Deck 9: Inventory

Question 1

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.

Answer 1

B

Question 2

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:


- What was the balance of Pinkerton Ltd's accounts payable at the end of the period?

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

Answer 2

$40 000

Question 3

Which of the following statements about the last-in,first-out (LIFO)assumption is true?

A) LIFO assumes that inventory on hand consists of the oldest units.
B) LIFO results in newer costs appearing in the balance sheet.
C) LIFO assumes the items sold are those purchased first.
D) None of the answers provided.

Answer 3

B

Question 4

It is necessary to use a purchases account with:

A) only the periodic count method.
B) only the perpetual accounting control method.
C) both the periodic count and the perpetual accounting control methods.
D) either method,if the system designer has included it in the chart of accounts.

Question 5

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 6

During the year ended 30 June 2016,Rico Ltd had net sales of $750 000 and net purchases of $440 000.Cost of goods sold was $475 000.What was Rico Ltd's gross profit for the year ended 30 June 2016?

A) $240 000
B) $275 000
C) $310 000
D) $475 000

Question 7

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.

Question 8

At 1 July 2015,Epsilon Pty Ltd had 100 items of inventory which had cost $50 each.During the year ended 30 June 2016,it purchased 1500 items at a cost of $50 each.Of these,200 were returned to the supplier as they were damaged.During the year,1200 items were sold for $80 each,but 50 were returned by customers.Overhead expenses during the year amounted to $15 000.

- What was the value of inventory in the balance sheet at 30 June 2016?

A) $22 500
B) $10 000
C) $7500
D) $12 500

Question 9

During year ended 30 June 2016,Rugger Ltd had net sales of $256 000.Inventory at 1 July 2015 was $25 000,and at 30 June 2016 it was $18 000.Purchases were $115 000.What was the gross profit for year ended 30 June 2016?

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

Question 10

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 may be detected.
C) Recording is simplified.
D) The perpetual inventory system provides a continuous record of cost of goods sold.

Question 11

A company discovered that inventory that cost $1000 and normally sells for $1200 has become obsolete and will be scrapped next month.The effect of the adjusting journal entry is to:

A) decrease profit by $1000 and decrease total assets by $1000.
B) decrease profit by $1200 and decrease total assets by $1000.
C) decrease profit by $1200 and decrease total assets by $1200.
D) decrease profit by $1000 and not affect total assets.

Question 12

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 13

The entry to record a credit sale when the perpetual inventory method is employed will include a debit to:

A) cost of goods sold.
B) sales.
C) purchases.
D) inventory.

Question 14

The entry to record a credit purchase when the perpetual method is employed is:

A) Dr Purchases $\quad$ $\quad$ Cr Accounts payable
B) Dr Purchases $\quad$ $\quad$ Cr Inventory
C) Dr Inventory $\quad$ $\quad$ Cr Accounts payable
D) Dr Cost of goods sold $\quad$ Cr Accounts payable

Question 15

At 1 July 2015,Epsilon Pty Ltd had 100 items of inventory which had cost $50 each.During the year ended 30 June 2016,it purchased 1500 items at a cost of $50 each.Of these,200 were returned to the supplier as they were damaged.During the year,1200 items were sold for $80 each,but 50 were returned by customers.Overhead expenses during the year amounted to $15 000.

-What was Epsilon Pty Ltd's cost of goods sold for the year?

A) $47 500
B) $57 500
C) $60 000
D) $62 500

Question 16

The perpetual accounting control method has which of the following advantages over the periodic inventory method?

A) A physical count is not required.
B) Stock shortages are eliminated.
C) Cost of operation is lower.
D) Details of the number of items on hand is available.

Question 17

Which of the following entries records a credit sale under the perpetual inventory system?

A) Dr Cost of goods sold
B) Dr Sales
C) Dr Inventory
D) Dr Accounts receivable

Question 18

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

A) debit to purchases.
B) credit to inventory.
C) debit to sales.
D) debit to inventory.

