Deck 7: Inventory and Cost of Goods Sold

Question 1

When costs per unit are increasing,the inventory costing method that results in the lower income tax expense is the LIFO method.

Answer 1

True
Explanation:When faced with increasing costs per unit,a company that uses LIFO will have a lower income tax expense than a company using FIFO.

Question 2

Inventory is reported on the balance sheet as a current asset.

Answer 2

True
Explanation:Because inventory will be used or converted into cash within one year,it is reported on the balance sheet as a current asset.

Question 3

When a company sells goods,it removes their cost from the Inventory account and reports the cost on the income statement as Cost of Goods Sold.

Answer 3

True
Explanation:When a company sells goods,it removes their cost from the Inventory account and reports the cost on the income statement as an expense called Cost of Goods Sold.

Question 4

In each accounting period,a manager can select the inventory costing method that yields the highest net income.

Question 5

LIFO and weighted average results will be the same using either a perpetual or periodic system.

Question 6

The primary goals of inventory managers are to maintain a sufficient quantity of inventory to meet customers' needs,ensure inventory quality meets customers' expectations and company standards,and minimize the cost of acquiring and carrying inventory.

Question 7

Cost of goods sold = Beginning inventory + Purchases − Ending inventory

Question 8

Goods on consignment are goods shipped by the owner to another company that holds the goods and sells them on behalf of the owner.

Question 9

If inventory is sold with terms of FOB shipping point,the goods belong to the seller while in transit.

Question 10

Ending inventory = Beginning inventory + Purchases − Cost of goods sold

Question 11

If inventory is sold with terms of FOB shipping point,the goods belong to the customer while in transit.

Question 12

Assume the periodic inventory method is used.When LIFO is used,costs are assigned to cost of goods sold using the most recent purchase at the time of the sale.

Question 13

If a company uses LIFO to prepare its U.S.tax return,then it must use LIFO to prepare its financial statements.

Question 14

Lower of cost or market can be applied on an item or total inventory basis.

Question 15

Consignment inventory is reported on the balance sheet of the company holding the inventory.

Question 16

When the periodic inventory system is in use,the choice of an inventory costing method usually has no impact on gross profit or cost of goods sold.

Question 17

A lower of cost or market write-down would be recorded with a debit to Cost of Goods Sold.

Question 18

A company can use different methods for inventories that differ in nature or use.

Question 19

Manufacturers have three types of inventory,which include raw materials,work in process,and finished goods,whereas merchandisers have only raw materials inventory.

Question 20

Goods placed in inventory are initially recorded at market value.

Question 21

Which of the following is not one of the primary goals of inventory management?

A)Maintain a sufficient quantity of inventory to meet customer needs.
B)Ensure inventory quality meets customers' expectations and company standards.
C)Minimize the cost of acquiring and carrying inventory (including costs related to purchasing,production,storage,spoilage,theft,obsolescence,and financing).
D)Minimize the quantity of ending inventory.

Question 22

Which of the following statements about an auto manufacturer's inventory is not correct?

A)Tires,batteries,glass,paint,headlamp bulbs,and electric wiring would be included in raw materials inventory.
B)Incomplete cars that are still being processed would be included in work in process inventory.
C)Finished cars ready to be shipped to dealers would be included in finished goods inventory.
D)Cars that have been sold to dealers would be included in finished goods inventory.

Question 23

Acme Company's balance sheet shows three inventory accounts-raw materials,work in process,and finished goods.Acme Company must be a:

A)manufacturer.
B)merchandiser.
C)service business.
D)wholesale distributor.

Question 24

Inventory levels increase by 10% at your company during the fourth quarter.Based on this increase,which of the following statements must be correct?

A)This must be good news because inventories are an asset to the company.
B)This could be good news if the company is ordering more goods because sales appear to be rising.
C)This could be bad news if the company is ordering more goods because unit costs are falling.
D)This must be bad news because higher inventories mean higher costs.

Question 25

Which of the following is merchandise inventory?

A)Goods held for sale in the normal course of business
B)Office supplies that a company plans to use in the next few months
C)Equipment used to manufacture products which will be sold later
D)Raw materials and work in process

Question 26

Which of the following would be in the finished goods inventory of a company making ice cream?

A)Milk and cream used to make the ice cream.
B)Ice cream that has been made but is freezing to the level required for shipping.
C)Frozen ice cream that is waiting to be shipped to retailers.
D)Ice cream in process awaiting the addition of nuts.

Question 27

The cost assigned to cost of goods sold and to inventory under the FIFO method will be the same whether the perpetual or the periodic inventory system is used.

