Question 1

Which of the following inventory cost flow assumptions is not in accord with the physical flow of merchandise in most businesses?

Accepted Answer

A)  LIFO. 
B)  FIFO. 
C)  Specific identification. 
D)  Average. 
A)  LIFO. 
B)  FIFO. 
C)  Specific identification. 
D)  Average.

Question 2

Which of the four inventory cost flow assumptions is best suited to inventories of high-priced, low-volume items?

Accepted Answer

A)  LIFO. 
B)  FIFO. 
C)  Average. 
D)  Specific identification. 
A)  LIFO. 
B)  FIFO. 
C)  Average. 
D)  Specific identification.

Question 3

With respect to the valuation of inventory and measurement of the cost of goods sold, the principle of consistency means that the same method should be applied:

Accepted Answer

A)  In successive accounting periods. 
B)  By all companies in a given industry. 
C)  To all products in the inventory. 
D)  In financial statements and income tax returns. 
A)  In successive accounting periods. 
B)  By all companies in a given industry. 
C)  To all products in the inventory. 
D)  In financial statements and income tax returns.

Question 4

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 LIFO flow assump?tion, the 12 units of this product in inventory at January 31 have a total cost of:

Accepted Answer

A)  $499. 
B)  $331. 
C)  $509. 
D)  Some other amount. 
A)  $499. 
B)  $331. 
C)  $509. 
D)  Some other amount.

Question 5

In a periodic system, the only account in regard to inventory that is kept up-to-date is the inventory account.

Accepted Answer

A) True 
 B)False

Question 6

The primary advantage of a just-in-time inventory system is:

Accepted Answer

A)  The amount of money tied up in inventory is minimized. 
B)  Customers are afforded a wider selection of merchandise available for immediate delivery. 
C)  The company is able to use the specific identification method of inventory pricing. 
D)  The risks of losing sales opportunities or of having to shut down manufacturing operations because of inventory shortages are minimized. 
A)  The amount of money tied up in inventory is minimized. 
B)  Customers are afforded a wider selection of merchandise available for immediate delivery. 
C)  The company is able to use the specific identification method of inventory pricing. 
D)  The risks of losing sales opportunities or of having to shut down manufacturing operations because of inventory shortages are minimized.

Question 7

During periods of inflation, when comparing LIFO with FIFO:

Accepted Answer

A)  LIFO inventory and cost of sales would be higher. 
B)  LIFO inventory and cost of sales would be lower. 
C)  LIFO inventory would be lower and cost of sales would be higher. 
D)  LIFO inventory would be higher and cost of sales would be lower. 
A)  LIFO inventory and cost of sales would be higher. 
B)  LIFO inventory and cost of sales would be lower. 
C)  LIFO inventory would be lower and cost of sales would be higher. 
D)  LIFO inventory would be higher and cost of sales would be lower.

Question 8

When prices are increasing, which inventory method will produce the highest cost of goods sold?

Accepted Answer

A)  FIFO. 
B)  LIFO. 
C)  Average. 
D)  Cost of goods sold will not change. 
A)  FIFO. 
B)  LIFO. 
C)  Average. 
D)  Cost of goods sold will not change.

Question 9

In a period of rising prices, a company is most likely to use the specific identification 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 10

Venus Wholesale Co. started carrying a new product in December. Purchases and sales of this product during the month were:
 $\begin{array}{|l|l|}
\hline \text { Dec } 20 & \text { Purchased } 100 \text { units at } \$ 80 \text { per unit. } \
\hline \text { Dec } 26 & \text { Sold } 80 \text { units. } \
\hline \text { Dec } 28 & \text { Purchased } 100 \text { units at } \$ 90 \text { per unit. } \
\hline
\end{array}$
-Colonial uses the retail method to estimate its monthly cost of goods sold and month-end inventory. At August 31, the accounting records indicate the cost of goods available for sale during the month (beginning inventory plus purchases) totaled $270,000. These goods had been priced for resale at $675,000. Sales in August totaled $450,000. The estimated inventory at August 31 is:

Accepted Answer

A)  $48,000. 
B)  $90,000. 
C)  $120,000. 
D)  $270,000. 
A)  $48,000. 
B)  $90,000. 
C)  $120,000. 
D)  $270,000.

Question 11

The "just-in-time" concept of inventory management is best illustrated by:

Accepted Answer

A)  A clothing manufacturer that sells all of its finished goods before they go out of style. 
B)  A defense contractor that completes its projects within the deadlines set by its customer (the federal government). 
C)  A pharmaceutical firm that consistently brings new products to market ahead of its competitors. 
D)  A homebuilder who has its suppliers deliver lumber and other building materials to the building site the night before these materials will be used by the company's construction crews. 
A)  A clothing manufacturer that sells all of its finished goods before they go out of style. 
B)  A defense contractor that completes its projects within the deadlines set by its customer (the federal government). 
C)  A pharmaceutical firm that consistently brings new products to market ahead of its competitors. 
D)  A homebuilder who has its suppliers deliver lumber and other building materials to the building site the night before these materials will be used by the company's construction crews.

