Deck 7: Inventory and Cost of Goods Sold

Question 1

When the weighted average inventory costing method is used,ending inventory and cost of goods sold are calculated using different costs per unit.

Answer 1

False

Question 2

A company should always keep extra inventory on hand; it could be needed if demand increases and it has to be bought sooner or later so it adds nothing to cost.

Answer 2

False

Question 3

Inappropriate inventory levels reduce a company's net income,either by increasing cost or reducing revenue.

Answer 3

True

Question 4

Beginning inventory plus purchases minus ending inventory equals cost of goods sold.

Question 5

The failure to follow LC&NRV rules when writing down the inventory is one of the most common types of financial statement misstatements.

Question 6

Most changes in sales revenue have no effect on cost of goods sold.

Question 7

Companies that are both manufacturers and merchandisers must list their finished goods inventory and merchandise inventory separately.

Question 8

The measurement of inventory affects both the balance sheet and the income statement within an accounting period.

Question 9

Inventory may include materials used in producing goods for sale.

Question 10

The inventory costing method chosen to by a company method must correspond to the physical flow of goods.

Question 11

During a period of rising prices,LIFO results in a lower income tax expense than does FIFO.

Question 12

The LIFO method assumes that the costs for the newest goods (the last ones in)are used first and the older costs are left in ending inventory.

Question 13

Specific identification method would be appropriate inventory costing method for a grocery store chain.

Question 14

Specific identification is the best inventory costing method because it is least open to manipulation by unscrupulous managers.

Question 15

Merchandisers have inventories of finished goods only; manufacturers have inventories of raw materials only.

Question 16

Goods available for sale minus the ending inventory equals cost of goods sold.

Question 17

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

Question 18

An increase in inventory levels is always a sign of inefficiency in inventory management.

Question 19

The Lower of cost and net realizable value (LC&NRV)rule sometimes causes the book value of inventory to be lowered below cost but will never cause the book value of inventory to be raised above cost.

Question 20

The ending inventory of one accounting period becomes the beginning inventory of the next accounting period.

Question 21

The lower the inventory turnover ratio,the more efficiently the company manages its inventory,all other things equal.

Question 22

Inventory levels regularly rise and fall as the company buys and sells merchandise.

Question 23

An incorrect valuation of the ending inventory affects the balance sheet but not the income statement.

Question 24

The days to sell measure equals 365 divided by the receivables turnover ratio.

Question 25

Most LIFO companies actually use FIFO during the period and then adjust to LIFO at the end of the period.

Question 26

A benefit of inventory turnover ratios is that firms in the same industry should have similar ratios,thus making comparison easier.

Question 27

If the inventory turnover ratio increases,the days to sell measure decreases.

Question 28

The effects of inventory errors are mitigated by the fact that they are confined to one year.

Question 29

To determine the effects of inventory errors on the financial statements in both the current year and the following year all you need is the cost of goods sold equation

Question 30

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.

Question 31

Days to sell looks at the total number of days from purchase to sale.

Question 32

Only the LIFO and weighted average calculations differ between periodic and perpetual inventory systems.

Question 33

In making comparisons of financial statements,it is desirable to compare data calculated using the same inventory costing methods.

Question 34

Which of the following may not be true if excessive quantities of inventory are ordered:

A)storage and interest costs may increase.
B)goods might have to be sold at large discounts.
C)there is a greater probability that goods will become damaged or obsolete.
D)would always lead to higher sales and resulting in higher profits.

Question 35

Weighted average cost per unit is calculated by multiplying cost of units available for sale by the number of units available for sale

Question 36

A higher inventory turnover ratio is preferable to a lower one.

Question 37

Carrying insufficient quantities of inventory on hand:

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)all of the answers are acceptable.

Question 38

Beginning Inventory - Ending Inventory = Cost of Goods Sold - Purchases

Question 39

The specific identification method individually identifies and records the cost of each item sold as Cost of Goods Sold.

Question 40

LIFO-Periodic calculates COGS using the cost of goods last-in at the time of sale.

Question 41

Which is the most useful way to analyze the inventory turnover ratio?

A)Compare the inventory turnover ratio of a company to other companies in the same industry.
B)Compare the inventory turnover ratio of a company to its own results from prior periods.
C)Compare the inventory turnover ratio of a company to a suitable benchmarks
D)None of the answers are acceptable.

