Corporate Financial Accounting 13th Edition Warren Test Bank Download

CHAPTER 6: INVENTORIES
Corporate Financial Accounting 13th Edition by

Warren ISBN 1285868781 9781285868783
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1. One of the two internal control procedures over inventory is to properly report inventory on the
financial statements.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
Bloom's: Remembering
LEARNING OBJECTIVES: FNMN.WARD.16.06-01 - LO: 06-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.17 - Inventories Reporting
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
2. A purchase order establishes an initial record of the receipt of the inventory.

a. True
b. False
ANSWER: False
DIFFICULTY: Easy
BUSPROG: Analytic
3. A perpetual inventory system is an effective means of control over inventory.

a. True
b. False
© 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 6: Inventories
ANSWER: True
DIFFICULTY: Easy
BUSPROG: Analytic
4. A subsidiary inventory ledger can be an aid in maintaining inventory levels at their proper levels.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
BUSPROG: Analytic
5. Safeguarding inventory and proper reporting of the inventory in the financial statements are the reasons
for controlling the inventory.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
BUSPROG: Analytic
6. Inventory controls start when the merchandise is shelved in the store area.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
BUSPROG: Analytic
7. A physical inventory should be taken at the end of every month.

a. True
b. False
ANSWER: False
DIFFICULTY: Easy
BUSPROG: Analytic
8. The specific identification inventory method should be used when the inventory consists of identical, low-cost
units that are purchased and sold frequently.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
BUSPROG: Analytic
9. The choice of an inventory costing method has no significant impact on the financial statements.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
BUSPROG: Analytic
10. Of the three widely used inventory costing methods (FIFO, LIFO, and average cost), the LIFO method of
costing inventory assumes costs are charged based on the most recent purchases first.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
BUSPROG: Analytic
11. When using the FIFO inventory costing method, the most recent costs are assigned to the cost of merchandise sold.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
BUSPROG: Analytic
12. FIFO is the inventory costing method that follows the physical flow of the goods.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
BUSPROG: Analytic
13. Under the LIFO inventory costing method, the most recent costs are assigned to ending inventory.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
BUSPROG: Analytic
14. The weighted average inventory cost flow method is the least used of the inventory costing methods.
a. True
b. False
ANSWER: True
DIFFICULTY: Moderate
BUSPROG: Analytic
15. If the perpetual inventory system is used, the merchandise inventory account is debited for purchases
of merchandise.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
BUSPROG: Analytic
16. Under the periodic inventory system, the merchandise inventory account continuously discloses the amount
of inventory on hand.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
BUSPROG: Analytic
17. Under the periodic inventory system, a physical inventory is taken to determine the cost of the inventory on
hand and the cost of the merchandise sold.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
BUSPROG: Analytic
18. The three inventory costing methods will normally each yield different amounts of net income.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
BUSPROG: Analytic
19. The average cost method will always yield results between FIFO and LIFO.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
BUSPROG: Analytic
20. During periods of increasing costs, the use of the FIFO method of costing inventory will result in a greater
amount of net income than would result from the use of the LIFO cost method.
a. True
b. False
ANSWER: True
BUSPROG: Analytic
21. During periods of increasing costs, the use of the FIFO method of costing inventory will yield an inventory
amount for the balance sheet that is higher than LIFO would produce.
a. True
b. False
ANSWER: True
BUSPROG: Analytic
22. During periods of rapidly rising costs, the use of the LIFO method results in illusory or inventory profits.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
BUSPROG: Analytic
23. During periods of decreasing costs, the use of the LIFO method of costing inventory will result in a lower
amount of net income than would result from the use of the FIFO method.
a. True
b. False
ANSWER: False
BUSPROG: Analytic
24. During periods of increasing costs, an advantage of the LIFO inventory cost method is that it matches more
recent costs against current revenues.
a. True
b. False
ANSWER: True
BUSPROG: Analytic
25. In valuing merchandise for inventory purposes, net realizable value is the estimated selling price less any
direct costs of disposal.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
BUSPROG: Analytic
26. Unsold consigned merchandise should be included in the consignee's inventory.

a. True
b. False
ANSWER: False
DIFFICULTY: Easy
BUSPROG: Analytic
27. If ending inventory for the year is understated, net income for the year is overstated.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
BUSPROG: Analytic
28. If ending inventory for the year is overstated, stockholders' equity reported on the balance sheet at the end of
the year is understated.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
BUSPROG: Analytic
29. The lower of cost or market is a method of inventory valuation.

