Deck 8: Inventories: Measurement

Question 1

In a perpetual inventory system, the cost of purchases is debited to:

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

Answer 1

C

Question 2

Unit LIFO is more costly to implement than dollar-value LIFO.

Answer 2

True

Question 3

In a periodic inventory system, the cost of purchases is debited to:

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

Answer 3

A

Question 4

The choice of cost flow assumption (FIFO, LIFO, or average) does not depend on the physical flow of the product.

Question 5

In a perpetual inventory system, the cost of inventory sold is:

A)Debited to accounts receivable.
B)Credited to cost of goods sold.
C)Debited to cost of goods sold.
D)Not recorded at the time.

Question 6

Shipping charges on outgoing goods are included in cost of goods sold.

Question 7

LIFO always provides a better match of revenue and expense than does FIFO.

Question 8

Net purchases are reduced for discounts taken whether the net method is used or the gross method is used.

Question 9

Dollar-value LIFO eliminates the risk of LIFO liquidations.

Question 10

LIFO periodic and LIFO perpetual always produce the same amounts for ending inventory.

Question 11

Cost of goods on consignment is included in the consignee's inventory until sold.

Question 12

Inventory costing methods are merely means by which costs are allocated between ending inventory and cost of goods sold.

Question 13

The main difference between perpetual and periodic inventory systems is the timing of the allocation of costs between inventory and cost of goods sold.

Question 14

FIFO periodic and FIFO perpetual always produce the same amounts for cost of goods sold.

Question 15

In a periodic inventory system, the cost of inventories sold is:

A)Debited to accounts receivable.
B)Credited to cost of goods sold.
C)Debited to cost of goods sold.
D)Not recorded at the time of sale.

Question 16

During periods of falling prices, LIFO ending inventory will be less than FIFO ending inventory.

Question 17

The inventory method that will always produce the same amount for cost of goods sold in a periodic inventory system as in a perpetual inventory system would be:

A)FIFO.
B)LIFO.
C)Weighted average.
D)None of these.

Question 18

Physical counts of inventory are never done with perpetual inventory systems.

Question 19

LIFO liquidation profits occur when inventory quantity declines and costs are rising.

Question 20

The gross profit ratio is calculated by dividing gross profit by average inventory.

Question 21

In a period when costs are rising and inventory quantities are stable, the inventory method that would result in the highest ending inventory is:

A)Weighted average.
B)Moving average.
C)FIFO.
D)LIFO.

Question 22

In a perpetual average cost system:

A)A new weighted-average unit cost is calculated each time additional units are purchased.
B)The cost allocated to ending inventory is generally the same as it would be in a periodic inventory system.
C)The moving-average unit cost is determined following each sale.
D)The average is determined by dividing the total number of units sold by the cost of units purchased during the period.

Question 23

During periods when costs are rising and inventory quantities are stable, cost of goods sold will be:

A)Higher under FIFO than LIFO.
B)Higher under FIFO than average cost.
C)Lower under average cost than LIFO.
D)Lower under LIFO than FIFO.

Question 24

Under the net method, purchase discounts lost are:

A)Included in purchases.
B)Added to accounts payable.
C)Included in interest expense.
D)Deducted from discount income.

Question 25

The LIFO Conformity Rule states that if LIFO is used for:

A)One class of inventory, it must be used for all classes of inventory.
B)Tax purposes, it must be used for financial reporting.
C)One company in an affiliated group, it must be used by all companies in an affiliated group.
D)Domestic companies, it must be used by foreign partners.

Question 26

Under the gross method, purchase discounts taken are:

A)Deducted from interest expense.
B)Added to net purchases.
C)Added to interest income.
D)Deducted from purchases.

Question 27

The largest expense on a retailer's income statement is typically:

A)Salaries and wages.
B)Cost of goods sold.
C)Income tax expense.
D)Depreciation expense.

Question 28

Inventory does not include:

A)Materials used in the production of goods to be sold.
B)Assets intended to be sold in the normal course of business.
C)Equipment used in the manufacturing of assets for sale.
D)Assets currently in production for normal sales.

Question 29

Alison's dress shop buys dresses from McGuire Manufacturing. Alison purchased dresses from McGuire on July 17, and received an invoice with a list price amount of $6,000 and payment terms of 2/10, n/30. Alison uses the net method to record purchases. Alison should record the purchase at:

A)$5,940.
B)$5,880.
C)$6,000.
D)$6,120.$6,000 98% = $5,880

Question 30

The use of LIFO during a long inflationary period can result in:

A)A net increase in income tax expense.
B)An inflated balance sheet.
C)Significant cash flow advantages over FIFO.
D)A reduction in inventory turnover over FIFO.

