Deck 6: Merchandise Inventory

Question 1

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

Answer 1

True

Question 2

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 2

False

Question 3

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 3

B

Question 4

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 5

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 6

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

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 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

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

Question 9

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 10

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

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

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 13

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

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 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 16

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 17

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 18

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

Question 19

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

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

Question 20

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 21

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 22

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

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

Question 23

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 24

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 25

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 26

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 27

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 28

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 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 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 32

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

Question 33

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 34

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 35

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

Question 36

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

Question 37

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 38

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

Question 39

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 40

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 41

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)
B)
C)
D)

Question 42

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 43

Under the weighted-average method for inventory costing,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 44

Pluto Inc.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 45

Rodriguez Inc.had the following balances and transactions during 2015: 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 46

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 47

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)

B)
C)
D)

Question 48

Metro Computer Inc.had the following balances and transactions during 2014: 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 49

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 31.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 50

Rodriguez Inc.had the following balances and transactions during 2014,from January 1 to December 31: 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 51

Harris Inc.had the following balances and transactions during 2014: 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 52

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

Question 53

Pluto Inc.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 54

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)
B)
C)
D)

Question 55

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 the cost of goods sold.(Assume a perpetual inventory system.)

Question 56

Harris Inc.had the following balances and transactions during 2015: 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

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

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 58

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)
B)

C)
D)

Question 59

Lewis Inc.had the following balances and transactions during 2014: 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 60

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)
B)
C)
D)

Question 61

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

Question 62

Pluto Inc.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 63

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 64

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 65

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 66

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 67

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 68

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 69

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 70

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 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

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 73

Pluto Inc.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.

Question 74

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 75

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 76

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 77

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 78

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 79

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 80

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

A)first-in,first-out
B)last-in,first-out
C)weighted-average
D)specific identification