Question 1

The following data applies to a particular item of merchandise: $\begin{array}{lrr}
\text { On hand at start of period } & 300 & \$ 5.10 \
1^{\text {st }} \text { purchase } & 500 & 5.20 \
2^{\text {ndd }} \text { purchase } & 700 & 5.30 \
3^{\text {rd }} \text { purchase } & 600 & 5.50\\text { Number of units available for sale } & 2,100 \
\text { On hand at end of period } & \underline{500} \
\text { Number of units sold during period } & \underline{1,600}
\end{array}$ ? Of the 1,600 units sold during the period, 300 were from the beginning inventory; 500 from the first purchase; 600 from the second purchase; and 200 from the last purchase. Using the last-in, first-out costing method, the cost of goods sold would be

Accepted Answer

A)   $8,390.
B)   $8,410.
C)   $2,530.
D)   $8,570.  D

Question 2

When cost is greater than market value, it is considered a loss due to holding inventory.

Accepted Answer

A) True 
 B)False  True

Question 3

Match the terms with the definitions.
-Counting the goods on hand at the end of the period to allocate merchandise costs between sold and unsold goods.

Accepted Answer

A)  average cost
B)  weighted-average method
C)  consignee
D)  consigned goods
E)  specific identification methodF) retail methodG) costH) physical inventoryI) periodic inventory systemJ) in transitK) inventory sheetL) natural business yearM) lower-of-cost-or-market method H

Question 4

In the perpetual inventory system, no year-end adjusting entry is necessary, as long as the physical inventory agrees with the amount reported in the merchandise inventory account.

Accepted Answer

A) True 
 B)False

Question 5

When perpetual inventory records are kept, the merchandise inventory account in the general ledger is usually a control account.

Accepted Answer

A) True 
 B)False

Question 6

The retail method of inventory is preferred by businesses such as department and clothing stores because they compute inventory values at wholesale prices.

Accepted Answer

A) True 
 B)False

Question 7

Smart Tech's beginning inventory and purchases for the month of August were as follows:  ​
Required:
Calculate the total amount to be assigned to cost of goods sold and ending inventory for August 31, using each of the following methods. 
a.
First-in, first-out (FIFO)
b.
Last-in, first-out (LIFO)
c.
Weighted-average cost (round the unit price)

Accepted Answer

The answer of Smart Tech's beginning inventory and purchases for...

Question 8

Accurate inventory amounts are not necessary for accounting purposes because an error in inventory will "wash out" over a two-year period.

Accepted Answer

A) True 
 B)False

Question 9

The gross profit (inventory valuation) method is appropriate if a firm's normal gross profit on sales has been relatively stable over time and for estimating the cost of inventory that was destroyed by casualty.

Accepted Answer

A) True 
 B)False

Question 10

Under the retail (inventory valuation) method, the amount of sales during the period is reduced by the normal profit percentage to determine the estimated cost of merchandise sold.

Accepted Answer

A) True 
 B)False

Question 11

A method of allocating merchandise cost that is based on the average cost of identical units is called the

Accepted Answer

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

Question 12

The specific identification method of inventory is generally practical only for businesses in which sales volume is relatively low and inventory unit value is relatively high.

Accepted Answer

A) True 
 B)False

Question 13

A method of allocating merchandise cost that assumes the first merchandise bought was the first merchandise sold is called the

Accepted Answer

A)   last-in, first-out method.
B)   first-in, first-out method.
C)   specific identification method.
D)   average cost method.

Question 14

The term "LIFO" relates to the merchandise in inventory at the end of the accounting period, not to the merchandise sold during the period.

Accepted Answer

A) True 
 B)False

Question 15

Match the terms with the definitions.
-An inventory valuation method under which inventory is valued at cost or replacement cost, whichever is lower.

