Deck 7: Inventories and Cost of Goods Sold

Question 1

Specific identification is the best inventory costing method because it is least subject to manipulation by unscrupulous managers.

Answer 1

False

Question 2

Inaccurately counted inventory levels reduce a company's net income,either by increasing cost or reducing revenue.

Answer 2

True

Question 3

Given the following information for Maynor Company in 2014,calculate the company's ending inventory and cost of goods sold using the following inventory costing methods,assuming the company uses a perpetual inventory system:
a)Weighted Average
b)FIFO
c)LIFO

Answer 3

Question 4

Use the following information to determine the amount of purchases for the period.
A.$632,000
B.$453,000
C.$316,000
D.$674,000

Question 5

Given the following information for Maynor Company in 2014,calculate the company's ending inventory,cost of goods sold,and gross profit,using the following inventory costing methods,assuming the company uses a periodic inventory system:
a)Weighted Average.
b)FIFO.
c)LIFO.
d)Specific Identification.(The ending inventory consisted of 15 @ $66;10 @ $70;and 5 @ $76. )

Question 6

A company using a perpetual inventory system made the following entry:
A.A purchase of inventory at a discount.
B.A return of inventory for credit.
C.A sale of inventory on account.
D.A payment within the discount period for inventory previously purchased on credit.

Question 7

If inventory is sold with terms of FOB destination,goods in transit belong to the seller.

Question 8

The following company buys and sells identical collectors' coin sets.The company uses LIFO.In the first two columns below,each coin set is identified by its letter and its cost.The third column indicates when coin sets were sold.
For each inventory costing method given below,fill in the blanks to indicate the letter of the coin set which will be used to calculate either cost of goods sold or the cost of ending inventory.

Question 9

In each accounting period,a manager can select the inventory costing method that yields the highest net income.

Question 10

Fill in the blanks below with the words "higher" and "lower" to indicate which inventory costing method causes the value to be higher and which causes it to be lower.Assume that the cost of merchandise is decreasing.

Question 11

If merchandise is purchased on terms 1/10,n/30 and paid for in 7 days,the purchase discounts account would be credited at date of payment when a perpetual inventory system is used.

Question 12

An error in the ending inventory in one year will cause a misstatement of retained earnings in the following year.

Question 13

The lower the inventory turnover ratio,the more efficiently the company manages its inventory,all other things being equal.

Question 14

Manufacturers have three types of inventory: raw materials,work in process,and finished goods,whereas merchandisers have only raw materials inventory.

Question 15

Indicate whether the inventory account is debited (Dr),credited (Cr),or neither (N)when using a perpetual inventory system to record each of the following transactions:
_____ The company purchases $3,000 of goods intending to sell them to customers.
_____ The company returns $200 of damaged goods to the supplier.
_____ The company pays a shipping firm $685 to ship an order of goods from the supplier to the company.
_____ The company receives a purchase discount for prompt payment to a supplier.
_____ Customers return $550 of goods in excellent condition to the company.
_____ The company sells $4,600 of goods to consumers.
_____ The company purchases $1,600 of supplies intending to use them internally.
_____ The company gives a sales discount for prompt payment to customers.
_____ The company does a physical count and finds three items missing due to shrinkage.

Question 16

Maxell Company uses the periodic FIFO method to assign costs to inventory and cost of goods sold.Given the following information,what would be reported as the cost of goods sold (COGS)and ending inventory balances for the period?
A.Option A
B.Option B
C.Option C
D.Option D

Question 17

Generally,which inventory costing method approximates most closely the current cost for each of the following?
A.Option A
B.Option B
C.Option C
D.Option D

Question 18

Garcia Company will buy merchandise from one of the following suppliers.

Question 19

LIFO is preferred when costs are rising because managers will benefit from larger bonuses and better performance reviews.

Question 20

Meanmocha Hardware has a periodic inventory system and uses the weighted average method.The company began the month of November with 150 large brass switch plates on hand at a cost of $4.00 each.These switch plates sell for $7.00 each.The following schedule sets forth the purchases of switch plates during November:
A.$1,046.
B.$1,482.
C.$1,516.
D.$1,528.

Question 21

An understatement of beginning inventory causes net income to be understated.

Question 22

Which of the following statements regarding inventory costing methods is true?

A)The LIFO method assumes that the costs for the newest goods (the last ones in)are used first and the older costs are left in ending inventory.
B)During a period of rising prices,LIFO results in a higher income tax expense than does FIFO.
C)International Financial Reporting Standards (IFRS)allow the use of LIFO but not FIFO.
D)In the U.S. ,if a company uses LIFO on the income tax return,it may use a different method for financial reporting.

Question 23

When LIFO is used with the periodic inventory system,costs are assigned to cost of goods sold using the most recent purchase at the point of each sale,rather than from the most recent purchase as of the end of the period.

