Deck 5: Inventory

Question 1

A method of valuing inventory based on the average of units is called the:

A)LIFO method.
B)average cost method.
C)specific-unit-cost method.
D)FIFO method.

Answer 1

average cost method.

Question 2

When using LIFO, 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.

Answer 2

how many units were sold, not which units were sold.

Question 3

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

A)periodic system.
B)perpetual system.
C)LIFO system.
D)FIFO system.

Answer 3

periodic system.

Question 4

A method of valuing inventory based on the assumption that the oldest goods will be sold first is called the:

A)LIFO method.
B)average cost method.
C)specific-unit-cost method.
D)FIFO method.

Question 5

Under the average cost method, the flow of costs 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.

Question 6

Inventory is probably the retailer's smallest (by value)current asset.

Question 7

The Classics Collectibles, an antique shop, would most likely use the FIFO method of accounting for inventory.

Question 8

Under the FIFO method, the flow of costs 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.

Question 9

Manufacturers have three different kinds of inventory.

Question 10

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.

Question 11

The quantity purchased and purchase price is tracked through:

A)inventory charting.
B)FIFO and LIFO only.
C)specific identification method only.
D)inventory layers.

Question 12

Grocery stores are required to use the FIFO method because they sell the oldest stock first to avoid spoilage.

Question 13

A method of valuing inventory based on the assumption that the newest goods will be sold first is called the:

A)LIFO method.
B)average cost method.
C)specific identification method.
D)FIFO method.

Question 14

GAAP allows two different kinds of inventory costing methods.

Question 15

Under the specific-identification method, the flow of costs 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.

Question 16

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

Question 17

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

Question 18

Under the LIFO method, the flow of costs 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.

Question 19

A method of valuing inventory based on the costs for each individual item is called the:

A)LIFO method.
B)average cost method.
C)specific identification method.
D)FIFO method.

Question 20

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

A)periodic system.
B)perpetual system.
C)LIFO system.
D)FIFO system.

Question 21

A custom boat shop would probably cost its inventory using the:

A)LIFO method of inventory costing.
B)FIFO method of inventory costing.
C)moving average method of inventory costing.
D)specific-identification method of inventory costing.

Question 22

The journal entries to record the purchases of inventory on account are different based on the costing method chosen.

Question 23

The sum of ending inventory and cost of goods available for sale equals cost of goods sold.

Question 24

Part of the journal entry to record the cost of an item for $28 that sold for $42 cash under the perpetual inventory system is:

A)debit Sales, $42; credit Cost of Goods Sold, $28; credit Cash, $14.
B)debit Cost of Goods Sold, $42; sales, $42.
C)debit Cash, $42; credit Inventory $42.
D)debit Cost of Goods Sold $28; credit Inventory, $28.

Question 25

A manufacturer's goods available for sale represents:

A)work-in-process inventory.
B)raw materials inventory.
C)cost of goods sold inventory.
D)finished goods inventory.

Question 26

C&S Petstore purchased 50 cases of dog food on January 1 and 25 cases of dog food on January 5. Right away, 50 cases were sold, so they purchased an additional 50 cases of dog food on January 15. How many inventory layers were created from these purchases?

A)1
B)3
C)75
D)125

Question 27

The LEAST widely used of the four inventory valuation methods is:

A)FIFO.
B)LIFO.
C)average cost.
D)specific-identification.

Question 28

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 29

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

A)raw materials
B)purchases
C)finished goods
D)work-in-process

Question 30

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:

A)debiting Accounts Receivable and crediting Sales.
B)debiting Accounts Receivable and crediting Inventory.
C)debiting Accounts Receivable and crediting Cost of Goods Sold.
D)debiting Cost of Goods Sold and crediting Accounts Receivable.

Question 31

The journal entry to record the purchase of $7,500 of inventory on account under the perpetual inventory system is:

A)debit Inventory, $7,500; credit Cash, $7,500.
B)debit Purchases, $7,500; credit Accounts Payable, $7,500.
C)debit Inventory, $7,500; credit Accounts Payable, $7,500.
D)debit Cost of Goods Sold, $7,500; credit Inventory, $7,500.

