Deck 6: Merchandise Inventory

Question 1

A company discovers that its cost of goods sold is understated by an insignificant amount. They do not need to correct the error because of the conservatism principle.

Answer 1

False

Question 2

Which of the following states that the business should use the same accounting methods from period to period?

A) materiality concept
B) consistency principle
C) conservatism
D) disclosure principle

Answer 2

B

Question 3

The consistency principle states that a business should use the same accounting methods from period to period.

Answer 3

True

Question 4

The disclosure concept states that a company should report enough information for outsiders to make knowledgeable decisions about the company.

Question 5

A company discovers that its cost of goods sold is understated by an insignificant amount. They do not need to correct the error because of the materiality concept.

Question 6

A company is uncertain whether a complex transaction should result in an asset being recorded at $100,000 or at $150,000. Under the conservatism principle, they should choose to show it at $100,000.

Question 7

A company should not change the inventory costing method each period in order to maximize net income. This is an example of the disclosure principle.

Question 8

Which of the following is an application of the conservatism concept?

A) reporting inventory at the lower of cost or market
B) reporting only material amounts in the financial statements
C) reporting all relevant information in the financial statements
D) using the same depreciation method from period to period

Question 9

Which of the following states that a company must perform strictly proper accounting only for items that are significant to the business's financial statements?

A) accounting conservatism
B) materiality concept
C) disclosure principle
D) consistency principle

Question 10

Which of the following principles states that a business should never anticipate gains?

A) conservatism
B) materiality concept
C) disclosure principle
D) consistency principle

Question 11

Which of the following principles states that a business's financial statements must report enough information for outsiders to make knowledgeable decisions about the company?

A) accounting conservatism
B) materiality concept
C) disclosure principle
D) consistency principle

Question 12

A company is uncertain whether a complex transaction should be recorded as an asset or an expense. Under the conservatism principle, they should choose to treat it as an asset.

Question 13

The lower-of-cost-or-market rule demonstrates accounting conservatism in action.

Question 14

A company is uncertain whether a complex transaction should be recorded as gain or loss. Under the conservatism principle, they should choose to treat it a loss.

Question 15

A company reports in its financial statements that it uses the FIFO method of inventory costing. This is an example of the disclosure principle.

Question 16

The consistency principle states that businesses should report the same amount of ending merchandise inventory from period to period.

Question 17

Changing from the LIFO (Last-In, First-Out) to the specific identification method of valuing inventory ignores the principle of:

A) conservatism.
B) consistency.
C) disclosure.
D) materiality.

Question 18

A company decides to ignore a very small error in their inventory balance. This is an example of application of the:

A) accounting conservatism.
B) materiality concept.
C) disclosure principle.
D) consistency principle.

Question 19

Which of the following requires that financial statements should report the least favorable figures?

A) conservatism
B) materiality concept
C) disclosure principle
D) consistency principle

Question 20

A company changes its inventory costing method each period in order to maximize net income. This is a violation of the consistency principle.

Question 21

Which of the following inventory costing methods uses the costs of the oldest purchases to calculate the value of the ending inventory?

A) Specific identification
B) Weighted-average
C) Last-in, first-out
D) First-in, first-out

Question 22

The disclosure principle states that a company should disclose all major accounting methods and procedures in the:

A) balance sheet.
B) income statement.
C) footnotes to the financial statements.
D) adjusted trial balance.

Question 23

The total cost spent on inventory that was available to be sold during a period is called cost of goods sold.

Question 24

Ending inventory is calculated by multiplying the number of units on hand with the unit cost.

Question 25

A company purchased 100 units for $30 each on January 31. It purchased 150 units for $25 on February 28. It sold a total of 150 units for $50 each from March 1 through December 31. If the company uses the weighted-average inventory costing method, calculate the amount of ending inventory on December 31. (Assume that the company uses a perpetual inventory system.)

A) $6,750
B) $2,700
C) $4,350
D) $2,900

Question 26

Which of the following inventory costing methods uses the cost of the oldest purchases to calculate the cost of goods sold?

A) Specific identification
B) Weighted-average
C) Last-in, first-out
D) First-in, first-out

Question 27

When a company uses the last-in, first-out (LIFO) method, the cost of goods sold correlates to the most recently purchased goods, and the ending inventory correlates to the oldest goods in stock.

Question 28

The materiality concept states that a company must:

A) report only such information that enhances the financial position of the company.
B) perform strictly proper accounting only for significant items.
C) report enough information for outsiders to make knowledgeable decisions about the company.
D) use the same accounting methods and procedures from period to period.