Question 31

During periods when costs are rising and inventory quantities are stable, ending inventory will be:

A)Higher under LIFO than FIFO.
B)Lower under average cost than LIFO.
C)Higher under average cost than FIFO.
D)Higher under FIFO than LIFO.

Question 32

Assuming Northwest uses the gross method to record purchases, what is the cost of goods available for sale?

A)$492,500.
B)$496,500.
C)$490,500.
D)$492,550.

Question 33

What is ending inventory assuming Northwest uses the gross method to record purchases?

A)$112,490.
B)$112,550.
C)$116,500.
D)$120,300.

Question 34

Cost of goods sold is given by:

A)Beginning inventory net purchases + ending inventory.
B)Beginning inventory + accounts payable net purchases.
C)Net purchases + ending inventory beginning inventory.
D)Net Purchases + beginning inventory ending inventory.

Question 35

Purchases equal the invoice amount:

A)Plus freight-in, plus discounts lost.
B)Less purchase returns, plus purchase allowances.
C)Plus freight-in, less purchase discounts.
D)Plus discounts, less purchase returns.

Question 36

Ending inventory is equal to the cost of items on hand plus:

A)Items in transit sold f.o.b.shipping point.
B)Purchases in transit f.o.b.destination.
C)Items in transit sold f.o.b.destination.
D)None of these.

Question 37

Assuming CBC uses the gross method to record purchases, ending inventory would be:

A)$6,480.
B)$15,400.
C)$15,480.
D)$21,000.

Question 38

What is cost of goods available for sale, assuming CBC uses the gross method?

A)$312,480.
B)$326,000.
C)$331,480.
D)$337,000.

Question 39

In periods when costs are rising LIFO liquidations:

A)Can't occur.
B)Are used to reduce tax liabilities.
C)Are a source of off-balance-sheet financing.
D)Distort the net income.

Question 40

Using the gross method, purchase discounts lost are:

A)Included in purchases.
B)Added to accounts payable.
C)Included in interest expense.
D)Deducted from discount income.

Question 41

Ending inventory using the LIFO method is:

A)$ 650.
B)$1,000.
C)$ 707.
D)$ 600.10 units $100 = $1,000.

Question 42

The primary reason for the popularity of LIFO is that it:

A)Provides better matching of physical flow and cost flow.
B)Saves income taxes currently.
C)Simplifies recordkeeping.
D)Provides a permanent reduction of income taxes.

Question 43

The ending inventory assuming LIFO and a periodic inventory system is:

A)$1,580.
B)$1,510.
C)$1,575.
D)$1,470.

Question 44

In a period when costs are falling and inventory quantities are stable, the lowest taxable income would be reported by using the inventory method of:

A)Weighted average.
B)LIFO.
C)Moving average.
D)FIFO.

Question 45

The ending inventory under a periodic inventory system assuming average cost is:

A)$5,087.
B)$5,107.
C)$5,077.
D)$5,005.

Question 46

Ending inventory assuming LIFO in a perpetual inventory system would be:

A)$4,960.
B)$5,060.
C)$5,080.
D)$5,140.

Question 47

If a company uses LIFO, a LIFO liquidation is problematic for a company's income taxes:

A)When inventory purchase costs are rising.
B)When inventory purchase costs are declining.
C)Whether inventory purchase costs are declining or rising.
D)LIFO liquidations are not problematic for a company's income taxes.When costs are rising, a liquidation causes pre-tax income and income taxes to rise.

Question 48

What is Nu's gross profit ratio if it elects LIFO?

A)80%.
B)49%.
C)40%.
D)5%.

Question 49

The use of LIFO in accounting for a firm's inventory:

A)Usually matches the physical flow of goods through the business.
B)Is usually used for internal management purposes.
C)Usually provides a better match of expenses with revenues.
D)None of these is correct.

Question 50

When reported in financial statements, a LIFO allowance account usually:

A)Is shown in the firm's income statement.
B)Is added to LIFO cost to indicate what the inventory would cost on a FIFO basis.
C)Indicates the effect on income if LIFO were not used.
D)Shows the current rate of inflation for that asset.

Question 51

What is Nu's net income if it elects FIFO?

A)$ 480.
B)$ 288.
C)$1,360.
D)$ 144.

Question 52

Ending inventory using the FIFO method is:

A)$ 650.
B)$1,000.
C)$ 707.
D)$ 600.10 units $60 = $600.

Question 53

What is Nueva's gross profit ratio if it elects FIFO?

A)30%.
B)32%.
C)10.7%.
D)60%.

Question 54

What is Nueva's net income if it elects FIFO?

A)$440.
B)$264.
C)$620.
D)$372.