Question 24

The assignment of costs to cost of goods sold and to inventory using the weighted average method usually yields different results depending on whether a perpetual or a periodic system is used.

Question 25

Which of the following statements regarding comparisons made in managing inventory is not true?

A)In making comparisons of financial statements,it is desirable to compare data calculated using the same inventory costing methods.
B)The inventory turnover ratio and days to sell measure will be affected by the cost flow assumptions used,which causes problems for financial statements users.
C)Inventory turnover and days to sell are often affected by changes in the economic climate.
D)The inventory turnover and days to sell ratios are consistent among companies in different industries.

Question 26

Which of the following statements regarding the lower of cost or market rule is not true?

A)The lower of cost or market rule sometimes causes the book value of inventory to be written down below cost,but will never cause the book value of inventory to be increased above cost.
B)The amount of inventory write-down is an expense which most companies report as cost of goods sold.
C)Lower of cost or market is an inventory cost method used to determine cost of goods sold and ending inventory.
D)The lower of cost or market rule is based on the conservatism concept.

Question 27

Which one of the following statements regarding inventory is not true?

A)An increase in inventory levels is always a sign of inefficiency in inventory management.
B)The measurement of inventory affects both the balance sheet and the income statement within an accounting period.
C)The ending inventory of one accounting period becomes the beginning inventory of the next accounting period.
D)The cost of merchandise can vary over time and may be affected by weather,politics,and technological innovation.

Question 28

In applying the lower of cost or market rule to report inventory,"market" is defined as the current selling price.

Question 29

A company's ability to pay its short-term obligations depends on many factors,including how quickly it sells its inventory.

Question 30

Goods on consignment are goods shipped by the owner to another company that holds the goods and sells them for the owner.

Question 31

Which of the following statements regarding inventory measures is

A)If the inventory turnover ratio increases,the days to sell measure decreases.
B)The days to sell measure can help managers make ordering decisions for inventory.
C)A higher inventory turnover ratio indicates that inventory is moving more quickly from purchase to sale.
D)It is rare for a company with a lower gross profit percentage to have a faster inventory turnover.

Question 32

Carrying insufficient quantities of inventory on hand:

A)would not affect the company's profitability.
B)may result in lost sales.
C)has little effect on customer satisfaction.
D)will increase the costs of carrying inventory.

Question 33

Which of the following statements regarding the calculations used for the weighted average inventory costing method is true?

A)Under the weighted average cost method,if the goods in inventory were purchased at three different prices,the three different prices would be added and then divided by three to find the weighted average cost per unit.
B)When the weighted average inventory costing method is used,ending inventory and cost of goods sold are calculated using different costs per unit.
C)There is no difference in the calculations under the weighted average method whether a perpetual or periodic inventory system is used.
D)The weighted-average method will produce an inventory cost which is between the results of FIFO and LIFO inventory costing methods.

Question 34

The choice of an inventory costing method usually has no impact on gross profit or cost of goods sold.

Question 35

The cost assigned to cost of goods sold and to inventory under the FIFO method will be the same whether the perpetual or the periodic inventory system is used.

Question 36

Which of the following is not true if excessive quantities of inventory are purchased?

A)Storage and interest costs may increase.
B)Goods might have to be sold at large discounts.
C)There is a greater probability that goods will become damaged or obsolete.
D)The inventory turnover ratio is likely to increase.

Question 37

The inventory costing method that results in the lowest taxable income in a period of inflation is the FIFO method.

Question 38

An overstatement of ending inventory will cause an overstatement of assets and an understatement of stockholders' equity on the balance sheet.

Question 39

Which of the following statements regarding inventory classifications is not true?

A)Inventory may include materials used in producing goods for sale.
B)Companies that are manufacturers list their finished goods,work-in-process and raw materials inventory separately.
C)Inventory is classified as a long-term asset on the balance sheet.
D)Merchandisers buy inventory in finished form ready for resale.

Question 40

Which of the following statements regarding inventory calculations is true?

A)Beginning inventory + net purchases - ending inventory = cost of goods sold.
B)Goods available for sale + ending inventory = cost of goods sold.
C)Beginning inventory + net purchases - ending inventory = goods available for sale.
D)Goods available for sale + cost of goods sold = ending inventory.

Question 41

Which of the following would be in the finished goods inventory of a company making cheese?

A)Milk and cream used to make the cheese.
B)Cheese that has been made but is curing before being ready to sell.
C)Cured cheese that is waiting to be shipped to retailers.
D)Cured cheese that has been sold to retailers.

Question 42

Which of the following is not true about an auto manufacturer's inventory?

