Question 1

A merchandise company's beginning inventory plus merchandise purchases minus ending inventory equals:

Accepted Answer

A)  ending inventory. 
B)  cost of goods sold. 
C)  goods available for sale. 
D)  sales level.

Question 2

In each accounting period, a manager can select the inventory costing method that yields the most positive net income.

Accepted Answer

A) True 
 B)False

Question 3

An adjustment to ending inventory under the lower of cost or market (LCM) rule would be least likely to be recorded by a company that sells:

Accepted Answer

A)  a household staple like laundry detergent. 
B)  a fad product like bathing suits. 
C)  seasonal items like snow blowers. 
D)  high-tech goods like Personal Digital Assistants.

Question 4

Given the following information for Maynor Company in 2011, calculate the company's ending inventory, cost of goods sold and gross profit, using the following inventory costing methods, assuming the company uses a periodic inventory system:
a) Weighted Average
b) FIFO
c) LIFO
d) Specific Identification. (The ending inventory consisted of 15 @ $66; 10 @ $70; and 5 @ $76.)

Accepted Answer

The answer of Given the following information for Maynor Company...

Question 5

Which of the following statements is true?

Accepted Answer

A)  FIFO results in a lower net income than LIFO when costs are increasing. 
B)  LIFO results in a higher net income than FIFO when costs are increasing. 
C)  LIFO results in a higher net income than FIFO when costs are decreasing. 
D)  LIFO results in the same net income as FIFO when costs are increasing.

Question 6

Your company has 100 units in inventory, purchased at $16 per unit, that could be replaced for $14.

Accepted Answer

A)  The company should credit cost of goods sold for $200. 
B)  The company should debit revenue for $200. 
C)  The company should credit inventory for $200. 
D)  The company should debit inventory for $200.

Question 7

A company had been selling its product for $20 per unit, but recently lowered the selling price to $15 per unit. The company's current inventory consists of 200 units purchased at $16 per unit. The replacement cost of this merchandise is currently $13 per unit. At what amount should the company's inventory to be reported on the balance sheet under the lower of cost or market rule?

Accepted Answer

A)  $2,600 
B)  $3,200 
C)  $3,000 
D)  $4,000

Question 8

Carrying insufficient quantities of inventory on hand:

Accepted Answer

A)  can inadvertently lower a company's costs so much that its taxes become excessive. 
B)  can cause customers to go elsewhere to obtain the product. 
C)  has little effect on customer satisfaction. 
D)  will increase the costs of carrying inventory.

Question 9

If a firm's beginning inventory is $35,000, goods purchased during the period cost $120,000, and the cost of goods sold for the period is $140,000, what is the amount of the ending inventory?

Accepted Answer

A)  $45,000 
B)  $20,000 
C)  $25,000 
D)  $15,000

Question 10

If the market value of goods in inventory falls to $26,000 below its cost, the company should:

Accepted Answer

A)  do nothing, because assets are reported at their original purchase price. 
B)  credit inventory for $26,000. 
C)  debit inventory for $26,000 and credit accrued liabilities for $26,000. 
D)  use the weighted average cost method since that method provides a more accurate indicator of current value. The LCM rule requires a write-down of inventory when its replacement cost falls below its cost.

Question 11

Which of the following statements regarding the calculations used for the weighted average inventory costing method is true?

Accepted Answer

A)  Under the weighted average cost method, if the goods in inventory were purchased at three different prices, the three different prices would be added and then divided by three to find the weighted average cost per unit. 
B)  When the weighted average inventory costing method is used, ending inventory and cost of goods sold are calculated using different costs per unit. 
C)  There is no difference in the calculations under the weighted average method whether a perpetual or periodic inventory system is used. 
D)  The weighted-average method will produce an inventory cost which is between the results of FIFO and LIFO

Question 12

A merchandise company's beginning inventory plus merchandise purchases equals:

Accepted Answer

A)  ending inventory. 
B)  cost of goods sold. 
C)  goods available for sale. 
D)  sales level.

Question 13

Goods on consignment are goods shipped by the owner to another company that holds the goods and sells them for the owner.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following would cause the greatest increase in a company's inventory turnover ratio?