a. True
b. False
ANSWER: True
DIFFICULTY: Easy
BUSPROG: Analytic
30. "Market" as used in the phrase "lower of cost or market" for valuing inventory, refers to the price at which
the inventory is being offered for sale by the company.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
BUSPROG: Analytic
31. A consignor who has goods out on consignment with an agent should include the goods in ending inventory
even though they are not in the possession of the consignor.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
BUSPROG: Analytic
32. The use of the lower-of-cost-or-market method of inventory valuation increases net income for the period in
which the inventory replacement price declined.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
BUSPROG: Analytic
33. The lower-of-cost-or-market method of determining the value of ending inventory can be applied on an item
by item, by major classification of inventory, or by the total inventory.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
BUSPROG: Analytic
34. When merchandise inventory is shown on the balance sheet, both the method of determining the cost of
the inventory and the method of valuing the inventory should be shown.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
BUSPROG: Analytic
35. It's not unusual for large companies to use different inventory costing methods for different segments of
its inventory.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
BUSPROG: Analytic
36. Direct disposal costs do not include special advertising or sales commissions.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
BUSPROG: Analytic
37. Inventory errors, if not discovered, will self-correct within two years.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
BUSPROG: Analytic
38. Generally, the lower the number of days' sales in inventory, the better.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
BUSPROG: Analytic
39. One negative effect of carrying too much inventory is risk that customers will change their buying habits.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
BUSPROG: Analytic
40. Average inventory is computed by adding the inventory at the beginning of the period to the inventory at the end
of the period and dividing by two.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
BUSPROG: Analytic
41. Inventory turnover measures the length of time it takes to acquire, sell, and replace the inventory.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
BUSPROG: Analytic
42. In the retail inventory method, the cost to retail ratio is equal to the cost of merchandise sold divided by the
retail price of the merchandise sold.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
LEARNING OBJECTIVES: FNMN.WARD.16.06-APP - 06-08
BUSPROG: Analytic
43. Use of the retail inventory method requires taking a physical count of inventory.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
BUSPROG: Analytic
44. If a fire destroys the merchandise inventory, the gross profit method can be used to estimate the cost of
merchandise destroyed.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
BUSPROG: Analytic
45. If a company uses a periodic inventory system, the gross profit method can be used to estimate inventory
for monthly or quarterly statements.
a. True
b. False
ANSWER: True
BUSPROG: Analytic
46. Under a perpetual inventory system, the amount of each type of merchandise on hand is available in the
a. customer's ledger
b. creditor's ledger
c. inventory ledger
d. purchase ledger
ANSWER: c
DIFFICULTY: Easy
BUSPROG: Analytic
47. Which document authorizes the purchase of the inventory from an approved vendor?
a. the purchase order
b. the petty cash voucher
c. the receiving report
d. the vendor's invoice
ANSWER: a
DIFFICULTY: Easy
BUSPROG: Analytic
48. The primary objectives of control over inventory are

a. safeguarding the inventory from damage and maintaining constant observation of the inventory
b. reporting inventory in the financial statements
c. maintaining constant observation of the inventory and reporting inventory in the financial statements
d. safeguarding inventory from damage and reporting inventory in the financial statements
ANSWER: d
DIFFICULTY: Easy
BUSPROG: Analytic
49. Taking a physical count of inventory

a. is not necessary when a periodic inventory system is used
b. should be done near year-end
c. has no internal control relevance
d. is not necessary when a perpetual inventory system is used
ANSWER: b
DIFFICULTY: Easy
BUSPROG: Analytic
50. Control of inventory should begin as soon as the inventory is received. Which of the following internal control
steps is not done to meet this goal?
a. check the invoice to the receiving report
b. check the invoice to the purchase order
c. check the invoice with the person who specifically purchased the item
d. check the invoice extensions and totals
ANSWER: c
BUSPROG: Analytic
51. All of the following are documents used for inventory control except
a. a petty cash voucher
b. a vendor's invoice
c. a receiving report
d. a purchase order
ANSWER: a
DIFFICULTY: Easy
BUSPROG: Analytic
52. Which document establishes an initial record of the receipt of the inventory?
a. receiving report
b. vendor's invoice
c. purchase order
d. petty cash voucher
ANSWER: a
DIFFICULTY: Easy
BUSPROG: Analytic
53. Which of the following is not an example for safeguarding inventory?

