Deck 6: Inventory

Question 1

Merchandise inventory represents the goods that a merchandiser has available to sell to its customers.

Answer 1

True

Question 2

Under the FIFO method, the flow of goods through the accounting records will:

A) be nearly the opposite of the physical flow of goods through the business.
B) closely match the physical flow of goods through the business.
C) exactly match the physical flow of goods through the business.
D) have no relationship to the physical flow of goods through the business.
E) sometimes match the physical flow of goods through the business.

Answer 2

closely match the physical flow of goods through the business.

Question 3

A manufacturer uses __________ inventory to produce the goods it sells.

Answer 3

raw materials

Question 4

Beginning inventory plus net purchases equals cost of goods sold.

Question 5

Cost of goods sold may include all of the following EXCEPT for:

A) the actual cost of the item.
B) shipping costs.
C) insurance.
D) management salaries.
E) the cost to make the item.

Question 6

What is the method of valuing inventory that is based on the assumption that the oldest goods will be
sold first?

Question 7

Merchandising companies can be either wholesalers or retailers.

Question 8

An inventory layer is synonymous with a separate:

A) sale of merchandise.
B) purchase of merchandise.
C) return of merchandise.
D) customer return of merchandise.
E) discount of goods from the supplier.

Question 9

Which method of valuing inventory is based on the average of units?

Question 10

Goods such as milk, bread, and cheese would probably be costed using what method?

Question 11

Manufacturers generally purchase large amounts of products from wholesalers and resell them to retailers.

Question 12

The inventory system that uses the merchandise inventory account as an active account is called:

Question 13

What does a manufacturer's goods available for sell represent?

Question 14

The inventory system whereby the merchandise inventory account balance is merely a record of the most recent physical inventory count is called the:

Question 15

GAAP allows two different kinds of inventory costing methods.

Question 16

What is the method of valuing inventory that is based on the costs for each individual item?

Question 17

An accounting department only needs to know:

A) how many units were sold, not which units were sold.
B) which units were sold, not how many units were sold.
C) the specific price of a specific unit.
D) the average price of a specific unit.
E) the physical flow of goods.

Question 18

Under the average cost method, the flow of goods through the accounting records will:

A) be the opposite of the physical flow of goods through the business.
B) closely match the physical flow of goods through the business.
C) exactly match the physical flow of goods through the business.
D) have no relationship to the physical flow of goods through the business.
E) sometimes match the physical flow of goods through the business.

Question 19

A new car lot would probably cost its inventory using what method?

Question 20

Under the specific-identification method, the flow of goods through the accounting records will:

A) be the opposite of the physical flow of goods through the business.
B) closely match the physical flow of goods through the business.
C) exactly match the physical flow of goods through the business.
D) have no relationship to the physical flow of goods through the business.
E) sometimes match the physical flow of goods through the business.

Question 21

Rick Company's beginning inventory and purchases during the fiscal year ended December 31, 2012 were as follows: (NOTE: The company uses a perpetual system of inventory.)

What is the ending inventory of Rick Company for 2012 using FIFO?

Question 22

Casey Company's beginning inventory and purchases during the fiscal year ended December 31, 2012 were as follows: (NOTE: The company uses a perpetual system of inventory.)

What is the ending inventory of Casey Company for 2012 using FIFO?

Question 23

Journalize the following transactions using the perpetual inventory method.
June 11 Purchased $6,700 of merchandise on account, terms 4/10, n/45.
June 14 Returned $990 of merchandise that was damaged for credit.
June 18 Paid balance of account from purchase of June 11.

Question 24

When merchandise is sold and the perpetual system of inventory is used, the journal entry to record a
sale of merchandise on account would include:

Question 25

Brandon Company has the following list of inventory:

Under specific-identification, what is Brandon's cost of goods sold if EOR and CIS were not sold during the current period?

Question 26

A piece of artwork would probably be inventoried using the specific-identification method.

Question 27

The amount of cost of goods sold is MOST influenced by the:

A) cost of the items sold.
B) cost of the unsold items.
C) inventory method used.
D) number of items sold.
E) the physical flow of inventory.

