Deck 6: Inventories

Question 1

Inventory controls start when the merchandise is shelved in the store area.

Answer 1

False

Question 2

A physical inventory should be taken at the end of every month.

Answer 2

False

Question 3

A purchase order establishes an initial record of the receipt of the inventory.

Answer 3

False

Question 4

A subsidiary inventory ledger can be an aid in maintaining inventory levels at their proper levels.

Question 5

FIFO is the inventory costing method that follows the physical flow of the goods.

Question 6

During periods of increasing costs, the use of the FIFO method of costing inventory will result in a greater amount of net income than would result from the use of the LIFO cost method.

Question 7

The average cost inventory method is the rarely used with a perpetual inventory system.

Question 8

Safeguarding inventory and proper reporting of the inventory in the books are the reasons for controlling the inventory.

Question 9

If the perpetual inventory system is used, the account entitled Merchandise Inventory is debited for purchases of merchandise.

Question 10

When using the FIFO inventory costing method, the most recent costs are assigned to the cost of goods sold.

Question 11

A perpetual inventory system is an effective means of control over inventory.

Question 12

Of the three widely used inventory costing methods (FIFO, LIFO, and average cost), the LIFO method of costing inventory assumes costs are charged based on the most recent purchases first.

Question 13

The selection of an inventory costing method has no significant impact on the financial statements.

Question 14

The specific identification inventory method should be used when the inventory consists of identical, low cost units that are purchased and sold frequently.

Question 15

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.

Question 16

Under the LIFO inventory costing method, the most recent costs are assigned to ending inventory.

Question 17

One of the two internal control procedures over inventory is to properly report inventory on the financial statements.

Question 18

The three inventory costing methods will normally each yield different amounts of net income.

Question 19

The average cost method will always yield results between FIFO and LIFO.

Question 20

Under the periodic inventory system, the merchandise inventory account continuously discloses the amount of inventory on hand.

Question 21

"Market," as used in the phrase "lower of cost or market" for valuing inventory, refers to the price at which the inventory is being offered for sale by its owner.

Question 22

The use of the lower-of-cost-or-market method of inventory valuation increases net income for the period in which the inventory replacement price declined.

Question 23

Unsold consigned merchandise should be included in the consignee's inventory.

Question 24

During periods of rapidly rising costs, the use of the LIFO method results in illusory or inventory profits.

Question 25

Generally, the lower the number of days' sales in inventory, the better.

Question 26

Most large companies will use only one inventory costing methods for all of its different segments.

Question 27

One effect of carrying too much inventory is risk that customers will change their buying habits.

Question 28

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

Question 29

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 two.

Question 30

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

Question 31

The lower of cost or market is a method of inventory valuation.

Question 32

The lower-of-cost-or-market method of determining the value of ending inventory can be applied on an item by item, by major classification of inventory, or by the total inventory.

Question 33

During periods of decreasing costs the use of the LIFO method of costing inventory will result in a lower amount of net income than would result from the use of the FIFO method.

Question 34

In valuing damaged merchandise for inventory purposes, net realizable value is the estimated selling price less any direct costs of disposal.

Question 35

When merchandise inventory is shown on the balance sheet, both the method of determining the cost of the inventory and the method of valuing the inventory should be shown.

Question 36

If ending inventory for the year is understated, net income for the year is overstated.

Question 37

A consignor who has goods out on consignment with an agent should include the goods in ending inventory even though they are in the possession of the consignor.

Question 38

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.

Question 39

During periods of increasing costs, an advantage of the LIFO inventory cost method is that it matches more recent costs against current revenues.

Question 40

Direct disposal costs do not include special advertising or sales commissions.

Question 41

Cost flow is in the reverse order in which costs were incurred when using

A) weighted average
B) last-in, first-out
C) first-in, first-out
D) average cost

Question 42

Which of the following is not an example for safeguarding inventory?

A) Storing inventory in restricted areas.
B) Physical devices such as two-way mirrors, cameras, and alarms.
C) Matching receiving documents, purchase orders, and vendor's invoice.
D) Returning inventory that is defective or broken.