Question 55

The ending inventory assuming FIFO is:

A)$5,140.
B)$5,080.
C)$5,060.
D)$5,050.Ending inventory is assumed to consist of 600 gallons from Mar.23 purchase: 600 $7.35 = $4,410
+ 100 from the Mar.16 purchase:
100 $7.30 = $730;
Total = $5,140.

Question 56

The ending inventory assuming LIFO and a perpetual inventory system is:

A)$1,545.
B)$1,470.
C)$1,580.
D)$1,510.

Question 57

Ending inventory using the average cost method is:

A)$ 650.
B)$1,000.
C)$ 707.
D)$ 600.[(40 $100) + (70 $80) + (170 $60)] = $19,800 280 units = $70.71 per unit 10 units $70.71 = $707 (rounded)

Question 58

Ending inventory assuming LIFO in a periodic inventory system would be:

A)$5,040.
B)$5,055.
C)$5,075.
D)$5,135.

Question 59

What is Nu's net income if it elects LIFO?

A)$288.
B)$144.
C)$240.
D)$480.

Question 60

What is Nueva's net income if it elects LIFO?

A)$440.
B)$264.
C)$620.
D)$372.

Question 61

Suppose that Badger's 2010 ending inventory, valued at year-end costs, was $143,000 and that the relative cost index for this inventory in 2010 was 1.10. In determining the inventory balance should Badger report in its 12/31/10 balance sheet:

A)An additional layer of $23,000 is added to the 1/1/10 balance.
B)An additional layer of $22,000 is added to the 1/1/10 balance.
C)An additional layer of $11,000 is added to the 1/1/10 balance.
D)None of these is correct.$143,000/1.10 = $130,000.This includes the previous two layers, the first at $100,000 and the second at $20,000, plus another at $10,000.The third is then brought forward to 12/31/10 by $10,000 1.10 = $11,000.

Question 62

Robertson Corporation's inventory balance was $22,000 at the beginning of the year and $20,000 at the end. The inventory turnover ratio for the year was 6.0 and the gross profit ratio 40%. What were net sales for the year?

A)$126,000
B)$200,000
C)$120,000
D)$210,000 Average inventory = $21,000 6.0 = $126,000 = cost of goods sold
$126,000 (1 .40) = $210,000

Question 63

Dollar-value LIFO:

A)Starts with ending inventory measured at current costs and recreates LIFO layers for measuring inventory costs.
B)Increases the recordkeeping costs of LIFO.
C)Only is allowed for internal reporting purposes.
D)None of these is correct.

Question 64

Bond Company adopted the dollar-value LIFO inventory method on January 1, 2009. In applying the LIFO method, Bond uses internal cost indexes and the multiple-pools approach. The following data were available for Inventory Pool No. 3 for the two years following the adoption of LIFO: Under the dollar-value LIFO method the inventory at December 31, 2010, should be

A)$357,600.
B)$350,000.
C)$351,600.
D)None of these.

Question 65

The average days inventory for ATC for 2009 is:

A)Less than 100 days.
B)114 days.
C)132 days.
D)151 days.Inventory turnover = $138,000 [($43,000 + 57,000) 2] = 2.76 365 2.76 = 132 days

Question 66

ATC's inventory turnover ratio for 2009 is:

A)2.42.
B)2.76.
C)3.21.
D)None of these is correct.$138,000 [($43,000 + 57,000) 2] = 2.76

Question 67

What inventory balance should Badger report on its 12/31/09 balance sheet?

A)$126,000
B)$121,000
C)$120,000
D)$100,000 $126,000/1.05 = $120,000.This includes two layers, the first at $100,000 and the second at $20,000.The second is then brought forward to 12/31/09 by $20,000 1.05 = $21,000.

Question 68

Suppose that Badger's 2011 ending inventory, valued at year-end costs, was $153,600 and that the relative cost index for this inventory in 2011 was 1.20. What inventory balance would Badger report on its 12/31/11 balance sheet?

A)$128,000
B)$129,800
C)$153,600
D)None of these is correct $153,600/1.20 = $128,000.This includes the first two layers, the first at $100,000 and the second at $20,000, plus another at $8,000 from 2010.No additional layers are added in 2011 because the inventory in base year terms actually decreased in 2011.To get the 12/31/11 balance, the three layers are multiplied by their relative price indexes of 1.00, 1.05, and 1.10, respectively.