Question 28

Isaiah Sporting Goods uses the perpetual average cost method of determining inventory costs.
Below is the inventory record for Product C124.

What is the average cost per unit after the receipt of the June 21 inventory?

Question 29

Compare the effects of the different costing methods on the financial statements
The choice of inventory costing method does not have an effect on net income.

Question 30

Journalize the following inventory transactions using the perpetual inventory method.
April 17 Purchased $4,800 of inventory, on account, terms 2/10, n/30.
April 22 Returned $750 of damaged merchandise to supplier.
April 25 Paid balance due on inventory purchase of April 17.

Question 31

The objective of inventory tracking is to allocate the cost of goods available for sale between the cost of units sold and the cost of unsold inventory.

Question 32

Rick Company's beginning inventory and purchases during the fiscal year ended December 31, 2012 were as follows: (NOTE: The company uses a perpetual system of inventory.)

What is the cost of goods sold for Rick Company for 2012 using FIFO showing detailed calculations.

Question 33

Compare the effects of the different costing methods on the financial statements
In periods of ricing prices, the average cost method generates gross profit, net income, and income tax amounts that fall below the FIFO method.

Question 34

Brandon Company has the following list of inventory:

Under specific-identification, what is Brandon's ending inventory if EOR and CIS are not sold during the current period?

Question 35

Compare the effects of the different costing methods on the financial statements
In order to pay the least income tax possible in periods of decreasing inventory costs, the company should use which of the following inventory costing methods?

A) FIFO
B) Perpetual
C) Average cost
D) Specific identification
E) Periodic

Question 36

Prepare the journal entry to record the purchase of $7,400 of inventory on account under the perpetual
inventory method.

Question 37

Inventory is shown on the:

A) balance sheet as an asset.
B) income statement before gross profit.
C) statement of retained earnings.
D) income statement after gross profit.
E) balance sheet as a long-term asset.

Question 38

The LEAST widely used of the inventory valuation methods is:

A) FIFO.
B) perpetual system.
C) average cost.
D) specific-identification.
E) periodic system.

Question 39

Cost of goods sold is shown on the:

A) balance sheet as an asset.
B) income statement before gross profit.
C) statement of retained earnings.
D) income statement after gross profit.
E) balance sheet as a liability.

Question 40

Prepare the journal entries to record the cost of an item for $28 that sold for $40 cash under the perpetual
inventory method.

Question 41

Compare the effects of the different costing methods on the financial statements
__________ produces the lowest cost of goods sold and the highest gross profit when prices are increasing.

Question 42

Compare the effects of the different costing methods on the financial statements
________ helps investors compare a company's financial statements from one period to the next.

A) Reliability
B) Consistency
C) Objectivity
D) Entity
E) Comparability

Question 43

Compare the effects of the different costing methods on the financial statements
In order to pay the least income tax possible in periods of constant costs, the company should use which of the following inventory costing methods?

A) FIFO
B) Perpetual
C) Average cost
D) Periodic
E) Any method, as constant costs have no effect on net income or taxes for the period

Question 44

Making notes in the financial statements to explain the justification of valuation changes and other financial decisions would be an example of:

A) conservatism.
B) consistency.
C) materiality.
D) full disclosure.
E) cost principle.

Question 45

Compare the effects of the different costing methods on the financial statements
When inventory prices are rising, what is the effect on Inventory, Cost of Goods Sold, and Net Income under the FIFO method?

Question 46

Changing from Average Cost to FIFO over two accounting periods could be viewed as a violation of what accounting concept or principle?

A) Conservatism
B) Consistency
C) Materiality
D) Entity
E) Cost Principle

Question 47

Compare the effects of the different costing methods on the financial statements
In order to attract investors and borrow on attractive terms, what method would a company use in times when inventory costs are rising?

Question 48

Compare the effects of the different costing methods on the financial statements
In order to pay the least income tax possible in periods of rising inventory costs, which inventory costing method should the company use?

Question 49

Compare the effects of the different costing methods on the financial statements
What are the benefits of using FIFO?

