Deck 5: Inventory

Question 1

All goods that a business sells, or converts into saleable goods, to customers are known as

A) accounts receivable.
B) inventory.
C) plant, property, and equipment.
D) intangibles.
E) revenues.

Answer 1

inventory.

Question 2

Which of the following would not be included in a manufacturing company's balance sheet?

A) Merchandise Inventory
B) Finished Goods Inventory
C) Raw Materials Inventory
D) Work in Process Inventory
E) all of the above would be included

Answer 2

Merchandise Inventory

Question 3

Which of the following would not be classified as Inventory?

A) Raw Materials
B) Office Supplies
C) Finished Goods
D) Work in Process
E) All of the above would be classified as Inventory.

Answer 3

Office Supplies

Question 4

In a perpetual inventory system,

A) the Inventory and Cost of Goods Sold accounts are updated once a period.
B) temporary accounts, such as Purchases and Purchase Discounts, are used.
C) the availability of computer technology is generally not considered important.
D) a purchase of goods would require a debit to Inventory and a credit to either Cash or Accounts Payable.
E) no entry is made for Cost of Goods Sold expense when goods are sold to customers.

Question 5

Which of the following accounts are used in a perpetual inventory system?

Question 6

In a periodic inventory system,

A) the Inventory and Cost of Goods Sold accounts are updated continuously.
B) temporary accounts, such as Purchases and Purchase Discounts, are used.
C) the value of individual items of inventory is usually quite large.
D) a purchase of goods would require a debit to Inventory and a credit to either Cash or Accounts Payable..
E) an entry is made for cost of goods sold expense when goods are sold to customers.

Question 7

In a periodic inventory system, which of the following are contra-accounts?

Question 8

In periodic inventory system, which of the following accounts are closed at the end of the year?

Question 9

Use the following information to answer questions
On April 14, 2010, Mattingly Furniture bought 200 coffee tables at $100 each from Mississippi Pine Warehouse. Shipping terms are FOB destination. Total delivery charges are $1,000. Mattingly uses a perpetual inventory system.

-Mattingly's inventory account balance should be increased by what amount as a direct result of this purchase?

A) $ 0
B) $ 1,000
C) $19,000
D) $20,000
E) $21,000

Question 10

Use the following information to answer questions
On April 14, 2010, Mattingly Furniture bought 200 coffee tables at $100 each from Mississippi Pine Warehouse. Shipping terms are FOB destination. Total delivery charges are $1,000. Mattingly uses a perpetual inventory system.

-Mississippi Pine Warehouse gave Mattingly Furniture terms of 2/10, n/30. Mattingly paid for the coffee tables on April 22. On the 22^nd, Mattingly would make which of the following entries?

A)
B)
C)
D)
E) none of the above

Question 11

Terms offered by a supplier to encourage prompt payment of credit purchases made by customers are

A) purchase allowances.
B) purchase discounts.
C) purchase returns.
D) sales allowances.
E) sales discounts.

Question 12

When goods are shipped

A) FOB shipping point, the buyer obtains legal title to the goods when the goods are received by the buyer.
B) FOB destination, the seller retains legal title to the goods until the goods reach the shipping point.
C) FOB shipping point, the buyer obtains legal title to the goods when the goods are shipped and also pays for the related delivery charges.
D) FOB destination point, the buyer obtains legal title to the goods when the goods reach the shipping point and the seller pays for the related delivery charges.
E) FOB shipping point, the seller retains legal title to the goods until the goods reach the buyer but the buyer pays for the related delivery charges.

Question 13

In a perpetual inventory system, freight charges paid on goods that have been purchased are accounted for as a(an)

A) purchasing expense.
B) selling expense.
C) distribution expense.
D) inventory cost.
E) intangible asset.

Question 14

In its balance sheet, a buyer would report inventory for items

A) shipped FOB destination and received.
B) shipped FOB destination and in transit.
C) shipped FOB shipping point and in seller's warehouse.
D) all of the above.
E) a and b.

