Deck 6: Merchandise Inventory

Question 1

Which of the following principles states that a business's financial statements must report enough information for outsiders to make knowledgeable decisions about the company?

A) conservatism
B) materiality concept
C) disclosure principle
D) consistency principle

Answer 1

C

Question 2

The consistency principle states that businesses should report the same amount of ending merchandise inventory from period to period.

Answer 2

False

Question 3

The disclosure principle states that a company should disclose all major accounting methods and procedures in the ________.

A) balance sheet
B) income statement
C) footnotes to the financial statements
D) internal accounting documents

Answer 3

C

Question 4

Which of the following is an application of conservatism?

A) reporting inventory at the lower of cost or market
B) reporting only material amounts in the financial statements
C) reporting all relevant information in the financial statements
D) using the same depreciation method from period to period

Question 5

A company decides to ignore a very small error in its inventory balance. This is an example of the application of the ________.

A) conservatism
B) materiality concept
C) disclosure principle
D) consistency principle

Question 6

A company is uncertain whether a complex transaction should result in an asset being recorded at $100,000 or at $150,000. Under the conservatism principle, it should choose to show it at $100,000.

Question 7

A company discovers that its cost of goods sold is understated by an insignificant amount. It does not need to correct the error because of the conservatism principle.

Question 8

A company should not change the inventory costing method each period in order to maximize net income. This is an example of the disclosure principle.

Question 9

Which of the following states that the business should use the same accounting methods from period to period?

A) materiality concept
B) consistency principle
C) conservatism
D) disclosure principle

Question 10

A company is uncertain whether a complex transaction should be recorded as an asset or an expense. Under the conservatism principle, it should choose to treat it as an asset.

Question 11

Which of the following states that a company must perform strictly proper accounting only for items that are significant to the business's financial statements?

A) conservatism
B) materiality concept
C) disclosure principle
D) consistency principle

Question 12

The consistency principle states that a business should use the same accounting methods and procedures from period to period.

Question 13

A company is uncertain whether a complex transaction should be recorded as gain or loss. Under the conservatism principle, it should choose to treat it a loss.

Question 14

The goal of reporting realistic figures and never overstating assets or net income applies to the ________.

A) conservatism principle
B) materiality concept
C) disclosure principle
D) consistency principle

Question 15

A company discovers that its cost of goods sold is understated by an insignificant amount. It does not need to correct the error because of the materiality concept.

Question 16

A company reports in its financial statements that it uses the FIFO method of inventory costing. This is an example of the disclosure principle.

Question 17

The disclosure principle states that a company should report enough information for outsiders to make knowledgeable decisions about the company.

Question 18

Which of the following principles states that a business should not report anticipated gains?

A) conservatism
B) materiality concept
C) disclosure
D) consistency

Question 19

Changing from the LIFO (Last-In, First-Out) to the specific identification method of valuing inventory ignores the principle of ________.

A) conservatism
B) consistency
C) disclosure
D) materiality

Question 20

A company changes its inventory costing method each period in order to maximize net income. This is a violation of the consistency principle.

Question 21

A company purchased 80 units for $20 each on January 31. It purchased 190 units for $25 each on February 28. It sold 190 units for $80 each from March 1 through December 31. If the company uses the first-in, first-out inventory costing method, what is the amount of Cost of Goods Sold on the income statement for the year ending December 31? (Assume that the company uses a perpetual inventory system.)

A) $1,600
B) $4,750
C) $4,350
D) $6,350

Question 22

A company purchased 400 units for $20 each on January 31. It purchased 520 units for $26 each on February 28. It sold a total of 560 units for $40 each from March 1 through December 31. What is the amount of ending inventory on December 31 if the company uses the first-in, first-out (FIFO) inventory costing method? (Assume that the company uses a perpetual inventory system.)