Question 69

GG Inc. uses LIFO. GG disclosed that if FIFO had been used, inventory at the end of 2009 would have been $15 million higher than the difference between LIFO and FIFO at the end of 2008. Assuming GG has a 40% income tax rate:

A)Its reported cost of goods sold for 2009 would have been $9 million higher if it had used FIFO rather than LIFO for its financial statements.
B)Its reported cost of goods sold for 2009 would have been $15 million higher if it had used FIFO rather than LIFO for its financial statements.
C)Its reported net income for 2009 would have been $9 million higher if it had used FIFO rather than LIFO for its financial statements.
D)Its reported net income for 2009 would have been $15 million higher if it had used FIFO rather than LIFO for its financial statements.This is (1 tax rate) the pre-tax effect of $15 million.

Question 70

HH Company uses LIFO. HH disclosed that if FIFO had been used, inventory at the end of 2009 would have been $20 million lower than the difference between LIFO and FIFO at the end of 2008. Assuming HH has a 30% income tax rate:

A)Its reported cost of goods for 2009 would have been $14 million less if it had used FIFO rather than LIFO for its financial statements.
B)Its reported cost of goods for 2009 would have been $20 million less if it had used FIFO rather than LIFO for its financial statements.
C)Its reported cost of goods sold for 2009 would have been $14 million higher if it had used FIFO rather than LIFO for its financial statements.
D)Its reported cost of goods sold for 2009 would have been $20 million higher if it had used FIFO rather than LIFO for its financial statements.

Question 71

Compared to dollar-value LIFO, unit LIFO is:

A)Less costly to implement.
B)Less susceptible to LIFO liquidation.
C)More costly to implement.
D)More concerned with cost indexes.

Question 72

Udon Inc. adopted dollar-value LIFO (DVL) as of January 1, 2009, when it had an inventory of $700,000. Its inventory as of December 31, 2009, was $777, 000 at year-end costs and the cost index was 1.05. What was DVL inventory on December 31, 2009?

A)$735,000.
B)$740,000.
C)$742,000.
D)$777,000.

Question 73

Tiger Inc. adopted dollar-value LIFO on January 1, 2009, when the inventory value was $360,000 and the cost index was 1.25. On December 31, 2009, the inventory was valued at year-end cost of $395,000 and the cost index was 1.30. Tiger would report a LIFO inventory of:

A)$410,800.
B)$374,400.
C)$379,808.
D)$380,600.

Question 74

Thompson's 2009 inventory turnover ratio is:

A)3.91.
B)4.00.
C)4.88.
D)5.00.$336,000 [($82,000 + 86,000) 2] = 4.00

Question 75

ATC's gross profit ratio in 2009 is:

A)53.4%.
B)51.9%.
C)50.3%.
D)None of these is correct.$158,000/$296,000 = 53.4%

Question 76

Buckeye Corporation adopted dollar-value LIFO on January 1, 2009, when the inventory value was $500,000 and the cost index was 1.0. On December 31, 2009, the inventory value at year-end costs was $535,000 and the cost index was 1.06. Buckeye would report a LIFO inventory of:

A)$504,717.
B)$530,000.
C)$505,000.
D)$533,019.

Question 77

Linguini Inc. adopted dollar-value LIFO (DVL) as of January 1, 2009, when it had an inventory of $800,000. Its inventory as of December 31, 2009, was $811,200 at year-end costs and the cost index was 1.04. What was DVL inventory on December 31, 2009?

A)$780,000.
B)$800,000.
C)$811,200.
D)$832,000.

Question 78

During 2009, WW Inc. reduced its LIFO eligible inventory quantities due to a problem with its major supplier. The effect of this liquidation was to increase its cost of goods sold by approximately $50 million. WW has a 40% income tax rate. If WW had not experienced these supplier problems and the resulting liquidation,

A)Its 2009 net income would have been $30 million lower because inventory purchase prices were rising.
B)Its 2009 net income would have been $30 million lower because inventory purchase prices were declining.
C)Its 2009 net income would have been $30 million higher because inventory purchase prices were rising.
D)Its 2009 net income would have been $30 million higher because inventory purchase prices were declining.The effect of WW's LIFO liquidation was a reduction in pre-tax income by $50 million and a reduction in net income by $30 million.This would have been avoided if the supplier problems had been avoided.The inventory prices were declining because the effect of using older inventory prices was to increase cost of goods sold.

Question 79

Thompson's 2009 gross profit ratio is:

A)25%.
B)19%.
C)20%.
D)None of these is correct.$84,000 $420,000 = 20%

Question 80

Ramen Inc. adopted dollar-value LIFO (DVL) as of January 1, 2009, when it had a cost inventory of $600,000. Its inventory as of December 31, 2009, was $667,800 at year-end costs and the cost index was 1.06. What was DVL inventory on December 31, 2009?

A)$630,000.
B)$631,800.
C)$636,000.
D)None of these is correct.