Deck 11: Inventory

Question 1

Transactions that affect inventories on hand have effects on both the balance sheet and the income statement.

Answer 1

True

Question 2

The first-in, first-out (FIFO) inventory method results in an ending inventory reported at the most recent cost.

Answer 2

True

Question 3

Finished goods are a classification of inventory for a manufacturer that is the cost of goods which are completed and ready for sale.

Answer 3

True

Question 4

In a period of falling prices, the LIFO method results in a lower cost of goods sold than the FIFO method.

Question 5

If the unit cost of inventory is increasing during a period, a company using the LIFO inventory method will show less gross profit for the period than if it had used the FIFO inventory method.

Question 6

A company may use more than one inventory costing method concurrently.

Question 7

The specific identification method of inventory valuation is desirable when a company sells a large number of low-unit cost items.

Question 8

The inventory amount has no effect on net income.

Question 9

If a company has no beginning inventory and the unit cost of inventory items does not change during the year, the value assigned to the ending inventory will be the same under LIFO and average cost flow assumptions.

Question 10

The expense recognition principle requires that the cost of goods sold be matched against the ending merchandise inventory in order to determine income.

Question 11

The cost of goods available for sale consists of the cost of beginning inventory plus the cost of goods purchased during the period.

Question 12

Goods which Smith has shipped out on consignment should be included in Smith's inventory.

Question 13

The specific identification method of costing inventories tracks the actual physical flow of the goods available for sale.

Question 14

Under the FIFO method, the costs of the earliest units purchased are the first charged to cost of goods sold.

Question 15

If a company has no beginning inventory and the unit cost of inventory is increasing during a period, the cost of goods available for sale during the period will be the same under the LIFO and FIFO inventory methods.

Question 16

Purchased goods that have been shipped FOB destination but which are in transit at the end of the period should be excluded from the buyer's physical count of ending inventory.

Question 17

Management may choose any inventory costing method it desires as long as the cost flow assumption chosen is consistent with the physical movement of goods in the company.

Question 18

A company should use the same cost flow method from period to period.

Question 19

Use of the LIFO inventory cost flow method can result in reporting paper or phantom profits.

Question 20

Raw materials inventories are the goods that a manufacturer has completed and are ready to be sold to customers.

Question 21

Management has the choice of physically counting inventory on hand at the end of the year or using the gross profit method to estimate the ending inventory.

Question 22

The retail inventory method requires a company to value its inventory on the balance sheet at retail prices.

Question 23

Under the LCNRV basis, NRV is net realizable value.

Question 24

Which of the following should be included in the ending inventory of a company?

A) Goods held on consignment from another company.
B) Goods in transit to another company shipped FOB shipping point.
C) Goods in transit from another company shipped FOB shipping point.
D) Goods in transit from another company shipped FOB destination.

Question 25

In a perpetual inventory system, the cost of goods sold under the FIFO method is based on the cost of the latest goods purchased during the period.

Question 26

Manufacturers usually classify inventory into all the following general categories except

A) work in process
B) finished goods
C) merchandise inventory
D) raw materials

Question 27

Freight terms of FOB shipping point mean that the

A) seller must debit freight out.
B) buyer must bear the freight costs.
C) goods are placed free on board at the buyer's place of business.
D) seller must bear the freight costs.

Question 28

Accountants believe that the write-down from cost to LCNRV should not be made in the period in which the price decline occurs.

Question 29

If goods in transit are shipped FOB destination,

A) the seller has legal title to the goods until they are delivered.
B) the buyer has legal title to the goods until they are delivered.
C) the transportation company has legal title to the goods while the goods are in transit.
D) no one has legal title to the goods until they are delivered.

Question 30

In a manufacturing company, inventory that is ready for sale is called

A) raw materials inventory.
B) work in process inventory.
C) finished goods inventory.
D) store supplies inventory.

Question 31

The LCNRV basis is an example of the accounting concept of conservatism.

Question 32

An auto manufacturer would classify vehicles in various stages of production as

A) finished goods.
B) merchandise inventory.
C) raw materials.
D) work in process.

Question 33

If inventory is reported using the LIFO cost flow method, it should not be classified as a current asset on the balance sheet.

Question 34

Items waiting to be used in production are considered to be

A) raw materials.
B) work in progress.
C) finished goods.
D) merchandise inventory.

Question 35

An error that overstates the ending inventory will also cause net income for the period to be overstated.

Question 36

If a company uses the FIFO cost flow method, the cost of goods sold for the period will be the same under both perpetual and periodic inventory systems.

Question 37

Inventories are reported in the current assets section of the balance sheet immediately below receivables.