A) $9,360
B) $4,960
C) $7,200
D) $2,240

Question 23

A company that uses the perpetual inventory system purchased 500 pallets of industrial soap for $10,000 and paid $750 for the freight-in. The company sold the whole lot to a supermarket chain for $14,000 on account. The company uses the specific-identification method of inventory costing. Which of the following entries correctly records the cost of goods sold?

Question 24

Which of the following statements is true of a good merchandise inventory control system?

A) It eliminates the need for authorization of merchandise purchases.
B) It ensures that a physical count of inventory is not required.
C) It often prevents the company from a stockout.
D) It eliminates the need to examine inventory purchases for damage.

Question 25

Which of the following inventory valuation methods should be used for unique items?

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

Question 26

Malcom, Inc. had the following balances and transactions during 2017: What would be reported as Cost of Goods Sold on the income statement for the year ending December 31, 2017 if the perpetual inventory system and the first-in, first-out inventory costing method are used?

A) $14,350
B) $19,750
C) $31,550
D) $24,670

Question 27

The total cost spent on inventory that was available to be sold during a period is called the cost of goods sold.

Question 28

The materiality concept states that a company must ________.

A) report only such information that enhances the financial position of the company
B) perform strictly proper accounting only for significant items
C) report enough information for outsiders to make knowledgeable decisions about the company
D) use the same accounting methods and procedures from period to period

Question 29

List and briefly discuss three measures that can be taken to maintain good controls over merchandise inventory.

Question 30

Ending inventory is calculated by multiplying the number of units on hand by the unit cost.

Question 31

Ending inventory equals the cost of goods available for sale less beginning inventory.

Question 32

When a company uses the first-in, first-out (FIFO) method, the cost of goods sold correlates to the most recently purchased goods, and the value of ending inventory correlates to the oldest goods in stock.

Question 33

The specific identification method of inventory costing is recommended when a business deals in unique and high-priced inventory items.

Question 34

The tracking of inventory shrinkage due to theft, damage, or errors is done with the help of a (n) ________ of inventory.

A) authorization
B) sale
C) physical count
D) delivery

Question 35

Mosher, Inc. had the following balances and transactions during 2017: What would be reported for Ending Merchandise Inventory on the balance sheet at December 31, 2017 if the perpetual inventory system and the first-in, first-out inventory costing method are used?

A) $6,400
B) $68,000
C) $54,400
D) $32,000

Question 36

Maintaining good controls over merchandise inventory ensures that inventory purchases are properly authorized and accounted for by the accounting system.

Question 37

Which of the following inventory costing methods uses the cost of the oldest purchases to calculate the cost of goods sold?

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

Question 38

Properly recording inventory when sold and removing the units sold from the inventory count will prevent a company from running out of inventory.

Question 39

Under which of the following inventory costing methods is the ending inventory based on the costs of the most recent purchases?

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

Question 40

Which of the following inventory costing methods is based on the actual cost of each particular unit of inventory?

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

Question 41

Universal, Inc. purchased 500 units of inventory at $25 per unit by payment of cash. Provide the journal entry to record the purchase of inventory. (Assume a perpetual inventory system.)

Question 42

A company that uses the perpetual inventory system sold goods to a customer on account for $4,000. The cost of the goods sold was $2,000. Which of the following journal entries correctly records this transaction?

Question 43

Cobbe Sales sold 400 units of product to a customer on account. The selling price was $28 per unit, and the cost, according to the company's inventory records, was $14 per unit. Provide the journal entry to record the cost of goods sold. (Assume a perpetual inventory system.)

Question 44

South Meadows, Inc. sold 500 units of inventory at $25 per unit on account. The company uses the perpetual inventory system. The cost of the units sold was $10 per unit. Provide the journal entries to record the sale.

Question 45

Henderson Sales purchased $6,000 of inventory on account. Provide the journal entry. (Assume a perpetual inventory system.)

Question 46

A company that uses the perpetual inventory system sold goods for $2,500 to a customer on account. The company had purchased the inventory for $500. Which of the following journal entries correctly records the cost of goods sold?

