IA1 Semi Final

When using a perpetual inventory system
(D) all of these. no Purchases account is used, a Cost of Goods Sold account

is used, and two entries are required to record a sale.
Goods in transit which are shipped f.o.b. shipping point should be
(B) Included in the inventory of the buyer.
Goods in transit which are shipped f.o.b. destination should be
(A) included in the inventory of the seller.
Which of the following items should be included in a company's inventory at
the balance sheet date?
(D) None of these. NOT Goods in transit which were purchased f.o.b.
destination, goods received from another company for sale on consignment,
and goods sold to a customer which are being held for the customer to call for
at his or her convenience.
During 2007 Foley Corporation transferred inventory to Kline Corporation and
agreed to repurchase the merchandise early in 2008. Kline then used the
inventory as collateral to borrow from Norwalk Bank, remitting the proceeds to
Foley. In 2008 when Foley repurchased the inventory, Kline used the
proceeds to repay its bank loan.This transaction is known as a(n)
(D) Product financing arrangement.
On whose books should the cost of the inventory appear at the December 31,
2007 balance sheet date?
(A) Foley Corporation
Goods on consignment are
(B) Recorded in a Consignment Out account which is an inventory account.
Valuation of inventories requires the determination of all of the
following except
(C) The cost of goods held on consignment from other companies.
The accountant for the Orion Sales Company is preparing the income
statement for 2007 and the balance sheet at December 31, 2007. Orion uses
the periodic inventory system. The January 1, 2007 merchandise inventory
balance will appear
(B) Only in the cost of goods sold section of the income statement.
If the beginning inventory for 2006 is overstated, the effects of this error on
cost of goods sold for 2006, net income for 2006, and assets at December 31,
2007, respectively, are
(B) Overstatement, understatement, no effect.
The failure to record a purchase of merchandise on account even though the
goods are properly included in the physical inventory results in
(D) An understatement of liabilities and an overstatement of owners' equity.
Belle Co. received merchandise on consignment. As of March 31, Belle had
recorded the transaction as a purchase and included the goods in inventory.
The effect of this on its financial statements for March 31 would be
(B) net income was correct and current assets and current liabilities were
overstated.
Eller Co. received merchandise on consignment. As of January 31, Eller
included the goods in inventory, but did not record the transaction. The effect
of this on its financial statements for January 31 would be
(A) net income, current assets, and retained earnings were overstated.
Cross Co. accepted delivery of merchandise which it purchased on account.
As of December 31, Cross had recorded the transaction, but did not include
the merchandise in its inventory. The effect of this on its financial statements
for December 31 would be
(A) net income, current assets, and retained earnings were understated.
On June 15, 2007, Tolon Corporation accepted delivery of merchandise which
it pur-chased on account. As of June 30, Tolon had not recorded the
transaction or included the merchandise in its inventory. The effect of this on
its balance sheet for June 30, 2007 would be
(D) None of these. NOT assets and stockholders' equity were overstated but
liabilities were not affected, stockholders' equity was the only item affected by
the omission and assets, liabilities, and stockholders' equity were understated.
Which of the following is correct?
(B) Manufacturing overhead costs are product costs.
All of the following costs should be charged against revenue in the period in
which costs are incurred except for
(D) costs of normal shrinkage and scrap incurred for the manufacture of a
product in ending inventory.
Which of the following types of interest cost incurred in connection with the
purchase or manufacture of inventory should be capitalized as a product cost?
(B) Interest incurred during the production of discrete projects such as ships
or real estate projects
The use of a Discounts Lost account implies that the recorded cost of a
purchased inventory item is its
(D) Invoice price less the purchase discount allowable whether taken or not.
The use of a Purchase Discounts account implies that the recorded cost of a
purchased inventory item is its
(A) Invoice price.
During 2007, which was the first year of operations, Luther Company had
merchandise purchases of $985,000 before cash discounts. All purchases
were made on terms of 2/10, n/30. Three-fourths of the items purchased were