Question 42

For a company making cheese,milk and cream would be included in which the following type of inventory?

A)Raw materials inventory.
B)Work in progress inventory.
C)Finished goods inventory.
D)All of the answers are acceptable.

Question 43

The primary goals of inventory management do not include:

A)maintaining a sufficient quantity of inventory to keep customers satisfied.
B)maintaining sufficient quality of inventory to keep customers satisfied.
C)minimizing the costs associated with maintaining inventories.
D)maintaining a large inventory for long periods.

Question 44

Your company buys 500 pairs of socks at $3 each (including other purchasing costs such as transportation)and sells them for $5 each. Which of the following statements is true?

A)The sales revenue is $1,500.
B)The gross profit is $1,500.
C)The cost of goods sold is $1,500.
D)The net income is $1,500. COGS = quantity sold * cost per unit

Question 45

An auto manufacturer's inventory would not include:

A)tires,batteries,glass,paint,headlamp bulbs,electric wiring,and welding compounds.
B)incomplete cars that are still being processed.
C)finished cars ready to be shipped to dealers.
D)cars sold to and held by dealers.

Question 46

Alphabet Company,which uses the periodic inventory method,buys different letters for resale.It buys A through G in January at $4 per letter.It buys H through L at $6 per letter.It buys M through R in March at $7 per letter.It sells A,D,E,H,J and N in April. If the company uses the FIFO method,what is the cost of its ending inventory (rounded to the nearest dollar)?

A)$24
B)$42
C)$58
D)$76 COGS = 6 letters @ $4/letter = 24
P = 7 @ 4 + 5 @ 6 - 6 @ 7 = $100
Beg Inv + purchases = GAFS - EI = COGS
0 + $100 = $100 - EI = $24
EI = $76.

Question 47

For a company making cheese,Cured cheese that is waiting to be shipped to retailers would be included in which of the following?

A)Raw materials inventory.
B)Work in progress inventory.
C)Finished goods inventory.
D)All of the answers are acceptable.

Question 48

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

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

Question 49

The Acme Corporation buys 300 units of merchandise in January at $5 each.In February,Acme buys 500 units at $4 each and in March it buys 200 units at $6 each.Acme sells 150 units during this quarter.What is the cost of goods sold under the FIFO method?

A)$600
B)$934
C)$750
D)$900 FIFO method determines cost of goods sold using the cost of the oldest units first.150 units @ $5/unit = $750.

Question 50

In March,BetterBuy purchases six plasma TVs from Toshiba for $1,500 each (serial numbers 11534892 through 11534897).In April,the company purchases four more identical TVs from Toshiba for $1,450 each (serial numbers 11542631 through 11542634).In May,the company purchases five more identical TVs for $1,600 each (serial numbers 11550964 through 11550968).In June,BetterBuy sells two of these TVs (serial numbers 11534894 and 11542631). If BetterBuy uses the weighted average method,its cost of goods sold will be:

A)$2,900.
B)$2,950.
C)$3,040.
D)$3,033. 6 @ $1,500 = $9,000
4 @ $1,450 = $5,800
5 @ $1,600 = $8,000
$22,800
Average cost per unit = 22,800/15 = $1,520 * 2 = $3,040.

Question 51

Alphabet Company,which uses the periodic inventory method,buys different letters for resale.It buys A through G in January at $4 per letter.It buys H through L at $6 per letter.It buys M through R in March at $7 per letter.It sells A,D,E,H,J and N in April. If the company uses the specific identification method,what is the cost of its ending inventory?

A)$31
B)$69
C)$76
D)$100 COGS = $4 + $4 + $4 + $6 + $6 + $7 = $31
P = 7 @ $4 + 5 @ $6 + 6 @ $7 = $100
Beg)Inv.+ P = GAFS - End Inv = COGS
0 + $100 = 100 - EI = 31
Ending Inventory = $69.

Question 52

Your company buys 500 pairs of socks at $3 each (including other purchasing costs such as transportation)and sells them for $5 each. Which of the following statements is true?

A)The sales revenue is $2,500.
B)The gross profit is $2,500.
C)The cost of goods sold is $2,500.
D)The net income is $2,500. Sales revenue = quantity sold * selling price 500 * $5 = $2,500.

