Question 1

In a manufacturing company, the "just-in-time" concept of inventory management is best illustrated by:

Accepted Answer

A)  Receiving deliveries of materials from suppliers just before the materials are used in the production process. 
B)  Completing the manufacturing process just before the deadline established by the customer. 
C)  An automated factory that reduces production time below that of other companies in the industry. 
D)  Selling finished products before they go out of style. 
A)  Receiving deliveries of materials from suppliers just before the materials are used in the production process. 
B)  Completing the manufacturing process just before the deadline established by the customer. 
C)  An automated factory that reduces production time below that of other companies in the industry. 
D)  Selling finished products before they go out of style.

Question 2

Soriano Company had net sales of $300,000 for the month (after returns and allowances of $1,500 and sales discounts of $3,250). Beginning inventory for the month was $60,000; purchases for the month were $175,000; and gross profit was 43%.
-What was the ending inventory for the month?

Accepted Answer

A)  $60,000. 
B)  $64,000. 
C)  $129,000. 
D)  $175,000. 
A)  $60,000. 
B)  $64,000. 
C)  $129,000. 
D)  $175,000.

Question 3

The retail inventory method would never be used if a company uses the FIFO method.

Accepted Answer

A) True 
 B)False

Question 4

Venus Wholesale Co. started carrying a new product in December. Purchases and sales of this product during the month were:
 $\begin{array}{|l|l|}
\hline \text { Dec } 20 & \text { Purchased } 100 \text { units at } \$ 80 \text { per unit. } \
\hline \text { Dec } 26 & \text { Sold } 80 \text { units. } \
\hline \text { Dec } 28 & \text { Purchased } 100 \text { units at } \$ 90 \text { per unit. } \
\hline
\end{array}$
-Assuming the LIFO flow assumption is in use, the perpetual inventory records will indicate an ending inventory of this product of:

Accepted Answer

A)  $9,800. 
B)  $10,600. 
C)  $10,800. 
D)  $8,000. 
A)  $9,800. 
B)  $10,600. 
C)  $10,800. 
D)  $8,000.

Question 5

T-Shirt City uses a periodic inventory system. During the first year of operations, the company made four purchases of a particular product. Each purchase was for 500 units and the prices were: $9 per unit in the first purchase, $10 per unit in the second purchase, $12 per unit in the third purchase, and $13 per unit in the fourth purchase. At year-end, 650 of these units remained unsold. Compute the cost of goods sold under the FIFO method and LIFO method, respectively.

Accepted Answer

A)  $13,700 (FIFO) and $16,000 (LIFO). 
B)  $8,300 (FIFO) and $6,000 (LIFO). 
C)  $16,000 (FIFO) and $13,700 (LIFO). 
D)  $6,000 (FIFO) and $8,300 (LIFO). 
A)  $13,700 (FIFO) and $16,000 (LIFO). 
B)  $8,300 (FIFO) and $6,000 (LIFO). 
C)  $16,000 (FIFO) and $13,700 (LIFO). 
D)  $6,000 (FIFO) and $8,300 (LIFO).

Question 6

For the purpose of delaying income taxes, during an inflationary period, which method would be best?

Accepted Answer

A)  LIFO. 
B)  FIFO. 
C)  Average. 
D)  Taxes would be the same under each assumption. 
A)  LIFO. 
B)  FIFO. 
C)  Average. 
D)  Taxes would be the same under each assumption.

Question 7

Venus Wholesale Co. started carrying a new product in December. Purchases and sales of this product during the month were:
 $\begin{array}{|l|l|}
\hline \text { Dec } 20 & \text { Purchased } 100 \text { units at } \$ 80 \text { per unit. } \
\hline \text { Dec } 26 & \text { Sold } 80 \text { units. } \
\hline \text { Dec } 28 & \text { Purchased } 100 \text { units at } \$ 90 \text { per unit. } \
\hline
\end{array}$
-At year-end, Venus restates the carrying value of its inventory using periodic LIFO costing procedures. Under periodic costing procedures, the LIFO cost of the inventory is:

Accepted Answer

A)  $9,800. 
B)  $10,600. 
C)  $10,800. 
D)  $8,000. 
A)  $9,800. 
B)  $10,600. 
C)  $10,800. 
D)  $8,000.