Question 28

Inventory shipped FOB destination and in transit on the last day of the year should be included in:

A)the inventory balance of the seller.
B)the inventory balance of the buyer.
C)neither the inventory balance of the buyer or the seller.
D)both the inventory balance of the buyer and the seller.

Question 29

Which of the following would be considered merchandise inventory?

A)Work in progress
B)Raw materials
C)Purchased finished goods
D)Cost of goods sold

Question 30

Which of the following would be in the raw materials inventory of a company making ice cream?

A)Milk and cream used to make the ice cream.
B)Ice cream that has been made but is freezing to the level required for shipping.
C)Frozen ice cream that is waiting to be shipped to retailers.
D)Ice cream in process awaiting the addition of nuts.

Question 31

An overstatement of beginning inventory causes net income to be overstated.

Question 32

The assignment of costs to cost of goods sold and to inventory using the weighted average method usually yields different results depending on whether a perpetual or a periodic system is used.

Question 33

Carrying insufficient quantities of inventory on hand:

A)would not affect the company's profitability.
B)may result in lost sales.
C)has little effect on customer satisfaction.
D)will increase the costs of carrying inventory.

Question 34

Angus Company agreed to sell goods for Longhorn Company on consignment,but wasn't willing to take ownership of the goods in case they were difficult to sell.Which of the following statements is true?

A)Angus owns the inventory and should report it on its balance sheet.
B)Longhorn owns the inventory,but should not report it on its balance sheet because Angus actually holds the inventory.
C)Angus owns the inventory,since possession is nineteenths of the law,but should not report it on its balance sheet.
D)Longhorn owns the inventory and should report it on its balance sheet.

Question 35

Sleepy Monk offers roasted coffee beans for sale on consignment from Sea Level Roasters.Which company should report the inventory of unsold coffee beans on its balance sheet?

A)Sea Level Roasters
B)Sleepy Monk
C)Both companies
D)Neither company

Question 36

An overstatement of ending inventory will cause an overstatement of assets and an understatement of stockholders' equity on the balance sheet.

Question 37

Which of the following is not a primary goal of inventory management?

A)Obtaining the lowest cost of inventory.
B)Ensuring sufficient quantities of inventory are available to meet customers' needs.
C)Ensuring inventory quality meets customers' expectations and company standards.
D)Minimizing the costs of acquiring and carrying inventory.

Question 38

Inventory shipped FOB shipping point and in transit on the last day of the year should be included in:

A)the inventory balance of the seller.
B)the inventory balance of the buyer.
C)neither the inventory balance of the buyer or the seller.
D)both the inventory balance of the buyer and the seller.

Question 39

Which of the following would be in the work in process inventory of a company making ice cream?

A)Milk and cream used to make the ice cream.
B)Ice cream that has been made but is freezing to the level required for shipping.
C)Frozen ice cream that is waiting to be shipped to retailers.
D)Ice cream that is in the freezers of retailers awaiting sale to consumers.

Question 40

Goods that a company holds that are not reported on the company's balance sheet are called:

A)finished goods.
B)consignment inventory.
C)raw materials.
D)work in process.

Question 41

Larkspur Co.had cost of goods sold of $3,600.If beginning inventory was $3,780 and ending inventory was $900,Larkspur's purchases must have been:

A)$720.
B)$1,080.
C)$2,880.
D)$6,480.

Question 42

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 & Co.jewelry store.

Question 43

Cortez Company updates its inventory records perpetually.The company's records showed a beginning inventory of $1,800,cost of goods sold of $4,200,and ending inventory of $2,400.How much inventory was purchased during the year?

A)$3,600
B)$3,000
C)$2,700
D)$4,800

Question 44

Lexington Company updates its inventory periodically.The company's beginning inventory was $1,000 and purchases were $5,000 during the year.The company's ending inventory count was $2,000.What was the amount of its cost of goods sold?

A)$6,000
B)$4,000
C)$8,000
D)$2,000

Question 45

Langston Company updates its inventory periodically.The company's cost of goods sold was $2,700 and purchases were $5,600 during the year.The company's ending inventory count was $5,000.What was the amount of beginning inventory?

A)$3,300
B)$13,300
C)$7,900
D)$2,100

Question 46

When a company sells goods,it removes their cost from the balance sheet and reports the cost on the income statement as:

A)Selling Expenses.
B)Cost of Goods Sold.
C)Finished Goods Inventory.
D)Inventory.

