Question 1

The lower of cost or market is a method of inventory valuation.

Accepted Answer

A) True 
 B)False

Question 2

The following units of an inventory item were available for sale during the year: $\begin{array}{ll}
\text { Beginning inventory } & 10 \text { units at } \$ 55 \
\text { First purchase } & 25 \text { units at } \$ 60 \
\text { Second purchase } & 30 \text { units at } \$ 65 \
\text { Third purchase } & 15 \text { units at } \$ 70
\end{array}$ The firm uses the periodic inventory system. During the year, 60 units of the item were sold.
The value of ending inventory using LIFO is:

Accepted Answer

A)  $1,250 
B)  $1,350 
C)  $1,375 
D)  $1,150 
A)  $1,250 
B)  $1,350 
C)  $1,375 
D)  $1,150

Question 3

Merchandise inventory at the end of the year is overstated. Which of the following statements correctly states the effect of the error?

Accepted Answer

A)  owner's equity is overstated 
B)  cost of merchandise sold is overstated 
C)  gross profit is understated 
D)  net income is understated 
A)  owner's equity is overstated 
B)  cost of merchandise sold is overstated 
C)  gross profit is understated 
D)  net income is understated

Question 4

Which of the following measures the length of time it takes to acquire, sell and replace inventory?

Accepted Answer

A)  inventory turnover 
B)  number of days' sales in inventory 
C)  retail method of inventory costing 
D)  gross profit method of inventory costing 
A)  inventory turnover 
B)  number of days' sales in inventory 
C)  retail method of inventory costing 
D)  gross profit method of inventory costing

Question 5

Based on the following information, compute (a) Inventory turnover; (b) Average daily cost of merchandise sold using a 365 day year; and (c) Number of days' sales in inventory.

Accepted Answer

(a) $ 195,640 ¸ (($20,500+18,6

Question 6

Use the following information to answer the following questions. The Boxwood Company sells blankets for $60 each. The following was taken from the inventory records during May. The company had no beginning inventory on May 1.
$\begin{array}{|l|l|l|l|}
\hline \text { Date } & \text { Product Z } & \text { Units } & \text { Cost } \
\hline \text { May 3 } & \text { Purchase } & 5 & \$ 20 \
\hline \text { May 10 } & \text { Sale } & 3 & \
\hline \text { May 17 } & \text { Purchase } & 10 & \$ 24 \
\hline \text { May 20 } & \text { Sale } & 6 & \
\hline \text { May 23 } & \text { Sale } & 3 & \
\hline \text { May 30 } & \text { Purchase } & 10 & \$ 30 \
\hline
\end{array}$ Assuming that the company uses the perpetual inventory system, determine the ending inventory for the month of May using the LIFO inventory cost method.

Accepted Answer

A)  $324 
B)  $372 
C)  $320 
D)  $364 
A)  $324 
B)  $372 
C)  $320 
D)  $364

Question 7

Safeguarding inventory and proper reporting of the inventory in the books are the reasons for controlling the inventory.

Accepted Answer

A) True 
 B)False

Question 8

The following lots of a particular commodity were available for sale during the year: $\begin{array}{ll}
\text { Beginning invent ory } & 10 \text { units at } \$ 30 \
\text { First purchase } & 25 \text { units at } \$ 32 \
\text { Second purchase } & 30 \text { units at } \$ 34 \
\text { Third purchase } & 10 \text { units at } \$ 35
\end{array}$ The firm uses the periodic system and there are 20 units of the commodity on hand at the end of the year. What is the amount of inventory at the end of the year according to the LIFO method?

Accepted Answer

A)  $655 
B)  $620 
C)  $690 
D)  $659 
A)  $655 
B)  $620 
C)  $690 
D)  $659

Question 9

The following data regarding purchases and sales of a commodity were taken from the related perpetual inventory account:

Accepted Answer

The answer of The following data regarding purchases and sales...

Question 10

Ending inventory is made up of the oldest purchases when a company uses

Accepted Answer

A)  first-in, first-out 
B)  last-in, first-out 
C)  average cost 
D)  retail method 
A)  first-in, first-out 
B)  last-in, first-out 
C)  average cost 
D)  retail method

Question 11

A business using the retail method of inventory costing determines that merchandise inventory at retail is $2,300,000. If the ratio of cost to retail price is 55%, what is the amount of inventory to be reported on the financial statements?

Accepted Answer

$2,300,000

Question 12

Damaged merchandise that can be sold only at prices below cost should be valued at

Accepted Answer

A)  net realizable value 
B)  LIFO 
C)  FIFO 
D)  average 
A)  net realizable value 
B)  LIFO 
C)  FIFO 
D)  average

Question 13

The units of an item available for sale during the year were as follows:
   There are 48 units of the item in the physical inventory at December 31. The periodic inventory system is used. Determine the inventory cost by (a) the first-in, first-out method, (b) the last-in, first-out method, and (c) the average cost method. Show your work.

Accepted Answer

The answer of The units of an item available for...

Question 14

The following lots of a particular commodity were available for sale during the year: $\begin{array}{ll}
\text { Beginning inventory } & 10 \text { units at } \$ 60 \
\text { First purchase } & 25 \text { units at } \$ 65 \
\text { Second purchase } & 30 \text { units at } \$ 68 \
\text { Third purchase } & 15 \text { units at } \$ 75
\end{array}$ The firm uses the periodic system and there are 25 units of the commodity on hand at the end of the year.
What is the amount of the inventory at the end of the year using the FIFO method?