Question 32

Liberty, Inc. has the following list of inventory:
Under specific-identification, what is Liberty's ending inventory if ICF and CRD are not sold during the current period?

A)$34,294
B)$40,643
C)$34,023
D)$51,409

Question 33

Goods such as milk, bread, and cheese need to be sold quickly due to potential spoilage. Therefore, they would probably be costed using the:

A)LIFO method of inventory costing.
B)FIFO method of inventory costing.
C)average cost method of inventory costing.
D)any method as the physical flow and the cost flow are different.

Question 34

Inventory is shown on the:

A)Balance Sheet as a long-term asset.
B)Income Statement before gross profit.
C)Balance Sheet as a current asset.
D)Income Statement after gross profit.

Question 35

The various inventory costing methods will still produce the same cost of goods sold value.

Question 36

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.

Question 37

Beginning inventory plus net purchases equals cost of goods sold.

Question 38

New technology, like the latest cell phones and HDTV, would probably be costed using the:

A)LIFO method of inventory costing.
B)FIFO method of inventory costing.
C)moving average method of inventory costing.
D)any method as the physical flow and the cost flow are different.

Question 39

Liberty, Inc. has the following list of inventory:
Under specific-identification, what is Liberty's cost of goods sold if ICF and CRD were not sold during the current period?

A)$34,224
B)$40,633
C)$41,003
D)$51,299

Question 40

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 costing method used.
D)number of items sold.

Question 41

Lionworks Enterprises had the following inventory data:
Assuming LIFO, what is the cost of goods sold for the July 14 sale?

A)$451
B)$416
C)$472
D)$531

Question 42

Given the following inventory activity, what is ending inventory using the perpetual LIFO costing method? (Round any intermediary calculations to the nearest cent and your final answer to the nearest dollar.)

A)195 units @ $3.32
B)120 units @ $3.00 and 45 units @ $2.50 and 30 units @ $6.00
C)165 units @ $2.83 and 30 units @ $6.00
D)105 units @ $3.00 and 60 units @ $2.50 and 30 units @ $6.00

Question 43

When using the LIFO inventory method, the ending inventory has the newer, higher costs.

Question 44

When using the FIFO inventory method, the ending inventory has the newer costs.

Question 45

Lionworks Enterprises had the following inventory data:
Assuming average cost, what is the ending inventory after the July 14 sale? (Round any intermediary calculations to the nearest cent and your final answer to the nearest dollar.)

A)$248
B)$256
C)$220
D)$232

Question 46

Given the following inventory activity, what is ending inventory using the perpetual FIFO costing method? (Round any intermediary calculations to the nearest cent and your final answer to the nearest dollar.)

A)90 units at $4.75
B)80 units @ $6.50 and 10 units @ $4.75
C)45 units @ $6.50 and 30 units @ $3.00 and 15 units @ $4.75
D)85 units @ $6.50 and 5 units @ $3.00

Question 47

Lionworks Enterprises had the following inventory data:
Assuming average cost, what is the cost of goods sold for the July 7 sale? (Round any intermediary calculations to the nearest cent and round your final answer to the nearest dollar.)

A)$660
B)$684
C)$672
D)$666

Question 48

One benefit of the LIFO inventory method is that it most closely matches the actual flow of goods in most cases.

Question 49

Lionworks Enterprises had the following inventory data:
Assuming LIFO, what is the ending inventory after the July 14 sale? (Round any intermediary calculations to the nearest cent and your final answer to the nearest dollar.)

A)$224
B)$200
C)$214
D)$192

Question 50

Lionworks Enterprises had the following inventory data:
Assuming FIFO, what is the ending inventory after the July 14 sale? (Round any intermediary calculations to the nearest cent and your final answer to the nearest dollar.)

A)$204
B)$65
C)$228
D)$206

Question 51

Lionworks Enterprises had the following inventory data:
Assuming FIFO, what is the cost of goods sold for the July 7 sale?

A)$588
B)$668
C)$652
D)$644

Question 52

Lionworks Enterprises had the following inventory data:
Assuming average cost, what is the cost of goods sold for the July 14 sale?