Question 15

On June 25, 2010, Crusaders Co. purchased goods costing $20,000, terms were FOB destination. The following costs were incurred in connection with the delivery of the goods:

The goods were received on June 30, 2010. How much of these costs should be included in Crusaders' June 30, 2010 balance sheet?

A) $20,000
B) $21,500
C) $22,500
D) $23,000
E) all of the above

Question 16

The following information applied to Candy Co. for the current year:

The company would have debited Inventory for a total of what amount during the current year ?

A) $ 99,500
B) $100,800
C) $104,500
D) $106,500
E) none of the above

Question 17

On July 1, 2010, Do-It-Yourself Warehouse purchased 100 barbeque pits at $75 each from Blazing Inferno B-B-Q. Shipping terms are FOB shipping point. Total delivery charges are $5 per barbeque pit. Do-It-Yourself's inventory account balance should be increased by what amount as a direct result of this purchase?

A) $ 0
B) $ 500
C) $7,000
D) $7,500
E) $8,000

Question 18

On July 7, 2010, Fins & Feathers purchased 100 bags of Koi Chow at $10 each from Far East Company. On July 11, Fins & Feathers sold 60 bags at $15 each. Fins & Feathers uses a perpetual inventory system. The company should recognize which of the following amounts in the Sales and Cost of Goods Sold accounts?

Question 19

On October 1, 2010, Shoe World purchased 100 pairs of tennis shoes at $30 per pair from Run Mfg. On October 3, Sally Jacobs bought three pair of the tennis shoes at $45 per pair. On October 11, Jacobs returned two pair of shoes to Shoe World, which uses a perpetual inventory system. Shoe World should recognize a

A) $60 decrease in its purchases account.
B) $60 increase in its purchases returns account.
C) $60 increase in its inventory account.
D) $30 decrease in its inventory account.
E) $60 increase in its sales returns account.

Question 20

Reductions in the amount owed to a supplier granted as a result of defective goods are

A) purchase allowances.
B) purchase discounts.
C) purchase returns.
D) sales allowances.
E) sales discounts.

Question 21

On November 1, 2010, Cahill Stationers purchased 100 pounds of linen paper at $2.50 per pound from the Northwest Paper. Northwest's credit terms are 2/10, net 30. Cahill remitted payment to Northwest on November 5. Cahill uses a perpetual inventory system. After both these transactions, Cahill would have recognized a

A) $245 increase in its purchases account.
B) $250 increase in its purchases account.
C) $245 increase in its inventory account.
D) $250 increase in its inventory account.
E) $255 increase in its inventory account.

Question 22

Which of the following reflects the equation for cost of goods available for sale?

A) beginning inventory - purchases + purchase returns - purchases discounts + freight in charges
B) beginning inventory + purchases - purchase returns - purchases discounts + freight in charges
C) beginning inventory + purchases - purchase returns - purchases discounts + freight in charges - ending inventory
D) ending inventory + purchases - purchase returns - purchases discounts + freight in charges - beginning inventory
E) beginning inventory + purchases - purchase returns - purchases discounts + freight in charges - freight out - ending inventory

Question 23

Which of the following companies are likely to use the specific identification method to value its inventory?

Question 24

The FIFO method of inventory costing

A) assumes that the goods acquired first are the first ones sold, leaving the oldest costs in ending inventory.
B) uses the per unit costs of the most recently acquired goods to determine the cost of goods sold.
C) requires businesses to sell the oldest inventory units first.
D) yields a lower net income than the LIFO method in an inflationary environment when these methods are applied to the same financial data.
E) assumes that the goods acquired first are the first ones sold, leaving the newest costs in ending inventory.

Question 25

When LIFO perpetual inventory costing is used, which costs are included in ending inventory and cost of goods sold?