Question 50

Compare the effects of the different costing methods on the financial statements
Consistency is mandated by:

A) CRA.
B) the OSC.
C) IFRS and Canadian ASPE.
D) the federal government.
E) the provincial government.

Question 51

If a company has not recorded a significant write off of inventory in the financial statements, which principle has been violated?

A) Conservatism
B) Consistency
C) Materiality
D) Entity
E) cost principle

Question 52

Compare the effects of the different costing methods on the financial statements
When inventory costs are rising, what is the income statement effect if a company uses the average cost method?

Question 53

Compare the effects of the different costing methods on the financial statements
Which method produces the lowest cost of goods sold and the highest gross profit when prices are
increasing?

Question 54

Compare the effects of the different costing methods on the financial statements
When inventory prices are decreasing, what is the effect on Inventory, Cost of Goods Sold ,and Net Income under the FIFO method?

Question 55

A material amount of value is one large enough to cause someone to change a decision that has been made.

Question 56

Compare the effects of the different costing methods on the financial statements
What is the most popular inventory costing method?

Question 57

Compare the effects of the different costing methods on the financial statements
What are the benefits of using average costing?

Question 58

Compare the effects of the different costing methods on the financial statements
If a company wants a "middle ground" solution to net income and the amount of income taxes that the
company will pay, what method would they use to value their inventory?

Question 59

Under the conservatism principle, liabilities and expenses would be overstated, rather than understated.

Question 60

The LCM rule compares original cost to current replacement cost to determine the amount at which inventory should be valued.

Question 61

Assigning LCNRV to the items that make up the inventory of merchandise at the end of the accounting period is an application of which accounting concept?

Question 62

When using the LCNRV rule, is the calculation of ending inventory applied to inventory on an item-by-item basis or as a whole?

Question 63

Footnotes are used with what concept or principle of accounting?

Question 64

An example of full disclosure would be a footnote to the financial statements indicating what method was used to value inventory.

Question 65

Nicola Company reports the following inventory information:

What is the total value of the merchandise under LNRV M (lower of cost or net realizable value)? Show all your calculations.

Question 66

If shrinkage is found for $500, what is the adjusting entry that would be required?

Question 67

Which of the following would probably NOT cause inventory shrinkage?

A) Employee theft
B) Spoilage of items
C) Spills of items
D) Correct counting of all inventory
E) Customer theft

Question 68

Shrinkage refers to the loss of inventory due to theft, damage, or other similar occurrences.

Question 69

Knowledgeable decisions that are made by outsiders who read financial reports are a result of the concept of conservatism.

Question 70

When is an item considered to be material?

Question 71

If the replacement cost of inventory is less than its historical cost, the company will write down the
inventory. What is the journal entry required?

Question 72

Which is NOT an assurance of footnote disclosures?

A) Conservative information
B) Reliable information
C) Comparable information
D) Relevant information
E) Materiality

Question 73

Which of the following is probably NOT used when taking a physical inventory?

A) Pre-numbered count sheets
B) Tags to show what inventory has been counted
C) Maps of the location of the inventory
D) Random counts of items
E) Prewritten inventory instructions

Question 74

Which account would always be used for an inventory adjustment?

Question 75

Meranda Company reports the following inventory information:

What is the total value of the merchandise under LCNRV (lower of cost or net realizable value)? Show all calculations.

Question 76

Which is usually NOT a common practice in taking a physical inventory?

A) Taking inventory during slow store hours
B) Hiring an outside firm
C) Taking inventory during the November and December holidays
D) Taking inventory in team of two persons
E) Having prewritten instructions

Question 77

What accounting principle would be followed when underestimating inventory?

Question 78

Which of the following would probably NOT need to be disclosed in a footnote?

A) A change of inventory methods
B) A material change in estimated shrinkage
C) A change in depreciation method
D) A 10% increase in sales
E) The accounting policy used

Question 79

What is the term called that describes the decrease in inventory due to employee theft, customer theft,
and the damage, spillage, or spoilage of inventory items?

Question 80

One lot of merchandise was valued at $566.34. A second count of the same merchandise showed
$566.82. The difference could be ignored due to which accounting principle?