A)$340
B)$448
C)$436
D)$456

Question 53

Lionworks Enterprises had the following inventory data:
Assuming FIFO, what is the cost of goods sold for the July 14 sale? (Round any intermediary calculations to the nearest cent and your final answer to the nearest dollar.)

A)$441
B)$416
C)$444
D)$456

Question 54

Given the following inventory activity, what is ending inventory using the perpetual average costing method? (Round any intermediary calculations to the nearest cent and your final answer to the nearest dollar.)

A)155 units @ $5.51
B)80 units @ $6.00 and 15 units @ $5.50 and 60 units @ $5
C)95 units @ $5.83 and 60 units @ $5
D)55 units @ $6.00 and 40 units @ $5.50 and 60 units @ $5

Question 55

When purchasing inventory on account in a perpetual inventory system, which of the following is TRUE?

A)The journal entry would be exactly the same for all inventory costing methods.
B)LIFO and FIFO inventory valuation methods require a debit to inventory while all others require a debit to purchases.
C)GAAP does not allow inventory to be purchased on account.
D)The average costing method requires a credit to inventory.

Question 56

Lionworks Enterprises had the following inventory data:
Assuming LIFO, what is the cost of goods sold for the July 7 sale? (Round your final answer to the nearest dollar.)

A)$628
B)$632
C)$636
D)$626

Question 57

The choice of inventory costing method does not have an effect on net income.

Question 58

Cost of goods sold equals:

A)ending inventory plus net purchases minus beginning inventory.
B)beginning inventory minus net purchases plus ending inventory.
C)beginning inventory plus net sales minus ending inventory.
D)beginning inventory plus net purchases minus ending inventory.

Question 59

In which case will the journal entries relating to inventory differ based on the chosen costing method?

A)When inventory is purchased on account.
B)When inventory is purchased for cash.
C)When inventory is sold - the revenue entry will differ.
D)When inventory is sold - the inventory entry will differ.

Question 60

According to the consistency principle, companies may change inventory costing methods depending on circumstances.

Question 61

In order to attract investors and borrow on favorable terms, a company would use ________ in times when inventory costs are rising.

A)LIFO
B)FIFO
C)average costing
D)specific-identification costing

Question 62

________ produces the highest cost of goods sold and the lowest gross profit when prices are increasing.

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

Question 63

Ignoring a write-off of inventory because it will not make a difference to financial statement users is an example of:

A)conservatism.
B)consistency.
C)materiality.
D)entity.

Question 64

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

Question 65

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)LIFO
C)Average cost
D)Any method, as there is no effect on net income or taxes for the period if costs are constant.

Question 66

________ produces the lowest cost of goods sold and the highest gross profit when prices are increasing.

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

Question 67

In order to pay the least income tax possible in periods of rising inventory costs, the company should use which of the following inventory costing methods?

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

Question 68

A drawback to using ________ when inventory costs are rising is that the company reports lower net income.

A)LIFO
B)FIFO
C)average costing
D)specific-identification costing

Question 69

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

Question 70

The average cost method generates gross profit, net income, and income tax amounts that fall between the extremes of FIFO and LIFO.

Question 71

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

Question 72

Under the conservatism rule, assets and income would be understated, rather than overstated.

Question 73

The consistency principle is mandated by:

A)the IRS.
B)the SEC.
C)GAAP.
D)the federal government.

Question 74

Companies that want a "middle ground" solution to net income and the amount of income taxes that the company will pay will value their inventory at:

A)FIFO.
B)LIFO.
C)average cost.
D)specific identification.

Question 75

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)LIFO
C)Average cost
D)Specific identification

Question 76

The most popular inventory costing method is:

A)FIFO.
B)LIFO.
C)average cost.
D)specific identification.

Question 77

Changing from LIFO to FIFO over two accounting periods could be viewed as a violation of which accounting concept or principle?

A)Conservatism
B)Consistency
C)Materiality
D)Entity

Question 78

Under the LCM rule, a business must report inventory at the current replacement cost.

Question 79

________ helps investors compare a company's financial statements from one period to the next.

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

Question 80

Which inventory costing method results in the oldest costs in ending inventory?

A)Average cost
B)Last-In, First-Out
C)First-In, First-Out
D)Average-In, First-Out