Deck 7: Inventories

Question 1

The choice of an inventory costing method has no significant impact on the financial statements.

Answer 1

False

Question 2

The specific identification inventory method should be used when the inventory consists of identical,low-cost units that are purchased and sold frequently.

Answer 2

False

Question 3

When using the FIFO inventory costing method,the most recent costs are assigned to the cost of merchandise sold.

Answer 3

False

Question 4

A perpetual inventory system is an effective means of control over inventory.

Question 5

Under the periodic inventory system,a physical inventory is taken to determine the cost of the inventory on hand and the cost of the merchandise sold.

Question 6

A subsidiary inventory ledger can be an aid in maintaining inventory levels at their proper levels.

Question 7

Safeguarding inventory and proper reporting of the inventory in the financial statements are the reasons for controlling the inventory.

Question 8

Under the periodic inventory system,the merchandise inventory account continuously discloses the amount of inventory on hand.

Question 9

The weighted average inventory cost flow method is the least used of the inventory costing methods.

Question 10

One of the two internal control procedures over inventory is to properly report inventory on the financial statements.

Question 11

Of the three widely used inventory costing methods
(FIFO,LIFO,and average cost),the LIFO method of costing inventory assumes costs are charged based on the most recent purchases first.

Question 12

If the perpetual inventory system is used,the merchandise inventory account is debited for purchases of merchandise.

Question 13

Inventory controls start when the merchandise is shelved in the store area.

Question 14

The three inventory costing methods will normally each yield different amounts of net income.

Question 15

A purchase order establishes an initial record of the receipt of the inventory.

Question 16

During periods of increasing costs,the use of the FIFO method of costing inventory will result in a greater amount of net income than would result from the use of the LIFO cost method.

Question 17

A physical inventory should be taken at the end of every month.

Question 18

FIFO is the inventory costing method that follows the physical flow of the goods.

Question 19

The average cost method will always yield results between FIFO and LIFO.

Question 20

Under the LIFO inventory costing method,the most recent costs are assigned to ending inventory.

Question 21

In valuing merchandise for inventory purposes,net realizable value is the estimated selling price less any direct costs of disposal.

Question 22

One negative effect of carrying too much inventory is risk that customers will change their buying habits.

Question 23

Inventory errors,if not discovered,will self-correct within two years.

Question 24

Direct disposal costs do not include special advertising or sales commissions.

Question 25

If ending inventory for the year is understated,net income for the year is overstated.

Question 26

The use of the lower-of-cost-or-market method of inventory valuation increases net income for the period in which the inventory replacement price declined.

Question 27

A consignor who has goods out on consignment with an agent should include the goods in ending inventory even though they are not in the possession of the consignor.

Question 28

During periods of increasing costs,the use of the FIFO method of costing inventory will yield an inventory amount for the balance sheet that is higher than LIFO would produce.

Question 29

If ending inventory for the year is overstated,owner's equity reported on the balance sheet at the end of the year is understated.

Question 30

The lower of cost or market is a method of inventory valuation.

Question 31

During periods of rapidly rising costs,the use of the LIFO method results in illusory or inventory profits.

Question 32

When merchandise inventory is shown on the balance sheet,both the method of determining the cost of the inventory and the method of valuing the inventory should be shown.

Question 33

During periods of increasing costs,an advantage of the LIFO inventory cost method is that it matches more recent costs against current revenues.

Question 34

"Market" as used in the phrase "lower of cost or market" for valuing inventory,refers to the price at which the inventory is being offered for sale by its owner.

Question 35

Generally,the lower the days' sales in inventory,the better.

Question 36

Average inventory is computed by adding the inventory at the beginning of the period to the inventory at the end of the period and dividing by 2.

Question 37

The lower-of-cost-or-market method of determining the value of ending inventory can be applied on an item-by-item basis,by major classification of inventory,or by the total inventory.

Question 38

It is not unusual for large companies to use different inventory costing methods for different segments of their inventory.

Question 39

Unsold consigned merchandise should be included in the consignee's inventory.

Question 40

During periods of decreasing costs,the use of the LIFO method of costing inventory will result in a lower amount of net income than would result from the use of the FIFO method.