paid for within 10 days of purchase. All of the goods available had been sold
at year end.
Which of the following recording procedures would result in the highest cost of
goods sold for 2007?
1. Recording purchases at gross amounts
2. Recording purchases at net amounts, with the amount of discounts not
taken shown under "other expenses" in the income statement
(A) 1
During 2007, which was the first year of operations, Luther Company had
merchandise purchases of $985,000 before cash discounts. All purchases
were made on terms of 2/10, n/30. Three-fourths of the items purchased were
paid for within 10 days of purchase. All of the goods available had been sold
at year end.
Which of the following recording procedures would result in the highest net
income for 2007?
1. Recording purchases at gross amounts
2. Recording purchases at net amounts, with the amount of discounts not
taken shown under "other expenses" in the income statement
(C) Either 1 or 2 will result in the same net income.
When using the periodic inventory system, which of the following generally
would not be separately accounted for in the computation of cost of goods
sold?
(A) Trade discounts applicable to purchases during the period
Costs which are inventoriable include all of the following except
(D) Selling costs of a sales department.
Which inventory costing method most closely approximates current cost?
(B) FIFO LIFO
In situations where there is a rapid turnover, an inventory method which
produces a balance sheet valuation similar to the first-in, first-out method is
(A) Average cost.
The pricing of issues from inventory must be deferred until the end of the
accounting period under the following method of inventory valuation:
(B) Weighted-average.
An inventory pricing procedure in which the oldest costs incurred rarely have
an effect on the ending inventory valuation is
(A) FIFO.
Which method of inventory pricing best approximates specific identification of
the actual flow of costs and units in most manufacturing situations?
(B) First-in, first-out
(A) Prices decreased.
In a period of rising prices, the inventory method which tends to give the
highest reported net income is
(B) first-in, first-out.
highest reported inventory is
(A) FIFO
Quayle Corporation's inventory cost on its balance sheet was lower using first-
in, first-out than it would have been using last-in, first-out. Assuming no
beginning inventory, in what direction did the cost of purchases move during
the period?
(B) Down
highest reported cost of goods sold is
(C) LIFO
Which of the following statements is not valid as it applies to inventory costing
methods?
(D) The use of FIFO permits some control by management over the amount of
net income for a period through controlled purchases, which is not true with
LIFO.
The acquisition cost of a certain raw material changes frequently. The book
value of the inventory of this material at year end will be the same if perpetual
records are kept as it would be under a periodic inventory method only if the
book value is computed under the
a. weighted-average method.
(D) FIFO Method
When a company uses LIFO for external reporting purposes and FIFO for
internal reporting purposes, an Allowance to Reduce Inventory to LIFO
account is used. This account should be reported
(D) on the balance sheet in the Current Assets section.
Which of the following statements is not true as it relates to the dollar-value
LIFO inventory method?
(A) It is easier to erode LIFO layers using dollar-value LIFO techniques than it
is with specific goods pooled LIFO.
Which of the following is not considered an advantage of LIFO when prices
are rising?
(A) The inventory will be overstated.
Which of the following is true regarding the use of LIFO for inventory
valuation?
(D) None of these. If LIFO is used for external financial reporting, then it must
also be used for internal reports, For purposes of external financial reporting,
LIFO may not be used with the lower of cost or market approach, and If LIFO
is used for external financial reporting, then it cannot be used for tax
purposes.
If inventory levels are stable or increasing, an argument which is not an
advantage of the
(C) Cost assignments typically parallel the physical flow of goods.
TJones Manufacturing Company has the following account balances at year
end:
Office supplies $ 4,000
Raw materials 27,000
Work-in-process 59,000
Finished goods 72,000
Prepaid insurance 6,000
What amount should TJones report as inventories in its balance sheet?
(C) $27,000 + $59,000 + $72,000 = $158,000.
JSmith Manufacturing Company has the following account balances at year
end:
Office supplies $ 4,000
Raw materials 27,000
Work-in-process 59,000
Finished goods 92,000
Prepaid insurance 6,000
What amount should J Smith report as inventories in its balance sheet?

