Deck 9: Inventory

Question 1

A company discovered that inventory that cost $1000 and normally sells for $1200,has become obsolete and will be scrapped next month.The effect of the adjusting journal entry is to:

A) decrease profit by $1000 and decrease total assets by $1000
B) decrease profit by $1200 and decrease total assets by $1000
C) decrease profit by $1200 and decrease total assets by $1200
D) decrease profit by $1000 and not affect total assets.

Answer 1

A

Question 2

During the year ended 30 June 2008,Rico Ltd had net sales of $750 000 and net purchases of $440 000.Cost of goods sold was $475 000.What was Rico Ltd's gross profit for the year ended 30 June 2008?

A) $475 000
B) $275 000
C) $240 000
D) $310 000.

Answer 2

B

Question 3

The entry to record a credit sale when the periodic inventory method is employed will include a debit to:

A) cost of goods sold
B) sales
C) accounts receivable
D) inventory.

Answer 3

C

Question 4

The closing entry to close beginning inventory using the periodic method is:

A) DR Purchases
CR Inventory
B) DR Profit and loss summary
CR Inventory
C) DR Inventory
CR Profit and loss summary
D) DR Cost of goods sold
CR Inventory

Question 5

The entry to record a credit purchase when the periodic inventory method is employed will include a:

A) debit to inventory
B) credit to purchases
C) debit to purchases
D) debit to cost of goods sold.

Question 6

The entry to record a credit purchase when the perpetual method is employed is:

A) DR Purchases
CR Accounts payable
B) DR Purchases
CR Inventory
C) DR Inventory
CR Accounts payable
D) DR Cost of goods sold
CR Accounts payable

Question 7

Use the information below to answer the following questions:
Pinkerton Ltd uses a perpetual control system for its inventory. It had the following data for a recent period:
$$\begin{array} { l r l c } & \$ & & \$ \\\text { Beginning accounts receivable } & 100000 & \text { Sales (all credit) } & 720000 \\\text { Beginning accounts payable } & 70000 & \text { Cash received from customers } & 680000 \\\text { Beginning inventory } & 160000 & \text { Cash paid to suppliers } & 380000 \\\text { Purchases (all credit) } & 350000 & & \\\text { Ending inventory count } & 90000 & &\end{array}$$

-What is the balance of Pinkerton Ltd's accounts receivable at year-end?

A) $40 000
B) $140 000
C) $170 000
D) $350 000.

Question 8

During year ended 30 June 2012,Rugger Ltd had net sales of $256 000.Inventory at 1 July 2011 was $25 000,and at 30 June 2012 it was $18 000.Purchases were $115 000.What was the gross profit for year ended 30 June 2012?

A) $141 000
B) $134 000
C) $12 000
D) none of the above.

Question 9

Which of the following journal entries is one of the entries made to record a credit sale under the perpetual inventory system?

A) DR Cost of goods sold
CR Inventory
B) DR Cost of goods sold
CR Sales
C) DR Inventory
CR Cost of goods sold
D) DR Accounts receivable
CR Sales

Question 10

Which of the following is NOT an advantage of the perpetual over the periodic inventory method?

A) A continuous record of inventory on hand is furnished.
B) Inventory theft may be detected.
C) Recording is simplified.
D) The perpetual inventory system provides a continuous record of cost of goods sold.

Question 11

It is necessary to use a purchases account with:

A) only the periodic count method
B) only the perpetual accounting control method
C) both the periodic count and the perpetual accounting control methods
D) either method,if the system designer has included it in the chart of accounts.

Question 12

Use the information below to answer the following questions:
Pinkerton Ltd uses a perpetual control system for its inventory. It had the following data for a recent period:
$$\begin{array} { l r l c } & \$ & & \$ \\\text { Beginning accounts receivable } & 100000 & \text { Sales (all credit) } & 720000 \\\text { Beginning accounts payable } & 70000 & \text { Cash received from customers } & 680000 \\\text { Beginning inventory } & 160000 & \text { Cash paid to suppliers } & 380000 \\\text { Purchases (all credit) } & 350000 & & \\\text { Ending inventory count } & 90000 & &\end{array}$$

-If Pinkerton Ltd had employed the periodic inventory method,what would its gross profit have been?

A) $320 000
B) $300 000
C) $280 000
D) $440 000.

Question 13

The perpetual accounting control method has which of the following advantages over the periodic count method?