Question 26

When the moving average inventory valuation method is used, an average per-unit cost is computed

A) after each purchase.
B) before each purchase.
C) after each sale.
D) before each sale.
E) before closing entries are made.

Question 27

When FIFO and LIFO are compared,

A) LIFO yields a higher net income during inflationary times than FIFO does.
B) FIFO yields a lower balance sheet value for ending inventory than LIFO during periods of inflation.
C) FIFO and LIFO show, respectively, the oldest and newest per-unit inventory costs in the ending inventory on the balance sheet.
D) LIFO is generally perceived to better match current dollars of revenues and expenses, giving a profit figure that better reflects a business's economic reality.
E) FIFO is generally preferred by businesses over LIFO in a period of steadily rising prices from a taxation standpoint.

Question 28

In a period of rising prices, the inventory method that produces the lowest ending inventory is the

A) FIFO perpetual method.
B) moving average method.
C) retail inventory method.
D) LIFO periodic method.
E) LIFO perpetual method.

Question 29

In periods of continuously rising prices, use of LIFO rather than the FIFO inventory method will have what effect on the following items?

Question 30

Use the following information to answer questions
On December 31, 2009, the Italian Pasta Company's ending inventory consisted of 100 bags of fettuccine at a cost of $0.75 per bag. Throughout January 2010, the Italian Pasta Company purchased and sold additional bags of fettuccine. Refer to the table below for additional information.


-How many bags of fettuccine should the Italian Pasta Company have on hand at January 31, 2010?

A) 100
B) 150
C) 200
D) 300
E) 650

Question 31

Use the following information to answer questions
On December 31, 2009, the Italian Pasta Company's ending inventory consisted of 100 bags of fettuccine at a cost of $0.75 per bag. Throughout January 2010, the Italian Pasta Company purchased and sold additional bags of fettuccine. Refer to the table below for additional information.


-Assume that the Italian Pasta Company uses a FIFO perpetual inventory system. Ending inventory at January 31, 2010, is

A) $137.50.
B) $140.00.
C) $142.50.
D) $155.00.
E) $300.00.

Question 32

Use the following information to answer questions
On December 31, 2009, the Italian Pasta Company's ending inventory consisted of 100 bags of fettuccine at a cost of $0.75 per bag. Throughout January 2010, the Italian Pasta Company purchased and sold additional bags of fettuccine. Refer to the table below for additional information.


-Assume that the Italian Pasta Company uses a FIFO perpetual inventory system. Cost of goods sold for January 2010, is

A) $300.00.
B) $445.00.
C) $460.00.
D) $462.50.
E) $600.00.

Question 33

Use the following information to answer questions
On December 31, 2009, the Italian Pasta Company's ending inventory consisted of 100 bags of fettuccine at a cost of $0.75 per bag. Throughout January 2010, the Italian Pasta Company purchased and sold additional bags of fettuccine. Refer to the table below for additional information.


-Assume that the Italian Pasta Company uses a LIFO perpetual inventory system. Ending inventory at January 31, 2010, is

A) $137.50
B) $140.00
C) $142.50
D) $155.00
E) $300.00

Question 34

Use the following information to answer questions
On December 31, 2009, the Italian Pasta Company's ending inventory consisted of 100 bags of fettuccine at a cost of $0.75 per bag. Throughout January 2010, the Italian Pasta Company purchased and sold additional bags of fettuccine. Refer to the table below for additional information.


-Assume that the Italian Pasta Company uses a LIFO perpetual inventory system. Cost of goods sold for January 2010, is

A) $300.00.
B) $445.00.
C) $460.00
D) $462.50.
E) $600.00.

Question 35

Use the following information to answer questions
On December 31, 2009, the Italian Pasta Company's ending inventory consisted of 100 bags of fettuccine at a cost of $0.75 per bag. Throughout January 2010, the Italian Pasta Company purchased and sold additional bags of fettuccine. Refer to the table below for additional information.