a. Storing inventory in restricted areas.
b. Physical devices such as two-way mirrors, cameras, and alarms.
c. Matching receiving documents, purchase orders, and vendor’s invoice.
d. Returning inventory that is defective or broken.
ANSWER: d
DIFFICULTY: Easy
BUSPROG: Analytic
54. Which of the following methods is appropriate for a business whose inventory consists of a relatively small
number of unique, high-cost items?
a. FIFO
b. LIFO
c. average
d. specific identification
ANSWER: d
BUSPROG: Analytic
55. Ending inventory is made up of the oldest purchases when a company uses
a. first-in, first-out
b. last-in, first-out
c. average cost
d. retail method
ANSWER: b
BUSPROG: Analytic
56. When merchandise sold is assumed to be in the order in which the purchases were made, the company is using
a. first-in, last-out
c. first-in, first-out
d. average cost
ANSWER: c
BUSPROG: Analytic
57. The two most widely used methods for determining the cost of inventory are
a. FIFO and LIFO
b. FIFO and average cost
c. LIFO and average cost
d. gross profit and average cost
ANSWER: a
DIFFICULTY: Easy
BUSPROG: Analytic
58. Cost flow is in the order in which costs were incurred when using
a. average cost
d. weighted average
ANSWER: c
BUSPROG: Analytic
59. Cost flow is in the reverse order in which costs were incurred when using
a. weighted average
d. average cost
ANSWER: b
BUSPROG: Analytic
60. The inventory method that assigns the most recent costs to cost of merchandise sold is
a. FIFO
b. LIFO
c. weighted average
ANSWER: b
BUSPROG: Analytic
61. The inventory costing method that reports the most current prices in ending inventory is
a. FIFO
b. specific identification
c. LIFO
d. average cost
ANSWER: a
BUSPROG: Analytic
62. The inventory costing method that reports the earliest costs in ending inventory is
a. FIFO
b. LIFO
c. weighted average
ANSWER: b
BUSPROG: Analytic
63. Which of the following companies would be more likely to use the specific identification inventory costing method?
a. Gordon’s Jewelers
b. Lowe’s
c. Best Buy
d. Walmart
ANSWER: a
DIFFICULTY: Easy
Bloom's: Applying
BUSPROG: Analytic
Addison, Inc. uses a perpetual inventory system. The following is information about one inventory item for the
month of September:
Sep. 1 Inventory 20 units at $20

4 Sold 10 units
10 Purchased 30 units at $25
17 Sold 20 units
64. If Addison uses FIFO, the cost of the ending merchandise inventory on September 30 is
a. $800
b. $650
c. $750
d. $700
ANSWER: a
Bloom's: Applying
BUSPROG: Analytic
65. If Addison uses LIFO, the cost of the ending merchandise inventory on September 30 is
a. $800
b. $650
c. $750
d. $700
ANSWER: c
Bloom's: Applying
BUSPROG: Analytic
66. When using a perpetual inventory system, the journal entry to record the cost of merchandise sold is:
a. debit Cost of Merchandise Sold; credit Sales
b. debit Cost of Merchandise Sold; credit Merchandise Inventory
c. debit Merchandise Inventory; credit Cost of Merchandise Sold
d. No journal entry is made to record the cost of merchandise sold.
ANSWER: b
DIFFICULTY: Easy
BUSPROG: Analytic
67. Under the inventory method, accounting records maintain a continuously updated inventory value.
a. retail
b. periodic
c. physical
d. perpetual
ANSWER: d
DIFFICULTY: Easy
BUSPROG: Analytic
68. The inventory data for an item for November are:
Nov. 1 Inventory 20 units at $19

4 Sold 10 units
17 Sold 20 units
Using a perpetual system, what is the cost of the merchandise sold for November if the company uses LIFO?
a. $610
b. $600
c. $590
d. $580
ANSWER: c
Bloom's: Applying
BUSPROG: Analytic
69. The inventory data for an item for November are:
Nov. 1 Inventory 20 units at $19

4 Sold 10 units
17 Sold 20 units
Using a perpetual system, what is the cost of the merchandise sold for November if the company uses FIFO?
a. $610
b. $600
c. $590
d. $580
ANSWER: d
Bloom's: Applying
BUSPROG: Analytic
Use the information below 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.
Date Blankets Units Cost