Question 8

In a period of rising prices, a company is most likely to use the FIFO method of pricing inventory if:

Accepted Answer

A)  Each item in the inventory is unique. 
B)  Management wants the same unit cost assigned to items sold and items remaining in inventory. 
C)  Management's primary objective is to minimize income taxes. 
D)  Management wants the company's income statement to indicate the highest possible amounts of gross profit and net income. 
A)  Each item in the inventory is unique. 
B)  Management wants the same unit cost assigned to items sold and items remaining in inventory. 
C)  Management's primary objective is to minimize income taxes. 
D)  Management wants the company's income statement to indicate the highest possible amounts of gross profit and net income.

Question 9

At year-end, the perpetual inventory records of Anderson Co. indicate 60 units of a particular product in inventory, acquired at the following dates and unit costs:
Purchased in August: 30 units at $750 per unit.
Purchased in November: 30 units at $700 per unit.
A complete physical inventory taken at year-end indicates only 50 units of this product actually are on hand.
-Under the FIFO flow assumption, the cost of these items to be included in inventory in the company's year-end balance sheet is:

Accepted Answer

A)  $36,000. 
B)  $36,500. 
C)  $42,000. 
D)  $37,500. 
A)  $36,000. 
B)  $36,500. 
C)  $42,000. 
D)  $37,500.

Question 10

Ace Systems, Inc. uses a perpetual inventory system. The company's beginning inventory of a particular product and its purchases during the month of January were as follows:
On January 28, Ace Systems sells 18 units of this product. The other 12 units remain in inventory at January 31.
 $\begin{array} {l c c c }
& \text { Quantity } & \text { Unit Cost } & \text { Total Cost } \ 
 \text { Beginning inventory (Jan. 1)}&10 & \$ 27.50 & \$ 275 \
  \text { Purchase (Jan. 15)}&15 & \$ 28.00 & \$ 420 \
\text { Purchase (Jan. 23)}& \underline { 5 } & \$ 29.00 & \underline { \$ 145 } \
 \text { Total.}& \underline { 30 } & & \underline { \underline { \$ 840 } } 
\end{array}$
-Assuming that Ace Systems uses the FIFO flow assump?tion, the cost of goods sold on January 28 is:

Accepted Answer

A)  $509. 
B)  $341. 
C)  $499. 
D)  Some other amount. 
A)  $509. 
B)  $341. 
C)  $499. 
D)  Some other amount.

Question 11

Inventory flow assumptions
The perpetual inventory records of Handy Hardware show 150 units of a particular product on hand, acquired at the following dates and costs:
On June 3, Handy sold 120 units of this product.
Instructions: Prepare a journal entry to record the cost of goods sold relating to the sale on June 3, assuming that Handy uses:
(a) A LIFO flow assumption.
(b) A FIFO flow assumption.
(c) The average cost (or moving average) flow assumption.
 $$\begin{array} { | l | c | c | c | } 
\hline \text { Purchase } & \text { Quantity } & \text { Unit Cost } & \text { Total Cost } \
\hline \text { Date } & & & \
\hline \text { May 10 } & 50 & \$ 85 & \$ 4,250 \
\hline \text { June 1 } & \underline { 100 } & 100 & \underline { 10,000 } \
\hline \text { Total on hand } & \underline { \underline { 150 } } & & \underline { \underline { \$ 14,250 } } \
\hline & & & \
\hline
\end{array}$$ $\begin{array}{lrr}
&\text { General Journal }\
  \text {20   } &\
 \text {June 3 \underline{\quad} } &\
 \text { (a) } &\
 \text { (b) } &\
 \text {  (c)} &\
\end{array}$

