Deck 7: Inventories

Question

One of the two internal control procedures over inventory is to properly report inventory on the financial statements.

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FIFO is the inventory costing method that follows the physical flow of the goods.

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A purchase order establishes an initial record of the receipt of the inventory.

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A perpetual inventory system is an effective means of control over inventory.

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Under the periodic inventory system, the merchandise inventory account continuously discloses the amount of inventory on hand.

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The three inventory costing methods will normally each yield different amounts of net income.

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When using the FIFO inventory costing method, the most recent costs are assigned to the cost of merchandise sold.

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The weighted average inventory cost flow method is the least used of the inventory costing methods.

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Under the periodic inventory system, a physical inventory is taken to determine the cost of the inventory on hand and the cost of the merchandise sold.

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If the perpetual inventory system is used, the merchandise inventory account is debited for purchases of merchandise.

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The specific identification inventory method should be used when the inventory consists of identical, low-cost units that are purchased and sold frequently.

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The choice of an inventory costing method has no significant impact on the financial statements.

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Under the LIFO inventory costing method, the most recent costs are assigned to ending inventory.

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During periods of increasing costs, the use of the FIFO method of costing inventory will result in a greater amount of net income than would result from the use of the LIFO cost method.

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The average cost method will always yield results between FIFO and LIFO.

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Safeguarding inventory and proper reporting of the inventory in the financial statements are the reasons for controlling the inventory.

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Inventory controls start when the merchandise is shelved in the store area.

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Of the three widely used inventory costing methods
(FIFO, LIFO, and average cost), the LIFO method of costing inventory assumes costs are charged based on the most recent purchases first.

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A subsidiary inventory ledger can be an aid in maintaining inventory levels at their proper levels.

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A physical inventory should be taken at the end of every month.

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During periods of rapidly rising costs, the use of the LIFO method results in illusory or inventory profits.

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Direct disposal costs do not include special advertising or sales commissions.

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Generally, the lower the days' sales in inventory, the better.

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When merchandise inventory is shown on the balance sheet, both the method of determining the cost of the inventory and the method of valuing the inventory should be shown.

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The lower of cost or market is a method of inventory valuation.

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Unsold consigned merchandise should be included in the consignee's inventory.

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One negative effect of carrying too much inventory is risk that customers will change their buying habits.

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If ending inventory for the year is understated, net income for the year is overstated.

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The use of the lower-of-cost-or-market method of inventory valuation increases net income for the period in which the inventory replacement price declined.

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If ending inventory for the year is overstated, owner's equity reported on the balance sheet at the end of the year is understated.

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Inventory errors, if not discovered, will self-correct within two years.

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During periods of increasing costs, an advantage of the LIFO inventory cost method is that it matches more recent costs against current revenues.

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The lower-of-cost-or-market method of determining the value of ending inventory can be applied on an item-by-item basis, by major classification of inventory, or by the total inventory.

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"Market" as used in the phrase "lower of cost or market" for valuing inventory, refers to the price at which the inventory is being offered for sale by its owner.

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A consignor who has goods out on consignment with an agent should include the goods in ending inventory even though they are not in the possession of the consignor.

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In valuing merchandise for inventory purposes, net realizable value is the estimated selling price less any direct costs of disposal.

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During periods of decreasing costs, the use of the LIFO method of costing inventory will result in a lower amount of net income than would result from the use of the FIFO method.

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It is not unusual for large companies to use different inventory costing methods for different segments of their inventory.

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During periods of increasing costs, the use of the FIFO method of costing inventory will yield an inventory amount for the balance sheet that is higher than LIFO would produce.

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Average inventory is computed by adding the inventory at the beginning of the period to the inventory at the end of the period and dividing by 2.

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If a fire destroys the merchandise inventory, the gross profit method can be used to estimate the cost of merchandise destroyed.

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Use of the retail inventory method requires taking a physical count of inventory.

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Which of the following is not an example of safeguarding inventory?

A) storing inventory in restricted areas
B) physical devices such as two-way mirrors, cameras, and alarms
C) matching receiving documents, purchase orders, and vendor's invoice
D) returning inventory that is defective or broken

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Inventory turnover measures the length of time it takes to acquire, sell, and replace the inventory.

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Which document authorizes the purchase of inventory from an approved vendor?

A) purchase order
B) petty cash voucher
C) receiving report
D) vendor's invoice

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Which document establishes an initial record of the receipt of inventory?

A) receiving report
B) vendor's invoice
C) purchase order
D) petty cash voucher

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In the retail inventory method, the cost to retail ratio is equal to the cost of merchandise sold divided by the retail price of the merchandise sold.