Question 38

In applying the LIFO cost flow method in a perpetual inventory system, the cost of the units most recently purchased prior to sale is allocated first to the units sold.

Question 39

The retail method uses a sales-price-to-retail percentage.

Question 40

The factor that determines whether goods should be included in a physical count of inventory is

A) physical possession.
B) legal title.
C) management's judgment.
D) whether or not the purchase price has been paid.

Question 41

As a result of a thorough physical inventory, Greeley Company determined that it had inventory costing $325,000 at December 31, 2022. This count did not take into consideration the following facts: Walker Consignment currently has goods costing $47,000 on its sales floor that belong to Greeley but are being sold on consignment by Walker. The selling price of these goods is $75,000. Greeley purchased $22,000 of goods that were shipped on December 27, FOB destination, that will be received by Greeley on January 3. Determine the correct amount of inventory that Greeley should report.

A) $325,000.
B) $347,000.
C) $372,000.
D) $387,000.

Question 42

For companies that use a perpetual inventory system, all of the following are reasons for taking a physical inventory except

A) to check the accuracy of the records.
B) to determine the amount of wasted raw materials.
C) to determine losses due to employee theft.
D) to determine ownership of the goods.

Question 43

A company just starting business made the following four inventory purchases in June: $\begin{array}{lll}\text { June } 1 &150 \text { units } & \$390\\\text { June } 10 & 200 \text { units } & 598 \\\text { June } 15 & 200 \text { units } & 630 \\\text { June } 28 & 150 \text { units } & 510 \\&&\$2,128\end{array}$ A physical count of merchandise inventory on June 30 reveals that there are 200 units on hand. Using a periodic inventory system and the average-cost method, the amount allocated to the ending inventory on June 30 is

A) $540.
B) $608.
C) $668.
D) $1,520.

Question 44

A company just starting business made the following four inventory purchases in June: $\begin{array}{lll}\text { June } 1 &150 \text { units } & \$390\\\text { June } 10 & 200 \text { units } & 598 \\\text { June } 15 & 200 \text { units } & 630 \\\text { June } 28 & 150 \text { units } & 510 \\&&\$2,128\end{array}$ A physical count of merchandise inventory on June 30 reveals that there are 200 units on hand. Using a periodic inventory system and the LIFO inventory method, the cost of the ending inventory, to the nearest doolar, on June 30 is

A) $540.
B) $668.
C) $1,460.
D) $1,588.

Question 45

Heathroton Company's goods in transit at December 31 include: Which items should be included in Heathroton's inventory at December 31?

A) (2) and (3)
B) (1) and (4)
C) (1) and (3)
D) (2) and (4)

Question 46

A company just starting business made the following four inventory purchases in June: $\begin{array}{lll}\text { June } 1 &150 \text { units } & \$390\\\text { June } 10 & 200 \text { units } & 598 \\\text { June } 15 & 200 \text { units } & 630 \\\text { June } 28 & 150 \text { units } & 510 \\&&\$2,128\end{array}$ A physical count of merchandise inventory on June 30 reveals that there are 200 units on hand. Using a periodic inventory system, the inventory method which results in the highest gross profit for June is

A) the FIFO method.
B) the LIFO method.
C) the weighted average unit cost method.
D) not determinable.

Question 47

A company just starting in business purchased three merchandise inventory items at the following prices. First purchase $65; second purchase $78; third purchase $68. If the company sold two units for a total of $200 and used periodic inventory system with FIFO costing, the gross profit for the period would be

A) $55.
B) $57.
C) $62.
D) $68.

Question 48

The term "FOB" denotes

A) free on board.
B) freight on board.
C) free only (to) buyer.
D) freight charge on buyer.

Question 49

Quayle Bookstore had 500 units on hand at January 1, costing $9 each. Purchases and sales during the month of January were as follows: Quayle maintains a periodic inventory system. According to a physical count, 360 units were on hand at January 31. The cost of the inventory at January 31, under the FIFO method is:

A) $3,240.
B) $3,650.
C) $4,100.
D) $3,820.

Question 50

A company just starting business made the following four inventory purchases in June: $\begin{array}{lll}\text { June } 1 &150 \text { units } & \$390\\\text { June } 10 & 200 \text { units } & 598 \\\text { June } 15 & 200 \text { units } & 630 \\\text { June } 28 & 150 \text { units } & 510 \\&&\$2,128\end{array}$ A physical count of merchandise inventory on June 30 reveals that there are 200 units on hand. Using a periodic inventory system and the FIFO inventory method, the amount allocated to cost of goods sold, to the nearest dollar, for June is

A) $540.
B) $668.
C) $1,460.
D) $1,588.