Accepted Answer

A)  average cost
B)  weighted-average method
C)  consignee
D)  consigned goods
E)  specific identification methodF) retail methodG) costH) physical inventoryI) periodic inventory systemJ) in transitK) inventory sheetL) natural business yearM) lower-of-cost-or-market method

Question 16

Match the terms with the definitions.
-The principle that states that a business should use the same accounting methods from period to period. This improves the comparability of the financial statements over time.

Accepted Answer

A)  average cost
B)  conservatism
C)  perpetual inventory system
D)  market value
E)  consignorF) consistencyG) costH) first-in, first-out methodI) gross profit methodJ) last-in, first-out methodK) inventory sheet

Question 17

Costs of goods sold may include all of the following EXCEPT

Accepted Answer

A)   insurance.
B)   shipping costs.
C)   manufacturing costs.
D)   management salaries.

Question 18

Match the terms with the definitions.
-A method of allocating merchandise cost which assumes that the sales in the period were made from the most recently purchased goods. Therefore, the earliest goods purchased remain in inventory.

Accepted Answer

A)  average cost
B)  conservatism
C)  perpetual inventory system
D)  market value
E)  consignorF) consistencyG) costH) first-in, first-out methodI) gross profit methodJ) last-in, first-out methodK) inventory sheet

Question 19

Match the terms with the definitions.
-A method of allocating merchandise cost based on the average cost of identical units. The average cost of identical units is determined by dividing the total cost of units available for sale by the total number of units available for sale.

Accepted Answer

A)  average cost
B)  weighted-average method
C)  consignee
D)  consigned goods
E)  specific identification methodF) retail methodG) costH) physical inventoryI) periodic inventory systemJ) in transitK) inventory sheetL) natural business yearM) lower-of-cost-or-market method

Question 20

Last-in, first-out costing assigns the most recent purchase cost to the ending inventory shown on the balance sheet.

Accepted Answer

A) True 
 B)False

Exam 13: Accounting for Merchandise Inventory

When cost is greater than market value, it is considered a loss due to holding inventory.

Match the terms with the definitions. -Counting the goods on hand at the end of the period to allocate merchandise costs between sold and unsold goods.

In the perpetual inventory system, no year-end adjusting entry is necessary, as long as the physical inventory agrees with the amount reported in the merchandise inventory account.

When perpetual inventory records are kept, the merchandise inventory account in the general ledger is usually a control account.

The retail method of inventory is preferred by businesses such as department and clothing stores because they compute inventory values at wholesale prices.

Accurate inventory amounts are not necessary for accounting purposes because an error in inventory will "wash out" over a two-year period.

The gross profit (inventory valuation) method is appropriate if a firm's normal gross profit on sales has been relatively stable over time and for estimating the cost of inventory that was destroyed by casualty.

Under the retail (inventory valuation) method, the amount of sales during the period is reduced by the normal profit percentage to determine the estimated cost of merchandise sold.

A method of allocating merchandise cost that is based on the average cost of identical units is called the

The specific identification method of inventory is generally practical only for businesses in which sales volume is relatively low and inventory unit value is relatively high.

A method of allocating merchandise cost that assumes the first merchandise bought was the first merchandise sold is called the

The term "LIFO" relates to the merchandise in inventory at the end of the accounting period, not to the merchandise sold during the period.

Match the terms with the definitions. -An inventory valuation method under which inventory is valued at cost or replacement cost, whichever is lower.

Match the terms with the definitions. -The principle that states that a business should use the same accounting methods from period to period. This improves the comparability of the financial statements over time.

Costs of goods sold may include all of the following EXCEPT

Match the terms with the definitions. -A method of allocating merchandise cost which assumes that the sales in the period were made from the most recently purchased goods. Therefore, the earliest goods purchased remain in inventory.

Match the terms with the definitions. -A method of allocating merchandise cost based on the average cost of identical units. The average cost of identical units is determined by dividing the total cost of units available for sale by the total number of units available for sale.

Last-in, first-out costing assigns the most recent purchase cost to the ending inventory shown on the balance sheet.