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Cost flow is in the order in which costs were incurred when using

A) average cost
B) last-in, first-out
C) first-in, first-out
D) weighted average

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When merchandise sold is assumed to be in the order in which the purchases were made, the company is using

A) first-in, last-out
B) last-in, first-out
C) first-in, first-out
D) average cost

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Taking a physical count of inventory

A) is not necessary when a periodic inventory system is used
B) should be done near year-end
C) has no internal control relevance
D) is not necessary when a perpetual inventory system is used

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The inventory method that assigns the most recent costs to cost of merchandise sold is

A) FIFO
B) LIFO
C) weighted average
D) specific identification

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Ending inventory is made up of the oldest purchases when a company uses

A) first-in, first-out
B) last-in, first-out
C) average cost
D) retail method

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Which of the following methods is appropriate for a business whose inventory consists of a relatively small number of unique, high-cost items?

A) FIFO
B) LIFO
C) average
D) specific identification

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If a company uses a periodic inventory system, the gross profit method can be used to estimate inventory for monthly or quarterly statements.

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Control of inventory should begin as soon as the inventory is ordered. Which of the following internal control steps is not done to meet this goal?

A) check the invoice to the receiving report
B) check the invoice to the purchase order
C) check the invoice with the person who specifically purchased the item
D) check the invoice for mathematical accuracy

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Cost flow is in the reverse order in which costs were incurred when using

A) weighted average
B) last-in, first-out
C) first-in, first-out
D) average cost

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Under a perpetual inventory system, the amount of each type of merchandise on hand is available in the

A) customer's ledger
B) creditor's ledger
C) inventory ledger
D) purchase ledger

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The two most widely used methods for determining the cost of inventory are

A) FIFO and LIFO
B) FIFO and average cost
C) LIFO and average cost
D) gross profit and average cost

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All of the following are documents used for inventory control except a

A) petty cash voucher
B) vendor's invoice
C) receiving report
D) purchase order

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The primary objectives of control over inventory are

A) safeguarding the inventory from damage and maintaining constant observation of the inventory
B) reporting inventory in the financial statements and taking a physical inventory
C) maintaining constant observation of the inventory and reporting inventory in the financial statements
D) safeguarding inventory from damage and reporting inventory in the financial statements

Question

Use the information below to answer the following questions.
The following units of an inventory item were available for sale during the year:

$\begin{array}{ll}\text { Beginning inventory } & 10 \text { units at } \$ 55 \\\text { First purchase } & 25 \text { units at } \$ 60 \\\text { Second purchase } & 30 \text { units at } \$ 65 \\\text { Third purchase } & 15 \text { units at } \$ 70\end{array}$ The firm uses the periodic inventory system. During the year, 60 units of the item were sold.?

-The value of ending inventory rounded to the nearest dollar using average cost is

A) $1,353
B) $1,263
C) $1,375
D) $1,150

Question

Use the information below to answer the following questions.

Boxwood Company sells blankets for $60 each. The following was taken from the inventory records during May. The company had no beginning inventory on May 1.
$\begin{array} { | c | l | c | c | } \hline \text { Date } & { \text { Blankets } } & \text { Units } & \text { Cost } \\\hline \text { May } 3 & \text { Purchase } & 5 & \$ 20 \\\hline 10 & \text { Sale } & 3 & \\\hline 17 & \text { Purchase } & 10 & 24 \\\hline 20 & \text { Sale } & 6 & \\\hline 23 & \text { Sale } & 3 & 30 \\\hline 30 & \text { Purchase } & 10 & \\\hline\end{array}$ ?

-Assuming that the company uses the perpetual inventory system, determine the gross profit for the sale of May 23 using the FIFO inventory cost method.

A) $108
B) $120
C) $72
D) $180

Question

The inventory costing method that reports the most current prices in ending inventory is

A) FIFO
B) specific identification
C) LIFO
D) average cost

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A) $1,250
B) $1,350
C) $1,375
D) $1,150

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Use the information below to answer the following questions.
The following lots of a particular commodity were available for sale during the year:
?
$\begin{array}{ll}\text { Beginning inventory } & 10 \text { units at } \$ 30 \\\text { First purchase } & 25 \text { units at } \$ 32 \\\text { Second purchase } & 30 \text { units at } \$ 34 \\\text { Third purchase } & 10 \text { units at } \$ 35\end{array}$ ?

-The firm uses the periodic system, and there are 20 units of the commodity on hand at the end of the year. What is the amount of inventory at the end of the year according to the FIFO method?

A) $655
B) $620
C) $690
D) $659

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A) $800
B) $650
C) $750
D) $700

Question

The inventory costing method that reports the earliest costs in ending inventory is

A) FIFO
B) LIFO
C) weighted average
D) specific identification

Question

Use the information below to answer the following questions.

Boxwood Company sells blankets for $60 each. The following was taken from the inventory records during May. The company had no beginning inventory on May 1.
$\begin{array} { | c | l | c | c | } \hline \text { Date } & { \text { Blankets } } & \text { Units } & \text { Cost } \\\hline \text { May } 3 & \text { Purchase } & 5 & \$ 20 \\\hline 10 & \text { Sale } & 3 & \\\hline 17 & \text { Purchase } & 10 & 24 \\\hline 20 & \text { Sale } & 6 & \\\hline 23 & \text { Sale } & 3 & 30 \\\hline 30 & \text { Purchase } & 10 & \\\hline\end{array}$ ?