Question 53

The specific identification method would probably be most appropriate for which of the following goods?

A)Boxes of brass 4-inch drywall screws at Home Depot.
B)Bottles of suntan lotion in Wal-Mart's central warehouse.
C)Sets of tires at the Goodyear plant.
D)Diamond necklaces at a Tiffany's & Co.jewellery store.

Question 54

Alphabet Company,which uses the periodic inventory method,buys different letters for resale.It buys A through G in January at $4 per letter.It buys H through L at $6 per letter.It buys M through R in March at $7 per letter.It sells A,D,E,H,J and N in April. If the company uses the weighted average method,what is the cost of its ending inventory (rounded to the nearest dollar)?

A)$38
B)$48
C)$67
D)$75 Avg.cost per unit = (GAFS cost)/(GAFS units)$100/18 letters = $5.56/letter
End)Inv.of letters = 18-6 = 12 letters * $5.56/letter = $67.

Question 55

Your company buys 500 pairs of socks at $3 each (including other purchasing costs such as transportation)and sells them for $5 each. Which of the following statements is true?

A)The sales revenue is $1,000.
B)The gross profit is $1,000.
C)The cost of goods sold is $1,000.
D)The net income is $1,000. COGS = quantity sold * cost per unit 500 * $3 = 1,500 Gross profit = sales - COGS 2,500 - 1,500 = $1,000.

Question 56

For a company making cheese,cheese that has been made but is curing before being ready to sell would be included in which of the following:

A)Raw materials inventory.
B)Work in progress inventory.
C)Finished goods inventory.
D)All of the answers are acceptable.

Question 57

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

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

Question 58

In March,BetterBuy purchases six plasma TVs from Toshiba for $1,500 each (serial numbers 11534892 through 11534897).In April,the company purchases four more identical TVs from Toshiba for $1,450 each (serial numbers 11542631 through 11542634).In May,the company purchases five more identical TVs for $1,600 each (serial numbers 11550964 through 11550968).In June,BetterBuy sells two of these TVs (serial numbers 11534894 and 11542631). BetterBuy records $3,000 as the cost of goods sold.BetterBuy is using the:

A)Specific identification method.
B)LIFO method.
C)FIFO method.
D)Weighted average cost method. FIFO 2 @ $1,500 = $3,000.

Question 59

Alphabet Company,which uses the periodic inventory method,buys different letters for resale.It buys A through G in January at $4 per letter.It buys H through L at $6 per letter.It buys M through R in March at $7 per letter.It sells A,D,E,H,J and N in April. If the company uses the LIFO method,what is the cost of its ending inventory (rounded to the nearest dollar)?

A)$24
B)$42
C)$58
D)$76 COGS(LIFO)= 6 letters @ 7/letter = $42
P = 7 @ $4 + $5 @ $6 + 6 @ $7 = $100
Beg inv + purchases = GAFS-End inv = COGS
0 + $100 = $100 - EI = $42
EI = $58.

Question 60

In March,BetterBuy purchases six plasma TVs from Toshiba for $1,500 each (serial numbers 11534892 through 11534897).In April,the company purchases four more identical TVs from Toshiba for $1,450 each (serial numbers 11542631 through 11542634).In May,the company purchases five more identical TVs for $1,600 each (serial numbers 11550964 through 11550968).In June,BetterBuy sells two of these TVs (serial numbers 11534894 and 11542631). If BetterBuy uses the specific identification method,its cost of goods sold will be:

A)$3,000
B)$2,950
C)$3,200
D)$3,033 $1,500 + $1,450 = $2,950.

Question 61

Which of the following statements is/are true with regards to all inventory costing methods?

A)The ending inventory balance and cost of goods sold move in the same direction.
B)The ending inventory balance and the cost of total assets move in the opposite direction.
C)The ending inventory balance and net income move in the same direction.
D)All of the answers are true.

Question 62

A company's inventory records contain the following information: $$\begin{array} { | r | r | r | } \hline \text { Begirring Irventory: } & 300 \text { units } & \$ 780 \\\hline \text { Purchased on June 10 } & 400 \mathrm { urits } & 1,170 \\\hline \text { Purchased on Jurne 15 } & 500 \mathrm { urits } & 1,260 \\\hline \text { Purchared on Jure 28 } & \mathbf { 3 0 0 u n i t s } & 990 \\\hline & 1,500 & \$ 4,200 \\\hline\end{array}$$

-According to the above table.The company sold 1,000 units during June and 500 units were in its ending inventory on June 30.
If the company uses the weighted average inventory costing method,what is the cost of its ending inventory?