Question 43

If a fire destroys the merchandise inventory, the gross profit method can be used to estimate the cost of merchandise destroyed.

Question 44

In the retail inventory method, the cost to retail ratio is equal to the cost of goods sold divided by the retail price of the good sold.

Question 45

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

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

Question 46

Use of the retail inventory method requires taking a physical count of inventory.

Question 47

Ending inventory is made up of the oldest purchases when a company uses

A) first-in, first-out
B) last-in, first-out
C) average cost
D) retail method

Question 48

The inventory costing method that reports the earliest costs in ending inventory is

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

Question 49

If a company uses the periodic inventory system to cost its inventory, the gross profit method is a method that can be used to check on theft when the actual inventory is taken by the company.

Question 50

Under a perpetual inventory system, the amount of each type of merchandise on hand is available in the

A) customer's ledger
B) creditor's ledger
C) inventory ledger
D) purchase ledger

Question 51

The two most widely used methods for determining the cost of inventory are

A) FIFO and LIFO
B) FIFO and average
C) LIFO and average
D) gross profit and average

Question 52

The inventory costing method that reports the most current prices in ending inventory is

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

Question 53

The inventory method that assigns the most recent costs to cost of goods sold is

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

Question 54

Which of the following companies would be more likely to use the specific identification inventory costing method?

A) Gordon's Jewelers
B) Lowe's
C) Best Buy
D) Wal-Mart

Question 55

Inventory costing methods place primary emphasis on assumptions about

A) flow of goods
B) flow of costs
C) flow of goods or flow of costs depending on the method
D) neither flow of goods or flow of costs

Question 56

Control of inventory should begin as soon as the inventory is received. Which of the following internal control steps is not done to meet this goal?

A) check the invoice to the receiving report
B) check the invoice to the purchase order
C) check the invoice with the person who specifically purchased the item
D) check the invoice extensions and totals

Question 57

Inventory turnover measures the length of time is takes to acquire, sell and replace the inventory.

Question 58

Taking a physical count of inventory

A) is not necessary when a periodic inventory system is used
B) should be done near year-end
C) has no internal control relevance
D) is not necessary when a perpetual inventory system is used

Question 59

When merchandise sold is assumed to be in the order in which the purchases were made, the company is using

A) first-in, last-out
B) last-in, first-out
C) first-in, first-out
D) average cost

Question 60

Cost flow is in the order in which costs were incurred when using

A) average cost
B) last-in, first-out
C) first-in, first-out
D) weighted average

Question 61

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 using LIFO is:

A) $1,250
B) $1,350
C) $1,375
D) $1,150

Question 62

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 using FIFO is:

A) $1,250
B) $1,350
C) $1,375
D) $1,150

Question 63

The inventory data for an item for November are: $\begin{array}{rll}\text { Nov } 1 & \text { Inventory } & 20 \text { units at } \$ 19 \\4 & \text { Sold } & 10 \text { units } \\10 & \text { Purchased } & 30 \text { units at } \$ 20 \\17 & \text { Sold } & 20 \text { units } \\30 & \text { Purchased } & 10 \text { units at } \$ 21\end{array}$ Using a perpetual system, what is the cost of the merchandise sold for November if the company uses FIFO?

A) $610
B) $600
C) $590
D) $580

Question 64

The following lots of a particular commodity were available for sale during the year: $\begin{array}{ll}\text { Beginning invent ory } & 10 \text { units at } \$ 30 \\\text { First purchase } & 25 \text { units at } \$ 32 \\\text { Second purchase } & 30 \text { units at } \$ 34 \\\text { Third purchase } & 10 \text { units at } \$ 35\end{array}$ 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 according to the average cost method?

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

Question 65

The following lots of a particular commodity were available for sale during the year: $\begin{array}{lc}\text { Beginning invent ory } & 5 \text { units at } \$ 61 \\\text { First purchase } & 15 \text { units at } \$ 63 \\\text { Second purchase } & 10 \text { units at } \$ 74 \\\text { Third purchase } & 10 \text { units at } \$ 77\end{array}$ 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 cost of goods sold for the year according to the FIFO method?

