Question 1

The firm had a beginning inventory of 50 units with a unit cost of $10.Purchases during the year were as follows: March-50 units with a unit cost of $12;July-60 units with a unit cost of $15.If the average cost method is used,the value of the ending inventory of 45 units is

Accepted Answer

To compute the cost of ending inventory using the average cost method, we need to first calculate the weighted average cost per unit.

Weighted Average Cost per Unit = (Beginning Inventory Value + Purchases Value) / (Beginning Inventory Units + Purchases Units)

Beginning Inventory Value = 50 units x $10 per unit = $500 
Purchases Value = (50 units x $12 per unit) + (60 units x $15 per unit) = $900 
Beginning Inventory Units = 50 units 
Purchases Units = 50 units + 60 units = 110 units

Weighted Average Cost per Unit = ($500 + $900) / (50 units + 110 units) = $10.91 per unit

To find the value of the ending inventory of 45 units, we simply multiply the number of units by the weighted average cost per unit:

Ending Inventory Value = 45 units x $10.91 per unit = $490.95

Therefore, the best choice is B.

Question 2

The use of the LIFO method of inventory valuation

Accepted Answer

The LIFO method of inventory valuation assigns the cost of the most recent purchases to the cost of goods sold before assigning the cost of earlier purchases to the ending inventory, resulting in the lowest reported net income in a time of rising prices. This is because the cost of goods sold will be higher as the more expensive inventory is being used up first, leading to a decrease in profitability.

Question 3

A firm that sells a single product had a beginning inventory of 4,000 units with a total cost of $16,000.Early in the year,8,000 units were purchased at $6 each.Using LIFO,what is the value of the ending inventory of 2,000 units?

Accepted Answer

Using LIFO, the cost of the most recent purchases will be matched with the cost of goods sold first. Therefore, the cost of the 2,000 units in the ending inventory will be based on the cost of the earliest purchase (beginning inventory) and the next purchase after that.

The cost of the 8,000 units purchased later will be used up in the cost of goods sold calculation first.

Cost of goods sold = 8,000 units x $6 = $48,000

The beginning inventory of 4,000 units at a cost of $16,000 will be used up next.

Cost of goods sold = 4,000 units x $4 = $16,000

The remaining 2,000 units in the ending inventory will be based on the next purchase of 4,000 units at a cost of $6 each.

Ending inventory = 2,000 units x $6 = $12,000

Therefore, the value of the ending inventory of 2,000 units is $12,000 (option C).

Question 4

The price a business would pay for its inventory is

Accepted Answer

The price a business would pay for its inventory is the replacement cost. This refers to the cost of purchasing the same inventory items at their current market prices. It takes into account factors such as inflation, supply and demand, and changes in the market. The assessed value, sales price, and discount price may all be factors in determining the replacement cost, but they do not accurately represent the actual cost the business would pay for inventory.

Question 5

The use of the FIFO method of inventory valuation

Accepted Answer

The FIFO (First-In, First-Out) method of inventory valuation assumes that the oldest inventory items are sold first, leaving the most recent purchases in ending inventory. This means that during periods of rising prices, the costs recorded in ending inventory are the most current, reflecting the latest prices paid for those items.

Question 6

Inventory valuation methods acceptable internationally include all of the following except:

Accepted Answer

LIFO (Last In, First Out) is not accepted under International Financial Reporting Standards (IFRS), which are used internationally.

Question 7

The accountant for a company whose inventory was destroyed by fire determined from undamaged records that the cost of goods available for sale was $100,000 and the net sales were $80,000 up to the date of the fire.The accountant also determined that the company's normal gross profit rate is 40 percent of net sales.From this data,the accountant estimated the cost of the inventory destroyed by the fire to be

Accepted Answer

The answer of The accountant for a company whose inventory...

Question 8

Which of the following inventory costing procedures requires a physical count of merchandise a minimum of once a year at yearend?

Accepted Answer

The average cost method requires a physical count of inventory at least once a year to determine the actual quantity of goods on hand, which is necessary to calculate the average cost per unit accurately.