Accepted Answer

\[\begin{array} { | l | l | l | r | } 
\

Question 12

At the end of last year, Games-2-Use had merchandise costing $140,000 in inventory. During January of the current year, the company purchased merchandise costing $102,000, and sold merchandise that it had purchased at a total cost of $84,000. Games-2-Use uses a perpetual inventory system.
-The amount of goods transferred from the Inventory account to the Cost of Goods Sold account during January was:

Accepted Answer

A)  $0. 
B)  $84,000. 
C)  $102,000. 
D)  $56,000. 
A)  $0. 
B)  $84,000. 
C)  $102,000. 
D)  $56,000.

Question 13

Overstating the ending inventory will result in understating the cost of goods sold and overstating profits.

Accepted Answer

A) True 
 B)False

Question 14

During periods of inflation, the specific identification cost flow assumption will yield a higher cost of goods sold than LIFO.

Accepted Answer

A) True 
 B)False

Question 15

Inventory flow assumptions
Arrow, Inc. uses a perpetual inventory system. On January 22, 2010, the company had 200 units of a particular product on hand, with a total cost of $2,400. The per-unit costs were:
On January 24, 2010, Arrow sold 65 units of this product.
Using the three flow assumptions listed below, compute (1) the cost of goods sold, and (2) the cost of the inventory of this product on hand after this sale. Show your computations.
 $\begin{array}{|l|r|r|r|}
\hline\text { Date }& \text { Purchase } & \text { Unit } & \text { Total } \
&\text { Quantity } & \text { Cost } & \text { Cost } \
 
\hline \text { Ending inventory, } 2009 & 50 & \$ 9 & \$ 450 \
\hline \text { Jan } 10 \text { purchase } & 150 & \$ 13 & \underline{1}, 950 \
\hline \text { Total on hand } & 200 & & \$ 2,400 \
\hline
\end{array}$ $$\begin{array} { | l | l | l | l| } 
\hline \text { (a) } &  { \text { Average cost: } } & \
\hline & ( 1 ) & \text { Cost of goods sold } & \$\underline{\quad\quad} \
\hline & ( 2 ) & \text { Inventory remaining after sale } & \$ \underline{\quad\quad}\
\hline \text { (b) } & \text { LIFO: } & & \
& \text { (1) } & \text { Cost of goods sold } & \$ \underline{\quad\quad}\
\hline & ( 2 ) & \text { Inventory remaining after sale } & \$ \underline{\quad\quad}\
\hline \text { (c) } & \text { FIFO: } & & \
& \text { (1) } & \text { Cost of goods sold } & \$ \underline{\quad\quad}\
\hline & ( 2 ) & \text { Inventory remaining after sale } & \$\underline{\quad\quad} \ 
\hline
\end{array}$$

Accepted Answer

None

Question 16

In a perpetual inventory system, the flow of inventory cost is first through the balance sheet then through the income statement.

Accepted Answer

A) True 
 B)False

Question 17

When goods for sale are not homogeneous in nature, it is not necessary to use the specific identification method of accounting for inventory.

Accepted Answer

A) True 
 B)False

Question 18

At the end of last year, Games-2-Use had merchandise costing $140,000 in inventory. During January of the current year, the company purchased merchandise costing $102,000, and sold merchandise that it had purchased at a total cost of $84,000. Games-2-Use uses a perpetual inventory system.
-The total amount debited to the Inventory account during January was:

Accepted Answer

A)  $0. 
B)  $84,000. 
C)  $102,000. 
D)  $140,000. 
A)  $0. 
B)  $84,000. 
C)  $102,000. 
D)  $140,000.

Question 19

The choice of inventory valuation method can help achieve each of the following independent goals, except:

Accepted Answer

A)  Reduce cost of merchandise acquired from suppliers. 
B)  Increase reported net income. 
C)  Increase the inventory turnover rate. 
D)  Reduce the amount of income taxes owed. 
A)  Reduce cost of merchandise acquired from suppliers. 
B)  Increase reported net income. 
C)  Increase the inventory turnover rate. 
D)  Reduce the amount of income taxes owed.