Question 29

A company purchased 100 units for $20 each on January 31. It purchased 100 units for $30 on February 28. It sold a total of 150 units for $45 each from March 1 through December 31. If the company uses the last-in, first-out inventory costing method, calculate the amount of ending inventory on December 31. (Assume that the company uses a perpetual inventory system.)

A) $1,500
B) $1,250
C) $1,000
D) $2,250

Question 30

Under the last-in, first-out (LIFO) method, the cost of goods sold is based on the oldest purchases.

Question 31

Which of the following inventory costing methods is based on the actual cost of each particular unit of inventory?

A) Specific identification
B) Weighted-average
C) Last-in, first-out
D) First-in, first-out

Question 32

Which of the following statements is true of a good merchandise inventory control system?

A) It minimizes the authorization of purchase of merchandise.
B) It ensures that a physical count of inventory is not required.
C) It often prevents the company from a stockout.
D) It minimizes the authorization of sale of merchandise.

Question 33

Under which of the following inventory costing methods is the ending inventory valued on the cost of the most recent purchases?

A) Specific identification
B) Weighted-average
C) Last-in, first-out
D) First-in, first-out

Question 34

A company purchased 100 units for $30 each on January 31. It purchased 150 units for $25 on February 28. It sold 150 units for $50 each from March 1 through December 31. If the company uses the first-in, first-out inventory costing method, what is the amount of Cost of Goods Sold on the income statement for the year ending December 31? (Assume that the company uses a perpetual inventory system.)

A) $3,000
B) $4,000
C) $4,250
D) $6,750

Question 35

The tracking of inventory shrinkage due to theft, damage, or errors is done with the help of ________ of inventory.

A) authorization
B) sale
C) physical count
D) delivery

Question 36

A company purchased 100 units for $20 each on January 31. It purchased 100 units for $30 on February 28. It sold a total of 150 units for $45 each from March 1 through December 31. What is the amount of ending inventory on December 31, if the company uses the first-in, first-out (FIFO) inventory costing method? (Assume that the company uses a perpetual inventory system.)

A) $1,500
B) $1,250
C) $1,000
D) $2,250

Question 37

When a company uses the first-in, first-out (FIFO) method the cost of goods sold correlates to the most recently purchased goods and the value of ending inventory correlates to the oldest goods in stock.

Question 38

The specific identification method of inventory costing is recommended when a business deals in unique and high-priced inventory items.

Question 39

Which of the following methods of inventory valuation requires the calculation of a new average cost after each purchase?

A) Specific identification
B) Weighted-average
C) Last-in, first-out
D) First-in, first-out

Question 40

Ending inventory equals the cost of goods available for sale less beginning inventory.

Question 41

A company that uses the perpetual inventory system sold goods to a customer on account for $2,000. The cost of the goods sold was $1,000. Which of the following journal entries correctly records this transaction?

A) $$\begin{array} { | c | r | r | } \hline \text { Cost of Goods Sold } &\quad\quad 2,000 & \\\hline \text { Sales Revenue } & &\quad\quad\quad 2,000 \\\hline\end{array}$$
B) $$\begin{array} { | c | r | r | } \hline \text { Merchandise Inventory } & 2,000 & \\\hline \text { Cost of Goods Sold } & & 2,000 \\\hline\end{array}$$
C) $$\begin{array} { | c | r | r | } \hline \text { Accounts Receivable } & 2,000 & \\\hline \text { Cash } & & 2,000 \\\hline\end{array}$$
D) $$\begin{array} { | c | r | r | } \hline \text { Accounts Receivable } & 2,000 & \\\hline \text { Sales Revenue } & & 2,000 \\\hline\end{array}$$
$$\begin{array} { | c | r | r | } \hline \text { Cost of Goods Sold } & 1,000 & \\\hline \text { Merchandise Inventory } & & 1,000 \\\hline\end{array}$$

Question 42

Rodriguez Company had the following balances and transactions during 2014, from January 1 to December 31: $$\begin{array} { | l | l | } \hline \text { Beginning Merchandise Inventory } & 100 \text { units at } \$ 80 \\\hline \text { March } 10 & \text { Sold } 50 \text { units } \\\hline \text { June 10 } & \text { Purchased } 200 \text { units at } \$ 82 \\\hline \text { October 30 } & \text { Sold } 150 \text { units } \\\hline\end{array}$$ What would the Ending Merchandise Inventory amount be as reported on the balance sheet at December 31, 2014 if the perpetual weighted-average costing method is used? (Round your intermediate calculations to two decimal places)

A) $8,160
B) $4,000
C) $8,000
D) $12,000

Question 43

A company that uses the perpetual inventory system sold goods for $1,000 to a customer on account. The company had purchased the inventory for $400. Which of the following journal entries correctly records the cost of goods sold?