Question 9

The modifying convention of conservatism requires that inventory be presented on the balance sheet at

Accepted Answer

The conservatism principle dictates that inventory should be reported at the lower of cost or market value to avoid overstating assets.

Question 10

The merchandise available for sale cost a company $90,000 and was marked to sell at a retail price of $125,000.Sales during the period totaled $80,000.If the retail method is used,the estimated cost of the ending inventory is

Accepted Answer

The estimated cost of the ending inventory is $32,400. This is calculated by multiplying the ending inventory at retail by the cost-to-retail ratio. The cost-to-retail ratio is calculated by dividing the cost of goods available for sale by the retail price of goods available for sale. In this case, the cost-to-retail ratio is $90,000/$125,000 = 0.72. The ending inventory at retail is $125,000 - $80,000 = $45,000. Therefore, the estimated cost of the ending inventory is $45,000 x 0.72 = $32,400.

Question 11

Which inventory valuation method mimics the actual flow of goods for most businesses?

Accepted Answer

The FIFO (first-in, first-out) method assumes that the oldest items in inventory are sold first. This method generally mimics the actual flow of goods for most businesses, as they tend to sell their oldest inventory first in order to prevent spoilage or obsolescence. Additionally, under FIFO, the cost of goods sold reflects the most recent costs incurred by the business, which is important for accurately tracking profitability.

Question 12

The steps and proper order for estimating EI cost using the gross profit method are as follows:

Accepted Answer

The answer of The steps and proper order for estimating...

Question 13

The Lower of Cost or Market rule is based on which accounting principle?

Accepted Answer

The Lower of Cost or Market rule is based on the conservatism accounting principle, which states that when there are two acceptable alternatives, the less optimistic one should be chosen. In this case, when inventory is worth less than its original cost, the conservative approach is to write down the inventory value to its current market value.

Question 14

The company's gross profit ratio is 40%.With beginning inventory of $54,000,additional purchases of $21,000 and net sales for the quarter of $85,000,the controller estimated ending inventory values at:

Accepted Answer

The answer of The company's gross profit ratio is 40%.With...

Question 15

The gross profit method of determining ending inventory cost

Accepted Answer

The gross profit method uses the formula: Beginning Inventory + Net Purchases - Cost of Goods Sold = Ending Inventory. This formula allows businesses to estimate the cost of their ending inventory without performing a physical count of merchandise. Instead, they use information on their beginning inventory, net purchases, and cost of goods sold to calculate the estimated ending inventory.

Question 16

A matching of the most recent costs to revenue results from the use of

Accepted Answer

The LIFO method matches the most recent costs to revenue because it assumes that the most recently purchased inventory is the first to be sold.

Question 17

The cost of the earliest merchandise purchased is assigned to ending inventory when a company uses

Accepted Answer

Under the LIFO (Last In, First Out) method, the cost of the earliest merchandise purchased is assigned to ending inventory, as the most recent costs are used to calculate the cost of goods sold.

Question 18

The weighted average cost of an inventory item is calculated by

Accepted Answer

The weighted average cost of an inventory item is calculated by dividing the cost of goods available for sale by the number of units available during the period. This takes into account all purchases and all units, giving a more accurate measure of the average cost per unit. Option A only looks at the purchase invoices, and option B only takes into account the ending inventory. Option D divides the cost of goods sold by the number of units available, which would give the cost per unit sold, not the weighted average cost per unit.

Question 19

The inventory valuation method which tends to smooth out periodic fluctuations in cost is:

Accepted Answer

The weighted average cost method takes into account the average cost of inventory over a given period, which helps to smooth out fluctuations in cost. This can result in a more stable cost of goods sold and net income over time.

Question 20

Which of the following is NOT a way to apply the lower of cost or market rule?

Accepted Answer

The lower of cost or market rule can be applied by item, in total, or by group. However, applying it by size is not a typical method of applying this rule.

Quiz 17: Merchandise Inventory