Deck 7: Inventory and Cost of Goods Sold

Question 1

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.

Answer 1

$3,040.

Question 2

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.

Answer 2

maintaining a large inventory for long periods.

Question 3

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

Answer 3

$58

Question 4

If the company uses the specific identification method,what is the cost of its ending inventory?

A)$31
B)$69
C)$76
D)$100

Question 5

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 above.

Question 6

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 7

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 above.

Question 8

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.

Question 9

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.

Question 10

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 11

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 above.

Question 12

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 13

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 14

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.

Question 15

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

Question 16

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

Question 17

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 above.

Question 18

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

Question 19

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.

Question 20

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 above.

Question 21

During 2008,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.

Question 22

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 23

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 24

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 25

Which of the following statements is 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 above.

Question 26

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 27

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.

Question 28

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: 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 29

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 30

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

Question 31

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 32

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.

Question 33

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

A)Option A
B)Option B
C)Option C
D)Option D

Question 34

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 35

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

Question 36

The 2009 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 2009 was:

A)$12,000.
B)$10,000.
C)$9,000.
D)$16,000.

Question 37

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 38

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 39

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?

A)Option A
B)Option B
C)Option C
D)Option D

Question 40

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

Question 41

For a merchandiser,inventory turnover refers to how many times:

A)during the period the company replaces its raw material inventory.
B)the company buys and sells its inventory.
C)the company produces and delivers its inventory of goods to customers.
D)All of the above combined.

Question 42

ASPE and IFRS do not permit companies to use LIFO inventory cost method except for which of the following reason.

A)If a Canadian public company has foreigners as its majority shareholders.
B)If a Canadian public company is listed on a US stock exchange.
C)If a Canadian public company does more than 50% of its business outside Canada.
D)For all of the above.

Question 43

For a manufacturer,inventory turnover refers to how many times:

A)during the period the company replaces the raw material inventory.
B)the company buys and sells its inventory of goods.
C)the company produces and delivers its inventory of goods to customers.
D)All of the above combined.

Question 44

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 above.

Question 45

An increasing inventory turnover ratio indicates:

A)longer time span between the ordering and receiving of inventory.
B)shorter time span between the ordering and receiving of inventory.
C)shorter time span between the purchase and sale of inventory.
D)longer time span between the purchase and sale of inventory.

Question 46

What is the inventory turnover ratio?

A)12.5
B)13.4
C)14.7
D)2.2

Question 47

Your company has 500 units in inventory that had been purchased for $12 each and that would currently cost $15 to replace.Your supplier has just announced the cost of these goods is rising to $16.50.

A)Your company should make no adjustments to the inventory account.
B)Your company should adjust the inventory account using the lower of the recent market values,which is $15.
C)Your company should adjust the inventory account using the higher of the recent market values,which is $16.50.
D)Your company should adjust the inventory account using the average of the recent market values,which is $14.50.

Question 48

A rising balance in the inventory account and a falling inventory turnover ratio implies that the inventory build up is occurring because:

A)goods are not selling as fast as anticipated.
B)the company is expecting to sell more in the future.
C)goods are selling,but it is taking longer to collect payment.
D)goods cannot be shipped fast enough.

Question 49

Which of the following would not be affected by the choice of an inventory costing method (that is between FIFO,LIFO,weighted average,and specific identification)?

A)Net sales
B)Cost of goods sold
C)Gross profit
D)Net income

Question 50

Which of the following would cause the greatest increase in a company's inventory turnover ratio?

A)Keeping the same amount of inventory on hand while unit sales are increasing.
B)Increasing the amount of inventory on hand while unit sales are increasing.
C)Keeping the same amount of inventory on hand while unit sales are decreasing.
D)Decreasing the amount of inventory on hand while unit sales are increasing.

Question 51

The process of buying and selling inventory is known as inventory

A)circulation.
B)cost management.
C)turnover.
D)asset allocation.

Question 52

A rising balance in the inventory account and a rising inventory turnover ratio would imply that the inventory build up is occurring because:

A)goods are not selling as fast as anticipated.
B)the company is expecting to sell more in the future.
C)goods are selling but it is taking longer to collect payment.
D)goods cannot be shipped fast enough.

Question 53

Your company has 100 units in inventory,purchased at $16 per unit,and this inventory could be replaced at $14 per unit.

A)The company should debit inventory for $200 and credit cost of goods sold for $200.
B)The company should debit revenue for $200 and credit inventory for $200.
C)The company should debit loss in inventory value for $200 and credit inventory for $200.
D)The company should debit inventory for $200 and credit cash for $200.

Question 54

Which of the following statements is true?

A)FIFO results in a lower net income than LIFO when costs are increasing.
B)LIFO results in a higher net income than FIFO when costs are increasing.
C)LIFO results in a higher net income than FIFO when costs are decreasing.
D)LIFO results in the same net income as FIFO when costs are increasing.

Question 55

How long on average does it take to sell something from inventory after it is purchased?

A)12.5 days
B)24.8 days
C)29.2 days
D)165.9 days

Question 56

When the replacement cost of inventory drops below the cost recorded in the financial records,applying the lower of cost or net realizable value (LC&NRV)rule means:

A)a decrease in cost of goods sold.
B)no change in net income,other things being equal.
C)inventory be written down to its net realizable value.
D)none of the above.