Accepted Answer

A)  $1,685 
B)  $1,575 
C)  $1,805 
D)  $3,585 
A)  $1,685 
B)  $1,575 
C)  $1,805 
D)  $3,585

Question 15

Use the following information to answer the following questions. The Boxwood Company sells blankets for $60 each. The following was taken from the inventory records during May. The company had no beginning inventory on May 1.
$\begin{array}{|l|l|l|l|}
\hline \text { Date } & \text { Product Z } & \text { Units } & \text { Cost } \
\hline \text { May 3 } & \text { Purchase } & 5 & \$ 20 \
\hline \text { May 10 } & \text { Sale } & 3 & \
\hline \text { May 17 } & \text { Purchase } & 10 & \$ 24 \
\hline \text { May 20 } & \text { Sale } & 6 & \
\hline \text { May 23 } & \text { Sale } & 3 & \
\hline \text { May 30 } & \text { Purchase } & 10 & \$ 30 \
\hline
\end{array}$Assuming that the company uses the perpetual inventory system, determine the ending inventory value for the month of May using the FIFO inventory cost method.

Accepted Answer

A)  $364 
B)  $372 
C)  $324 
D)  $320 
A)  $364 
B)  $372 
C)  $324 
D)  $320

Question 16

A company will most likely use an estimated method of determining inventory when

Accepted Answer

A)  the company decides not to do a physical inventory. 
B)  a natural disaster has destroyed most of their inventory. 
C)  the company has not kept up with their inventory records. 
D)  the company is preparing annual financial statements. 
A)  the company decides not to do a physical inventory. 
B)  a natural disaster has destroyed most of their inventory. 
C)  the company has not kept up with their inventory records. 
D)  the company is preparing annual financial statements.

Question 17

FIFO is the inventory costing method that follows the physical flow of the goods.

Accepted Answer

A) True 
 B)False

Question 18

Cost flow is in the order in which costs were incurred when using

Accepted Answer

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

Question 19

Which of the following is used to analyze the efficiency and effectiveness of inventory management?

Accepted Answer

A)  inventory turnover only 
B)  number of days' sales in inventory only 
C)  both inventory turnover and number of days' sales in inventory 
D)  neither inventory turnover or number of days' sales in inventory 
A)  inventory turnover only 
B)  number of days' sales in inventory only 
C)  both inventory turnover and number of days' sales in inventory 
D)  neither inventory turnover or number of days' sales in inventory

Question 20

During the taking of its physical inventory on December 31, 2014, Barry's Bike Shop incorrectly counted its inventory as $350,000 instead of the correct amount of $280,000. The effect on the balance sheet and income statement would be as follows:

Accepted Answer

A)  assets overstated by $70,000;retained earnings understated by $70,000; net income statement understated by $70,000. 
B)  assets overstated by $70,000;retained earnings understated by $70,000; no effect on the income statement. 
C)  assets and retained earnings overstated by $70,000; net income overstated by $70,000. 
D)  assets and retained earnings overstated by $70,000; net income understated by $70,000. 
A)  assets overstated by $70,000;retained earnings understated by $70,000; net income statement understated by $70,000. 
B)  assets overstated by $70,000;retained earnings understated by $70,000; no effect on the income statement. 
C)  assets and retained earnings overstated by $70,000; net income overstated by $70,000. 
D)  assets and retained earnings overstated by $70,000; net income understated by $70,000.

Exam 6: Inventories

The lower of cost or market is a method of inventory valuation.

Merchandise inventory at the end of the year is overstated. Which of the following statements correctly states the effect of the error?

Which of the following measures the length of time it takes to acquire, sell and replace inventory?

Based on the following information, compute (a) Inventory turnover; (b) Average daily cost of merchandise sold using a 365 day year; and (c) Number of days' sales in inventory.

Safeguarding inventory and proper reporting of the inventory in the books are the reasons for controlling the inventory.

The following data regarding purchases and sales of a commodity were taken from the related perpetual inventory account:

Ending inventory is made up of the oldest purchases when a company uses

A business using the retail method of inventory costing determines that merchandise inventory at retail is $2,300,000. If the ratio of cost to retail price is 55%, what is the amount of inventory to be reported on the financial statements?

Damaged merchandise that can be sold only at prices below cost should be valued at

A company will most likely use an estimated method of determining inventory when

FIFO is the inventory costing method that follows the physical flow of the goods.

Cost flow is in the order in which costs were incurred when using

Which of the following is used to analyze the efficiency and effectiveness of inventory management?

During the taking of its physical inventory on December 31, 2014, Barry's Bike Shop incorrectly counted its inventory as $350,000 instead of the correct amount of $280,000. The effect on the balance sheet and income statement would be as follows:

Introduction to Accounting and Business

Analyzing Transactions

The Adjusting Process

Completing the Accounting Cycle

Accounting for Merchandising Businesses

Sarbanes-Oxley, Internal Control, and Cash

Receivables

Fixed Assets and Intangible Assets

Current Liabilities and Payroll

Corporations: Organization, Stock Transactions, and Dividends

Long-Term Liabilities: Bonds and Notes

Investments and Fair Value Accounting

Statement of Cash Flows

Financial Statement Analysis

Managerial Accounting Concepts and Principles

Job Order Costing

Process Cost Systems

Cost Behavior and Cost-Volume-Profit Analysis

Variable Costing for Management Analysis

Budgeting

Performance Evaluation Using Variances From Standard Costs

Performance Evaluation for Decentralized Operations

Differential Analysis and Product Pricing

Capital Investment Analysis

Cost Allocation and Activity-Based Costing

Cost Management for Just-In-Time Environments

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