(D) 178,000. $27,000 + $59,000 + $92,000 = $178,000.
Briggs Corporation uses the perpetual inventory method. On March 1, it
purchased $10,000 of inventory, terms 2/10, n/30. On March 3, Briggs
returned goods that cost $1,000. On March 9, Briggs paid the supplier. On
March 9, Briggs should credit
(D) 180. [($10,000 – $1,000) × .02] = $180.
Harder Corporation uses the perpetual inventory method. On March 1, it
purchased $30,000 of inventory, terms 2/10, n/30. On March 3, Harder
returned goods that cost $3,000. On March 9, Harder paid the supplier.
On March 9, Harder should credit

(D) 540. [($30,000 – $3,000) × .02] = $540.
Dexter, Inc. is a calendar-year corporation. Its financial statements for the
years 2007 and 2006 contained errors as follows:
2007
2006
Ending inventory $3,000 overstated $8,000
overstated
Depreciation expense $2,000 understated $6,000
overstated
Assume that the proper correcting entries were made at December 31, 2006.
By how much will 2007 income before taxes be overstated or understated?
(D) 5,000 overstated. $3,000 + $2,000 = $5,000.
Dexter, Inc. is a calendar-year corporation. Its financial statements for the
years 2007 and 2006 contained errors as follows:
2007
2006
Ending inventory $3,000 overstated $8,000
overstated
Depreciation expense $2,000 understated $6,000
overstated
Assume that no correcting entries were made at December 31, 2006. Ignoring

income taxes, by how much will retained earnings at December 31, 2007 be
overstated or understated?
(A) 1,000 understated. $6,000 – ($3,000 + $2,000) = $1,000.
Assume that no correcting entries were made at December 31, 2006, or
December 31, 2007 and that no additional errors occurred in 2008. Ignoring
income taxes, by how much will working capital at December 31, 2008 be
overstated or understated?
(A) The effect of the errors in ending inventories reverse themselves in the
following year.
The following information is available for Kerr Company for 2007:
Freight-in $ 30,000
Purchase returns 75,000
Selling expenses 150,000
Ending inventory 260,000
The cost of goods sold is equal to 400% of selling expenses. What is the cost
of goods available for sale?
(D) $260,000 + (4 × $150,000) = $860,000.
Richey Co. records purchases at net amounts. On May 5 Richey purchased
merchandise on account, $16,000, terms 2/10, n/30. Richey returned $1,200
of the May 5 purchase and received credit on account. At May 31 the balance
had not been paid.
The amount to be recorded as a purchase return is
(D) 1,176. $1,200 – ($1,200 × .02) = $1,176.
Richey Co. records purchases at net amounts. On May 5 Richey purchased
merchandise on account, $16,000, terms 2/10, n/30. Richey returned $1,200
of the May 5 purchase and received credit on account. At May 31 the balance
had not been paid.
By how much should the account payable be adjusted on May 31?

(D) 296. ($16,000 – $1,200) × .02 = $296.
The following information was available from the inventory records of Neer
Company for January:
Units Unit Cost
Total Cost
Balance at January 1 3,000 $9.77
$29,310
Purchases:
January 6 2,000 10.30
20,600
January 26 2,700 10.71
28,917
Sales:
January 7 (2,500)
January 31 (4,000)
Balance at January 31 1,200
Assuming that Neer does not maintain perpetual inventory records, what

should be the inventory at January 31, using the weighted-average inventory
method, rounded to the nearest dollar?
(B) 12,284. ($29,310 + $20,600 + $28,917) ÷ (3,000 + 2,000 + 2,700) =
$10.237/unit $10.237 × 1,200 = $12,284.
Units Unit Cost
Total Cost
Balance at January 1 3,000 $9.77
$29,310
Purchases:
January 6 2,000 10.30
20,600
January 26 2,700 10.71
28,917
Sales:
January 7 (2,500)
January 31 (4,000)
Balance at January 31 1,200
Assuming that Neer maintains perpetual inventory records, what should be