Question 51

Bud's Place recorded the following data:

Question 52

Inventory items on an assembly line in various stages of production are classified as

A) Finished goods.
B) Work in process.
C) Raw materials.
D) Merchandise inventory.

Question 53

Goods in transit should be included in the inventory of the buyer when the

A) public carrier accepts the goods from the seller.
B) goods reach the buyer.
C) terms of sale are FOB destination.
D) terms of sale are FOB shipping point.

Question 54

Cost of goods available for sale includes all of the following except the

A) freight costs incurred when buying inventory.
B) costs of shipping goods to customers.
C) cost of the beginning inventory.
D) cost of goods purchased.

Question 55

A company purchased inventory as follows: 150 units at $\$ 6$
350 units at $\$ 7$ The average unit cost for inventory is

A) $6.00.
B) $6.50.
C) $6.70.
D) $7.00.

Question 56

Quayle Bookstore had 500 units on hand at January 1, costing $9 each. Purchases and sales during the month of January were as follows: Quayle maintains a periodic inventory system. According to a physical count, 360 units were on hand at January 31. The cost of the inventory at January 31, under the LIFO method is:

A) $3,240.
B) $3,650.
C) $4,100.
D) $3,820.

Question 57

Beginning inventory plus the cost of goods purchased equals

A) cost of goods sold.
B) cost of goods available for sale.
C) net purchases.
D) total goods purchased.

Question 58

The LIFO inventory method assumes that the cost of the latest units purchased are

A) the last to be allocated to cost of goods sold.
B) the first to be allocated to ending inventory.
C) the first to be allocated to cost of goods sold.
D) not allocated to cost of goods sold or ending inventory.

Question 59

Under a consignment arrangement, the

A) company that shipped the goods has ownership until goods are sold to a final customer by the other company.
B) company that shipped the goods has ownership until goods are shipped to the other company.
C) company holding the goods has ownership when the goods are in their possession.
D) consigned goods are included in the inventory of the company holding them.

Question 60

Cost of goods sold is computed from the following equation:

A) beginning inventory - cost of goods purchased + ending inventory.
B) sales - cost of goods purchased + beginning inventory - ending inventory.
C) sales + gross profit - ending inventory + beginning inventory.
D) beginning inventory + cost of goods purchased - ending inventory.

Question 61

Which of the following often parallels the actual physical flow of merchandise?

A) LIFO
B) Dollar-value LIFO
C) Average-cost
D) FIFO

Question 62

Which of the following statements is correct with respect to inventories?

A) The FIFO method assumes that the costs of the earliest goods acquired are the last to be sold.
B) It is generally good business management to sell the most recently acquired goods first.
C) Under FIFO, the ending inventory is based on the latest units purchased.
D) FIFO seldom coincides with the actual physical flow of inventory.

Question 63

Harpo's Used Cars uses the specific identification method of costing inventory. During March, Harpo purchased three cars for $12,000, $14,400, and $19,200, respectively. During March, two cars are sold for a total of $36,400. Harpo determines that at March 31, the $14,400 car is still on hand. What is Harpo's gross profit for March?

A) $2,800.
B) $5,200.
C) $4,200.
D) $10,000.

Question 64

The selection of an appropriate inventory cost flow method for an individual company is made by

A) the external auditors.
B) the SEC.
C) the internal auditors.
D) management.

Question 65

At May 1, 2022, Mark Company had beginning inventory consisting of 200 units with a unit cost of $7. During May, the company purchased inventory as follows: 800 units at $7
500 units at $9
The company sold 500 units during the month for $12 per unit. Mark uses the average cost method. Mark's gross profit, to the nearest dollar, for the month of May is

A) $2,167.
B) $2,000.
C) $1,500.
D) $4,333.

Question 66

The cost of goods available for sale is allocated to the cost of goods sold and the

A) beginning inventory.
B) ending inventory.
C) cost of goods purchased.
D) gross profit.

Question 67

Which is added to the cost of inventory?

A) Cost of shipping goods to customers, but not freight costs to acquire inventory.
B) Freight costs to acquire inventory, but not the cost of shipping goods to customers.
C) Both cost of shipping goods to customers and freight costs to acquire inventory.
D) Neither cost of shipping goods to customers nor freight costs to acquire inventory.

Question 68

Which of the following is not a common cost flow method used in costing inventory?

A) First-in, first-out
B) Middle-in, first-out
C) Last-in, first-out
D) Average cost

Question 69

Elly Company uses a periodic inventory system. Details for the inventory and purchases accounts for the month of January, 2022 are as follows: $\begin{array}{llrr}&\text { Units } &\text { Per unit price } & \text { Total }\\\hline\text { Balance, } 1 / 1 / 22 &200& \$ 5.00 & \$ 1,000 \\\text { Purchase, } 1 / 15 / 22 & 100 & 5.30 & 530 \\\text { Purchase, } 1 / 28 / 22 & 100 & 5.50 & 550\end{array}$ An end of the month (1/31/22) inventory showed that 150 units were on hand. If the company uses FIFO and sells the units for $9 each, what is the gross profit for the month?