A) $1,380
B) $1,375
C) $1,510
D) $1,250

Question 66

Use the following information to answer the following questions. The 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.
$\begin{array}{|l|l|l|l|}\hline \text { Date } & \text { Product Z } & \text { Units } & \text { Cost } \\\hline \text { May 3 } & \text { Purchase } & 5 & \$ 20 \\\hline \text { May 10 } & \text { Sale } & 3 & \\\hline \text { May 17 } & \text { Purchase } & 10 & \$ 24 \\\hline \text { May 20 } & \text { Sale } & 6 & \\\hline \text { May 23 } & \text { Sale } & 3 & \\\hline \text { May 30 } & \text { Purchase } & 10 & \$ 30 \\\hline\end{array}$ Assuming that the company uses the perpetual inventory system, determine the Gross Profit for the month of May using the LIFO cost method.

A) $348
B) $452
C) $444
D) $356

Question 67

Use the following information to answer the following questions. The 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.
$\begin{array}{|l|l|l|l|}\hline \text { Date } & \text { Product Z } & \text { Units } & \text { Cost } \\\hline \text { May 3 } & \text { Purchase } & 5 & \$ 20 \\\hline \text { May 10 } & \text { Sale } & 3 & \\\hline \text { May 17 } & \text { Purchase } & 10 & \$ 24 \\\hline \text { May 20 } & \text { Sale } & 6 & \\\hline \text { May 23 } & \text { Sale } & 3 & \\\hline \text { May 30 } & \text { Purchase } & 10 & \$ 30 \\\hline\end{array}$ Assuming that the company uses the perpetual inventory system, determine the cost of merchandise sold for the sale of May 20 using the LIFO inventory cost method.

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

Question 68

Use the following information to answer the following questions. The 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.
$\begin{array}{|l|l|l|l|}\hline \text { Date } & \text { Product Z } & \text { Units } & \text { Cost } \\\hline \text { May 3 } & \text { Purchase } & 5 & \$ 20 \\\hline \text { May 10 } & \text { Sale } & 3 & \\\hline \text { May 17 } & \text { Purchase } & 10 & \$ 24 \\\hline \text { May 20 } & \text { Sale } & 6 & \\\hline \text { May 23 } & \text { Sale } & 3 & \\\hline \text { May 30 } & \text { Purchase } & 10 & \$ 30 \\\hline\end{array}$ Assuming that the company uses the perpetual inventory system, determine the gross profit for the sale of May 23 using the FIFO inventory cost method.

A) $108
B) $120
C) $72
D) $180

Question 69

Use the following information to answer the following questions. The 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.
$\begin{array}{|l|l|l|l|}\hline \text { Date } & \text { Product Z } & \text { Units } & \text { Cost } \\\hline \text { May 3 } & \text { Purchase } & 5 & \$ 20 \\\hline \text { May 10 } & \text { Sale } & 3 & \\\hline \text { May 17 } & \text { Purchase } & 10 & \$ 24 \\\hline \text { May 20 } & \text { Sale } & 6 & \\\hline \text { May 23 } & \text { Sale } & 3 & \\\hline \text { May 30 } & \text { Purchase } & 10 & \$ 30 \\\hline\end{array}$ Assuming that the company uses the perpetual inventory system, determine the ending inventory for the month of May using the LIFO inventory cost method.

A) $324
B) $372
C) $320
D) $364

Question 70

When using a perpetual inventory system, the journal entry to record the cost of merchandise sold is:

A) debit Cost of Merchandise Sold; credit Sales
B) debit Cost of Merchandise Sold; credit Merchandise Inventory
C) debit Merchandise Inventory; credit Cost of Merchandise Sold
D) No journal entry is made to record the cost of merchandise sold.

