Deck 6: Inventories

Question 1

Under the lower-of-cost-or-market basis, market is defined as current replacement cost.

Answer 1

True

Question 2

The specific identification method of inventory valuation is desirable when a company sells a large number of low-unit cost items.

Answer 2

False

Question 3

If the unit price of inventory is increasing during a period, a company using the LIFO inventory method will show less gross profit for the period, than if it had used the FIFO inventory method.

Answer 3

True

Question 4

A company may use more than one inventory costing method concurrently.

Question 5

Goods that have been purchased FOB destination but are in transit, should be excluded from a physical count of goods.

Question 6

Management may choose any inventory costing method it desires as long as the cost flow assumption chosen is consistent with the physical movement of goods in the company.

Question 7

If inventories are valued using the LIFO cost assumption, they should not be classified as a current asset on the balance sheet.

Question 8

If a company changes its inventory valuation method, the effect of the change on net income should be disclosed in the financial statements.

Question 9

The specific identification method of costing inventories tracks the actual physical flow of the goods available for sale.

Question 10

Accountants believe that the write down from cost to market should not be made in the period in which the price decline occurs.

Question 11

If a company has no beginning inventory and the unit price of inventory is increasing during a period, the cost of goods available for sale during the period will be the same under the LIFO and FIFO inventory methods.

Question 12

An error that overstates the ending inventory will also cause net income for the period to be overstated.

Question 13

Use of the LIFO inventory valuation method enables a company to report paper or phantom profits.

Question 14

The matching principle requires that the cost of goods sold be matched against the ending merchandise inventory in order to determine income.

Question 15

Transactions that affect inventories on hand have an effect on both the balance sheet and the income statement.

Question 16

If a company has no beginning inventory and the unit cost of inventory items does not change during the year, the value assigned to the ending inventory will be the same under LIFO and average cost flow assumptions.

Question 17

Goods out on consignment should be included in the inventory of the consignor.

Question 18

The first-in, first-out (FIFO) inventory method results in an ending inventory valued at the most recent cost.

Question 19

The more inventory a company has in stock, the greater the company's profit.

Question 20

Raw materials inventories are the goods that a manufacturer has completed and are ready to be sold to customers.

Question 21

Merchandise inventory is

A) reported under the classification of Property, Plant, and Equipment on the balance sheet.
B) often reported as a miscellaneous expense on the income statement.
C) reported as a current asset on the balance sheet.
D) generally valued at the price for which the goods can be sold.

Question 22

Inventory turnover is calculated as cost of goods sold divided by ending inventory.

Question 23

The lower-of-cost-or-market basis is an example of the accounting concept of conservatism.

Question 24

The factor which determines whether or not goods should be included in a physical count of inventory is

A) physical possession.
B) legal title.
C) management's judgment.
D) whether or not the purchase price has been paid.

Question 25

Under the FIFO method, the costs of the earliest units purchased are the first charged to cost of goods sold.

Question 26

The gross profit method is based on the assumption that the rate of gross profit remains constant from one year to the next.

Question 27

If goods in transit are shipped FOB destination

A) the seller has legal title to the goods until they are delivered.
B) the buyer has legal title to the goods until they are delivered.
C) the transportation company has legal title to the goods while the goods are in transit.
D) no one has legal title to the goods until they are delivered.

Question 28

In a perpetual inventory system, the cost of goods sold under the FIFO method is based on the cost of the latest goods on hand during the period.

Question 29

The pool of inventory costs consists of the beginning inventory plus the cost of goods purchased.

Question 30

The retail inventory method requires a company to value its inventory on the balance sheet at retail prices.

Question 31

In a period of falling prices, the LIFO method results in a lower cost of goods sold than the FIFO method.

Question 32

Inventories affect

A) only the balance sheet.
B) only the income statement.
C) both the balance sheet and the income statement.
D) neither the balance sheet nor the income statement.