Question 20

Lower-of-cost-or-market
Elite Systems sells a single product. At December 31, the company's perpetual inventory records indicate 2,500 units on hand with a total cost (FIFO basis) of $155,000. The replacement cost of this product at this date is $35 per unit.
Prepare journal entries to record (a) the write-down of the inventory to the lower-of-cost-or-market value at December 31, and (b) the cash sale of 100 units on January 4 at a retail price of $50 per unit.
(a) Dec. 31
(b) Jan. 4
 $$\begin{array} { | l | c | } 
\hline \text { Date } & \text { General Journal } \
\hline 20 & \
\hline
\end{array}$$

Accepted Answer

None

In a manufacturing company, the "just-in-time" concept of inventory management is best illustrated by:

Soriano Company had net sales of $300,000 for the month (after returns and allowances of $1,500 and sales discounts of $3,250). Beginning inventory for the month was $60,000; purchases for the month were $175,000; and gross profit was 43%. -What was the ending inventory for the month?

The retail inventory method would never be used if a company uses the FIFO method.

For the purpose of delaying income taxes, during an inflationary period, which method would be best?

In a period of rising prices, a company is most likely to use the FIFO method of pricing inventory if:

Overstating the ending inventory will result in understating the cost of goods sold and overstating profits.

During periods of inflation, the specific identification cost flow assumption will yield a higher cost of goods sold than LIFO.

In a perpetual inventory system, the flow of inventory cost is first through the balance sheet then through the income statement.

When goods for sale are not homogeneous in nature, it is not necessary to use the specific identification method of accounting for inventory.

The choice of inventory valuation method can help achieve each of the following independent goals, except:

Accounting: Information for Decision Making

Basic Financial Statements

The Accounting Cycle: Capturing Economic Events

The Accounting Cycle: Accruals and Deferrals

The Accounting Cycle: Reporting Financial Results

Merchandising Activities

Financial Assets

Plant and Intangible Assets

Liabilities

Stockholders Equity: Paid-In Capital

Income and Changes in Retained Earnings

Statement of Cash Flows

Financial Statement Analysis

Global Business and Accounting

The Time Value of Money

Filters

Exam 8: Inventories and the Cost of Goods Sold

In a manufacturing company, the "just-in-time" concept of inventory management is best illustrated by:

Soriano Company had net sales of $300,000 for the month (after returns and allowances of $1,500 and sales discounts of $3,250). Beginning inventory for the month was $60,000; purchases for the month were $175,000; and gross profit was 43%. -What was the ending inventory for the month?

The retail inventory method would never be used if a company uses the FIFO method.

For the purpose of delaying income taxes, during an inflationary period, which method would be best?

In a period of rising prices, a company is most likely to use the FIFO method of pricing inventory if:

Overstating the ending inventory will result in understating the cost of goods sold and overstating profits.

During periods of inflation, the specific identification cost flow assumption will yield a higher cost of goods sold than LIFO.

In a perpetual inventory system, the flow of inventory cost is first through the balance sheet then through the income statement.

When goods for sale are not homogeneous in nature, it is not necessary to use the specific identification method of accounting for inventory.

The choice of inventory valuation method can help achieve each of the following independent goals, except:

Accounting: Information for Decision Making

Basic Financial Statements

The Accounting Cycle: Capturing Economic Events

The Accounting Cycle: Accruals and Deferrals

The Accounting Cycle: Reporting Financial Results

Merchandising Activities

Financial Assets

Plant and Intangible Assets

Liabilities

Stockholders Equity: Paid-In Capital

Income and Changes in Retained Earnings

Statement of Cash Flows

Financial Statement Analysis

Global Business and Accounting

The Time Value of Money

Filters