-Assume that the Italian Pasta Company uses a moving average inventory system. (Round each calculation to nearest cent.) Ending inventory at January 31, 2010, is

A) $137.
B) $142.
C) $144.
D) $146.
E) $150.

Question 36

Use the following information to answer questions
On December 31, 2009, the Italian Pasta Company's ending inventory consisted of 100 bags of fettuccine at a cost of $0.75 per bag. Throughout January 2010, the Italian Pasta Company purchased and sold additional bags of fettuccine. Refer to the table below for additional information.


-Assume that the Italian Pasta Company uses a moving average inventory system. (Round each calculation to nearest cent.) Cost of goods sold for January 2010 is

A) $450.
B) $454.
C) $456
D) $458.
E) $463.

Question 37

To minimize taxes in an inflationary environment, companies would use the

A) retail inventory method.
B) FIFO inventory method.
C) LIFO inventory method.
D) moving average inventory method.
E) IFRS inventory method.

Question 38

IFRS do not allow the use of

A) FIFO inventory method.
B) LIFO inventory method.
C) any cost flow assumption method.
D) specific identification inventory method.
E) lower of cost or market inventory method.

Question 39

In a retail inventory system, which of the following amounts is multiplied by the cost-to-retail percentage to obtain the balance sheet cost of inventory?

A) Cost of goods available for sale
B) Ending inventory
C) Inventory purchases
D) Sales revenue
E) none of the above

Question 40

The retail inventory system

A) provides the same level of internal control as a periodic inventory system.
B) cannot be used if inventory purchases are made at different costs during the period.
C) records inventory purchases by debiting Inventory for the selling price of the merchandise purchased.
D) calculates a cost-to-retail percentage by dividing the cost of purchases by the cost of goods sold.
E) allows for determination of inventory losses during the period.

Question 41

Which of the following is not required when the retail inventory method is used?

A) Total retail value of freight-in costs
B) Total sales for the period
C) A record of the total cost and retail value of goods purchased
D) A physical inventory at the end of the period
E) All of the above are required.

Question 42

Use the following information to answer questions
Andrews Company uses the retail inventory method to value its merchandise inventory. The following information is available:

-What is the cost-to-retail percentage? (Round to the nearest percentage.)

A) 50%
B) 60%
C) 62%
D) 64%
E) 74%

Question 43

Use the following information to answer questions
Andrews Company uses the retail inventory method to value its merchandise inventory. The following information is available:

-What is Andrews' ending inventory for balance sheet purposes?

A) $ 63,000
B) $ 65,100
C) $105,000
D) $111,000
E) none of the above

Question 44

Use the following information to answer questions
Andrews Company uses the retail inventory method to value its merchandise inventory. The following information is available:

-What is Andrews' Cost of Goods Sold for the year?

A) $216,000
B) $217,500
C) $261,000
D) $324,000
E) none of the above

Question 45

Assume that Andrews Company took a physical inventory and had $100,000 of inventory on hand (at retail prices). The company should show a loss for the period of

A) $1,000
B) $3,000
C) $3,200
D) $5,000
E) none of the above

Question 46

The lower-of-cost-or-market inventory method

A) presents ending inventory on the balance sheet at current replacement cost and Cost of Goods Sold on the income statement at actual cost.
B) is an application of the conservatism principle of accounting.
C) presents Cost of Goods Sold on the income statement at current replacement cost and ending inventory on the balance sheet at actual cost.
D) is a manufacturing company's equivalent to the retail method of inventory.
E) requires that ending inventory be recorded at current replacement cost by increasing Cost of Goods Sold.

Question 47

The term market in the phrase "lower of cost or market" generally means

A) net realizable value.
B) current replacement cost.
C) selling price.
D) discounted present value.
E) LIFO inventory cost.

Question 48

The lowest inventory valuation would result from applying lower of cost or market to

A) each major category of inventory.
B) total inventory.
C) each individual item.
D) retail inventory.
E) all of the above would result in the same valuation.