Question 33

In applying the LIFO assumption in a perpetual inventory system, the cost of the units most recently purchased prior to sale is allocated first to the units sold.

Question 34

In a manufacturing business, inventory that is ready for sale is called

A) raw materials inventory.
B) work in process inventory.
C) finished goods inventory.
D) store supplies inventory.

Question 35

Under generally accepted accounting principles, management has the choice of physically counting inventory on hand at the end of the year or using the gross profit method to estimate the ending inventory.

Question 36

Inventories are reported in the current assets section of the balance sheet immediately below receivables.

Question 37

Items waiting to be used in production are considered to be

A) raw materials.
B) work in progress.
C) finished goods.
D) merchandise inventory.

Question 38

An auto manufacturer would classify vehicles in various stages of production as

A) finished goods.
B) merchandise inventory.
C) raw materials.
D) work in process.

Question 39

Finished goods are a classification of inventory for a manufacturer that are completed and ready for sale.

Question 40

If a company uses the FIFO cost assumption, the cost of goods sold for the period will be the same under a perpetual or periodic inventory system.

Question 41

As a result of a thorough physical inventory, Hastings Company determined that it had inventory worth $270,000 at December 31, 2010. This count did not take into consideration the following facts: Carlin Consignment store currently has goods worth $52,000 on its sales floor that belong to Hastings but are being sold on consignment by Carlin. The selling price of these goods is $75,000. Hastings purchased $20,000 of goods that were shipped on December 27. FOB destination, that will be received by Hastings on January 3. Determine the correct amount of inventory that Hastings should report.

A) $290,000.
B) $342,000.
C) $322,000.
D) $345,000.

Question 42

A company just starting business made the following four inventory purchases in June: A physical count of merchandise inventory on June 30 reveals that there are 200 units on hand. Using the LIFO inventory method, the value of the ending inventory on June 30 is

A) $536.
B) $653.
C) $1,447.
D) $1,564.

Question 43

Colletti Company recorded the following data: The weighted average unit cost of the inventory at January 31 is:

A) $2.00.
B) $2.10.
C) $2.12.
D) $2.20.

Question 44

Beginning inventory plus the cost of goods purchased equals

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

Question 45

A company just starting business made the following four inventory purchases in June: A physical count of merchandise inventory on June 30 reveals that there are 200 units on hand. Using the average-cost method, the amount allocated to the ending inventory on June 30 is

A) $2,100.
B) $1,500.
C) $575.
D) $600.

Question 46

Cost of goods sold is computed from the following equation:

A) beginning inventory - cost of goods purchased + ending inventory.
B) sales - cost of goods purchased + beginning inventory - ending inventory.
C) sales + gross profit - ending inventory + beginning inventory.
D) beginning inventory + cost of goods purchased - ending inventory

Question 47

Blosser Company's goods in transit at December 31 include:
Sales made purchases made
(1) FOB destination (3) FOB destination
(2) FOB shipping point (4) FOB shipping point
Which items should be included in Blosser's inventory at December 31?

A) (2) and (3)
B) (1) and (4)
C) (1) and (3)
D) (2) and (4)

Question 48

Which of the following should be included in the physical inventory of a company

A) Goods held on consignment from another company.
B) Goods in transit to another company shipped FOB shipping point.
C) Goods in transit from another company shipped FOB shipping point.
D) Both b and c above.

Question 49

The LIFO inventory method assumes that the cost of the latest units purchased are

A) the last to be allocated to cost of goods sold.
B) the first to be allocated to ending inventory.
C) the first to be allocated to cost of goods sold.
D) not allocated to cost of goods sold or ending inventory.

Question 50

A company just starting business made the following four inventory purchases in June: A physical count of merchandise inventory on June 30 reveals that there are 200 units on hand.
The inventory method which results in the highest gross profit for June is

A) the FIFO method.
B) the LIFO method.
C) the weighted average unit cost method.
D) not determinable.