May 3 Purchase 5 $20
10 Sale 3
17 Purchase 10 $24
20 Sale 6
23 Sale 3
30 Purchase 10 $30
70. Assuming that the company uses the perpetual inventory system, determine the cost of merchandise sold for
the sale of May 20 using the LIFO inventory cost method.
a. $136
b. $144
c. $180
d. $120
ANSWER: b
Bloom's: Applying
BUSPROG: Analytic
71. Assuming that the company uses the perpetual inventory system, determine the cost of merchandise sold for
the sale of May 20 using the FIFO inventory cost method.
a. $120
b. $180
c. $136
d. $144
ANSWER: c
Bloom's: Applying
BUSPROG: Analytic
72. 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.
a. $364
b. $372
c. $324
d. $320
ANSWER: b
Bloom's: Applying
BUSPROG: Analytic
73. Assuming that the company uses the perpetual inventory system, determine the gross profit for the sale of
May 23 using the FIFO inventory cost method.
a. $108
b. $120
c. $72
d. $180
ANSWER: a
Bloom's: Applying
BUSPROG: Analytic
74. Assuming that the company uses the perpetual inventory system, determine the ending inventory for the month
of May using the LIFO inventory cost method.
a. $324
b. $372
c. $320
d. $364
ANSWER: d
Bloom's: Applying
BUSPROG: Analytic
75. Assuming that the company uses the perpetual inventory system, determine the Gross Profit for the month of
May using the LIFO cost method.
a. $348
b. $452
c. $444
d. $356
ANSWER: c
Bloom's: Applying
BUSPROG: Analytic
The following units of an inventory item were available for sale during the year:
Beginning inventory 10 units at $55

First purchase 25 units at $60
Second purchase 30 units at $65
Third purchase 15 units at $70
The firm uses the periodic inventory system. During the year, 60 units of the item were sold.
76. The value of ending inventory using FIFO is

a. $1,250
b. $1,350
c. $1,375
d. $1,150
ANSWER: c
Bloom's: Applying
BUSPROG: Analytic
77. The value of ending inventory using LIFO is

a. $1,250
b. $1,350
c. $1,375
d. $1,150
ANSWER: d
Bloom's: Applying
BUSPROG: Analytic
78. The value of ending inventory rounded to nearest dollar using average cost is:
a. $1,353
b. $1,263
c. $1,375
d. $1,150
ANSWER: b
Bloom's: Applying
BUSPROG: Analytic
The following lots of a particular commodity were available for sale during the year:

79. 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?
a. $655
b. $620
c. $690
d. $659
ANSWER: b
Bloom's: Applying
BUSPROG: Analytic
the amount of inventory at the end of the year according to the FIFO method?
a. $655
b. $620
c. $690
d. $659
ANSWER: c
Bloom's: Applying
BUSPROG: Analytic
the amount of inventory at the end of the year rounded to nearest dollar according to the average cost method?
a. $655
b. $620
c. $690
d. $659
ANSWER: d
Bloom's: Applying
BUSPROG: Analytic

The firm uses the periodic system and there are 20 units of the commodity on hand at the end of the year.
82. What is the amount of cost of goods sold for the year according to the average cost method?
a. $1,380
b. $1,375
c. $1,510
d. $1,250
ANSWER: a
DIFFICULTY: Easy
Bloom's: Applying
BUSPROG: Analytic
83. What is the amount of cost of merchandise sold for the year according to the FIFO method?
a. $1,380
b. $1,375
c. $1,510
d. $1,250
ANSWER: d
DIFFICULTY: Easy
Bloom's: Applying
BUSPROG: Analytic
84. What is the amount of cost of merchandise sold for the year according to the LIFO method?
a. $1,380
b. $1,375
c. $1,510
d. $1,250
ANSWER: c
DIFFICULTY: Easy
Bloom's: Applying
BUSPROG: Analytic
85. Under a periodic inventory system

a. accounting records continuously disclose the amount of inventory
b. a separate account for each type of merchandise is maintained in a subsidiary ledger
c. a physical inventory is taken at the end of the period
d. merchandise inventory is debited when goods are returned to vendors
ANSWER: c
DIFFICULTY: Easy
BUSPROG: Analytic