A) $$\begin{array} { | c | r | r | } \hline \text { Cost of Goods Sold } & 400 & \\\hline \text { Sales Revenue} & &400 \\\hline\end{array}$$

B) $$\begin{array} { | c | r | r | } \hline \text { Merchandise Inventory } & 400 & \\\hline \text { Cost of Goods Sold } & & 400 \\\hline\end{array}$$
C) $$\begin{array} { | c | r | r | } \hline \text { Cost of Goods Sold } & 400 & \\\hline \text { Merchandise Inventory } & & 400 \\\hline\end{array}$$
D) $$\begin{array} { | c | r | r | } \hline \text { Accounts Receivable } & 400 & \\\hline \text { Sales Revenue } & & 400 \\\hline\end{array}$$

Question 44

A company that uses the perpetual inventory system sold goods to a customer for cash for $3,000. The cost of the goods sold was $1,000. Which of the following journal entries correctly records this transaction?

A) $$\begin{array} { | c | r | r | } \hline \text { Cost of Goods Sold } & 3,000 & \\\hline \text { Sales Revenue } & & 3,000 \\\hline\end{array}$$
B) $$\begin{array} { | c | r | r | } \hline \text { Cash} & 3,000 & \\\hline \text { Sales Revenue } & & 3,000 \\\hline\end{array}$$
$$\begin{array} { | c | r | r | } \hline \text { Cost of Goods Sold } & 1,000 & \\\hline \text { Merchandise Inventory } & & 1,000 \\\hline\end{array}$$
C) $$\begin{array} { | c | r | r | } \hline \text { Accounts Receivable } & 3,000 & \\\hline \text { Cash } & & 3,000 \\\hline\end{array}$$
D) $$\begin{array} { | c | r | r | } \hline \text { Merchandise Inventory } & 3,000 & \\\hline \text { Sales Revenue} & & 3,000 \\\hline\end{array}$$

Question 45

Perez Company purchased inventory on account for $6,500. Provide the journal entry to record the purchase of inventory on account. (Assume a perpetual inventory system)

Question 46

Metro Computer Company had the following balances and transactions during 2014: $$\begin{array} { | l | l | } \hline \text { Beginning Merchandise Inventory } & 100 \text { units at } \$ 75 \\\hline \text { March } 10 & \text { Sold } 50 \text { units } \\\hline \text { June } 10 & \text { Purchased } 200 \text { units at } \$ 80 \\\hline \text { October 30 } & \text { Sold } 150 \text { units } \\\hline\end{array}$$ What would the company's ending merchandise inventory amount be on December 31, 2014 if the perpetual last-in, first-out costing method is used?

A) $7,500
B) $23,500
C) $7,750
D) $16,000

Question 47

Perez Company purchased 500 units of inventory at $25 per unit by payment of cash. Provide the journal entry to record the purchase of inventory. (Assume a perpetual inventory system)

Question 48

Rodriguez Company had the following balances and transactions during 2015: $$\begin{array} { | l | l | } \hline \text { Beginning Merchandise Inventory } & 100 \text { units at } \$ 80 \\\hline \text { March } 10 & \text { Sold } 50 \text { units } \\\hline \text { June 10 } & \text { Purchased } 200 \text { units at } \$ 82 \\\hline \text { October 30 } & \text { Sold } 150 \text { units } \\\hline\end{array}$$ What would the Ending Merchandise Inventory amount be as reported on the balance sheet at December 31, 2015 if the perpetual first-in, first-out costing method is used?

A) $4,000
B) $16,400
C) $8,200
D) $8,000

Question 49

A company that uses the perpetual inventory system purchased 500 pallets of industrial soap for $7,000 and paid $800 for the freight-in. The company sold the whole lot to a supermarket chain for $12,000 on account. Which of the following entries correctly records the sale?

A) $$\begin{array} { | c | r | r | } \hline \text { Accounts Receivable } & 12,000 & \\\hline \text { Sales Revenue } & & 12,000 \\\hline\end{array}$$
$$\begin{array} {| c | r | r | } \hline \text { Cost of Goods Sold } & 7,800 & \\\hline \text { Merchandise Inventory } & & 7,800 \\\hline\end{array}$$
B) $$\begin{array} { | c | r | r | } \hline \text { Merchandise Inventory } & 12,000 & \\\hline \text { Cost of Goods Sold } & & 12,000 \\\hline\end{array}$$
C) $$\begin{array} { | c | r | r | } \hline \text { Cost of Goods Sold } & 12,000 & \\\hline \text { Sales Revenue } & & 12,000 \\\hline\end{array}$$
D) $$\begin{array} { | c | r | r | } \hline \text { Sales Revenue } & 12,000 & \\\hline \text { Merchandise Inventory } & & 12,000 \\\hline\end{array}$$

Question 50

Which of the following is the correct formula to calculate weighted-average unit cost?