the inventory at January 31, using the moving-average inventory method,
rounded to the nearest dollar?
(D) 12,432. Avg. on 1/6 $49,910 ÷ 5,000 = $9.982/unit
1/26 $53,872 ÷ 5,200 = $10.36/unit
$10.36 × 1,200 = $12,432.
Kiner Co. has the following data related to an item of inventory:
Inventory, March 1 100 units @ $4.20
Purchase, March 7 350 units @ $4.40
Inventory, March 31 130 units
The value assigned to ending inventory if Kiner uses LIFO is

b (100 × $4.20) + (30 × $4.40) = $552.
Kiner Co. has the following data related to an item of inventory:
Inventory, March 1 100 units @ $4.20
Inventory, March 31 130 units
The value assigned to cost of goods sold if Kiner uses FIFO is

(D) 1,696. 100 + 350 + 70 – 130 = 390 units
(100 × $4.20) + (290 × $4.40) = $1,696.
Baker Company has been using the LIFO method of inventory valuation for 10
years, since it began operations. Its 2007 ending inventory was $40,000, but it
would have been $60,000 if FIFO had been used. Thus, if FIFO had been
used, Baker's income before income taxes would have been
(A) $20,000 greater over the 10-year period. ($60,000 – $40,000) =
$20,000.
Transactions for the month of June were:
Purchases Sales
June 1 (balance) 800 @ $3.20 June 2
600 @ $5.50
3 2,200 @ 3.10 6
1,600 @ 5.50
7 1,200 @ 3.30 9
1,000 @ 5.50
15 1,800 @ 3.40 10
400 @ 6.00
22 500 @ 3.50 18
1,400 @ 6.00
25
200 @ 6.00
Assuming that perpetual inventory records are kept in units only, the ending
inventory on a LIFO basis is
Available (purchases) = 6,500 units
Sales = 5,200 units
EI = 6,500 – 5,200 = 1,300 units
(800 × $3.20) + (500 × $3.10) = $4,110.
Purchases Sales
600 @ $5.50
3 2,200 @ 3.10 6
1,600 @ 5.50
7 1,200 @ 3.30 9
1,000 @ 5.50
15 1,800 @ 3.40 10
400 @ 6.00
22 500 @ 3.50 18
1,400 @ 6.00
25
200 @ 6.00
Assuming that perpetual inventory records are kept in dollars, the ending
inventory on a LIFO basis is
(C) 4,290. (200 × $3.2) + (400 × $3.1) + (400 × $3.4) + (300 × $3.5) =
$4,290.
Purchases Sales
600 @ $5.50
3 2,200 @ 3.10 6
1,600 @ 5.50
7 1,200 @ 3.30 9
1,000 @ 5.50
15 1,800 @ 3.40 10
400 @ 6.00
22 500 @ 3.50 18
1,400 @ 6.00
25
200 @ 6.00
Assuming that perpetual inventory records are kept in dollars, the ending
inventory on a FIFO basis is
(D) (500 × $3.5) + (800 × $3.4) = $4,470.
Purchases Sales
600 @ $5.50
3 2,200 @ 3.10 6
1,600 @ 5.50
7 1,200 @ 3.30 9
1,000 @ 5.50
15 1,800 @ 3.40 10
400 @ 6.00
22 500 @ 3.50 18
1,400 @ 6.00
25
200 @ 6.00
Assuming that perpetual inventory records are kept in units only, the ending
inventory on an average-cost basis, rounded to the nearest dollar, is
(B) 4,238. $21,210 ÷ 6,500 units = $3.26
$3.26 × 1,300 = $4,238.