A) A physical count is not required.
B) Stock shortages are eliminated.
C) Cost of operation is lower.
D) Details of the number of items on hand is available.

Question 14

A Cost of goods sold account is used in:

A) the periodic system only
B) the perpetual system only
C) both the periodic and the perpetual systems
D) either system if provision has been made in the chart of accounts.

Question 15

Which of the following ledger accounts is NOT found in the ledger of an enterprise employing the periodic count method?

A) purchases
B) purchases returns
C) cost of goods sold
D) discount expense.

Question 16

Which of the following statements about the perpetual inventory control method is NOT true?

A) When a sale is made,two journal entries are required.
B) When inventory is purchased,it is treated as an expense.
C) A separate record is kept for each item of inventory.
D) An inventory count can reveal inventory losses.

Question 17

Which of the following is NOT an advantage of the perpetual inventory system over the periodic count system?

A) The perpetual inventory system discloses inventory shortages.
B) The perpetual inventory system is less costly to maintain.
C) The perpetual inventory system provides a continuous record of cost of goods sold.
D) The perpetual inventory system provides better control of the asset inventory.

Question 18

Use the information below to answer the following questions:
Pinkerton Ltd uses a perpetual control system for its inventory. It had the following data for a recent period:
$$\begin{array} { l r l c } & \$ & & \$ \\\text { Beginning accounts receivable } & 100000 & \text { Sales (all credit) } & 720000 \\\text { Beginning accounts payable } & 70000 & \text { Cash received from customers } & 680000 \\\text { Beginning inventory } & 160000 & \text { Cash paid to suppliers } & 380000 \\\text { Purchases (all credit) } & 350000 & & \\\text { Ending inventory count } & 90000 & &\end{array}$$

-What was the balance of Pinkerton Ltd's accounts payable at the end of the period?

A) $20 000
B) $40 000
C) $90 000
D) $100 000

Question 19

The journal entries to record a credit sale under the perpetual inventory system will include a:

A) debit to purchases
B) credit to inventory
C) debit to sales
D) debit to inventory.

Question 20

Using the periodic count method,entries are made in the inventory account when stock is:

A) delivered
B) sold
C) paid for
D) entries are not made in the inventory account.

Question 21

Use the information below to answer the following questions:
A company purchases and sells Roofoo. It began last year with 5 units of Roofoo on hand at a cost of $10 each, and during the year its purchases and sales were as follows:
$$\begin{array} { l c c c c } \text { Date } & \begin{array} { c } \text { Units } \\\text { purchased }\end{array} & \text { Units sold } & \begin{array} { c } \text { Units on } \\\text { hand }\end{array} & \begin{array} { c } \text { Purchase } \\\text { price }\end{array} \\\text { July 1 } & & & 5 & \$ 10 \\\text { Sept 10 } & 5 & & 10 & \$ 12 \\\text { Dec 20 } & & 6 & 4 & \\\text { Mar 3 } & 4 & & 8 & \$ 15 \\\text { June 10 } & &5 & 3 &\end{array}$$

-What was the value of cost of goods sold of Roofoo,using the annual weighted average in a periodic inventory system?

A) $131
B) $140
C) $170
D) $400.73.

Question 22

In times of inflation,which cost flow assumption provides the highest inventory asset?

A) FIFO
B) moving weighted average
C) LIFO
D) it depends on the rate of inflation.

Question 23

Which of the following statements about the use of the weighted average assumption is true?

A) The balance sheet figure is between the LIFO and FIFO figures.
B) When prices are rising,it shows lower balance sheet figures than the LIFO method.
C) When prices are falling,it shows lower balance sheet figures than the FIFO method.
D) The weighted average cost is re-calculated after each transaction.

Question 24

If purchase prices are falling,which cost flow assumption provides the highest cost of goods sold?

A) FIFO
B) annual weighted average
C) moving weighted average
D) LIFO.

Question 25

On 14 April 2012,Dragoon Ltd sells on credit $8000 of merchandise that had cost $5000.Which of the following journal entries would Dragoon Ltd make on 14 April 2012?

A) DR Cost of goods sold
$5000
CR Inventory
$5000
B)
B) DR Accounts receivable
$8000
CR Sales
$8000
C) DR Cash
$8000
CR Accounts receivable
$8000
D) both A and

Question 26

What were Epsilon Pty Ltd's net sales for the year?