-Assuming that the company uses the perpetual inventory system, determine the cost of merchandise sold for the sale of May 20 using the FIFO inventory cost method.

A) $120
B) $180
C) $136
D) $144

Question

A) $348
B) $452
C) $444
D) $356

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Use the information below to answer the following questions.

Boxwood Company sells blankets for $60 each. The following was taken from the inventory records during May. The company had no beginning inventory on May 1.
$\begin{array} { | c | l | c | c | } \hline \text { Date } & { \text { Blankets } } & \text { Units } & \text { Cost } \\\hline \text { May } 3 & \text { Purchase } & 5 & \$ 20 \\\hline 10 & \text { Sale } & 3 & \\\hline 17 & \text { Purchase } & 10 & 24 \\\hline 20 & \text { Sale } & 6 & \\\hline 23 & \text { Sale } & 3 & 30 \\\hline 30 & \text { Purchase } & 10 & \\\hline\end{array}$ ?

-Assuming that the company uses the perpetual inventory system, determine the ending inventory for the month of May using the LIFO inventory cost method.

A) $324
B) $372
C) $320
D) $364

Question

Use the information below to answer the following questions.

Boxwood Company sells blankets for $60 each. The following was taken from the inventory records during May. The company had no beginning inventory on May 1.
$\begin{array} { | c | l | c | c | } \hline \text { Date } & { \text { Blankets } } & \text { Units } & \text { Cost } \\\hline \text { May } 3 & \text { Purchase } & 5 & \$ 20 \\\hline 10 & \text { Sale } & 3 & \\\hline 17 & \text { Purchase } & 10 & 24 \\\hline 20 & \text { Sale } & 6 & \\\hline 23 & \text { Sale } & 3 & 30 \\\hline 30 & \text { Purchase } & 10 & \\\hline\end{array}$ ?

-Assuming that the company uses the perpetual inventory system, determine the cost of merchandise sold for the sale of May 20 using the LIFO inventory cost method.

A) $136
B) $144
C) $180
D) $120

Question

Addison, Inc. uses a perpetual inventory system. The following is information about one inventory item for the month of September:
$\begin{array} { r l l } \text { Sept. } 1 & \text { Inventory } & 20 \text { units at } \$ 20 \\ 4 & \text { Sale } & 10 \text { units } \\ 10 & \text { Purchase } & 30 \text { units at } \$ 25 \\ 17 & \text { Sale } & 20 \text { units } \\ 30 & \text { Purchase } & 10 \text { units at } \$ 30 \end{array}$

-The inventory data for an item for November are:
$\begin{array} { r l l } \text { Nov. } 1 & \text { Inventory } & 20 \text { units at } \$ 19 \\4 & \text { Sale } & 10 \text { units } \\10 & \text { Purchase } & 30 \text { units at } \$ 20 \\17 & \text { Sale } & 20 \text { units } \\30 & \text { Purchase } & 10 \text { units at } \$ 21\end{array}$
Using a perpetual system, what is the cost of merchandise sold for November if the company uses FIFO?

A) $610
B) $600
C) $590
D) $580

Question

A) $610
B) $600
C) $590
D) $580

Question

Use the information below to answer the following questions.

Boxwood Company sells blankets for $60 each. The following was taken from the inventory records during May. The company had no beginning inventory on May 1.
$\begin{array} { | c | l | c | c | } \hline \text { Date } & { \text { Blankets } } & \text { Units } & \text { Cost } \\\hline \text { May } 3 & \text { Purchase } & 5 & \$ 20 \\\hline 10 & \text { Sale } & 3 & \\\hline 17 & \text { Purchase } & 10 & 24 \\\hline 20 & \text { Sale } & 6 & \\\hline 23 & \text { Sale } & 3 & 30 \\\hline 30 & \text { Purchase } & 10 & \\\hline\end{array}$ ?

-Assuming that the company uses the perpetual inventory system, determine the ending inventory value for the month of May using the FIFO inventory cost method.

A) $364
B) $372
C) $324
D) $320

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A) $800
B) $650
C) $750
D) $700

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A) $1,250
B) $1,350
C) $1,375
D) $1,150

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A) retail
B) periodic
C) physical
D) perpetual

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A) $655
B) $620
C) $690
D) $659

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A) debit Cost of Merchandise Sold; credit Sales
B) debit Cost of Merchandise Sold; credit Merchandise Inventory
C) debit Merchandise Inventory; credit Cost of Merchandise Sold
D) No journal entry is made to record the cost of merchandise sold.

Question

Which of the following companies would be more likely to use the specific identification inventory costing method?

A) Gordon's Jewelers
B) Lowe's
C) Best Buy
D) Walmart

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Deck 7: Inventories

One of the two internal control procedures over inventory is to properly report inventory on the financial statements.

True

FIFO is the inventory costing method that follows the physical flow of the goods.

True

A purchase order establishes an initial record of the receipt of the inventory.

False

A perpetual inventory system is an effective means of control over inventory.

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