Question 47

Harris, Inc. had the following balances and transactions during 2017: What would be reported for Cost of Goods Sold on the income statement for the year ending December 31, 2017 if the perpetual inventory system and the last-in, first-out inventory costing method are used?

A) $11,650
B) $7,900
C) $3,750
D) $11,250

Question 48

Which of the following inventory costing methods uses the costs of the oldest purchases to calculate the value of the ending inventory?

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

Question 49

A company purchased 100 units for $30 each on January 31. It purchased 400 units for $20 each on February 28. It sold a total of 470 units for $110 each from March 1 through December 31. If the company uses the last-in, first-out inventory costing method, calculate the amount of ending inventory on December 31. (Assume that the company uses a perpetual inventory system.)

A) $600
B) $2,400
C) $900
D) $30

Question 50

Metro Computer, Inc. had the following balances and transactions during 2017: What would the company's ending merchandise inventory amount be on December 31, 2017 if the perpetual inventory system and the last-in, first-out inventory costing method are used?

A) $15,600
B) $74,400
C) $58,800
D) $57,600

Question 51

Under the last-in, first-out (LIFO) method, the cost of goods sold is based on the oldest purchases.

Question 52

Martell, Inc. purchased inventory on account for $6,500. Provide the journal entry to record the purchase of inventory on account. (Assume a perpetual inventory system.)

Question 53

A company purchased 100 units for $30 each on January 31. It purchased 95 units for $40 each on February 28. It sold 150 units for $55 each from March 1 through December 31. If the company uses the last-in, first-out inventory costing method, what is the amount of Cost of Goods Sold on the income statement for the year ending December 31? (Assume that the company uses a perpetual inventory system.)

A) $5,450
B) $3,800
C) $3,000
D) $6,800

Question 54

When a company uses the last-in, first-out (LIFO) method, the cost of goods sold correlates to the most recently purchased goods, and the ending inventory correlates to the oldest goods in stock.

Question 55

Open Space Furniture began June with merchandise inventory of 45 sofas that cost a total of $31,500. During the month, Open Space purchased and sold merchandise on account as follows: Prepare a perpetual inventory record, using the LIFO inventory costing method, and determine the company's cost of goods sold, ending merchandise inventory, and gross profit.

Question 56

A company that uses the perpetual inventory system purchased 500 pallets of industrial soap for $8,000 and paid $900 for the freight-in. The company sold the whole lot to a supermarket chain for $13,000 on account. Which of the following entries correctly records the sale?

Question 57

Clark Sales sold 450 units of product to a customer on account. The company uses the perpetual inventory system. The selling price was $28 per unit, and the cost, according to the company's inventory records, was $12 per unit. Provide the journal entries to record the sale.

Question 58

Blue Sky, Inc. sold 500 units of inventory at $25 per unit for cash. The company uses the perpetual inventory system. The cost of the units sold was $10 per unit. Provide the journal entries to record the sale.

Question 59

A company that uses the perpetual inventory system sold goods to a customer for cash for $3,000. The cost of the goods sold was $600. Which of the following journal entries correctly records this transaction?

Question 60

Modern Décor Furniture began June with merchandise inventory of 45 sofas that cost a total of $31,500. During the month, Modern Décor purchased and sold merchandise on account as follows: Prepare a perpetual inventory record, using the FIFO inventory costing method, and determine the company's cost of goods sold, ending merchandise inventory, and gross profit.

Question 61

Weighted average cost per unit is determined by dividing the cost of goods available for sale by the number of units available.

Question 62

When using the weighted-average inventory costing method in a perpetual inventory system, a new weighted average cost per unit is computed at the end of each quarter.

Question 63

Rodriguez, Inc. had the following balances and transactions during 2017, from January 1 to December 31: What would be reported for Ending Merchandise Inventory on the balance sheet at December 31, 2017 if the perpetual inventory system and the weighted-average inventory costing method are used? (Round unit costs to two decimal places and total costs to nearest dollar.)