A) $100 000
B) $96 000
C) $92 000
D) $57 500.

Question 27

Which of the following inventory assumptions provides the best matching of revenues with expenses?

A) FIFO
B) moving weighted average
C) LIFO
D) it depends on the rate of inflation.

Question 28

What was the value of inventory in the balance sheet at 30 June 2012?

A) $22 500
B) $10 000
C) $7500
D) $12 500.

Question 29

Use the information below to answer the following questions:
A company purchases and sells Roofoo. It began last year with 5 units of Roofoo on hand at a cost of $10 each, and during the year its purchases and sales were as follows:
$$\begin{array} { l c c c c } \text { Date } & \begin{array} { c } \text { Units } \\\text { purchased }\end{array} & \text { Units sold } & \begin{array} { c } \text { Units on } \\\text { hand }\end{array} & \begin{array} { c } \text { Purchase } \\\text { price }\end{array} \\\text { July 1 } & & & 5 & \$ 10 \\\text { Sept 10 } & 5 & & 10 & \$ 12 \\\text { Dec 20 } & & 6 & 4 & \\\text { Mar 3 } & 4 & & 8 & \$ 15 \\\text { June 10 } & &5 & 3 &\end{array}$$

-What was the value of the ending inventory of Roofoo,using the moving weighted average assumption and a perpetual inventory system?

A) $45
B) $39
C) $36.43
D) $15.

Question 30

Which of the following statements about the use of the LIFO assumption is NOT true?

A) In times of inflation,it produces a higher cost of goods sold than FIFO.
B) In times of falling prices,it produces lower income tax than FIFO.
C) The LIFO assumption matches revenues with expenses better than FIFO or average.
D) The LIFO assumption is affected by whether its amounts are determined using the periodic or perpetual control methods.

Question 31

Which,if any,of the following cost flow assumptions is NOT affected by the inventory control method employed,i.e.periodic or perpetual?

A) LIFO
B) FIFO
C) weighted average cost
D) moving weighted average cost.

Question 32

Which of the following statements about the use of the LIFO method in Australia is true?

A) The LIFO method is not allowed to be used for either financial reporting or tax purposes.
B) The LIFO method may be used for both financial reporting and tax purposes.
C) The LIFO method may be used for financial reporting but not for tax purposes.
D) Use of the LIFO method must be approved by the Australian Securities and Investments Commission and the Australian Taxation Office.

Question 33

Which of the following statements about the use of the LIFO assumption is true?

A) The LIFO assumption fails to match revenues with expenses as well as FIFO.
B) The LIFO assumption assigns older costs to the cost of goods sold expense account.
C) The LIFO assumption produces inventory asset values that are close to current costs.
D) The LIFO assumption produces a lower inventory asset value and the highest cost of goods sold.

Question 34

Jog Ltd employs a perpetual inventory system.When a customer returns merchandise to Jog Ltd that he purchased on credit,which of these entries would Jog Ltd make?

A) DR Accounts receivable
CR Sales returns
B) DR Sales returns
CR Cash
C) DR Sales returns
CR Accounts receivable
D) DR Cash
CR Accounts receivable

Question 35

The following details relate to a perpetual inventory system:
$$\begin{array} { l c } & \$ \\\text { Purchases on credit } & 765000 \\\text { Cost of goods sold } & 816000 \\\text { Inventory at end } & 255000\end{array}$$
What was the value of opening inventory?

A) $459 000
B) $306 000
C) $204 000
D) $561 000.

Question 36

Which of the following statements about the last-in,first-out (LIFO)assumption is true?

A) LIFO assumes that inventory on hand consists of the oldest units.
B) LIFO assumes that ending inventory and cost of goods sold are composed of a mixture of old and new units.
C) LIFO results in newer costs appearing in the balance sheet.
D) LIFO assumes the items sold are those purchased first.

Question 37

Use the information below to answer the following questions:
A company purchases and sells Roofoo. It began last year with 5 units of Roofoo on hand at a cost of $10 each, and during the year its purchases and sales were as follows:
$$\begin{array} { l c c c c } \text { Date } & \begin{array} { c } \text { Units } \\\text { purchased }\end{array} & \text { Units sold } & \begin{array} { c } \text { Units on } \\\text { hand }\end{array} & \begin{array} { c } \text { Purchase } \\\text { price }\end{array} \\\text { July 1 } & & & 5 & \$ 10 \\\text { Sept 10 } & 5 & & 10 & \$ 12 \\\text { Dec 20 } & & 6 & 4 & \\\text { Mar 3 } & 4 & & 8 & \$ 15 \\\text { June 10 } & &5 & 3 &\end{array}$$

-What was the value of the ending inventory of Roofoo,using the FIFO assumption?

