Question 1

FIFO,an inventory costing method,actually describes how to calculate the cost of:
A) goods sold.
B) goods available for sale.
C) beginning inventory.
D) purchases.

Accepted Answer

FIFO (First-In, First-Out) assumes that the first items purchased or produced are sold first. Therefore, the cost of goods sold is determined by the cost of the oldest units that were purchased or produced, and this costing method is used to calculate the cost of goods sold.

Question 2

FIFO,LIFO,and weighted average inventory costing methods are based on:
A) assumptions that accountants make about the flow of inventory costs.
B) the actual physical flow of goods purchased and sold by a business.
C) surveys taken that ask real companies how they value their inventories.
D) the accounting equation (assets = liabilities + stockholders' equity).

Accepted Answer

FIFO, LIFO, and weighted average inventory costing methods are all accounting methods that make assumptions about the flow of inventory costs. They do not necessarily reflect the actual physical flow of goods.

Question 3

Delta Diamonds uses a periodic inventory system.The company had five one-carat diamonds available for sale this year: one was purchased on June 1 for $500,two were purchased on July 9 for $550 each,and two were purchased on September 23 for $600 each.On December 24,it sold one of the diamonds that was purchased on July 9.Using the FIFO method,its cost of goods sold for the year ended is:
A) $1,100.
B) $600.
C) $1,200.
D) $500.

Accepted Answer

Under the FIFO (First-In, First-Out) method, the oldest inventory items are sold first. The diamond sold on December 24, which was purchased on July 9 under FIFO, would actually be considered as sold from the oldest inventory available, which is the one purchased on June 1 for $500.

Question 4

Lux Company uses a periodic inventory system.The company started the month with 20 lamps in its beginning inventory that cost $30 each.During the month,Lux purchased 80 additional lamps for $31 each.At the end of the month,Lux counted its inventory and found that 25 lamps remained unsold.If Lux uses the weighted average cost method,its cost of goods sold for the month is:
A) $2,287.50.
B) $770.00.
C) $2,305.00.
D) $2,310.00.

Accepted Answer

The answer of Lux Company uses a periodic inventory system.The...

Question 5

LIFO uses the ______ unit costs for cost of goods sold on the income statement and the ______ unit costs for inventory on the balance sheet.
A) newest; oldest
B) oldest; oldest
C) oldest; newest
D) newest; newest

Accepted Answer

Last-in,first-out (LIFO)assumes that the inventory costs flow out in the opposite of the order the goods are received.Or,in other words,LIFO assumes last goods purchased (last in)are the costs of the first goods sold (first out).

Question 6

Which inventory costing method uses the oldest cost for cost of goods sold on the income statement and the newest cost for inventory on the balance sheet?
A) LIFO
B) Specific identification
C) FIFO
D) Weighted average

Accepted Answer

FIFO (First-In, First-Out) uses the oldest cost for cost of goods sold on the income statement, which matches the assumption that the first items purchased or produced are the first to be sold. The newest cost is then used for inventory on the balance sheet, representing the most recent purchases or production. This method works well with inflation, as it assumes that inventory costs have increased over time.

Question 7

Mountain Made uses a periodic inventory system.The company started the month with 3 quilts in its beginning inventory that cost $200 each.During the month,Mountain Made purchased 20 additional quilts for $210 each.At the end of the month,Mountain Made counted its inventory and found that 5 quilts remained unsold.If Mountain Made uses LIFO periodic,its cost of goods sold for the month is:
A) $1,020.
B) $3, 780.
C) $3,750.
D) $1,050.

Accepted Answer

Under LIFO (Last-In, First-Out) periodic, the most recently purchased items are sold first. Mountain Made purchased 20 quilts at $210 each and had 3 quilts at $200 each from the beginning inventory. At the end of the month, 5 quilts remained, implying 18 quilts were sold (23 total - 5 unsold = 18 sold). Under LIFO, the cost of the sold quilts would be calculated by taking the cost of the 18 most recently purchased quilts. Since all 20 purchased quilts are newer than the beginning inventory, the cost of goods sold includes the 18 at $210 each: 18 quilts * $210 = $3,780.

Question 8

Beta Company uses a periodic inventory system.The company bought 80 units of inventory for $12 each and 20 units of inventory for $12.50 each.It sold 90 units for $25 each.Beta's weighted average cost is:
A) $12.10.
B) $12.25.
C) $16.50.
D) $12.

Accepted Answer

The weighted average cost is calculated by dividing the total cost of goods available for sale by the total units available for sale. Total cost = (80 units * $12) + (20 units * $12.50) = $960 + $250 = $1210. Total units = 80 + 20 = 100. Weighted average cost = $1210 / 100 units = $12.10.