A)$4,200.
B)$2,700.
C)$1,400.
D)$1,365.

Question 63

The 2018 records of Thompson Company showed beginning inventory,$6,000; cost of goods sold,$14,000; and ending inventory,$8,000.The cost of purchases for 2018 was:

A)$12,000.
B)$10,000.
C)$9,000.
D)$16,000. Beginning inventory + Purchases = Goods available for sale - Cost of Goods Sold = Ending inventory BI + P = GAFS - COGS = EI $6,000 + P = GAFS - $14,000 = $8,000 GAFS = $8,000 + $14,000 GAFS = $22,000 $6,000 + P = $22,000
P = $16,000.

Question 64

When the lower of cost and net realizable value (LC&NRV)rule requires an inventory adjustment:

A)the adjustment usually,but not always,reduces the book value of inventory.
B)the write down is usually reported as a selling expense or as part of cost of goods sold.
C)the inventory adjustment is recorded in a contra-revenue account called sales allowances.
D)all of the answers are correct.

Question 65

The Acme Corporation buys 300 units of merchandise in January at $5 each.Acme buys 500 units at $4 each in February and 200 units at $6 each in March.Acme sells 150 units during this quarter.Acme uses the LIFO Method.What is its cost of goods sold for the quarter?

A)$600
B)$934
C)$750
D)$900

Question 66

Maxell Company uses the periodic FIFO method to assign costs to inventory and cost of goods sold.Given the following information,what would be reported as the cost of goods sold and ending inventory balances for the period? $$\begin{array} { | c | r | r | } \hline \text { Date}& \text {Transaction } & \text { of units } & \text { Cost per unit } \\\hline \text { Jaruary 1}& \text {Begirning balance } & 100 & \$ 5 \\\hline \text { Jaruary2} &\text { Purchase } & 75 & \$ 4 \\\hline \text { Jaruaary 5} &\text{Sale } & 75 & \\\hline \text { Jaruary 6 } &\text { Sale } & 50 & \\\hline\end{array}$$

A)COGS = $625,ending inventory = $175
B)COGS = $575,ending inventory = $225
C)COGS = $550,ending inventory = $250
D)COGS = $600,ending inventory = $200

Question 67

The Acme Corporation buys 300 units of merchandise in January at $5 each.Acme buys 500 units at $4 each in February and 200 units at $6 each in March. Acme sells 300 units during this quarter.Acme uses the LIFO method.What is its cost of goods sold for the quarter?

A)$1,600
B)$1,400
C)$1,500
D)$1,800 Goods sold are assumed to have come from the 300 most recent units purchased.COGS = (200 units * $6 per unit)- (100 units * $4 per unit)= $1,600.

Question 68

A company's inventory records contain the following information: $$\begin{array} { | r | r | r | } \hline \text { Begirring Irventory: } & 300 \text { units } & \$ 780 \\\hline \text { Purchased on June 10 } & 400 \mathrm { urits } & 1,170 \\\hline \text { Purchased on Jurne 15 } & 500 \mathrm { urits } & 1,260 \\\hline \text { Purchared on Jure 28 } & \mathbf { 3 0 0 u n i t s } & 990 \\\hline & 1,500 & \$ 4,200 \\\hline\end{array}$$

-According to the above table.The company sold 1,000 units during June and 500 units were in its ending inventory on June 30.
If the company uses the FIFO method,what is the cost of goods sold?

A)$1,620.
B)$2,290.
C)$2,580.
D)$2,706.

Question 69

An adjustment to ending inventory under the lower of cost and net realizable value (LC&NRV)rule would be least likely to be recorded by a company that sells:

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 70

The Acme Corporation buys 300 units of merchandise in January at $5 each.Acme buys 500 units at $4 each in February and 200 units at $6 each in March. Which of the following statements is true?

A)Whether unit costs are steadily rising or falling,the weighted average cost method always yields a cost of goods sold between that of FIFO and LIFO.
B)FIFO will lead to the highest net income if unit costs are falling.
C)LIFO will always yield a smaller net income than FIFO.
D)Specific identification is the most practical,but least accurate,measure of cost and net income.

