Question 1

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.

Accepted Answer

A) True 
 B)False

Question 2

Merchandise inventory at the end of the year was understated. Which of the following statements correctly states the effect of the error?

Accepted Answer

A)  Net income is understated. 
B)  Net income is overstated. 
C)  Cost of merchandise sold is understated. 
D)  Merchandise inventory reported on the balance sheet is overstated.

Question 3

Assume that three identical units of merchandise were purchased during October, as follows:?? $$\begin{array} { | l | c | c | c | c | } 
\hline & & & \text { Units } & \text { Cost } \
\hline \text { Oct. } & 5 & \text { Purchase } & 1 & \$ 5 \
\hline & 12 & \text { Purchase } & 1 & 13 \
\hline & 28 & \text { Purchase } & \underline { 1 } & \underline { 15 } \
\hline \text { Total } & & & \underline { \mathbf { 3 } } & \underline { \mathbf { 3 3 } } \
\hline
\end{array}$$ Assume one unit is sold on October 31 for $28. Determine cost of merchandise sold, gross profit, and ending inventory under the LIFO method.

Accepted Answer

The answer of Assume that three identical units of merchandise...

Question 4

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.

Accepted Answer

A) True 
 B)False

Question 5

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.
$$\begin{array} { | c | l | c | c | } 
\hline \text { Date } & { \text { Blankets } } & \text { Units } & \text { Cost } \
\hline \text { May } 3 & \text { Purchase } & 5 & \$ 20 \
\hline 10 & \text { Sale } & 3 & \
\hline 17 & \text { Purchase } & 10 & 24 \
\hline 20 & \text { Sale } & 6 & \
\hline 23 & \text { Sale } & 3 & 30 \
\hline 30 & \text { Purchase } & 10 & \
\hline
\end{array}$$ ?
-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.

Accepted Answer

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

Question 6

A business using the retail method of inventory costing determines that merchandise inventory at retail is $2,300,000. If the ratio of cost to retail price is 55%, what is the amount of inventory to be reported on the financial statements?

Accepted Answer

The answer of A business using the retail method of...

Question 7

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.

Accepted Answer

A) True 
 B)False

Question 8

On the basis of the following data, determine the value of the inventory at the lower of cost or market. Apply lower of cost or market to each inventory item. Show your work. $\begin{array}{|l|c|c|c|}
\hline {\text { Item }} & \text { Inventory Quantity } & \text { Unit Cost Price } & \text { Unit Market Price } \
\hline \text { Gear } \mathrm{X} & 175 & \$ 33 & \$ 29 \
\hline \text { Gear Y } & 225 & 27 & 28 \
\hline
\end{array}$

Accepted Answer

The answer of On the basis of the following data,...

Question 9

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.

Accepted Answer

A) True 
 B)False

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

Use the information below to answer the following questions.
The following lots of a particular commodity were available for sale during the year:
?
 $\begin{array}{ll}
\text { Beginning inventory } & 10 \text { units at } \$ 30 \
\text { First purchase } & 25 \text { units at } \$ 32 \
\text { Second purchase } & 30 \text { units at } \$ 34 \
\text { Third purchase } & 10 \text { units at } \$ 35
\end{array}$ ?
-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 rounded to the nearest dollar according to the average cost method?

Accepted Answer

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

Question 12

If a manufacturer ships merchandise to a retailer on consignment, the unsold merchandise should be included in the inventory of the

Accepted Answer

A)  consignee 
B)  retailer 
C)  manufacturer 
D)  shipper

Question 13

a. Explain the effect of the following on the financial statements:​Goods held on consignment were included in the ending inventory count.​Goods purchased FOB shipping point were in transit on the last day of the year.These goods were not counted as part of ending inventory.​Goods sold FOB shipping point were in transit on the last day of the year.These goods were not counted as part of ending inventory.​​b. What happens if inventory errors are not found and corrected?

Accepted Answer

The answer of a. Explain the effect of the following...

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

Addison, Inc. uses a perpetual inventory system. The following is information about one inventory item for the month of September:
$\begin{array} { r l l } \text { Sept. } 1 & \text { Inventory } & 20 \text { units at } \$ 20 \ 4 & \text { Sale } & 10 \text { units } \ 10 & \text { Purchase } & 30 \text { units at } \$ 25 \ 17 & \text { Sale } & 20 \text { units } \ 30 & \text { Purchase } & 10 \text { units at } \$ 30 \end{array}$
-Use the information for Addison, Inc. If Addison uses LIFO, the cost of the ending merchandise inventory on September 30 is

Accepted Answer

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

Question 16

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

Accepted Answer

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

Question 17

Stevens Company started the year with an inventory cost of $145,000. During the month of January, Stevens purchased inventory that cost $53,000. January sales totaled $140,000. Estimated gross profit is 35%. The estimated ending inventory as of January 31 is

Accepted Answer

A)  $58,000 
B)  $91,000 
C)  $107,000 
D)  $69,300

Question 18

Use the information below to answer the following questions.
The following units of an inventory item were available for sale during the year:

$\begin{array}{ll}
\text { Beginning inventory } & 10 \text { units at } \$ 55 \
\text { First purchase } & 25 \text { units at } \$ 60 \
\text { Second purchase } & 30 \text { units at } \$ 65 \
\text { Third purchase } & 15 \text { units at } \$ 70
\end{array}$ 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

Accepted Answer

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

Question 19

Complete the following table using the perpetual FIFO method of inventory flow.

Accepted Answer

The answer of Complete the following table using the perpetual...

Question 20

Three identical units of merchandise were purchased during March, as shown:? $$\begin{array} { | c | l | c | r | } 
\hline &{ \textbf { Steele Plate } } & \textbf { Units } &{ \textbf { Cost } } \
\hline \text { Mar. 3 } & \text { Purchase } & 1 & \$ 830 \
\hline 10 & \text { Purchase } & 1 & 840 \
\hline 19 & \text { Purchase } & \underline { 1 } & \underline { 880 } \
\hline \text { Total } & & 3 & \textbf{\underline {\$ 2.550}} \
\hline
\end{array}$$ ?Assume that one unit is sold on March 23 for $1,125. Determine the gross profit for March and ending inventory on March 31 using 
(a) FIFO, 
(b) LIFO, and 
(c) average cost methods.

Accepted Answer

The answer of Three identical units of merchandise were purchased...

Exam 7: Inventories

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.

Merchandise inventory at the end of the year was understated. Which of the following statements correctly states the effect of the error?

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.

A business using the retail method of inventory costing determines that merchandise inventory at retail is $2,300,000. If the ratio of cost to retail price is 55%, what is the amount of inventory to be reported on the financial statements?

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.

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.

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

If a manufacturer ships merchandise to a retailer on consignment, the unsold merchandise should be included in the inventory of the

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

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

Stevens Company started the year with an inventory cost of $145,000. During the month of January, Stevens purchased inventory that cost $53,000. January sales totaled $140,000. Estimated gross profit is 35%. The estimated ending inventory as of January 31 is

Complete the following table using the perpetual FIFO method of inventory flow.