A) Weighted-average unit cost = Cost of goods available for sale + Number of units available
B) Weighted-average unit cost = Cost of goods available for sale × Number of units available
C) Weighted-average unit cost = Cost of goods available for sale - Number of units available
D) Weighted-average unit cost = Cost of goods available for sale ÷ Number of units available

Question 51

Henderson Sales purchased $6,000 of inventory on account. Provide the journal entry. (Assume a perpetual inventory system)

Question 52

Henderson Sales sold 400 units of product to a customer on account. The selling price was $28 per unit, and the cost, according to the company's inventory records, was $14 per unit. Provide the journal entry to record cost of goods sold. (Assume a perpetual inventory system)

Question 53

A company purchased 100 units for $20 each on January 31. It purchased 100 units for $30 on February 28. It sold 150 units for $45 each from March 1 through December If the company uses the last-in, first-out inventory costing method, what is the amount of cost of goods sold on the income statement for the year ending December 31? (Assume that the company uses a perpetual inventory system.)

A) $4,000
B) $3,000
C) $2,000
D) $5,000

Question 54

Clark Sales sold 450 units of product to a customer on account. The company uses the perpetual inventory system. The selling price was $28 per unit, and the cost, according to the company's inventory records, was $12 per unit. Provide the journal entry to record the sales revenue.

Question 55

Lewis Company had the following balances and transactions during 2014: $$\begin{array} { | l | l | } \hline \text { Beginning Merchandise Inventory } & 100 \text { units at } \$ 80 \\\hline \text { March } 10 & \text { Sold } 50 \text { units } \\\hline \text { June 10 } & \text { Purchased } 200 \text { units at } \$ 82 \\\hline \text { October 30 } & \text { Sold } 150 \text { units } \\\hline\end{array}$$ What would the Cost of Goods Sold be as reported on the income statement for the year ending December 31, 2014 if the perpetual weighted-average costing method is used? (Round your intermediate calculations to two decimal places)

A) $8,160
B) $20,400
C) $16,240
D) $12,000

Question 56

Harris Company had the following balances and transactions during 2015: $$\begin{array} { | l | l | } \hline \text { Beginning Merchandise Inventory } & 100 \text { units at } \$ 80 \\\hline \text { March } 10 & \text { Sold } 50 \text { units } \\\hline \text { June 10 } & \text { Purchased } 200 \text { units at } \$ 82 \\\hline \text { October 30 } & \text { Sold } 150 \text { units } \\\hline\end{array}$$ What would the Cost of Goods Sold be as reported on the income statement for the year ending December 31, 2015 if the perpetual first-in, first-out costing method is used?

A) $8,000
B) $12,200
C) $24,400
D) $16,200

Question 57

Under the weighted-average method, the cost per unit is determined by:

A) dividing the cost of goods available for sale by the number of units available.
B) dividing the cost of goods available for sale by the number of units in beginning inventory.
C) multiplying the number of units purchased with the weighted-average cost.
D) multiplying the cost of goods available for sale by the ending weighted-average price of previous accounting period.

Question 58

A company purchased 100 units for $30 each on January 31. It purchased 150 units for $25 on February 28. It sold 150 units for $50 each from March 1 through December 31. If the company uses the weighted-average inventory costing method, calculate the amount of Cost of Goods Sold on the income statement for the year ending December 31. (Assume the company uses the perpetual inventory system.)

A) $6,750
B) $4,050
C) $3,000
D) $3,750

Question 59

A company that uses the perpetual inventory system purchased 500 pallets of industrial soap for $7,000 and paid $750 for the freight-in. The company sold the whole lot to a supermarket chain for $13,000 on account. The company uses the specific-identification method of inventory costing. Which of the following entries correctly records the cost of goods sold?