Question 47

Saguaro Company updates its inventory perpetually.Its beginning inventory is $70,000,goods purchased during the period cost $240,000,and the cost of goods sold for the period is $280,000.What is the amount of the ending inventory?

A)$90,000
B)$40,000
C)$50,000
D)$30,000

Question 48

Which of the following kinds of inventory would be the best suited for the specific identification method?

A)Ice cream
B)Business jets
C)Biking helmets
D)Potato chips

Question 49

Yucca Co.updates its inventory periodically.The company's beginning inventory was $4,860 and purchases were $10,080 during the year.The company's ending inventory count was $9,000.What was the amount of its cost of goods sold?

A)$5,940
B)$14,940
C)$23,940
D)$3,780

Question 50

If inventory is updated perpetually,which of the equations is correct?

A)Cost of goods sold = Beginning inventory − Purchases − Ending inventory
B)Cost of goods sold = Beginning inventory + Purchases + Ending inventory
C)Ending inventory = Beginning inventory + Purchases − Cost of goods sold
D)Ending inventory = Beginning inventory + Purchases + Cost of goods sold

Question 51

Sweetwater Co.updates its inventory perpetually.The company reported a beginning inventory of $3,000.During the year,the company recorded inventory purchases of $9,000 and cost of goods sold of $10,000.What was the amount of its ending inventory?

A)$2,000
B)$5,000
C)$5,200
D)$5,400

Question 52

Goods placed in inventory are initially recorded at:

A)market value.
B)the amount paid to acquire the asset.
C)the amount paid to prepare the asset for sale to customers.
D)the amount paid to acquire the asset and prepare it for sale.

Question 53

If inventory is updated periodically,which of the equations is correct?

A)Cost of goods sold = Beginning inventory + Purchases − Ending inventory
B)Cost of goods sold = Beginning inventory + Purchases + Ending inventory
C)Beginning inventory + Purchases = Ending inventory
D)Ending inventory = Beginning inventory + Purchases + Cost of goods sold

Question 54

Which of the following statements about inventory classifications is not correct?

A)Inventory may include materials used in producing goods for sale.
B)Manufacturers hold three types of inventory that are referred to as raw materials inventory,work in process inventory,and finished goods inventory.
C)Inventory is classified as a long-term asset on the balance sheet.
D)Merchandisers buy inventory in finished form ready for resale.

Question 55

Goods in transit are:

A)inventory items being transported from a seller to a buyer.
B)always included in the transportation company's inventory.
C)always included in the selling company's inventory.
D)always included in the buying company's inventory.

Question 56

Goods available for sale equals:

A)Cost of Goods Sold plus ending inventory.
B)Cost of Goods Sold minus ending inventory.
C)Beginning inventory plus Cost of Goods Sold.
D)Beginning inventory plus Purchases minus Cost of Goods Sold.

Question 57

Assume a periodic inventory system is used.The LIFO inventory costing method assumes that the cost of the units most recently purchased is the:

A)last to be assigned to cost of goods sold.
B)first to be assigned to ending inventory.
C)first to be assigned to cost of goods sold.
D)last to be assigned to units available for sale.

Question 58

A fire destroyed some of Cholla,Inc.'s records.Information from the documents found related to inventory is listed below. What was the amount of inventory that was purchased during the year?

A)$860,400
B)$1,017,000
C)$741,600
D)$898,200

Question 59

Assume a periodic inventory system is used.Which inventory costing method generally results in the cost of the first goods purchased being assigned to ending inventory?

A)FIFO
B)LIFO
C)Weighted average cost
D)Simple average cost

Question 60

The LIFO inventory cost flow assumes that the cost of the newest goods purchased are:

A)assumed to be the last ones to be sold.
B)not included in cost of goods sold or ending inventory.
C)assumed to be the first ones included ending inventory.
D)assumed to be the first ones sold.

Question 61

The Laurel Corporation starts the year with a beginning inventory of 600 units at $5 per unit.The company purchases 1,000 units at $4 each in February and 400 units at $6 each in October.Laurel sells 300 units during the year.Laurel has a periodic inventory system and uses the FIFO inventory costing method.What is the amount of cost of goods sold?

A)$1,200
B)$1,868
C)$1,500
D)$1,800

Question 62

Maxell Company uses the FIFO method to assign costs to inventory and cost of goods sold.The company uses a periodic inventory system.Consider the following information: What amounts would be reported as the cost of goods sold and ending inventory balances for the year?