Question 12

Castle TV, Inc. purchased 1,000 monitors on January 5 at a per-unit cost of $185, and another 1,000 units on January 31 at a per-unit cost of $230. In the period from February 1 through year-end, the company sold 1,800 units of this product. At year-end, 200 units remained in inventory.
-Assume that Castle TV, Inc. uses the LIFO flow assumption. The cost of the 200 units in the year-end inventory is:

Accepted Answer

A)  $37,000. 
B)  $46,000. 
C)  $41,500. 
D)  $83,000. 
A)  $37,000. 
B)  $46,000. 
C)  $41,500. 
D)  $83,000.

Question 13

During a period of steadily falling prices, which of the following methods of measuring the cost of goods sold is likely to result in the lowest taxable income?

Accepted Answer

A)  LIFO. 
B)  FIFO. 
C)  Average cost. 
D)  Specific identification. 
A)  LIFO. 
B)  FIFO. 
C)  Average cost. 
D)  Specific identification.

Question 14

If all things are equal, except one company uses LIFO during inflation and the other uses FIFO, then:

Accepted Answer

A)  The LIFO company will have a higher inventory turnover. 
B)  The FIFO company will have a higher inventory turnover. 
C)  The two companies will have the same inventory turnover. 
D)  Inventory valuation methods do not effect inventory turnover calculations. 
A)  The LIFO company will have a higher inventory turnover. 
B)  The FIFO company will have a higher inventory turnover. 
C)  The two companies will have the same inventory turnover. 
D)  Inventory valuation methods do not effect inventory turnover calculations.

Question 15

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 were the goods available for sale for the month?

Accepted Answer

A)  $129,000. 
B)  $171,000. 
C)  $235,000. 
D)  $304,750. 
A)  $129,000. 
B)  $171,000. 
C)  $235,000. 
D)  $304,750.

Question 16

In a perpetual inventory system, an inventory flow assumption is used primarily for determining which costs to use in:

Accepted Answer

A)  Recording purchases of inventory. 
B)  Recording the cost of goods sold. 
C)  Recording sales revenue. 
D)  Forecasts of future operating results. 
A)  Recording purchases of inventory. 
B)  Recording the cost of goods sold. 
C)  Recording sales revenue. 
D)  Forecasts of future operating results.

Question 17

Sherman Electric uses a periodic inventory system. The beginning inventory of a particular product, and the purchases during the current year, were as follows:
At December 31, the ending inventory of this product consisted of 65 units.
Using periodic costing procedures, determine (1) cost of the year-end inventory and, (2) cost of goods sold relating to this product under each of the following flow assumptions:
 $\begin{array}{|l|l|l|c|c|c|c|}
\hline \text {Jan}&1 & \text { Beginning inventory } & 60 \text { units@ } & \$ 105&=&\$6,300 \
\hline\text {Mar.}& 8 & \text { Purchase } & 30 \text { units@ } & \$ 115&=&3,450 \
\hline \text {Aug.}&11 & \text { Purchase } & 90 \text { units@ } & \$ 125&=&11,250 \
\hline\text {Oct.}& 23 & \text { Purchase } & 20 \text { units@ } & \$ 135&=&2,700 \
\hline&&\text { Total available for sale }&200\text { units}&&&\$23,700\
\hline
\end{array}$   $\quad $ $\quad $ $\quad $ $\quad $ $\quad $$\begin{array}{cc}
&&&&(1) & (2) \
&&&&\text { Inventory at } & \text { Cost of } \
&&&&\text { Dec. } 31 & \text { Goods Sold }
\end{array}$

a Average cost $\quad $ $\quad $ $\quad $ $\quad $ $\quad $$$\underline{\quad\quad}$$\quad $ $\quad $ $\quad $ $\quad $$$\underline{\quad\quad}$

b First-in, first-out$\quad $ $\quad $ $\quad $ $\quad $$$\underline{\quad\quad}$$\quad $ $\quad $ $\quad $ $\quad $$$\underline{\quad\quad}$

c Last-in, first-out$\quad $ $\quad $ $\quad $ $\quad $$$\underline{\quad\quad}$$\quad $ $\quad $ $\quad $ $\quad $$$\underline{\quad\quad}$

Accepted Answer

a Average cost:
@#LAT-DLM&

b

Question 18

Ace Auto Supply uses a perpetual inventory record. On March 10, the company sells two Shelby four-barrel carburetors. Immediately prior to this sale, the perpetual inventory records indicate three of these carburetors on hand, as shown below: With respect to the sale on March 10: (More than one of the following answers may be correct.)

