Deck 9: Inventory

Question 1

Which of the following is NOT an advantage of the perpetual inventory system over the periodic inventory system?

A) The perpetual inventory system discloses inventory shortages.
B) The perpetual inventory system is less costly to maintain.
C) The perpetual inventory system provides a continuous record of cost of goods sold.
D) The perpetual inventory system provides better control of the asset inventory.

Answer 1

B

Question 2

The journal entries to record a credit sale under the perpetual inventory system will include a:

A) credit to COGS.
B) credit to inventory.
C) debit to sales.
D) None of the above.

Answer 2

B

Question 3

Diligent Ltd had five units of the commodity Algo on hand at 1 September 2019. The following purchases and sales were made during September: What was the value of cost of goods sold of Algo, using the FIFO assumption?

A) $2 640
B) $2 700
C) $2 720
D) $2 400

Answer 3

C

Question 4

The journal entries to record a credit sale under the perpetual inventory system will include:

A) DR Cost of goods sold
B) DR Sales
C) DR Inventory
D) None of the above

Question 5

The entry to record a credit purchase when the periodic inventory method is employed will include a:

A) debit to inventory.
B) credit to purchases.
C) debit to purchases.
D) debit to cost of goods sold.

Question 6

Which of the following is NOT an advantage of the perpetual over the periodic inventory method?

A) A continuous record of inventory on hand is furnished.
B) Inventory theft is more likely to be detected.
C) Recording of inventory is less costly to monitor.
D) The perpetual inventory system provides a continuous record of cost of goods sold.

Question 7

Use the information below to answer the following question. Opal Ltd uses a perpetual control system for its inventory. It had the following data for a recent period:
What was the balance of Opal Ltd's accounts payable at the end of the period?

A) $20 000
B) $40 000
C) $90 000
D) $100 000

Question 8

Which, if any, of the following cost flow assumptions is NOT affected by whether a periodic or perpetual control system is used?

A) LIFO
B) FIFO
C) Weighted average cost
D) Moving weighted average cost

Question 9

The following details relate to a perpetual inventory system: What was the value of opening inventory?

A) $204 000
B) $306 000
C) $459 000
D) $561 000

Question 10

The following lots of a particular commodity were available for sale during the year: 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 first-in, first-out method?

A) $1 200
B) $1 230
C) $1 370
D) $1 400

Question 11

The following information relates to Moderate Ltd: What were the purchases for the period?

A) $135 000
B) $186 000
C) $234 000
D) None of the above

Question 12

Which of the following statements about the perpetual inventory control method is NOT true?

A) When a sale is made, cost of goods sold is increased.
B) When inventory is purchased, it is treated as an expense.
C) When a sale is made, inventory is decreased.
D) An inventory count can reveal inventory losses due to theft.

Question 13

Use the information below to answer the following question. Pinkerton Ltd uses a perpetual control system for its inventory. It had the following data for a recent period:
If Pinkerton Ltd had employed the periodic inventory method, what would its gross profit have been?

A) $280 000
B) $300 000
C) $320 000
D) $440 000

Question 14

Which of the following statements about the use of the FIFO assumption is NOT true?

A) The FIFO assumption assigns the more recent purchase costs to the balance sheet inventory asset account.
B) The FIFO assumption is not affected by the inventory control method.
C) In periods of rising prices it produces a higher profit than LIFO.
D) The FIFO assumption produces inventory asset values that are based on older purchase costs.

Question 15

In a period of rising purchase prices, which cost flow assumption provides the highest net profit?

A) FIFO
B) Moving weighted average
C) LIFO
D) All three give the same net profit

Question 16

Diligent Ltd had five units of the commodity Algo on hand at 1 September 2019. The following purchases and sales were made during September: What was the value of ending inventory of Algo, using the FIFO assumption?

A) $1 460
B) $1 480
C) $2 400
D) $1 400

Question 17

During year ended 30 June 2019, Rugger Ltd had net sales of $256 000. Inventory at 1 July 2018 was $30 000, and at 30 June 2019 it was $23 000. Purchases were $115 000. What was the gross profit for year ended 30 June 2019?

A) $12 000
B) $134 000
C) $141 000
D) None of the above

Question 18

A company discovered that inventory that cost $2 000 and normally sells for $2 400 has become obsolete and will be scrapped next month. The effect of the adjusting journal entry is to:

A) decrease profit by $2 000 and decrease total assets by $2 000.
B) decrease profit by $2 400 and decrease total assets by $2 000.
C) decrease profit by $2 400 and decrease total assets by $2 400.
D) decrease profit by $2 000 and not affect total assets.

Question 19

Which of the following statements about the use of the LIFO assumption is TRUE?

A) The LIFO assumption assigns older costs to the cost of goods sold expense account.
B) The LIFO assumption produces inventory asset values that are close to current costs.
C) The LIFO assumption produces a lower inventory asset value and the highest cost of goods sold.
D) None of the above

Question 20

During the year ended 30 June 2019, Rico Ltd had net sales of $750 000 and net purchases of $470 000. Cost of goods sold was $475 000. What was Rico Ltd's gross profit for the year ended 30 June 2019?

A) $240 000
B) $275 000
C) $310 000
D) None of the above

Question 21

Diligent Ltd had five units of the commodity Algo on hand at 1 September 2019. The following purchases and sales were made during September: What was the value of cost of goods sold of Algo, using the moving weighted average assumption and a perpetual inventory system?

A) $2 640
B) $2 700
C) $2 720
D) $3 180

Question 22

A company has four products and has 100 units of each in stock. The cost and net realisable value of each of the products are: The value of inventory in the balance sheet should be:

A) $2 800.
B) $3 100.
C) $3 400.
D) None of the above.

Question 23

Raw materials of inventory were purchased on credit for $350 000. The company uses the perpetual method. This transaction will:

A) increase assets, liabilities and shareholders' equity.
B) increase assets and liabilities but reduce shareholders' equity.
C) increase liabilities but have no effect on assets or shareholders' equity.
D) increase assets and increase liabilities but have no effect on shareholders' equity.

Question 24

Diligent Ltd had five units of the commodity Algo on hand at 1 September 2019. The following purchases and sales were made during September: What was the value of ending inventory of Algo, using the moving weighted average assumption and a perpetual inventory system?

A) $1 460
B) $1 480
C) $1 540
D) $1 590

Question 25

Inventory with a value of $420 000 was written down to $250 000 in June 2019 because of falling prices in the industry. This transaction will:

A) decrease assets, profit and shareholders' equity.
B) decrease assets and profit, but not shareholders' equity.
C) decrease assets and shareholders' equity but not profit.
D) None of the above

Question 26

Diligent Ltd had five units of the commodity Algo on hand at 1 September 2019. The following purchases and sales were made during September: What was the value of cost of goods sold of Algo, using the LIFO assumption in a perpetual inventory system?

A) $2 600
B) $2 700
C) $2 720
D) $1 400

Question 27

Diligent Ltd had five units of the commodity Algo on hand at 1 September 2019. The following purchases and sales were made during September: What was the value of ending inventory of Algo, using the LIFO assumption in a periodic inventory system?

A) $1 580
B) $1 480
C) $1 460
D) $1 590

Question 28

Diligent Ltd had five units of the commodity Algo on hand at 1 September 2019. The following purchases and sales were made during September: What was the value of ending inventory of Algo, using the LIFO assumption in a perpetual inventory system?

A) $1 460
B) $1 480
C) $1 580
D) $2 400