Question 49

Inventory errors

A) distort only a company's balance sheet.
B) at the end of one accounting period affect the following period's beginning inventory.
C) have an inverse relationship on ending inventory and cost of goods sold.
D) both a and b.
E) both b and c.

Question 50

If ending inventory in 2010 is understated, which of the following is true?

Question 51

If ending inventory in 2010 is overstated, which of the following is true?

Question 52

The average age of inventory is calculated as

A) average inventory divided by 360 days.
B) (cost of goods sold divided by ending inventory) divided by 360 days.
C) 360 days divided by (cost of goods sold divided by average inventory).
D) 360 days divided by cost of goods sold.
E) none of the above.

Question 53

Use the following information to answer questions
The following information is from McCain Corp.'s year-end 2009 and 20102 financial statements:


-What is McCain's inventory turnover ratio for 2010?

A) 3.52
B) 3.76
C) 3.88
D) 4.00
E) none of the above

Question 54

Use the following information to answer questions
The following information is from McCain Corp.'s year-end 2009 and 20102 financial statements:


-Assuming a 360-day year, what is the age of McCain's inventory (rounded to the nearest whole day)?

A) 90 days
B) 93 days
C) 96 days
D) 102 days
E) none of the above

Question 55

Bar coding technology has made the use of perpetual inventory systems more common than they were in the past.

Question 56

In a perpetual inventory system, journal entries are made to increase sales revenue and decrease costs of goods sold account balances when an entity sells its inventory.

Question 57

In a periodic system, temporary accounts are used to record the transactions associated with acquiring inventory.

Question 58

In a periodic inventory system, the inventory account balance during the year is the same as the ending inventory balance at the end of the previous year.

Question 59

Purchases Discounts is a debit-balanced contra-Purchases account used in a periodic inventory system.

Question 60

In a perpetual inventory system, purchases returns are recorded in a credit-balanced contra-Purchases account.

Question 61

When goods are shipped FOB destination, the seller retains title to the goods until they reach their destination.

Question 62

In a perpetual inventory system, two entries are required when goods are returned by a customer to a vendor.

Question 63

In a perpetual inventory system, prompt-pay discounts are recorded as reductions to Accounts Receivable.

Question 64

Cost of goods available for sale is equal to beginning inventory plus net purchases minus ending inventory.

Question 65

The three most common types of flow assumptions are FIFO, LIFO, and specific identification.

Question 66

To use the specific identification method, inventory goods must have a distinct way in which to be recognized.

Question 67

A cost flow assumption is used when a business understands the distinct pattern in which goods are sold.

Question 68

When a sale occurs and a company uses the FIFO method of inventory costing, the newest costs of inventory items are sent to Cost of Goods Sold.

Question 69

When a sale occurs and a company uses the LIFO method of inventory costing, the newest costs of inventory items are sent to Cost of Goods Sold.

Question 70

When a company uses the moving average method of inventory costing, an average cost is computed for inventory after each purchase.

Question 71

FIFO yields a most realistic picture of inventory value than LIFO does.

Question 72

FIFO provides a better matching of revenue and expenses than LIFO does.

Question 73

Because FIFO yields lower profits than LIFO in a period of steadily rising prices, the FIFO method translates into lower tax payments.

Question 74

International Financial Reporting Standards allow the use FIFO and LIFO, but not moving average, inventory valuation for financial reporting purposes.

Question 75

To use the retail inventory method, there should be a consistent relationship between costs and selling prices of a company's products.

Question 76

In a retail store, an inventory write-down related to the use of lower-of-cost-or-market would be debited to Merchandise Inventory.

Question 77

If ending inventory in 2010 is overstated, then net income in 2010 will be overstated.

Question 78

If beginning inventory in 2010 is overstated, then net income will be overstated.

Question 79

A change in inventory methods will make inventory ratios increase.

Question 80

A high rate of inventory turnover decreases the risk of inventory obsolescence.