The firm uses the periodic system and there are 25 units of the commodity on hand at the end of the year.
86. What is the amount of the inventory at the end of the year using the FIFO method?
a. $1,685
b. $1,575
c. $1,805
d. $3,585
ANSWER: c
DIFFICULTY: Easy
Bloom's: Applying
BUSPROG: Analytic
87. What is the amount of the inventory at the end of the year using the LIFO method?
a. $1,685
b. $1,575
c. $1,805
d. $3,815
ANSWER: b
DIFFICULTY: Easy
Bloom's: Applying
BUSPROG: Analytic
88. What is the amount of the inventory at the end of the year rounded to nearest dollar using the average cost
method?
a. $1,685
b. $1,575
c. $1,805
d. $3,705
ANSWER: a
DIFFICULTY: Easy
Bloom's: Applying
BUSPROG: Analytic
89. If Beginning Inventory (BI) + Purchases (P) – Ending Inventory (EI) = Cost of Merchandise Sold (COMS), an
equivalent equation can be written as
a. BI + P = COMS – EI
b. BI – P = COMS + EI
c. BI + P = COMS + EI
d. EI + P = COMS – BI
ANSWER: c
Bloom's: Applying
ACCT.AICPA.BB.07 - Critical Thinking
BUSPROG: Analytic
90. During a period of consistently rising prices, the method of inventory that will result in reporting the greatest cost
of merchandise sold is
a. FIFO
b. LIFO
c. average cost
d. weighted average
ANSWER: b
BUSPROG: Analytic
91. During times of rising prices, which of the following is not an accurate statement?
a. Average costing will yield results that are between those of FIFO and LIFO.
b. LIFO will result in a higher cost of merchandise sold than FIFO.
c. FIFO will result in a higher net income than LIFO.
d. LIFO will result in higher income taxes than FIFO.
ANSWER: d
BUSPROG: Analytic
92. If the revenues are correctly reported and the gross profit of a company is understated, what is the effect on
stockholders' equity?
a. understated
b. overstated
c. correctly stated
d. none of these
ANSWER: a
BUSPROG: Analytic
93. If merchandise inventory is being valued at cost and the price level is steadily rising, the method of costing that
will yield the highest net income is
a. periodic
b. LIFO
c. FIFO
d. average cost
ANSWER: c
DIFFICULTY: Challenging
Bloom's: Applying
BUSPROG: Analytic
94. If merchandise inventory is being valued at cost and the purchase price is steadily falling, which method of
costing will yield the largest net income?
a. average cost
b. LIFO
c. FIFO
d. weighted average
ANSWER: b
Bloom's: Applying
BUSPROG: Analytic
95. Which of the following will be the same amount regardless of the cost flow assumption adopted?
a. number of items ordered
b. gross profit
c. cost of goods sold
d. ending merchandise inventory
ANSWER: a
Bloom's: Applying
BUSPROG: Analytic
96. FIFO reports higher gross profit and net income than the LIFO method when
a. prices are increasing
b. prices are decreasing
c. prices remain stable
d. prices are reduced by 50%
ANSWER: a
Bloom's: Applying
BUSPROG: Analytic
97. During a period of falling prices, which of the following inventory methods generally results in the lowest
balance sheet amount for inventory?
a. average cost method
b. LIFO method
c. FIFO method
d. cannot tell without more information
ANSWER: c
BUSPROG: Analytic
98. Damaged merchandise that can be sold only at prices below cost should be valued at
a. net realizable value
b. LIFO
c. FIFO
d. average cost
ANSWER: a
BUSPROG: Analytic
99. If a manufacturer ships merchandise to a retailer on consignment, the unsold merchandise should be included in
the inventory of the
a. consignee
b. retailer
c. manufacturer
d. shipper
ANSWER: c
DIFFICULTY: Easy
BUSPROG: Analytic
100. Merchandise inventory at the end of the year was inadvertently overstated. Which of the following
statements correctly states the effect of the error on net income, assets, and stockholders' equity?
a. net income is overstated, assets are overstated, and stockholders' equity is understated
b. net income is overstated, assets are overstated, and stockholders' equity is overstated
c. net income is understated, assets are understated, and stockholders' equity is understated
d. net income is understated, assets are understated, and stockholders' equity is overstated
ANSWER: b
BUSPROG: Analytic
101. Merchandise inventory at the end of the year was understated. Which of the following statements correctly states
the effect of the error?
a. net income is understated
b. net income is overstated
c. cost of merchandise sold is understated
d. merchandise inventory reported on the balance sheet is overstated
ANSWER: a
BUSPROG: Analytic
102. Merchandise inventory at the end of the year is overstated. Which of the following statements correctly states
the effect of the error?
a. stockholders' equity is overstated
b. cost of merchandise sold is overstated
c. gross profit is understated
d. net income is understated
ANSWER: a
BUSPROG: Analytic
103. If the cost of an item of inventory is $60 and the current replacement cost is $75, the amount included in
inventory according to the lower of cost or market is
a. $15
b. $60
c. $75
d. $135
ANSWER: b
DIFFICULTY: Easy
Bloom's: Applying
BUSPROG: Analytic
104. Kristin’s Boutiques has identified the following items for possible inclusion in its December 31 inventory. Which of
the following would not be included in the year-end inventory?
a. Merchandise purchased FOB shipping point was picked up by the freight company but had still not arrived at
Kristin’s Boutique as of December 31.
b. Kristin has in its warehouse merchandise on consignment from Abby Co.
c. Kristin has sent merchandise to various retailers on a consignment basis.
d. Kristin has merchandise on hand which has been returned by customers because of wrong size.
ANSWER: b
BUSPROG: Analytic
105. 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
a. assets overstated by $70,000; retained earnings understated by $70,000; and net income
statement understated by $70,000
b. assets overstated by $70,000; retained earnings understated by $70,000; and no effect on the
income statement
c. assets, retained earnings, and net income all overstated by $70,000
d. assets and retained earnings overstated by $70,000; and net income understated by $70,000
ANSWER: c
Bloom's: Applying
BUSPROG: Analytic
106. If a company mistakenly counts more items during a physical inventory than actually exist, how will the error
affect their bottom line?
a. no change to net income
b. net income will be overstated
c. net income will be understated
d. only gross profit will be affected
ANSWER: b
BUSPROG: Analytic
107. If a company mistakenly counts less items during a physical inventory than actually exist, how will the error
affect the cost of merchandise sold?
a. understated
b. overstated
c. no change
d. only inventory will be affected
ANSWER: b
BUSPROG: Analytic
108. Too much inventory on hand