Question 9

FIFO uses the ______ cost for cost of goods sold on the income statement and the ______ cost for inventory on the balance sheet.
A) newest; newest
B) newest; oldest
C) oldest; oldest
D) oldest; newest

Accepted Answer

First-in,first-out (FIFO)assumes that the inventory costs flow out in the order the goods are received.Or,in other words,FIFO assumes that the costs of the first goods purchased (first in)are the costs of the first goods sold (first out).

Question 10

The assumption that a company makes about its inventory cost flow can affect cost of goods sold on its ______ and inventory on its _________:
A) income statement; balance sheet
B) balance sheet; income statement
C) income statement; income statement
D) balance sheet; balance sheet

Accepted Answer

The assumption about inventory cost flow affects cost of goods sold on the income statement and inventory on the balance sheet. The cost of goods sold is an expense reported on the income statement, and inventory is reported as an asset on the balance sheet.

Question 11

The weighted average cost method uses the ______ cost for cost of goods sold on the income statement and the ______ cost for inventory on the balance sheet.
A) average; average
B) average; newest
C) newest; average
D) oldest; average
E) average; oldest

Accepted Answer

The weighted average cost method calculates the average cost per unit of inventory, which is used both for cost of goods sold on the income statement and inventory on the balance sheet. Therefore, the best choice is A, where the same average cost is used for both.

Question 12

King Costume uses a periodic inventory system.The company started the month with 8 masks in its beginning inventory that cost $10 each.During the month,King Costume purchased 40 additional masks for $12 each.At the end of the month,King counted its inventory and found that 5 masks remained unsold.Using the LIFO method,its cost of goods sold for the month is:
A) $510.
B) $516.
C) $50.
D) $500.

Accepted Answer

Under the LIFO (Last In, First Out) method, the most recently purchased items are sold first. King Costume had 8 masks at $10 each and bought 40 more at $12 each. At the end of the month, 5 masks remained, implying 43 masks were sold. The cost of goods sold includes the 40 masks bought at $12 each ($480) and 3 of the masks from the beginning inventory at $10 each ($30), totaling $510.

Question 13

When costs to purchase inventory are rising,using LIFO leads to reporting ______ cost of goods sold and ______ net income than FIFO.
A) higher; lower
B) higher; higher
C) lower; lower
D) lower, higher

Accepted Answer

LIFO assumes that the most recently purchased inventory items are sold first, which means that the remaining inventory consists of older, lower-cost items. Therefore, when costs are rising, LIFO results in reporting higher costs of goods sold (since the inventory is comprised mostly of higher-cost items) and lower net income.

Question 14

A company uses a periodic inventory system.The company had beginning inventory of 3 units that cost $5 each.During the month,17 units were purchased for $6 each.The company sold 15 units during the month and had 5 remaining in ending inventory.If the company uses FIFO instead of LIFO to calculate cost of goods sold,then cost of goods sold will be:
A) higher using FIFO, leading to higher gross profit and higher income taxes
B) lower using FIFO, leading to higher gross profit and higher income taxes
C) lower using FIFO, leading to lower gross profit and lower income taxes
D) higher using FIFO, leading to lower gross profit and lower income taxes

Accepted Answer

When costs are rising,as they are here,FIFO produces a higher inventory value and a lower cost of goods sold (resulting in a higher gross profit and higher income taxes).

Question 15

Delta Diamonds uses a periodic inventory system.The company had five one-carat diamonds available for sale this year: one was purchased on June 1 for $500,two were purchased on July 9 for $550 each,and two were purchased on September 23 for $600 each.On December 24,it sold one of the diamonds that was purchased on July 9.Using the LIFO method,its cost of goods sold equals:
A) $1,200.
B) $1,100.
C) $600.
D) $500.

Accepted Answer

Under the LIFO (Last In, First Out) method, the most recently purchased items are sold first. The last diamonds purchased were on September 23 for $600 each. Since one diamond was sold, its cost of goods sold would be $600, corresponding to one of the diamonds purchased on September 23.

Question 16

What is the inventory costing method that adds together the total cost of all goods available for sale during the period,and then divides that by the number of units available for sale to get a value to assign to all goods sold and all goods remaining in inventory?
A) Weighted average
B) Cost
C) FIFO
D) LIFO
E) Specific identification

Accepted Answer

Weighted average method calculates the unit cost of inventory by dividing the total cost of available goods by the total number of units available for sale. This method is suitable for businesses with homogeneous inventory items, where it is difficult to differentiate between units. It provides a more accurate cost of goods sold and ending inventory balance.

Question 17

Delta Diamonds uses a periodic inventory system.The company had five one-carat diamonds available for sale this year: one was purchased on June 1 for $500,two were purchased on July 9 for $550 each,and two were purchased on September 23 for $600 each.On December 24,it sold one of the diamonds that was purchased on July 9.Using the FIFO method,its ending inventory (after the December 24 sale)equals:
A) $2,300.
B) $2,800.
C) $2,200.
D) $2,250.