A)Cost of goods sold $625;Ending inventory $175
B)Cost of goods sold $755;Ending inventory $225
C)Cost of goods sold $550;Ending inventory $250
D)Cost of goods sold $600;Ending inventory $200

Question 63

Alphabet Company,which uses the periodic inventory method,purchases different letters for resale.Alphabet had no beginning inventory.It purchased A thru G in January at $4 per letter.In February,it purchased H thru L at $6 per letter.It purchased M thru R in March at $7 per letter.It sold A,D,E,H,J and N in October.There were no additional purchases or sales during the remainder of the year. If Alphabet Company uses the weighted average method,what is the cost of its ending inventory? (Round the per unit cost to two decimal places and then round your answer to the nearest whole dollar. )

A)$38
B)$48
C)$67
D)$75

Question 64

Alphabet Company,which uses the periodic inventory method,purchases different letters for resale.Alphabet had no beginning inventory.It purchased A thru G in January at $4 per letter.In February,it purchased H thru L at $6 per letter.It purchased M thru R in March at $7 per letter.It sold A,D,E,H,J and N in October.There were no additional purchases or sales during the remainder of the year. If Alphabet Company uses the LIFO method,what is the cost of its ending inventory?

A)$24
B)$42
C)$58
D)$76

Question 65

Willow Company had no beginning inventory.The company purchases 900 units of inventory in January at $5 each,1,500 units at $4 each in August,and 600 units at $6 each in November.The company sells 450 units during the year.Willow uses a periodic inventory system and the LIFO inventory costing method.What is the cost of goods sold?

A)$1,800
B)$2,802
C)$2,250
D)$2,700

Question 66

Windrose,Inc.uses a periodic inventory system and its inventory records contain the following information: The company sold 2,000 units during June.There were no additional purchases or sales during the remainder of the year.The company had 1,000 units were in its ending inventory at the end of the year.
If Windrose uses the FIFO costing method,what is the cost of its ending inventory?

A)$2,988
B)$4,580
C)$5,160
D)$5,412

Question 67

Eaton Electronics uses a periodic inventory system.On March 31,Eaton has two plasma TVs on hand at a cost of $1,500 each (serial numbers 11534892 and 11534894).In April,the company purchases four more identical TVs from Toshiba for $1,450 each (serial numbers 11542631 through 11542634).In May,the company purchases five more identical TVs for $1,600 each (serial numbers 11550964 through 11550968).In June,Eaton sells two of these TVs (serial numbers 11534894 and 11542631).There were no additional purchases or sales during the remainder of the year. Eaton Electronics uses the specific identification method.What is its cost of goods sold?

A)$3,000
B)$2,950
C)$3,200
D)$3,033

Question 68

Alphabet Company,which uses the periodic inventory method,purchases different letters for resale.Alphabet had no beginning inventory.It purchased A thru G in January at $4 per letter.In February,it purchased H thru L at $6 per letter.It purchased M thru R in March at $7 per letter.It sold A,D,E,H,J and N in October.There were no additional purchases or sales during the remainder of the year. If Alphabet Company uses the FIFO method,what is the cost of its ending inventory?

A)$24
B)$42
C)$58
D)$76

Question 69

Eaton Electronics uses a periodic inventory system.On March 31,Eaton has two plasma TVs on hand at a cost of $1,500 each (serial numbers 11534892 and 11534894).In April,the company purchases four more identical TVs from Toshiba for $1,450 each (serial numbers 11542631 through 11542634).In May,the company purchases five more identical TVs for $1,600 each (serial numbers 11550964 through 11550968).In June,Eaton sells two of these TVs (serial numbers 11534894 and 11542631).There were no additional purchases or sales during the remainder of the year. Eaton Electronics uses the weighted average method.What is the company's weighted average cost per unit? (Round the per unit cost to the nearest dollar. )

A)$1,500
B)$1,517
C)$1,527
D)$1,600

Question 70

Eaton Electronics uses a periodic inventory system.On March 31,Eaton has two plasma TVs on hand at a cost of $1,500 each (serial numbers 11534892 and 11534894).In April,the company purchases four more identical TVs from Toshiba for $1,450 each (serial numbers 11542631 through 11542634).In May,the company purchases five more identical TVs for $1,600 each (serial numbers 11550964 through 11550968).In June,Eaton sells two of these TVs (serial numbers 11534894 and 11542631).There were no additional purchases or sales during the remainder of the year. Eaton Electronics uses the FIFO method.What is the cost of its ending inventory?