Accepted Answer

A)  If the average cost method is used, the cost of goods sold is $460. 
B)  If these carburetors have identification num?bers, Ace must use the specific identification method in determining the cost of goods sold. 
C)  If the company uses LIFO, the cost of goods sold will be $15 higher than if it were using FIFO. 
D)  If the company uses LIFO, the carburetor remaining in inventory after the sales will be assumed to have cost $220. 
A)  If the average cost method is used, the cost of goods sold is $460. 
B)  If these carburetors have identification num?bers, Ace must use the specific identification method in determining the cost of goods sold. 
C)  If the company uses LIFO, the cost of goods sold will be $15 higher than if it were using FIFO. 
D)  If the company uses LIFO, the carburetor remaining in inventory after the sales will be assumed to have cost $220.

Question 19

Comparison of LIFO and FIFO
Company X and Company Y sell the same product. The cost of this product has been rising steadily throughout the year. Both companies reported the same net income for the year, although Company X used the first-in, first-out method of pricing inventory, while Company Y used the last-in, first-out method.
(a) Which company's valuation of ending inventory in the balance sheet is more likely to approximate replacement cost?
Company ______________________________
(b) Which company reports a cost of goods sold figure in the current year income statement that is more likely to reflect the replacement cost of the units sold?
Company ______________________________
(c) Which company is minimizing income taxes it must pay?
Company ______________________________
(d) Which company would have reported the higher net income if both companies had used the same method of pricing inventory?
Company ______________________________

Accepted Answer

(a) Company X (FIFO method).
(

Question 20

Venus Wholesale Co. started carrying a new product in December. Purchases and sales of this product during the month were:
 $\begin{array}{|l|l|}
\hline \text { Dec } 20 & \text { Purchased } 100 \text { units at } \$ 80 \text { per unit. } \
\hline \text { Dec } 26 & \text { Sold } 80 \text { units. } \
\hline \text { Dec } 28 & \text { Purchased } 100 \text { units at } \$ 90 \text { per unit. } \
\hline
\end{array}$
-For the last several years Conway Corporation has operated with a gross profit rate of 40%. On January 1 of the current year the company had on hand inventory with a cost of $600,000. Purchases of merchandise during January amounted to $150,000, and sales for the month were $360,000. Using the gross profit method, what is the estimated inventory at January 31?

Accepted Answer

A)  $144,000. 
B)  $216,000. 
C)  $360,000. 
D)  $534,000. 
A)  $144,000. 
B)  $216,000. 
C)  $360,000. 
D)  $534,000.

Which of the following inventory cost flow assumptions is not in accord with the physical flow of merchandise in most businesses?

Which of the four inventory cost flow assumptions is best suited to inventories of high-priced, low-volume items?

With respect to the valuation of inventory and measurement of the cost of goods sold, the principle of consistency means that the same method should be applied:

In a periodic system, the only account in regard to inventory that is kept up-to-date is the inventory account.

The primary advantage of a just-in-time inventory system is:

During periods of inflation, when comparing LIFO with FIFO:

When prices are increasing, which inventory method will produce the highest cost of goods sold?

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

The "just-in-time" concept of inventory management is best illustrated by:

During a period of steadily falling prices, which of the following methods of measuring the cost of goods sold is likely to result in the lowest taxable income?

If all things are equal, except one company uses LIFO during inflation and the other uses FIFO, then:

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 were the goods available for sale for the month?

In a perpetual inventory system, an inventory flow assumption is used primarily for determining which costs to use in:

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

Which of the following inventory cost flow assumptions is not in accord with the physical flow of merchandise in most businesses?

Which of the four inventory cost flow assumptions is best suited to inventories of high-priced, low-volume items?

With respect to the valuation of inventory and measurement of the cost of goods sold, the principle of consistency means that the same method should be applied:

In a periodic system, the only account in regard to inventory that is kept up-to-date is the inventory account.

The primary advantage of a just-in-time inventory system is:

During periods of inflation, when comparing LIFO with FIFO:

When prices are increasing, which inventory method will produce the highest cost of goods sold?

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

The "just-in-time" concept of inventory management is best illustrated by:

During a period of steadily falling prices, which of the following methods of measuring the cost of goods sold is likely to result in the lowest taxable income?

If all things are equal, except one company uses LIFO during inflation and the other uses FIFO, then:

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 were the goods available for sale for the month?

In a perpetual inventory system, an inventory flow assumption is used primarily for determining which costs to use in:

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