Question 51

Kershaw Bookstore had 500 units on hand at January 1, costing $18 each. Purchases and sales during the month of January were as follows: Kershaw does not maintain perpetual inventory records. According to a physical count, 375 units were on hand at January 31.
The cost of the inventory at January 31, under the FIFO method is:

A) $1,000.
B) $6,750.
C) $7,750.
D) $8,000.

Question 52

Inventoriable costs include all of the following except the

A) freight costs incurred when buying inventory.
B) costs of the purchasing and warehousing departments.
C) cost of the beginning inventory.
D) cost of goods purchased.

Question 53

Under a consignment arrangement, the

A) consignor has ownership until goods are sold to a customer.
B) consignor has ownership until goods are shipped to the consignee.
C) consignee has ownership when the goods are in the consignee's possession.
D) consigned goods are included in the inventory of the consignee.

Question 54

A company just starting business made the following four inventory purchases in June: A physical count of merchandise inventory on June 30 reveals that there are 200 units on hand. Using the FIFO inventory method, the amount allocated to cost of goods sold for June is

A) $653.
B) $1,272.
C) $1,447.
D) $1,564.

Question 55

Manufacturer usually classify inventory into all the following general categories except:

A) work in process
B) finished goods
C) merchandise inventory
D) raw materials

Question 56

The term "FOB" denotes

A) free on board.
B) freight on board.
C) free only (to) buyer.
D) freight charge on buyer.

Question 57

For companies that use a perpetual inventory system, all of the following are purposes for taking a physical inventory except:

A) to check the accuracy of the records.
B) to determine the amount of wasted raw materials.
C) to determine losses due to employee theft.
D) to determine ownership of the goods.

Question 58

A company just starting in business purchased three merchandise inventory items at the following prices. First purchase $80; Second purchase $95; Third purchase $85. If the company sold two units for a total of $240 and used FIFO costing, the gross profit for the period would be

A) $65.
B) $75.
C) $60.
D) $50.

Question 59

Freight terms of FOB shipping point mean that the

A) seller must debit freight out.
B) buyer must bear the freight costs.
C) goods are placed free on board at the buyer's place of business.
D) seller must beat the freight costs.

Question 60

Kershaw Bookstore had 500 units on hand at January 1, costing $18 each. Purchases and sales during the month of January were as follows: Kershaw does not maintain perpetual inventory records. According to a physical count, 375 units were on hand at January 31.
The cost of the inventory at January 31, under the LIFO method is:

A) $1,000.
B) $6,750.
C) $7,750.
D) $8,000.

Question 61

The selection of an appropriate inventory cost flow assumption for an individual company is made by

A) the external auditors.
B) the SEC.
C) the internal auditors.
D) management.

Question 62

Graham Company uses a periodic inventory system. Details for the inventory account for the month of January, 2010 are as follows: An end of the month (1/31/10) inventory showed that 120 units were on hand. If the company uses LIFO, what is the value of the ending inventory?

A) $520
B) $600
C) $656
D) $1,480

Question 63

Graham Company uses a periodic inventory system. Details for the inventory account for the month of January, 2010 are as follows: An end of the month (1/31/10) inventory showed that 120 units were on hand. How many units did the company sell during January, 2010?

A) 80
B) 120
C) 200
D) 280

Question 64

Which of the following items will increase inventoriable costs for the buyer of goods?

A) Purchase returns and allowances granted by the seller
B) Purchase discounts taken by the purchaser
C) Freight charges paid by the seller
D) Freight charges paid by the purchaser

Question 65

At May 1, 2010, Deitrich Company had beginning inventory consisting of 100 units with a unit cost of $7. During May, the company purchased inventory as follows:
200 units at $7
300 units at $8
The company sold 500 units during the month for $12 per unit. Deitrich uses the average cost method. The value of Deitrich's inventory at May 31, 2010 is

A) $700.
B) $750.
C) $800.
D) $4,500.