Question 71

During 2018,Shockglass Company recorded inventory purchases of $45,000 and cost of goods sold of $50,000.If inventory at the beginning of the year was $15,000,the ending inventory balance must have been:

A)$10,000.
B)$25,000.
C)$26,000.
D)$27,000. Beginning inventory + Purchases = Goods available for sale - Cost of Goods Sold = Ending inventory BI + P = GAFS - COGS = EI
$15,000 + $45,000 = $60,000 - $50,000 = $10,000.

Question 72

The Acme Corporation buys 300 units of merchandise in January at $5 each.Acme buys 500 units at $4 each in February and 200 units at $6 each in March. Acme sells 150 units during this quarter.Acme uses the weighted average method.What is its cost of goods sold for the quarter?

A)$600
B)$705
C)$750
D)$900 Average cost/unit = [(300 * $5/unit)+ (500 * $4/unit)+ (200 * $6/unit)]/(300 + 500 + 200)= ($1,500 + $2,000 + $1,200)/1,000 units = $4.70/unit COGS = 150 units * $4.70/unit COGS = $705.

Question 73

If a company purchased 200 units of inventory at $9 per unit and 300 units at $10 per unit,its weighted average unit cost for this inventory would be:

A)$9.00.
B)$9.50.
C)$9.60.
D)$10.00. Average cost per unit: {($200 * $9 per unit)+ ($300 * $10 per unit)}/(200 units + 300 units)= -$4800/500 units = $9.60 per unit.

Question 74

Generally,which inventory costing method approximates most closely the current cost for each of the following?

A)LIFO for cost of goods sold,FIFO for ending inventory
B)LIFO for cost of goods sold and ending inventory
C)FIFO for cost of goods sold and ending inventory
D)FIFO for cost of goods sold,LIFO for ending inventory

Question 75

A company's inventory records contain the following information: $$\begin{array} { | r | r | r | } \hline \text { Begirring Irventory: } & 300 \text { units } & \$ 780 \\\hline \text { Purchased on June 10 } & 400 \mathrm { urits } & 1,170 \\\hline \text { Purchased on Jurne 15 } & 500 \mathrm { urits } & 1,260 \\\hline \text { Purchared on Jure 28 } & \mathbf { 3 0 0 u n i t s } & 990 \\\hline & 1,500 & \$ 4,200 \\\hline\end{array}$$

-According to the above table.The company sold 1,000 units during June and 500 units were in its ending inventory on June 30.
If the Company uses the LIFO method,what is the cost of its ending inventory:

A)$1,365.
B)$1,494.
C)$1,620.
D)$2,835.

Question 76

An adjustment to ending inventory under the Lower of cost and net realizable value (LC&NRV)rule would be most likely to be recorded by a company that sells:

A)Plastic storage containers.
B)Paper clips.
C)Body lotion.
D)Designer clothes.

Question 77

Which inventory costing method generally results in the most recent costs being assigned to ending inventory?

A)LIFO.
B)FIFO.
C)Weighted average cost.
D)Simple average cost.

Question 78

For external financial statement reporting purposes,loss of inventory value is typically combined with:

A)contributed capital.
B)advertising expense.
C)cost of goods sold.
D)allowance for doubtful accounts.

Question 79

Meanmocha Hardware has a periodic inventory system and uses the weighted average method.The company began the month of November with 150 large brass switch plates on hand at a cost of $4.00 each.These switch plates sell for $7.00 each.The following schedule sets forth the purchases of switch plates during November: $$\begin{array} { | r | r | r | } \hline \text { Date of Transaction } & \text { Quantity Received } & \text { Unit Cost } \\\hline \text { Novernber } 7 & 200 & \$ 4.20 \\\hline \text { Novernber } 11 & 200 & \$ 4.40 \\\hline \text { Novernber } 22 & 250 & \$ 4.80 \\\hline\end{array}$$ If Meanmocha sells 570 switch plates for $7.00 each during November,what is the company's gross profit for November (rounded to the nearest dollar)?

A)$1,046.
B)$1,482.
C)$1,516.
D)$1,528.

Question 80

The LIFO inventory costing method assumes that the costs of the units most recently purchased are:

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