Deck 7: Inventories

Question 1

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.

Answer 1

True

Question 2

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

Answer 2

True

Question 3

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

Answer 3

True

Question 4

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

Question 5

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

Question 6

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

Question 7

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

Question 8

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

Question 9

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

Question 10

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

Question 11

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

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

Question 14

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

Question 15

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 16

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

Question 17

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

Question 18

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

Question 19

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

Question 20

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

Question 21

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 22

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

Question 23

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

Question 24

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

Question 25

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 26

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

Question 27

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 28

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 29

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

Question 30

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 31

"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 32

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 33

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

Question 34

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

Question 35

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 36

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

Question 37

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

Question 38

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

Question 39

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 40

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

Question 41

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 42

Match the following cost flow assumption to their inventory costing method:

Question 43

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 44

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

Question 45

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 46

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 47

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 48

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 49

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

Question 50

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 51

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 52

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 53

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 54

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 55

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 56

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

Question 57

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 58

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 59

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 60

Match the following documents used for inventory control:

Question 61

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 62

The inventory data for an item for November are: 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 63

The following units of an inventory item were available for sale during the year: 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 64

The following units of an inventory item were available for sale during the year: 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 65

The following lots of a particular commodity were available for sale during the year: 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 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.
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 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.
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 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.
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

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

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

Question 70

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.
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 71

The following lots of a particular commodity were available for sale during the year: 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 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.
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 73

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

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

Question 74

The inventory data for an item for November are: 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 75

The following units of an inventory item were available for sale during the year: 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 76

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 77

Addison, Inc. uses a perpetual inventory system. The following is information about one inventory item for the month of September: If Addison uses LIFO, the cost of the ending merchandise inventory on September 30 is

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

Question 78

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.
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

Question 79

The following lots of a particular commodity were available for sale during the year: 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 80

Addison, Inc. uses a perpetual inventory system. The following is information about one inventory item for the month of September: If Addison uses FIFO, the cost of the ending merchandise inventory on September 30 is

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