Johnson Company had 500 units of “Tank” in its inventory at a cost of $4
each. It purchased, for $2,800, 300 more units of “Tank”. Johnson then sold
400 units at a selling price of $10 each, resulting in a gross profit of $1,600.
The cost flow assumption used by Johnson
(C) (400 × $10) – $1,600 = $2,400 COGS
[(500 × $4) + $2,800] – $2,400 = $2,400 E.I. ($4,800 ÷ 800) × 400 units =
$2,400 E.I. under weighted avg.
Kingman Company had 500 units of “Dink” in its inventory at a cost of $5
each. It purchased, for $2,400, 300 more units of “Dink”. Kingman then sold
600 units at a selling price of $10 each, resulting in a gross profit of $2,100.
The cost flow assumption used by Kingman
(B) (600 $10) – $2,100 = $3,900 COGS
[(500 $5) + $2,400] – $3,900 = $1,000 E.I. 200 × $5 = $1,000 E.I. under
LIFO.
Brown Corporation uses the FIFO method for internal reporting purposes and
LIFO for external reporting purposes. The balance in the LIFO Reserve
account at the end of 2007 was $60,000. The balance in the same account at
the end of 2008 is $90,000. Brown’s Cost of Goods Sold account has a
balance of $450,000 from sales transactions recorded during the year. What
amount should Brown report as Cost of Goods Sold in the 2008 income
statement?
(C) 480,000. $450,000 + ($90,000 – $60,000) = $480,000.
Green Corporation uses the FIFO method for internal reporting purposes and
LIFO for external reporting purposes. The balance in the LIFO Reserve
account at the end of 2007 was $80,000. The balance in the same account at
the end of 2008 is $120,000. Green’s Cost of Goods Sold account has a
balance of $600,000 from sales transactions recorded during the year. What
amount should Green report as Cost of Goods Sold in the 2008 income
statement?
(C) 640,000. $600,000 + ($120,000 – $80,000) = $640,000.
Johnson Company had 400 units of “Tank” in its inventory at a cost of $4
each. It purchased 600 more units of “Tank” at a cost of $6 each. Johnson
then sold 700 units at a selling price of $10 each. The LIFO liquidation
overstated normal gross profit by
(B) 200. [(700 – 600) × ($6 – $4)] = $200.
Kingman Company had 400 units of “Dink” in its inventory at a cost of $6
each. It purchased 600 more units of “Dink” at a cost of $9 each. Kingman
then sold 700 units at a selling price of $15 each. The LIFO liquidation
overstated normal gross profit by
(B) 300. [(700 – 600) × ($9 – $6)] = $300.
AJ Company had January 1 inventory of $100,000 when it adopted dollar-
value LIFO. During the year, purchases were $600,000 and sales were
$1,000,000. December 31 inventory at year-end prices was $143,360, and the
price index was 112.
What is AJ Company’s ending inventory?