A) $1,000
B) $985
C) $900
D) $1,440

Question 70

Which of the following statements is true regarding inventory cost flow methods?

A) A company may use more than one costing method concurrently.
B) A company must comply with the method specified by industry standards.
C) A company must use the same method for domestic and foreign operations.
D) A company may never change its inventory costing method once it has chosen a method.

Question 71

Elly Company uses a periodic inventory system. Details for the inventory and purchases accounts for the month of January, 2022 are as follows: $\begin{array}{llrr}&\text { Units } &\text { Per unit price } & \text { Total }\\\hline\text { Balance, } 1 / 1 / 22 &200& \$ 5.00 & \$ 1,000 \\\text { Purchase, } 1 / 15 / 22 & 100 & 5.30 & 530 \\\text { Purchase, } 1 / 28 / 22 & 100 & 5.50 & 550\end{array}$ An end of the month (1/31/20) inventory showed that 150 units were on hand. If the company uses LIFO, what is the cost of the ending inventory?

A) $750
B) $805
C) $850
D) $815

Question 72

Elly Company uses a periodic inventory system. Details for the inventory and purchases accounts for the month of January, 2022 are as follows: $\begin{array}{llrr}&\text { Units } &\text { Per unit price } & \text { Total }\\\hline\text { Balance, } 1 / 1 / 22 &200& \$ 5.00 & \$ 1,000 \\\text { Purchase, } 1 / 15 / 22 & 100 & 5.30 & 530 \\\text { Purchase, } 1 / 28 / 22 & 100 & 5.50 & 550\end{array}$ An end of the month (1/31/22) inventory showed that 150 units were on hand. If the company uses FIFO, what is the cost of the ending inventory?

A) $750
B) $805
C) $850
D) $815

Question 73

Elly Company uses a periodic inventory system. Details for the inventoryand purchases accounts for the month of January, 2022 are as follows: $\begin{array}{llrr}&\text { Units } &\text { Per unit price } & \text { Total }\\\hline\text { Balance, } 1 / 1 / 22 &200& \$ 5.00 & \$ 1,000 \\\text { Purchase, } 1 / 15 / 22 & 100 & 5.30 & 530 \\\text { Purchase, } 1 / 28 / 22 & 100 & 5.50 & 550\end{array}$ An end of the month (1/31/22) inventory showed that 150 units were on hand. How many units did the company sell during January, 2022?

A) 50
B) 150
C) 200
D) 250

Question 74

At May 1, 2022, Mark Company had beginning inventory consisting of 200 units with a unit cost of $7. During May, the company purchased inventory as follows: 800 units at $7
500 units at $9
The company sold 500 units during the month for $12 per unit. Mark uses a periodic inventory system and the average cost method. The cost of Mark's inventory. To the nearest dollar, at May 31, 2022 is

A) $6,400.
B) $7,667.
C) $5,600.
D) $4,333.

Question 75

The accounting principle that requires that the cost flow method be consistent with the physical movement of goods is

A) called the expense recognition principle.
B) called the consistency principle.
C) nonexistent; that is, there is no accounting requirement.
D) called the physical flow assumption.

Question 76

Which one of the following inventory cost flow methods is often impractical to use?

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

Question 77

The cost of goods available for sale is allocated between

A) beginning inventory and ending inventory.
B) beginning inventory and cost of goods on hand.
C) ending inventory and cost of goods sold.
D) beginning inventory and cost of goods purchased.

Question 78

Cost of goods available for sale consists of which two elements?

A) The cost of beginning inventory and the cost of ending inventory
B) The cost of ending inventory and the cost of goods purchased during the year
C) The cost of beginning inventory and the cost of goods purchased during the year
D) The difference between the costs of goods purchased and the cost of goods sold during the year

Question 79

At May 1, 2022, Bibby Company had beginning inventory consisting of 200 units with a unit cost of $7. During May, the company purchased inventory as follows: 800 units at $7
600 units at $8
The company sold 1,000 units during the month for $12 per unit. Bibby uses periodic inventory system and the average cost method. The average cost per unit for May is

A) $7.000.
B) $7.375.
C) $8.000.
D) $9.000.

Question 80

Of the following companies, which one would not likely employ the specific identification method for inventory costing?

A) Music store specializing in organ sales
B) Farm implement dealership
C) Antique shop
D) Hardware store