Accepted Answer

A)  Keeping the same amount of inventory on hand while unit sales are increasing. 
B)  Increasing the amount of inventory on hand while unit sales are increasing. 
C)  Keeping the same amount of inventory on hand while unit sales are decreasing. 
D)  Decreasing the amount of inventory on hand while unit sales are increasing.

Question 15

Alphabet Company buys different letters for resale. It buys A thru G on January 1 at $4 per letter, and sells A and E on January 15. On February 1, it buys H thru L at $6 per letter and sells D, H and J on February 9. It then buys M thru R on March 1 at $7 per letter and sells N on March 19. If the company uses the LIFO method on a perpetual basis, what is the cost of its ending inventory (rounded to the nearest dollar)?

Accepted Answer

A)  $58 
B)  $67 
C)  $72 
D)  $76

Question 16

Company X uses LIFO while its main competitor, Company Y, uses FIFO. Which of the following statements is true?

Accepted Answer

A)  The difference in inventory costing methods does not affect comparisons of the financial statements because the actual business activities are not affected by which method is used. 
B)  Company Y is required to report in the Notes to the Financial Statements what the inventory balance would have been under LIFO. 
C)  It is impossible to make a meaningful comparison of the financial results of the two companies. 
D)  Company X is required to report in the Notes to the Financial Statements what the inventory balance would

Question 17

When the lower of cost or market (LCM) rule requires an inventory adjustment:

Accepted Answer

A)  the adjustment usually, but not always, reduces the book value of inventory. 
B)  the write-down is usually reported as a part of cost of goods sold. 
C)  the inventory adjustment is recorded in a contra-revenue account called sales allowances. 
D)  the write-down does not affect any of the financial statements.

Question 18

Which of the following statements regarding comparisons made in managing inventory is not true?

Accepted Answer

A)  In making comparisons of financial statements, it is desirable to compare data calculated using the same inventory costing methods. 
B)  The inventory turnover ratio and days to sell measure will be affected by the cost flow assumptions used, which causes problems for financial statements users. 
C)  Because of the use of different costing methods, comparisons of different companies are more difficult. 
D)  An increase in inventory account balances always indicates a less favorable situation.

Question 19

The inventory costing method that identifies the invoice cost of each item in the ending inventory in order to determine the cost assigned to inventory is the specific identification method.

Accepted Answer

A) True 
 B)False

Question 20

On July 1,B. Darin Company sold merchandise costing $4,500 to S. Dee Company for $6,000, terms 2/10, n/30. Both companies use a perpetual inventory system. What is the journal entry that S. Dee Company will make on July 1?

Accepted Answer

A)  Option A 
B)  Option B 
C)  Option C 
D)  Option D

Exam 7: Reporting and Interpreting Inventories and Cost of Goods Sold

A merchandise company's beginning inventory plus merchandise purchases minus ending inventory equals:

In each accounting period, a manager can select the inventory costing method that yields the most positive net income.

An adjustment to ending inventory under the lower of cost or market (LCM) rule would be least likely to be recorded by a company that sells:

Which of the following statements is true?

Your company has 100 units in inventory, purchased at $16 per unit, that could be replaced for $14.

Carrying insufficient quantities of inventory on hand:

If a firm's beginning inventory is $35,000, goods purchased during the period cost $120,000, and the cost of goods sold for the period is $140,000, what is the amount of the ending inventory?

If the market value of goods in inventory falls to $26,000 below its cost, the company should:

Which of the following statements regarding the calculations used for the weighted average inventory costing method is true?

A merchandise company's beginning inventory plus merchandise purchases equals:

Goods on consignment are goods shipped by the owner to another company that holds the goods and sells them for the owner.

Which of the following would cause the greatest increase in a company's inventory turnover ratio?

Company X uses LIFO while its main competitor, Company Y, uses FIFO. Which of the following statements is true?

When the lower of cost or market (LCM) rule requires an inventory adjustment:

Which of the following statements regarding comparisons made in managing inventory is not true?

The inventory costing method that identifies the invoice cost of each item in the ending inventory in order to determine the cost assigned to inventory is the specific identification method.

On July 1,B. Darin Company sold merchandise costing $4,500 to S. Dee Company for $6,000, terms 2/10, n/30. Both companies use a perpetual inventory system. What is the journal entry that S. Dee Company will make on July 1?