Question 57

In which of the following companies tend to use the specific identification method?

A)When accounting for mass produced cheap products
B)When accounting for unique and individually expensive items
C)When accounting for high tech products
D)When accounting for grocery and produce items

Question 58

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 59

Which of the two following inventory valuation system differ between periodic and perpetual inventory systems?

A)LIFO and FIFO
B)FIFO and Weighted average method
C)LIFO and Weighted average method
D)Specific identification

Question 60

Which of the following companies would be least concerned about a low inventory turnover ratio?

A)A fish market selling fresh fish.
B)A hardware company selling drywall screws.
C)A dairy company selling butter and milk.
D)A semiconductor company selling microchips.

Question 61

Which of the following inventory method will give the highest ending inventory in a period of rising prices?

A)FIFO
B)LIFO
C)Specific Identification Method
D)Weighted Average Cost

Question 62

Which of the following inventory costing method is not permitted by ASPE and IFRS in Canada?

A)FIFO.
B)LIFO
C)Specific identification method
D)Weighted average cost method

Question 63

Alphabet Company buys different letters for resale.It buys A thru G on January 1 at $4 per letter,and sells A and E on January 15.On February 1,it buys H thru L at $6 per letter and sells D,H and J on February 9.It then buys M thru R on March 1 at $7 per letter and sells N on March 19.If the company uses the LIFO method on a perpetual basis,what is the cost of its ending inventory)?

A)$58
B)$67
C)$72
D)$76

Question 64

Which of the following inventory method will give the highest net earnings in a period of rising prices?

A)FIFO
B)LIFO
C)Specific Identification Method
D)Weighted Average Cost

Question 65

Days to sell for 2010 is:

A)91.25
B)94.3
C)88.16
D)182.5

Question 66

Fables Inc.gives goods on consignment to Aesop Inc.who agrees to try to sell them for a 15% commission.At the end of the year,which of the following would include the consigned goods in its inventory?

A)Fables Inc.
B)Aesop Inc.
C)Both Fables Inc.and Aesop Inc.
D)Neither Fables Inc.and Aesop Inc.

Question 67

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.
BT: Knowledge

Question 68

Which of the following is true regarding the differences between ASPE and IFRS regarding inventory valuation?

A)Both allow a reversal of write-down and writing up of inventory to its original cost after a write down because of LC&NRV rule.
B)Neither of them allows a reversal of write-down and writing up of inventory to its original cost after a write down because of LC&NRV rule.
C)Only ASPE allows a reversal of write-down and writing up of inventory to its original cost after a write down because of LC&NRV rule.
D)Only IFRS allows a reversal of write-down and writing up of inventory to its original cost after a write down because of LC&NRV rule.

Question 69

What is the inventory turnover for 2010?

A)3.87
B)4
C)4.14
D)2

Question 70

A company purchased $6,000 of merchandise.Transportation costs were an additional $100.The company later returned $250 of the merchandise and paid the invoice within the 2% discount period.What is the total amount of cash paid?

A)$5,733
B)$6,100
C)$5,735
D)$5,730

Question 71

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

Question 72

A $15,000 overstatement of the 2011 ending inventory was discovered after the financial statements for 2011 were prepared.How would that inventory error impact the 2011 financial status?

A)Current assets were overstated and net income was understated.
B)Current assets were understated and net income was understated.
C)Current assets were overstated and net income was overstated.
D)Current assets were understated and net income was overstated.

Question 73

A one-time error in the application of the lower of cost and net realizable value (LC&NRV)rule in the current period distorts financial results for the current accounting period

A)only.
B)and the period before.
C)and the period after.
D)and all periods after.

Question 74

Which of the following inventory method will give the highest net earnings in a period of falling prices?

A)FIFO
B)LIFO
C)Specific Identification Method
D)Weighted Average Cost

Question 75

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

Question 76

Which of the following inventory method will give the highest ending inventory in a period of falling prices?

A)FIFO
B)LIFO
C)Specific Identification Method
D)Weighted Average Cost

Question 77

Alphabet Company buys different letters for resale.It buys A thru J on January 1 at $4 per letter,and sells C on January 15.On February 1,it buys K thru L at $6 per letter and sells A and K on February 9.It then buys M thru O on March 1 at $7 per letter and sells F,L,M,N,and O on March 19.If the company uses the LIFO method on a perpetual basis,what is the cost of goods sold?

A)$32
B)$41
C)$45
D)$56

Question 78

One of the most common sources of misstatement in financial statements is the:

A)use of alternating inventory costing methods.
B)failure to appropriately estimate the market value of inventory.
C)failure to report stock issues appropriately.
D)incorrectly calculating the inventory turnover ratio.

Question 79

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

Question 80

Which of the following statements is true?

A)Valuing inventory under LIFO may produce different results depending on whether a perpetual or periodic inventory system is used.
B)Valuing inventory under the weighted average cost method always produces the same results using either a perpetual or periodic inventory system.
C)Valuing inventory under FIFO may produce different results depending on whether a perpetual or periodic inventory system is used.
D)All of the above.