventory and cost of goods sold exactly matches the costs of particular items with the revenues they generate and would be used when items can be easily traced to the purchase invoice cost.
specific identification |
| AACSB: Communication AICPA: BB Industry AICPA: FN Measurement Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-P1 Compute inventory in a perpetual system using the methods of specific identification; FIFO; LIFO; and weighted average. Topic: Inventory Costing Under a Perpetual System |
| 234. | The _____________________ method of assigning costs to inventory and cost of goods sold assumes that the inventory items are sold in the order acquired.
first in, first out (FIFO) |
| AACSB: Communication AICPA: BB Industry AICPA: FN Measurement Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-P1 Compute inventory in a perpetual system using the methods of specific identification; FIFO; LIFO; and weighted average. Topic: Inventory Costing Under a Perpetual System |
| 235. | The ______________________ method of assigning costs to inventory and cost of goods sold assumes that the most recent purchases are sold first.
last in, first out (LIFO) |
| AACSB: Communication AICPA: BB Industry AICPA: FN Measurement Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-P1 Compute inventory in a perpetual system using the methods of specific identification; FIFO; LIFO; and weighted average. Topic: Inventory Costing Under a Perpetual System |
| 236. | The ______________________ method of assigning costs to inventory and cost of goods sold requires that we divide the cost of goods available for sale by the units of inventory available at the time of each sale.
weighted average (or average cost) |
| AACSB: Communication AICPA: BB Industry AICPA: FN Measurement Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-P1 Compute inventory in a perpetual system using the methods of specific identification; FIFO; LIFO; and weighted average. Topic: Inventory Costing Under a Perpetual System |
| 237. | Regardless of what inventory method or system is used, cost of goods available for sale must be allocated between ___________________ and ___________________.
cost of goods sold; ending inventory answers can appear in any order |
| AACSB: Communication AICPA: BB Industry AICPA: FN Measurement Blooms: Understand Difficulty: 2 Medium Learning Objective: 05-P1 Compute inventory in a perpetual system using the methods of specific identification; FIFO; LIFO; and weighted average. Topic: Inventory Costing Under a Perpetual System |
| 238. | When applying the lower of cost or market method of inventory valuation, market is defined as the ______________________.
replacement cost |
| AACSB: Communication AICPA: BB Industry AICPA: FN Measurement Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-P2 Compute the lower of cost or market amount of inventory. Topic: Lower of Cost or Market |
| 239. | The _________________ method is commonly used to estimate the value of inventory that has been destroyed, lost, or stolen.
gross profit |
| AACSB: Communication AICPA: BB Industry AICPA: FN Measurement Blooms: Remember Difficulty: 1 Easy Learning Objective: 05-P4 Appendix 5B-Apply both the retail inventory and gross profit methods to estimate inventory. Topic: Inventory Estimation Methods |
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