A)Tires,batteries,glass,paint,headlamp bulbs,and electric wiring would be included in raw materials inventory.
B)Incomplete cars that are still being processed would be included in work-in-process inventory.
C)Finished cars ready to be shipped to dealers would be included in finished goods inventory.
D)Cars that have been sold to dealers would be included in finished goods inventory.

Question 43

Use the information above to answer the following question.BetterBuy records $3,000 as the cost of goods sold.BetterBuy is using the:

A)Specific identification method.
B)LIFO method.
C)FIFO method.
D)Weighted average cost method.

Question 44

Which of the following would be in the work-in-process inventory of a company making cheese?

A)Milk and cream used to make the cheese.
B)Cheese that has been made but is curing before being ready to sell.
C)Cured cheese that is waiting to be shipped to retailers.
D)Cured cheese that has been sold to retailers.

Question 45

The primary goals of inventory management do not include:

A)maintaining a sufficient quantity of inventory to keep customers satisfied.
B)maintaining sufficient quality of inventory to keep customers satisfied.
C)minimizing the costs associated with maintaining inventories.
D)minimizing the quantity of ending inventory.

Question 46

Use the information above to answer the following question.Which of the following statements is true?

A)The sales revenue is $2,500.
B)The gross profit is $2,500.
C)The cost of goods sold is $2,500.
D)The net income is $2,500.

Question 47

Use the information above to answer the following question.If the company uses the specific identification method,what is the cost of its ending inventory?

A)$31
B)$69
C)$76
D)$100

Question 48

Use the information above to answer the following question.If the company uses the LIFO method,what is the cost of its ending inventory?

A)$24
B)$42
C)$58
D)$76

Question 49

Use the information above to answer the following question.If the company uses the weighted average method,the cost of its ending inventory is closest to:

A)$38.
B)$48.
C)$67.
D)$75.

Question 50

A merchandise company's beginning inventory plus merchandise purchases equals:

A)ending inventory.
B)cost of goods sold.
C)goods available for sale.
D)net purchases.

Question 51

The specific identification method would probably be most appropriate for which of the following goods?

A)Boxes of brass 4-inch drywall screws at Home Depot.
B)Bottles of suntan lotion in Wal-Mart's central warehouse.
C)Sets of tires at the Goodyear plant.
D)Diamond necklaces at a Tiffany & Co.jewelry store.

Question 52

The Acme Corporation buys 300 units of merchandise in January at $5 each.In February,Acme buys 500 units at $4 each and in March it buys 200 units at $6 each.Acme sells 150 units during this quarter.What is the cost of goods sold under the FIFO method?

A)$600
B)$934
C)$750
D)$900

Question 53

Use the information above to answer the following question.If BetterBuy uses the weighted average method,its cost of goods sold will be:

A)$2,900.
B)$2,950.
C)$3,040.
D)$3,033.

Question 54

Use the information above to answer the following question.Which of the following statements is true?

A)The sales revenue is $1,500.
B)The gross profit is $1,500.
C)The cost of goods sold is $1,500.
D)The net income is $1,500.

Question 55

Use the information above to answer the following question.If BetterBuy uses the specific identification method,its cost of goods sold will be:

A)$3,000.
B)$2,950.
C)$3,200.
D)$3,033.

Question 56

Use the information above to answer the following question.Which of the following statements is true?

A)The sales revenue is $1,000.
B)The gross profit is $1,000.
C)The cost of goods sold is $1,000.
D)The net income is $1,000.

Question 57

Which of the following is the equation for cost of goods sold?

A)Beginning inventory + net purchases - Ending inventory
B)Beginning inventory + net purchases + Ending inventory
C)Net purchases - Ending inventory
D)Ending inventory + net purchases - Beginning inventory

Question 58

Use the information above to answer the following question.If the company uses the FIFO method,what is the cost of its ending inventory?

A)$24
B)$42
C)$58
D)$76

Question 59

A merchandise company's beginning inventory plus merchandise purchases minus ending inventory equals:

A)net sales.
B)cost of goods sold.
C)goods available for sale.
D)net purchases.

Question 60

Which of the following would be in the raw materials inventory of a company making cheese?

A)Milk and cream used to make the cheese.
B)Cheese that has been made but is curing before being ready to sell.
C)Cured cheese that is waiting to be shipped to retailers.
D)Partially processed cheese.

Question 61

Use the information above to answer the following question.If the company uses the LIFO costing method,what is the cost of its ending inventory?

A)$1,365.
B)$1,494.
C)$1,620.
D)$2,835.

Question 62

Which of the following effects would occur as a result of a purchase of merchandise for cash in a perpetual inventory system?

A)Total assets increase.
B)Total assets are unchanged.
C)Total liabilities increase.
D)Total stockholders' equity decreases.