(C) 131,960. $143,360 ÷ 1.12 = $128,000 – $100,000 = $28,000.
$100,000 + ($28,000 × 1.12) = $131,360.
AJ Company had January 1 inventory of $100,000 when it adopted dollar-
What is AJ Company’s gross profit?

(B) 431,360. $100,000 + $600,000 – $131,360 = $568,640 COGS
$1,000,000 – $568,640 = $431,360.
Ely Company had January 1 inventory of $100,000 when it adopted dollar-
What is Ely Company’s ending inventory?

(C) 116.500. $126,500 ÷ 1.10 = $115,000 – $100,000 = $15,000.
$100,000 + ($15,000 ÷ 1.10) = $116,500.
Ely Company had January 1 inventory of $100,000 when it adopted dollar-
What is Ely Company’s gross profit?

(B) 416,500. $100,000 + $600,000 – $116,500 = $583,500 COGS
$1,000,000 – $583,500 = $416,500.
Dolan Corporation adopted the dollar-value LIFO method of inventory
valuation on December 31, 2005. Its inventory at that date was $220,000 and
the relevant price index was 100. Information regarding inventory for
subsequent years is as follows:
Inventory at Current
Date Current Prices Price Index
December 31, 2006 $256,800 107
December 31, 2007 290,000 125
December 31, 2008 325,000 130
(C) 241,400. $256,800 ÷ 1.07 = $240,000
$220,000 + [(240,000 – $220,000) × 1.07] = $241,400.
December 31, 2006 $256,800 107
December 31, 2007 290,000 125
December 31, 2008 325,000 130
What is the cost of the ending inventory at December 31, 2007 under dollar-
value LIFO?
(C) 232,840. $290,000 ÷ 1.25 = $232,000
($220,000 × 1) + ($12,000 × 1.07) = $232,840.
December 31, 2006 $256,800 107
December 31, 2007 290,000 125
December 31, 2008 325,000 130
What is the cost of the ending inventory at December 31, 2008 under dollar-
value LIFO?
(A) 256,240. $325,000 ÷ 1.30 = $250,000
($220,000 × 1) + ($12,000 × 1.07) + ($18,000 × 1.3) =
$256,240.
Tate Company adopted the dollar-value LIFO method on January 1, 2007, at
which time its inventory consisted of 6,000 units of Item A @ $5.00 each and
3,000 units of Item B @ $16.00 each. The inventory at December 31, 2007
consisted of 12,000 units of Item A and 7,000 units of Item B. The most recent
actual purchases related to these items were as follows:
Quantity
Items Purchase Date Purchased Cost Per
Unit
A 12/7/07 2,000 $ 6.00
A 12/11/07 10,000 5.75
B 12/15/07 10,000 17.00
Using the double-extension method, what is the price index for 2007 that
should be computed by Tate Company?
(B) 109.59% [(2,000 × $6) + (10,000 × $5.75) + (7,000 × $17)] ÷ [(12,000 ×
$5) +
(7,000 × $16)] = 1.0959 = 109.59%.
How should the following costs affect a retailer's inventory valuation?
(A) Freight-in Interest on Inventory Loan
Increase No effect
The following information applied to Grey, Inc. for 2007:
Merchandise purchased for resale $300,000
Freight-in 8,000
Freight-out 5,000
Purchase returns 2,000
Grey's 2007 inventoriable cost was
(C) 306,000. $300,000 + $8,000 – $2,000 = $306,000.
The following information was derived from the 2007 accounting records of
Logan Co.:
Logan
's Goods
Logan 's Central Warehouse Held by
Consignees
Beginning inventory $130,000 $ 14,000
Purchases 575,000 70,000
Freight-in 10,000
Transportation to consignees 5,000
Freight-out 30,000 8,000
Ending inventory 145,000 20,000
Logan 's 2007 cost of sales was
(D) 639,000. $130,000 + $14,000 + $575,000 + $70,000 + $10,000 + $5,000 –
$145,000 – $20,000 = $639,000.
Cole Corp.'s accounts payable at December 31, 2007, totaled $800,000
before any necessary year-end adjustments relating to the following
transactions:
· On December 27, 2007, Cole wrote and recorded checks to creditors
totaling $350,000 causing an overdraft of $100,000 in Cole 's bank account at
December 31, 2007. The checks were mailed out on January 10, 2008.
· On December 28, 2007, Cole purchased and received goods for
$150,000, terms 2/10, n/30. Cole records purchases and accounts payable at
net amounts. The invoice was recorded and paid January 3, 2008.
· Goods shipped f.o.b. destination on December 20, 2007 from a vendor
to Cole were received January 2, 2008. The invoice cost was $65,000.
At December 31, 2007, what amount should Cole report as total accounts
payable?
(B) 1,297,000. $800,000 + $350,000 + $147,000 = $1,297,000.
The balance in Hill Co.'s accounts payable account at December 31, 2007
was $700,000 before any necessary year-end adjustments relating to the
following:
· Goods were in transit to Hill from a vendor on December 31, 2007. The
invoice cost was $40,000. The goods were shipped f.o.b. shipping point on
December 29, 2007 and were received on January 4, 2008.
· Goods shipped f.o.b. destination on December 21, 2007 from a vendor
to Hill were received on January 6, 2008. The invoice cost was $25,000.
· On December 27, 2007, Hill wrote and recorded checks to creditors
totaling $30,000 that were mailed on January 10, 2008.