Question 71

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 using average cost is:

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

Question 72

Use the following information to answer the following questions. The 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.
$\begin{array}{|l|l|l|l|}\hline \text { Date } & \text { Product Z } & \text { Units } & \text { Cost } \\\hline \text { May 3 } & \text { Purchase } & 5 & \$ 20 \\\hline \text { May 10 } & \text { Sale } & 3 & \\\hline \text { May 17 } & \text { Purchase } & 10 & \$ 24 \\\hline \text { May 20 } & \text { Sale } & 6 & \\\hline \text { May 23 } & \text { Sale } & 3 & \\\hline \text { May 30 } & \text { Purchase } & 10 & \$ 30 \\\hline\end{array}$ 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.

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

Question 73

The following lots of a particular commodity were available for sale during the year: $\begin{array}{lc}\text { Beginning invent ory } & 5 \text { units at } \$ 61 \\\text { First purchase } & 15 \text { units at } \$ 63 \\\text { Second purchase } & 10 \text { units at } \$ 74 \\\text { Third purchase } & 10 \text { units at } \$ 77\end{array}$ 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 cost of good sold for the year according to the average cost method?

A) $1,380
B) $1,375
C) $1,510
D) $1,250

Question 74

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

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

Question 75

The following lots of a particular commodity were available for sale during the year: $\begin{array}{ll}\text { Beginning invent ory } & 10 \text { units at } \$ 30 \\\text { First purchase } & 25 \text { units at } \$ 32 \\\text { Second purchase } & 30 \text { units at } \$ 34 \\\text { Third purchase } & 10 \text { units at } \$ 35\end{array}$ 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 according to the FIFO method?

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

Question 76

Addison, Inc. uses a perpetual inventory system. The following is information about one inventory item for the month of September: $\begin{array}{rll}\text { Sep. } 1 & \text { Inventory } & 20 \text { units at } \$ 20 \\4 & \text { Sold } & 10 \text { units } \\10 & \text { Purchased } & 30 \text { units at } \$ 25 \\17 & \text { Sold } & 20 \text { units } \\30 & \text { Purchased } & 10 \text { units at } \$ 30\end{array}$ If Addison uses FIFO, the cost of the ending merchandise inventory on September 30 is

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

Question 77

The following lots of a particular commodity were available for sale during the year: $\begin{array}{ll}\text { Beginning invent ory } & 10 \text { units at } \$ 30 \\\text { First purchase } & 25 \text { units at } \$ 32 \\\text { Second purchase } & 30 \text { units at } \$ 34 \\\text { Third purchase } & 10 \text { units at } \$ 35\end{array}$ 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 according to the LIFO method?

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

Question 78

The inventory data for an item for November are: $\begin{array}{rll}\text { Nov. } 1 & \text { Inventory } & 20 \text { units at } \$ 19 \\4 & \text { Sold } & 10 \text { units } \\10 & \text { Purchased } & 30 \text { units at } \$ 20 \\17 & \text { Sold } & 20 \text { units } \\30 & \text { Purchased } & 10 \text { units at } \$ 21\end{array}$ Using a perpetual system, what is the cost of the merchandise sold for November if the company uses LIFO?

A) $610
B) $600
C) $590
D) $580

Question 79

Under the _________ inventory method, accounting records maintain a continuously updated inventory value.

A) retail
B) periodic
C) physical
D) perpetual

Question 80

Use the following information to answer the following questions. The 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.
$\begin{array}{|l|l|l|l|}\hline \text { Date } & \text { Product Z } & \text { Units } & \text { Cost } \\\hline \text { May 3 } & \text { Purchase } & 5 & \$ 20 \\\hline \text { May 10 } & \text { Sale } & 3 & \\\hline \text { May 17 } & \text { Purchase } & 10 & \$ 24 \\\hline \text { May 20 } & \text { Sale } & 6 & \\\hline \text { May 23 } & \text { Sale } & 3 & \\\hline \text { May 30 } & \text { Purchase } & 10 & \$ 30 \\\hline\end{array}$ Assuming that the company uses the perpetual inventory system, determine the ending inventory value for the month of May using the FIFO inventory cost method.

A) $364
B) $372
C) $324
D) $320