A) $$\begin{array} { | c | r | r | } \hline \text { Cost of Goods Sold } & 7,750 & \\\hline \text { Merchandise Inventory } & & 7,750 \\\hline\end{array}$$
B) $$\begin{array} { | c | r | r | } \hline \text { Merchandise Inventory } & 7,750 & \\\hline \text { Cost of Goods Sold } & & 7,750 \\\hline\end{array}$$
C) $$\begin{array} { | c | r | r | } \hline \text { Cost of Goods Sold } & 7,000 & \\\hline \text { Sales Revenue } & & 7,000 \\\hline\end{array}$$
D) $$\begin{array} { | c | r | r | } \hline \text { Cost of Goods Sold } & 7,000 & \\\hline \text { Merchandise Inventory } & & 7,000 \\\hline\end{array}$$

Question 60

Harris Company had the following balances and transactions during 2014: $$\begin{array} { | l | l | } \hline \text { Beginning Merchandise Inventory } & 100 \text { units at } \$ 75 \\\hline \text { March } 10 & \text { Sold } 50 \text { units } \\\hline \text { June } 10 & \text { Purchased } 200 \text { units at } \$ 80 \\\hline \text { October 30 } & \text { Sold } 150 \text { units } \\\hline\end{array}$$ What would the Cost of Goods Sold be as reported on the income statement for the year ending December 31, 2014 if the perpetual, last-in, first-out costing method is used? Round your answer to two decimal places.

A) $15,750
B) $12,000
C) $3,750
D) $15,000

Question 61

Which of the following inventory costing methods yields the highest net income during a period of rising inventory costs?

A) Specific identification
B) Weighted-average
C) Last-in, first-out
D) First-in, first-out

Question 62

Which of the following inventory costing methods yields the lowest net income during a period of rising inventory costs?

A) Specific identification
B) Weighted-average
C) Last-in, first-out
D) First-in, first-out

Question 63

In a period of rising costs, the last-in, first-out (LIFO) method results in lower cost of goods sold and higher net income than the first-in, first-out (FIFO) method.

Question 64

The cost of goods available for sale is equal to the:

A) cost of goods sold minus the ending inventory.
B) sales revenue minus the cost of goods sold.
C) cost of goods sold plus the ending inventory.
D) ending inventory plus the sales revenues.

Question 65

Given the same purchase and sales data, the three major costing methods for inventory will result in three different amounts for net income. Assume the cost of inventory is rising.

Question 66

Perez Company sold 500 units of inventory at $25 per unit on account. The company uses the perpetual inventory system. The cost of the units sold was $10 per unit. Provide the journal entries to record the sale on account.

Question 67

In a period of rising costs, the first-in, first-out (FIFO) method results in lower cost of goods sold and higher gross profit than the last-in, first-out (LIFO) method.

Question 68

Which of the following values remains the same irrespective of the inventory valuation method used by a company? Assume the cost of inventory is rising.

A) Purchases
B) Cost of goods sold
C) Ending merchandise inventory
D) Net income

Question 69

Which of the following inventory valuation methods should be used for unique or high dollar items?

A) First-in, first-out
B) Last-in, first-out
C) Weighted-average
D) Specific identification

Question 70

Which of the following inventory costing methods results in the highest value of ending inventory during a period of rising inventory costs?

A) Specific identification
B) Weighted-average
C) Last-in, first-out
D) First-in, first-out

Question 71

In a period of rising costs, the last-in, first-out (LIFO) method results in higher cost of goods sold and lower net income than the first-in, first-out (FIFO) method.

Question 72

In a period of rising costs, the first-in, first-out (FIFO) method results in higher cost of goods sold and lower gross profit than the last-in, first-out (LIFO) method.

Question 73

Which of the following inventory costing methods yields the lowest cost of goods sold during a period of rising inventory costs?

A) Specific identification
B) Weighted-average
C) Last-in, first-out
D) First-in, first-out

Question 74

Which of the following inventory costing methods yields the highest cost of goods sold during a period of rising inventory costs?

A) Specific identification
B) Weighted-average
C) Last-in, first-out
D) First-in, first-out

Question 75

Given the same purchase and sales data, the three major costing methods for inventory will result in three different amounts for sales revenue. Assume the cost of inventory is rising.

Question 76

Which of the following inventory valuation methods minimizes income tax payment during a period of rising inventory costs?

A) First-in, first-out
B) Last-in, first-out
C) Weighted-average
D) Specific identification

Question 77

The sum of the cost of goods sold and the ending inventory equals the cost of goods available for sale.

Question 78

Which of the following inventory costing methods results in the lowest value of ending inventory during a period of rising inventory costs?

A) Specific identification
B) Weighted-average
C) Last-in, first-out
D) First-in, first-out

Question 79

Given the same purchase and sales data, the three major costing methods for inventory will result in three different amounts for cost of goods sold. Assume the cost of inventory is rising.

Question 80

Perez Company sold 500 units of inventory at $25 per unit for cash. The company uses the perpetual inventory system. The cost of the units sold was $10 per unit. Provide the journal entries to record the sale.