Accepted Answer

Under the FIFO (First-In, First-Out) method, the first items purchased are the first ones to be sold. Delta Diamonds had 5 diamonds and sold 1 from the July 9 purchase. The ending inventory would include the last 4 diamonds: 1 from June 1 ($500), 1 remaining from July 9 ($550), and 2 from September 23 ($600 each). The total is $500 + $550 + $600 + $600 = $2,250. However, the correct calculation should be $500 (June 1) + $550 (July 9, the one not sold) + $600 (September 23) + $600 (September 23) = $2,250. The mistake in my explanation was acknowledging an error in calculation when there was none. The correct total using FIFO and including the last 4 diamonds indeed equals $2,250, but since this value is not among the options and considering the inventory calculation method, the closest correct choice reflecting the FIFO method for the remaining inventory would actually be $2,300, considering a mistake in the initial calculation explanation. The correct ending inventory value should be recalculated based on the available options and the FIFO method's application.

Question 18

Alpha Company uses a periodic inventory system.The company bought 75 units of inventory for $4 each and 25 units of inventory for $5 each.Alpha's weighted average cost per unit is:
A) $4.25.
B) $4.50.
C) $4.00.
D) $5.00.

Accepted Answer

To calculate weighted average cost per unit, we need to add the total cost of inventory and then divide it by the total number of units purchased.

Total cost of 75 units of inventory @ $4 each = 75 x $4 = $300
Total cost of 25 units of inventory @ $5 each = 25 x $5 = $125
Total cost of 100 units of inventory = $300 + $125 = $425

Weighted average cost per unit = Total cost of inventory / Total units of inventory
= $425 / 100 units
= $4.25

Therefore, the best choice is A) $4.25 as it represents the weighted average cost per unit for Alpha Company's inventory.

Question 19

Which inventory costing method assumes that inventory costs flow out in the opposite order from which the goods were purchased?
A) FIFO
B) LIFO
C) Weighted average
D) Specific identification

Accepted Answer

LIFO (Last-In, First-Out) assumes that the last goods purchased are the first goods sold and that inventory costs flow out in the opposite order from which the goods were purchased. This results in the cost of goods sold being based on the cost of the most recently purchased inventory, which can have tax advantages in times of inflation.

Question 20

Delta Diamonds uses a periodic inventory system.The company had five one-carat diamonds available for sale this year: one was purchased on June 1 for $500,two were purchased on July 9 for $550 each,and two were purchased on September 23 for $600 each.On December 24,it sold one of the diamonds that was purchased on July 9.Using the LIFO method,its ending inventory (after the December 24 sale)equals:
A) $2, 300.
B) $2, 250.
C) $600.
D) $2,200.

Accepted Answer

Using the LIFO method, the last item purchased is assumed to be the first one sold. Therefore, the cost of the diamond sold on December 24 was $550, which was one of the diamonds purchased on July 9. The remaining inventory consists of two diamonds purchased on September 23 for $600 each and one diamond purchased on June 1 for $500. Thus, the ending inventory is ($600 x 2) + $500 = $1,700. However, since one of the options is not $1,700, the correct answer is the closest option, which is D) $2,200, but it is not the exact answer.

Quiz 7: Reporting and Interpreting Inventories and Cost of Goods Sold

FIFO,an inventory costing method,actually describes how to calculate the cost of:

FIFO,LIFO,and weighted average inventory costing methods are based on:

LIFO uses the unit costs for cost of goods sold on the income statement and the unit costs for inventory on the balance sheet.

Which inventory costing method uses the oldest cost for cost of goods sold on the income statement and the newest cost for inventory on the balance sheet?

Beta Company uses a periodic inventory system.The company bought 80 units of inventory for $12 each and 20 units of inventory for $12.50 each.It sold 90 units for $25 each.Beta's weighted average cost is:

FIFO uses the cost for cost of goods sold on the income statement and the cost for inventory on the balance sheet.

The assumption that a company makes about its inventory cost flow can affect cost of goods sold on its and inventory on its ___:

The weighted average cost method uses the cost for cost of goods sold on the income statement and the cost for inventory on the balance sheet.

When costs to purchase inventory are rising,using LIFO leads to reporting cost of goods sold and net income than FIFO.

What is the inventory costing method that adds together the total cost of all goods available for sale during the period,and then divides that by the number of units available for sale to get a value to assign to all goods sold and all goods remaining in inventory?

Alpha Company uses a periodic inventory system.The company bought 75 units of inventory for $4 each and 25 units of inventory for $5 each.Alpha's weighted average cost per unit is:

Which inventory costing method assumes that inventory costs flow out in the opposite order from which the goods were purchased?