Question 41

If a company uses a periodic inventory system,the gross profit method can be used to estimate inventory for monthly or quarterly statements.

Question 42

The primary objectives of control over inventory are

A)safeguarding the inventory from damage and maintaining constant observation of the inventory
B)reporting inventory in the financial statements and taking a physical inventory
C)maintaining constant observation of the inventory and reporting inventory in the financial statements
D)safeguarding inventory from damage and reporting inventory in the financial statements

Question 43

Ending inventory is made up of the oldest purchases when a company uses

A)first-in, first-out
B)last-in, first-out
C)average cost
D)retail method

Question 44

Under a perpetual inventory system,the amount of each type of merchandise on hand is available in the

A)customer's ledger
B)creditor's ledger
C)inventory ledger
D)purchase ledger

Question 45

All of the following are documents used for inventory control except a

A)petty cash voucher
B)vendor's invoice
C)receiving report
D)purchase order

Question 46

Inventory turnover measures the length of time it takes to acquire,sell,and replace the inventory.

Question 47

The inventory method that assigns the most recent costs to cost of merchandise sold is

A)FIFO
B)LIFO
C)weighted average
D)specific identification

Question 48

If a fire destroys the merchandise inventory,the gross profit method can be used to estimate the cost of merchandise destroyed.

Question 49

Which document authorizes the purchase of inventory from an approved vendor?

A)purchase order
B)petty cash voucher
C)receiving report
D)vendor's invoice

Question 50

Cost flow is in the order in which costs were incurred when using

A)average cost
B)last-in, first-out
C)first-in, first-out
D)weighted average

Question 51

Use of the retail inventory method requires taking a physical count of inventory.

Question 52

Taking a physical count of inventory

A)is not necessary when a periodic inventory system is used
B)should be done near year-end
C)has no internal control relevance
D)is not necessary when a perpetual inventory system is used

Question 53

Control of inventory should begin as soon as the inventory is ordered.Which of the following internal control steps is not done to meet this goal?

A)check the invoice to the receiving report
B)check the invoice to the purchase order
C)check the invoice with the person who specifically purchased the item
D)check the invoice for mathematical accuracy

Question 54

Which document establishes an initial record of the receipt of inventory?

A)receiving report
B)vendor's invoice
C)purchase order
D)petty cash voucher

Question 55

The two most widely used methods for determining the cost of inventory are

A)FIFO and LIFO
B)FIFO and average cost
C)LIFO and average cost
D)gross profit and average cost

Question 56

Which of the following methods is appropriate for a business whose inventory consists of a relatively small number of unique,high-cost items?

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

Question 57

When merchandise sold is assumed to be in the order in which the purchases were made,the company is using

A)first-in, last-out
B)last-in, first-out
C)first-in, first-out
D)average cost

Question 58

Cost flow is in the reverse order in which costs were incurred when using

A)weighted average
B)last-in, first-out
C)first-in, first-out
D)average cost

Question 59

Which of the following is not an example of safeguarding inventory?

A)storing inventory in restricted areas
B)physical devices such as two-way mirrors, cameras, and alarms
C)matching receiving documents, purchase orders, and vendor's invoice
D)returning inventory that is defective or broken

Question 60

In the retail inventory method,the cost to retail ratio is equal to the cost of merchandise sold divided by the retail price of the merchandise sold.

Question 61

The inventory costing method that reports the most current prices in ending inventory is

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

Question 62

Use the information below to answer the following questions.
Boxwood Company sells blankets for $60 each. The following was taken from the inventory records during May. The company had no beginning inventory on May 1.
​
​
Assuming that the company uses the perpetual inventory system,determine the cost of merchandise sold for the sale of May 20 using the LIFO inventory cost method.

A)$136
B)$144
C)$180
D)$120

Question 63

Use the information below to answer the following questions.
Boxwood Company sells blankets for $60 each. The following was taken from the inventory records during May. The company had no beginning inventory on May 1.
​
​
Assuming that the company uses the perpetual inventory system,determine the gross profit for the sale of May 23 using the FIFO inventory cost method.