A)$13,850
B)$13,800
C)$13,760
D)$13,600

Question 71

Windrose,Inc.uses a periodic inventory system and its inventory records contain the following information: $\begin{array}{lrr} & \text { Units } & \text { Total Cost } \\\text { Beginning inventory: } & 600 & \$ 1,560 \\\text { Purchased on May 10 } & 800 & 2,340 \\\text { Purchased on June 15 } & 1,000& 2,520 \\\text { Purchased on August 28 } & 600 & 1,980 \\\hline & 3,000 & \$ 8,400\\\hline\end{array}$ The company sold 2,000 units during June.There were no additional purchases or sales during the remainder of the year.The company had 1,000 units were in its ending inventory at the end of the year.
If Windrose uses the weighted average inventory costing method,what is the cost of its ending inventory? (Round the per unit cost to 2 decimal places and then round your answer to the nearest whole dollar. )

A)$8,400
B)$5,400
C)$2,800
D)$2,730

Question 72

Hardware Inc.has a periodic inventory system and uses the weighted average method.The company began the year with 150 large brass switch plates on hand at a cost of $4.00 each.Purchases of switch plates during the year were as follows: The switch plates sell for $7.00 each.If Hardware sells 570 switch plates during the year,what is the company's cost of goods sold?

A)$3,990
B)$2,508
C)$2,480
D)$2,560

Question 73

Eaton Electronics uses a periodic inventory system.On March 31,Eaton has two plasma TVs on hand at a cost of $1,500 each (serial numbers 11534892 and 11534894).In April,the company purchases four more identical TVs from Toshiba for $1,450 each (serial numbers 11542631 through 11542634).In May,the company purchases five more identical TVs for $1,600 each (serial numbers 11550964 through 11550968).In June,Eaton sells two of these TVs (serial numbers 11534894 and 11542631).There were no additional purchases or sales during the remainder of the year. Eaton Electronics reports $3,000 as the cost of goods sold.Eaton Electronics is using the:

A)specific identification method.
B)LIFO method.
C)FIFO method.
D)weighted average cost method.

Question 74

AAA Co.uses a periodic inventory system and has the following information in regard to its inventory: There are 500 units in ending inventory.What is the amount of the ending inventory using the FIFO method?

A)$3,000
B)$7,200
C)$7,800
D)$8,900

Question 75

Beryl Co.uses a periodic inventory system and has the following information in regard to its inventory: There are 1,000 units in ending inventory.What is the amount of the ending inventory using the LIFO method?

A)$6,000
B)$14,400
C)$15,600
D)$17,800

Question 76

Coachlight Inc.has a periodic inventory system.The company purchased 200 units of inventory at $9 per unit and 300 units at $10 per unit.What is the weighted average unit cost for these purchases of inventory?

A)$9.00.
B)$9.50.
C)$9.60.
D)$10.00.

Question 77

Alphabet Company,which uses the periodic inventory method,purchases different letters for resale.Alphabet had no beginning inventory.It purchased A thru G in January at $4 per letter.In February,it purchased H thru L at $6 per letter.It purchased M thru R in March at $7 per letter.It sold A,D,E,H,J and N in October.There were no additional purchases or sales during the remainder of the year. If Alphabet Company uses the specific identification method,what is the cost of its ending inventory?

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

Question 78

Eaton Electronics uses a periodic inventory system.On March 31,Eaton has two plasma TVs on hand at a cost of $1,500 each (serial numbers 11534892 and 11534894).In April,the company purchases four more identical TVs from Toshiba for $1,450 each (serial numbers 11542631 through 11542634).In May,the company purchases five more identical TVs for $1,600 each (serial numbers 11550964 through 11550968).In June,Eaton sells two of these TVs (serial numbers 11534894 and 11542631).There were no additional purchases or sales during the remainder of the year. Eaton Electronics uses the LIFO method.What is the cost of its ending inventory?

A)$13,850
B)$13,800
C)$13,760
D)$13,600

Question 79

Windrose,Inc.uses a periodic inventory system and its inventory records contain the following information: The company sold 2,000 units during June.There were no additional purchases or sales during the remainder of the year.The company had 1,000 units were in its ending inventory at the end of the year.
If Windrose uses the LIFO costing method,what is the cost of its ending inventory?

A)$2,730
B)$2,988
C)$3,240
D)$5,670

Question 80

Mansfield Company has a periodic inventory system and uses the LIFO method to assign costs to inventory and cost of goods sold.Consider the following information: What amounts would be reported as the cost of goods sold and ending inventory balances for the period?

A)Cost of goods sold $625;Ending inventory $175
B)Cost of goods sold $755;Ending inventory $225
C)Cost of goods sold $550;Ending inventory $250
D)Cost of goods sold $600;Ending inventory $200