Question 19

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

A) $135 000
B) $186 000
C) $234 000
D) $240 000

Question 20

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) A separate record is kept for each item of inventory.
D) An inventory count can reveal inventory losses.

Question 21

A company purchases and sells Roofoo.It began last year with five units of Roofoo on hand at a cost of $10 each,and during the year its purchases and sales were as follows:

- What was the value of the ending inventory of Roofoo,using the FIFO assumption?

A) $30
B) $39
C) $45
D) $15

Question 22

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 answers provided.

Question 23

Diligent Ltd had 5 units of the commodity Algo on hand at 1 September 2016.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) $1460
B) $1480
C) $1580
D) $2400

Question 24

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 25

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) $1200
B) $1230
C) $1370
D) $1400

Question 26

In times of inflation,which cost flow assumption provides the highest inventory asset?

A) FIFO
B) Moving weighted average
C) LIFO
D) It depends on the rate of inflation

Question 27

A company purchases and sells Roofoo.It began last year with five units of Roofoo on hand at a cost of $10 each,and during the year its purchases and sales were as follows:

-What was the value of ending inventory of Roofoo,using the LIFO assumption in a periodic inventory system?

A) $30.
B) $36.43.
C) $45.
D) $109.26.

Question 28

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 29

Which of the following statements about the use of the LIFO method in Australia is true?

A) The LIFO method is not allowed to be used for either financial reporting or tax purposes.
B) The LIFO method may be used for both financial reporting and tax purposes.
C) The LIFO method may be used for financial reporting but not for tax purposes.
D) The LIFO method can only be used if approval is received from the Australian Taxation Office.

Question 30

Diligent Ltd had 5 units of the commodity Algo on hand at 1 September 2016.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) $1460
B) $1480
C) $1540
D) $1590

Question 31

Diligent Ltd had 5 units of the commodity Algo on hand at 1 September 2016.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) $2640
B) $2700
C) $2720
D) $2400

Question 32

A company purchases and sells Roofoo.It began last year with five units of Roofoo on hand at a cost of $10 each,and during the year its purchases and sales were as follows:

-What was the value of the ending inventory of Roofoo,using the moving weighted average assumption and a perpetual inventory system?

A) $45
B) $39
C) $36.43
D) $15

Question 33

If purchase prices are falling,which cost flow assumption provides the highest cost of goods sold?

A) FIFO
B) Annual weighted average
C) Moving weighted average
D) LIFO

Question 34

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 35

Diligent Ltd had 5 units of the commodity Algo on hand at 1 September 2016.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) $2600
B) $2700
C) $2720
D) $1400

Question 36

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) $2800.
B) $3100.
C) $3400.
D) none of the answers provided.

Question 37

Diligent Ltd had 5 units of the commodity Algo on hand at 1 September 2016.The following purchases and sales were made during September:

-What was the value of ending inventory of Algo,using the FIFO assumption?

A) $1460
B) $1480
C) $2400
D) $1400

Question 38

Which of the following statements about the use of the weighted average assumption is true?

A) The balance sheet figure is between the LIFO and FIFO figures.
B) When prices are rising,it shows lower balance sheet figures than the LIFO method.
C) When prices are falling,it shows lower balance sheet figures than the FIFO method.
D) None of the answers provided.

Question 39

Diligent Ltd had 5 units of the commodity Algo on hand at 1 September 2016.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) $2640
B) $2700
C) $2720
D) $3180

Question 40

Diligent Ltd had 5 units of the commodity Algo on hand at 1 September 2016.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) $1580
B) $1480
C) $1460
D) $1590

Question 41

Inventory with a value of $300 000 was written down to $250 000 in June 2016 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) decrease assets and decrease shareholders' equity.

Question 42

Raw materials of inventory were purchased on credit for $200 000 on 10 June.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.