A) $33,040
B) $16,200
C) $32,400
D) $48,600

Question 64

A company purchased 100 units for $50 each on January 31. It purchased 200 units for $30 each on February 28. It sold a total of 250 units for $60 each from March 1 through December 31. If the company uses the weighted-average inventory costing method, calculate the amount of ending inventory on December 31. (Assume that the company uses a perpetual inventory system. Round any intermediate calculations two decimal places, and your final answer to the nearest dollar.)

A) $11,000
B) $1,833.5
C) $9,167
D) $2,000

Question 65

In a period of rising costs, the last-in, first-out (LIFO) method results in higher cost of goods sold and lower net income than the first-in, first-out (FIFO) method.

Question 66

Given the same purchase and sales data, and assuming the cost of inventory is rising, the costing methods for inventory will result in different amounts for net income.

Question 67

McClain Designs Furniture began June with merchandise inventory of 45 sofas that cost a total of $31,500. During the month, McClain Designs purchased and sold merchandise on account as follows: Prepare a perpetual inventory record, using the weighted-average inventory costing method, and determine the company's cost of goods sold, ending merchandise inventory, and gross profit. (Round weighted-average cost per unit to the nearest cent and all other amounts to the nearest dollar.)

Question 68

Lewis, Inc. had the following balances and transactions during 2016: What would be reported as Cost of Goods Sold on the income statement for the year ending December 31, 2016 if the perpetual inventory system and the weighted-average inventory costing method are used? (Round the unit costs to two decimal places and total costs to the nearest dollar.)

A) $15,390
B) $27,360
C) $15,330
D) $11,970

Question 69

A company purchased 80 units for $40 each on January 31. It purchased 200 units for $35 each on February 28. It sold 200 units for $50 each from March 1 through December 31. If the company uses the weighted-average inventory costing method, calculate the amount of Cost of Goods Sold on the income statement for the year ending December 31. (Assume the company uses the perpetual inventory system. Round any intermediate calculations two decimal places, and your final answer to the nearest dollar.)

A) $10,200
B) $7,286
C) $3,200
D) $7,000

Question 70

Which of the following inventory costing methods yields the highest net income during a period of rising inventory costs?

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

Question 71

Which of the following is the correct formula to calculate weighted-average unit cost for merchandise inventory?

A) Weighted-average unit cost = Cost of goods available for sale + Number of units available
B) Weighted-average unit cost = Cost of goods available for sale × Number of units available
C) Weighted-average unit cost = Cost of goods available for sale - Number of units available
D) Weighted-average unit cost = Cost of goods available for sale / Number of units available

Question 72

Given the same purchase and sales data, and assuming the cost of inventory is rising,the costing methods for inventory will result in different amounts for sales revenue.

Question 73

Which of the following inventory costing methods requires the calculation of a new average cost after each purchase?

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

Question 74

Given the same purchase and sales data, and assuming the cost of inventory is rising, the costing methods for inventory will result in different amounts for cost of goods sold.

Question 75

In a period of rising costs, the last-in, first-out (LIFO) method results in lower cost of goods sold and higher net income than the first-in, first-out (FIFO) method.

Question 76

Which of the following inventory costing methods yields the lowest cost of goods sold during a period of rising inventory costs?

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

Question 77

Which of the following inventory costing methods yields the highest cost of goods sold during a period of rising inventory costs?

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

Question 78

In a period of rising costs, the first-in, first-out (FIFO) method results in higher cost of goods sold and lower gross profit than the last-in, first-out (LIFO) method.

Question 79

In a period of rising costs, the first-in, first-out (FIFO) method results in lower cost of goods sold and higher gross profit than the last-in, first-out (LIFO) method.

Question 80

Under the weighted-average method for inventory costing, the cost per unit is determined by ________.

A) dividing the cost of goods available for sale by the number of units available
B) dividing the cost of goods available for sale by the number of units in beginning inventory
C) multiplying the number of units purchased with the weighted-average cost
D) multiplying the cost of goods available for sale by the ending weighted-average cost of the previous accounting period