In Hill's December 31, 2007 balance sheet, the accounts payable should be
(D) 770,000. $700,000 + $40,000 + $30,000 = $770,000.
Gear Co.'s accounts payable balance at December 31, 2007 was $1,500,000
before considering the following transactions:
· Goods were in transit from a vendor to Gear on December 31, 2007.
The invoice price was $70,000, and the goods were shipped f.o.b. shipping
point on December 29, 2007. The goods were received on January 4, 2008.
· Goods shipped to Gear, f.o.b. shipping point on December 20, 2007,
from a vendor were lost in transit. The invoice price was $50,000. On January
5, 2008, Gear filed a $50,000 claim against the common carrier.
In its December 31, 2007 balance sheet, Gear should report accounts payable
of
(A) 1,620,000. $1,500,000 + $70,000 + $50,000 = $1,620,000.
Tysen Retailers purchased merchandise with a list price of $50,000, subject to
trade discounts of 20% and 10%, with no cash discounts allowable. Tysen
should record the cost of this merchandise as
(B) 36,000. $50,000 × .8 × .9 = $36,000.
On June 1, 2007, Mills Corp. sold merchandise with a list price of $20,000 to
Linn on account. Mills allowed trade discounts of 30% and 20%. Credit terms
were 2/15, n/40 and the sale was made f.o.b. shipping point. Mills prepaid
$400 of delivery costs for Linn as an accommodation. On June 12, 2007, Mills
received from Linn a remittance in full payment amounting to
(C) 11,376. $20,000 × .7 × .8 = $11,200
($11,200 × .98) + 400 = $11,376.
Dark Co. recorded the following data pertaining to raw material X during
January 2007:
Units
Date Received Cost Issued On
Hand
1/1/07 Inventory $8.00
3,200
1/11/07 Issue 1,600
1,600
1/22/07 Purchase 4,000 $9.40
5,600
The moving-average unit cost of X inventory at January 31, 2007 is
(C) 9.00. [(1,600 × $8.00) + (4,000 × $9.40)] ÷ 5,600 = $9.00.
During periods of rising prices, a perpetual inventory system would result in
the same dollar amount of ending inventory as a periodic inventory system
under which of the following inventory cost flow methods?
(A) FIFO LIFO
Yes No
Earl Co. was formed on January 2, 2007, to sell a single product. Over a two-
year period, Earl's acquisition costs have increased steadily. Physical
quantities held in inventory were equal to three months' sales at December
31, 2007, and zero at December 31, 2008. Assuming the periodic inventory
system, the inventory cost method which reports the highest amount of each
of the following is
(C) Inventory Cost of Sales
December 31, 2007 2008
FIFO FIFO
Noll Co. had 450 units of product A on hand at January 1, 2007, costing $42
each. Purchases of product A during January were as follows:
Date Units Unit Cost
Jan. 10 600 $44
18 750 46
28 300 48
A physical count on January 31, 2007 shows 600 units of product A on
hand. The cost of the inventory at January 31, 2007 under the LIFO method is
(C) 25,500. (450 × $42) + (150 × $44) = $25,500.
When the double extension approach to the dollar-value LIFO inventory cost
flow method is used, the inventory layer added in the current year is multiplied
by an index number. How would the following be used in the calculation of this
index number?
(A) Ending inventory Ending inventory
at current year cost at base year cost
Numerator Denominator
Carr Co. adopted the dollar-value LIFO inventory method on December 31,
2007. Carr's entire inventory constitutes a single pool. On December 31,
2007, the inventory was $320,000 under the dollar-value LIFO method.
Inventory data for 2008 are as follows:
12/31/08 inventory at year-end prices
$440,000
Relevant price index at year end (base year 2007)
110
Using dollar value LIFO, Carr's inventory at December 31, 2008 is

(B) 408,000. $440,000 ÷ 1.1 = $400,000
$320,000 + ($80,000 × 1.1) = $408,000.

IA1 Semi Final

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IA1 Semi Final

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