A) $30
B) $39
C) $45
D) $15.

Question 38

What was Epsilon Pty Ltd's cost of goods sold for the year?

A) $47 500
B) $57 500
C) $60 000
D) $62 500.

Question 39

Which of the following statements about the use of the FIFO assumption is NOT true?

A) The FIFO assumption assigns the more recent purchase costs to the balance sheet inventory asset account.
B) The FIFO assumption is not affected by the inventory control method.
C) In periods of rising prices it produces a higher profit than LIFO.
D) The FIFO assumption produces inventory asset values that are based on older purchase costs.

Question 40

In a period of rising purchase prices,which cost flow assumption provides the highest net profit?

A) FIFO
B) moving weighted average
C) LIFO
D) it depends on the rate of inflation.

Question 41

Use the information below to answer the following questions:
Diligent Ltd had 5 units of the commodity Algo on hand at 1 September 2012. The following purchases and sales were made during September:

$\begin{array}{llcc} \text { Opening Balance } & \text { Purchases } & \text { Sales } \\ \text {September1\quad 5 units@\$200 \( \$ \) } & \text {September3\quad 5 units @ \$240 \( \quad \)}& \text {September \( 7 \quad 7 \) units}\\ \text { } & \text { 12\quad 3 units@\$260} & \text { 27\quad 5 units } \\ \text { } & \text {25\quad 6 units@\$200 } & \text { } \\\end{array}$

-What was the value of ending inventory of Algo,using the LIFO assumption in a perpetual inventory system?

A) $1460
B) $1480
C) $1580
D) $2400.

Question 42

Use the information below to answer the following questions:
Diligent Ltd had 5 units of the commodity Algo on hand at 1 September 2012. The following purchases and sales were made during September:

$\begin{array}{llcc} \text { Opening Balance } & \text { Purchases } & \text { Sales } \\ \text {September1\quad 5 units@\$200 \( \$ \) } & \text {September3\quad 5 units @ \$240 \( \quad \)}& \text {September \( 7 \quad 7 \) units}\\ \text { } & \text { 12\quad 3 units@\$260} & \text { 27\quad 5 units } \\ \text { } & \text {25\quad 6 units@\$200 } & \text { } \\\end{array}$

-What was the value of cost of goods sold of Algo,using the FIFO assumption?

A) $2640
B) $2700
C) $2720
D) $2400.

Question 43

Inventory with a value of $300 000 was written down to $250 000 in June 2012 because of falling prices in the industry.This transaction will:

A) decrease assets,profit and shareholders' equity
B) decrease assets and profit,but not shareholders' equity
C) decrease assets and shareholders' equity but not profit
D) decrease assets and decrease shareholders' equity.

Question 44

Use the information below to answer the following questions:
Diligent Ltd had 5 units of the commodity Algo on hand at 1 September 2012. The following purchases and sales were made during September:

$\begin{array}{llcc} \text { Opening Balance } & \text { Purchases } & \text { Sales } \\ \text {September1\quad 5 units@\$200 \( \$ \) } & \text {September3\quad 5 units @ \$240 \( \quad \)}& \text {September \( 7 \quad 7 \) units}\\ \text { } & \text { 12\quad 3 units@\$260} & \text { 27\quad 5 units } \\ \text { } & \text {25\quad 6 units@\$200 } & \text { } \\\end{array}$

-What was the value of ending inventory of Algo,using the LIFO assumption in a periodic inventory system?

A) $1580
B) $1480
C) $1460
D) $1590.

Question 45

Use the information below to answer the following questions:
A company purchases and sells Roofoo. It began last year with 5 units of Roofoo on hand at a cost of $10 each, and during the year its purchases and sales were as follows:
$$\begin{array} { l c c c c } \text { Date } & \begin{array} { c } \text { Units } \\\text { purchased }\end{array} & \text { Units sold } & \begin{array} { c } \text { Units on } \\\text { hand }\end{array} & \begin{array} { c } \text { Purchase } \\\text { price }\end{array} \\\text { July 1 } & & & 5 & \$ 10 \\\text { Sept 10 } & 5 & & 10 & \$ 12 \\\text { Dec 20 } & & 6 & 4 & \\\text { Mar 3 } & 4 & & 8 & \$ 15 \\\text { June 10 } & &5 & 3 &\end{array}$$

-What was the value of ending inventory of Roofoo,using the LIFO assumption in a periodic inventory system?