Question 66

At May 1, 2010, Deitrich Company had beginning inventory consisting of 100 units with a unit cost of $7. During May, the company purchased inventory as follows:
200 units at $7
300 units at $8
The company sold 500 units during the month for $12 per unit. Deitrich uses the average cost method. The average cost per unit for May is

A) $7.00.
B) $7.50.
C) $7.60.
D) $8.00.

Question 67

A problem with the specific identification method is that

A) inventories can be reported at actual costs.
B) management can manipulate income.
C) matching is not achieved.
D) the lower-of-cost-or-market basis cannot be applied.

Question 68

Which of the following statements is true regarding inventory cost flow assumptions?

A) A company may use more than one costing method concurrently.
B) A company must comply with the method specified by industry standards.
C) A company must use the same method for domestic and foreign operations.
D) A company may never change its inventory costing method once it has chosen a method.

Question 69

Which of the following statements is correct with respect to inventories?

A) The FIFO method assumes that the costs of the earliest goods acquired are the last to be sold.
B) It is generally good business management to sell the most recently acquired goods first.
C) Under FIFO, the ending inventory is based on the latest units purchased.
D) FIFO seldom coincides with the actual physical flow of inventory.

Question 70

At May 1, 2010, Deitrich Company had beginning inventory consisting of 100 units with a unit cost of $7. During May, the company purchased inventory as follows:
200 units at $7
300 units at $8
The company sold 500 units during the month for $12 per unit. Deitrich uses the average cost method. Deitrich's gross profit for the month of May is

A) $2,250.
B) $3,750.
C) $4,500.
D) $6,000.

Question 71

The cost of goods available for sale is allocated to the cost of goods sold and the

A) beginning inventory.
B) ending inventory.
C) cost of goods purchased.
D) gross profit.

Question 72

Inventoriable costs may be thought of as a pool of costs consisting of which two elements?

A) The cost of beginning inventory and the cost of ending inventory
B) The cost of ending inventory and the cost of goods purchased during the year
C) The cost of beginning inventory and the cost of goods purchased during the year
D) The difference between the costs of goods purchased and the cost of goods sold during the year

Question 73

Ted's Used Cars uses the specific identification method of costing inventory. During March, Ted purchased three cars for $6,000, $7,500, and $9,750, respectively. During March, two cars are sold for $9,000 each. Ted determines that at March 31, the $9,750 car is still on hand. What is Ted's gross profit for March?

A) $5,250.
B) $4,500.
C) $750.
D) $8,250.

Question 74

The cost of goods available for sale is allocated between

A) beginning inventory and ending inventory.
B) beginning inventory and cost of goods on hand.
C) ending inventory and cost of goods sold.
D) beginning inventory and cost of goods purchased.

Question 75

Which of the following is not a common cost flow assumption used in costing inventory?

A) First-in, first-out
B) Middle-in, first-out
C) Last-in, first-out
D) Average cost

Question 76

Which one of the following inventory methods is often impractical to use?

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

Question 77

Graham Company uses a periodic inventory system. Details for the inventory account for the month of January, 2010 are as follows: An end of the month (1/31/10) inventory showed that 120 units were on hand. If the company uses FIFO and sells the units for $10 each, what is the gross profit for the month?

A) $1,376
B) $1,424
C) $2,800
D) $3,000

Question 78

Graham Company uses a periodic inventory system. Details for the inventory account for the month of January, 2010 are as follows: An end of the month (1/31/10) inventory showed that 120 units were on hand. If the company uses FIFO, what is the value of the ending inventory?

A) $520
B) $600
C) $656
D) $1,424

Question 79

Of the following companies, which one would not likely employ the specific identification method for inventory costing?

A) Music store specializing in organ sales
B) Farm implement dealership
C) Antique shop
D) Hardware store

Question 80

A company purchased inventory as follows:
200 units at $10
300 units at $12
The average unit cost for inventory is

A) $10.00.
B) $11.00.
C) $11.20.
D) $12.00.