Question 63

An adjustment to ending inventory under the lower of cost or market (LCM)rule would be most likely to be recorded by a company that sells:

A)Plastic storage containers.
B)Paper clips.
C)Body lotion.
D)Designer clothes.

Question 64

Use the information above to answer the following question.If the company uses the FIFO costing method,what is the cost of its ending inventory?

A)$1,494.
B)$2,290.
C)$2,580.
D)$2,706.

Question 65

The 2014 records of Thompson Company showed beginning inventory,$6,000;cost of goods sold,$14,000;and ending inventory,$8,000.The cost of purchases was:

A)$12,000.
B)$10,000.
C)$9,000.
D)$16,000.

Question 66

During 2013,Shockglass Company recorded inventory purchases of $45,000 and cost of goods sold of $50,000.If inventory at the beginning of the year was $15,000,the ending inventory balance must have been:

A)$10,000.
B)$25,000.
C)$26,000.
D)$27,000.

Question 67

Maxell Company uses the periodic FIFO method to assign costs to inventory and cost of goods sold.Given the following information,what would be reported as the cost of goods sold (COGS)and ending inventory balances for the period?

A)Option A
B)Option B
C)Option C
D)Option D

Question 68

Use the information above to answer the following question.Acme sells 300 units during the quarter.If Acme uses the LIFO method,what is its cost of goods sold for the quarter?

A)$1,600
B)$1,400
C)$1,500
D)$1,800

Question 69

Use the information above to answer the following question.If the company uses the weighted average inventory costing method,what is the cost of its ending inventory?

A)$4,200.
B)$2,700.
C)$1,400.
D)$1,365.

Question 70

The LIFO inventory costing method assumes that the cost of the units most recently purchased is:

A)the last to be assigned to cost of goods sold.
B)the first to be assigned to ending inventory.
C)the first to be assigned to cost of goods sold.
D)the last to be assigned to units available for sale.

Question 71

Use the information above to answer the following question.Acme sells 150 units during the quarter.If Acme uses the weighted average method,what is its cost of goods sold for the quarter?

A)$600
B)$705
C)$750
D)$900

Question 72

Which of the following statements is true?

A)When unit costs are steadily rising or falling,the weighted average cost method yields a cost of goods sold between that of FIFO and LIFO.
B)FIFO will lead to the highest net income if unit costs are falling.
C)LIFO will always yield a smaller net income than FIFO.
D)Specific identification is the most practical,but least accurate,measure of cost and net income.

Question 73

An adjustment to ending inventory under the lower of cost or market (LCM)rule would be least likely to be recorded by a company that sells:

A)a household staple like laundry detergent.
B)a fad product like bathing suits.
C)seasonal items like snow blowers.
D)high-tech goods like Personal Digital Assistants.

Question 74

Which inventory costing method generally results in the most recent costs being assigned to ending inventory?

A)LIFO.
B)FIFO.
C)Weighted average cost.
D)Simple average cost.

Question 75

If a company purchased 200 units of inventory at $9 per unit and 300 units at $10 per unit,its weighted average unit cost for this inventory would be:

A)$9.00.
B)$9.50.
C)$9.60.
D)$10.00.

Question 76

Meanmocha Hardware has a periodic inventory system and uses the weighted average method.The company began the month of November with 150 large brass switch plates on hand at a cost of $4.00 each.These switch plates sell for $7.00 each.The following schedule sets forth the purchases of switch plates during November: If Meanmocha sells 570 switch plates for $7.00 each during November,the company's gross profit for November is closest to:

A)$1,046.
B)$1,482.
C)$1,516.
D)$1,528.

Question 77

Your company has 500 units in inventory that had been purchased for $12 each and that would currently cost $15 to replace.Your supplier has just announced the cost of these goods is rising to $16.50.

A)Your company should make no adjustments to the inventory account.
B)Your company should adjust the inventory account using the lower of the recent market values,which is $15.
C)Your company should adjust the inventory account using the cost,which is $12.00.
D)Your company should adjust the inventory account using the average of the recent market values,which is $14.50.

Question 78

The Acme Corporation buys 300 units of merchandise in January at $5 each.Acme buys 500 units at $4 each in February and 200 units at $6 each in March.Acme sells 150 units during this quarter.Acme uses a periodic inventory system and had no beginning inventory.What is its cost of goods sold for the quarter using the LIFO method?

A)$600
B)$934
C)$750
D)$900

Question 79

When the lower of cost or market (LCM)rule requires an inventory adjustment:

A)the adjustment usually,but not always,reduces the book value of inventory.
B)the write-down is usually reported as a part of cost of goods sold.
C)the inventory adjustment is recorded in a contra-account called merchandise allowances.
D)the write-down does not affect any of the financial statements.

Question 80

Generally,which inventory costing method approximates most closely the current cost for each of the following?

A)Option A
B)Option B
C)Option C
D)Option D