A) $30
B) $36.43
C) $45
D) $109.26.

Question 46

Use the information below to answer the following questions:
Diligent Ltd had 5 units of the commodity Algo on hand at 1 September 2012. The following purchases and sales were made during September:

$\begin{array}{llcc} \text { Opening Balance } & \text { Purchases } & \text { Sales } \\ \text {September1\quad 5 units@\$200 \( \$ \) } & \text {September3\quad 5 units @ \$240 \( \quad \)}& \text {September \( 7 \quad 7 \) units}\\ \text { } & \text { 12\quad 3 units@\$260} & \text { 27\quad 5 units } \\ \text { } & \text {25\quad 6 units@\$200 } & \text { } \\\end{array}$

-What was the value of cost of goods sold of Algo,using the LIFO assumption in a perpetual inventory system?

A) $2600
B) $2700
C) $2720
D) $1400.

Question 47

Use the information below to answer the following questions:
Diligent Ltd had 5 units of the commodity Algo on hand at 1 September 2012. The following purchases and sales were made during September:

$\begin{array}{llcc} \text { Opening Balance } & \text { Purchases } & \text { Sales } \\ \text {September1\quad 5 units@\$200 \( \$ \) } & \text {September3\quad 5 units @ \$240 \( \quad \)}& \text {September \( 7 \quad 7 \) units}\\ \text { } & \text { 12\quad 3 units@\$260} & \text { 27\quad 5 units } \\ \text { } & \text {25\quad 6 units@\$200 } & \text { } \\\end{array}$

-What was the value of ending inventory of Algo,using the moving weighted average assumption and a perpetual inventory system?

A) $1460
B) $1480
C) $1540
D) $1590.

Question 48

Use the information below to answer the following questions:
Diligent Ltd had 5 units of the commodity Algo on hand at 1 September 2012. The following purchases and sales were made during September:

$\begin{array}{llcc} \text { Opening Balance } & \text { Purchases } & \text { Sales } \\ \text {September1\quad 5 units@\$200 \( \$ \) } & \text {September3\quad 5 units @ \$240 \( \quad \)}& \text {September \( 7 \quad 7 \) units}\\ \text { } & \text { 12\quad 3 units@\$260} & \text { 27\quad 5 units } \\ \text { } & \text {25\quad 6 units@\$200 } & \text { } \\\end{array}$

-What was the value of cost of goods sold of Algo,using the moving weighted average assumption and a perpetual inventory system?

A) $2640
B) $2700
C) $2720
D) $3180.

Question 49

Use the information below to answer the following questions:
Diligent Ltd had 5 units of the commodity Algo on hand at 1 September 2012. The following purchases and sales were made during September:

$\begin{array}{llcc} \text { Opening Balance } & \text { Purchases } & \text { Sales } \\ \text {September1\quad 5 units@\$200 \( \$ \) } & \text {September3\quad 5 units @ \$240 \( \quad \)}& \text {September \( 7 \quad 7 \) units}\\ \text { } & \text { 12\quad 3 units@\$260} & \text { 27\quad 5 units } \\ \text { } & \text {25\quad 6 units@\$200 } & \text { } \\\end{array}$

-What was the value of ending inventory of Algo,using the FIFO assumption?

A) $1460
B) $1480
C) $2400
D) $1400.

Question 50

The lower of cost or market rule for inventory is an example of the principle of:

A) consistency
B) reliability
C) conservatism
D) relevance.

Question 51

Raw materials of inventory were purchased on credit for $200 000 on 10 June.The company uses the perpetual method.This transaction will:

A) increase assets,liabilities and shareholders' equity
B) increase assets and liabilities but reduce shareholders' equity
C) increase liabilities but have no effect on assets or shareholders' equity
D) increase assets and increase liabilities.

Question 52

Which of the following would produce the lowest net profit in periods of falling prices if inventory levels are not decreasing?

A) FIFO
B) LIFO
C) weighted average
D) moving weighted average cost.