A)$108
B)$120
C)$72
D)$180

Question 64

Use the information below to answer the following questions.
​
The following units of an inventory item were available for sale during the year:
The firm uses the periodic inventory system. During the year, 60 units of the item were sold. ​
The value of ending inventory rounded to the nearest dollar using average cost is

A)$1,353
B)$1,263
C)$1,375
D)$1,150

Question 65

Use the information below to answer the following questions.
Boxwood Company sells blankets for $60 each. The following was taken from the inventory records during May. The company had no beginning inventory on May 1.
​
​
Assuming that the company uses the perpetual inventory system,determine the gross profit for the month of May using the LIFO cost method.​

A)$348
B)$452
C)$444
D)$356

Question 66

Use the information below to answer the following questions.
Boxwood Company sells blankets for $60 each. The following was taken from the inventory records during May. The company had no beginning inventory on May 1.
​
​
Assuming that the company uses the perpetual inventory system,determine the ending inventory for the month of May using the LIFO inventory cost method.

A)$324
B)$372
C)$320
D)$364

Question 67

The inventory costing method that reports the earliest costs in ending inventory is

A)FIFO
B)LIFO
C)weighted average
D)specific identification

Question 68

Use the information below to answer the following questions.
Boxwood Company sells blankets for $60 each. The following was taken from the inventory records during May. The company had no beginning inventory on May 1.
​
​
Assuming that the company uses the perpetual inventory system,determine the cost of merchandise sold for the sale of May 20 using the FIFO inventory cost method.

A)$120
B)$180
C)$136
D)$144

Question 69

Use the information below to answer the following questions.
​
The following units of an inventory item were available for sale during the year:
The firm uses the periodic inventory system. During the year, 60 units of the item were sold. ​
The value of ending inventory using FIFO is​

A)$1,250
B)$1,350
C)$1,375
D)$1,150

Question 70

Which of the following companies would be more likely to use the specific identification inventory costing method?

A)Gordon's Jewelers
B)Lowe's
C)Best Buy
D)Walmart

Question 71

Use the information below to answer the following questions.
​
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 FIFO method?

A)$655
B)$620
C)$690
D)$659

Question 72

Addison, Inc. uses a perpetual inventory system. The following is information about one inventory item for the month of September:
​

If Addison uses FIFO,the cost of the ending merchandise inventory on September 30 is

A)$800
B)$650
C)$750
D)$700

Question 73

The inventory data for an item for November are:Using a perpetual system,what is the cost of merchandise sold for November if the company uses LIFO?

A)$610
B)$600
C)$590
D)$580

Question 74

When using a perpetual inventory system,the journal entry to record the cost of merchandise sold is

A)debit Cost of Merchandise Sold; credit Sales
B)debit Cost of Merchandise Sold; credit Merchandise Inventory
C)debit Merchandise Inventory; credit Cost of Merchandise Sold
D)No journal entry is made to record the cost of merchandise sold.

Question 75

Use the information below to answer the following questions.
​
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 LIFO method?

A)$655
B)$620
C)$690
D)$659

Question 76

Use the information below to answer the following questions.
Boxwood Company sells blankets for $60 each. The following was taken from the inventory records during May. The company had no beginning inventory on May 1.
​
​
Assuming that the company uses the perpetual inventory system,determine the ending inventory value for the month of May using the FIFO inventory cost method.

A)$364
B)$372
C)$324
D)$320

Question 77

Under the _____ inventory method,accounting records maintain a continuously updated inventory value.

A)retail
B)periodic
C)physical
D)perpetual

Question 78

Use the information for Addison,Inc.If Addison uses LIFO,the cost of the ending merchandise inventory on September 30 is

A)$800
B)$650
C)$750
D)$700

Question 79

Use the information below to answer the following questions.
​
The following units of an inventory item were available for sale during the year:
The firm uses the periodic inventory system. During the year, 60 units of the item were sold. ​
The value of ending inventory using LIFO is​

A)$1,250
B)$1,350
C)$1,375
D)$1,150

Question 80

The inventory data for an item for November are:Using a perpetual system,what is the cost of merchandise sold for November if the company uses FIFO?

A)$610
B)$600
C)$590
D)$580