a. ties up funds that could be used to improve operations
b. increases the cost to safeguard the assets
c. increases the losses due to price declines
d. all of these
ANSWER: d
BUSPROG: Analytic
109. Which of the following is used to analyze the efficiency and effectiveness of inventory management?
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
ANSWER: c
DIFFICULTY: Easy
BUSPROG: Analytic
110. Which of the following measures the relationship between cost of merchandise sold and the amount of
inventory carried during the period?
a. inventory turnover
b. fixed asset turnover
c. retail method of inventory costing
d. gross profit method of inventory costing
ANSWER: a
DIFFICULTY: Easy
BUSPROG: Analytic
111. Which of the following measures the length of time it takes to acquire, sell, and replace inventory?
a. inventory turnover
b. number of days’ sales in inventory
c. retail method of inventory costing
d. gross profit method of inventory costing
ANSWER: b
DIFFICULTY: Easy
BUSPROG: Analytic
112. Excess inventory results in all of the following except

a. tied-up funds that could be used to improve operations
b. lost sales
c. increased storage expense
d. increased risk of loss due to damage
ANSWER: b
BUSPROG: Analytic
113. The number of days' sales in inventory measures

a. the length of time it takes to acquire, sell, and replace the inventory
b. the length of time it takes to acquire and receive payment for the inventory
c. the number of days inventory is on hand prior to sale
d. the number of days inventory takes to arrive after ordering
ANSWER: a
DIFFICULTY: Easy
BUSPROG: Analytic
114. For the year ended December 31, Depot Max’s cost of merchandise sold was $56,900. Inventory at the
beginning of the year was $6,540. Ending inventory was $7,250. Compute Depot Max’s inventory turnover for
the year.
a. 8.7
b. 7.8
c. 8.3
d. 44.0
ANSWER: c
DIFFICULTY: Easy
Bloom's: Applying
BUSPROG: Analytic
115. For the year ended December 31, Depot Max’s cost of merchandise sold was $56,900. Inventory at the
beginning of the year was $6,540. Ending inventory was $7,250. Depot Max’s number of days' sales in
inventory is closest to
a. 42
b. 46
c. 8
d. 44
ANSWER: d
DIFFICULTY: Easy
Bloom's: Applying
BUSPROG: Analytic
116. The method of estimating inventory that uses records of the selling prices of the merchandise is called
a. retail method
b. gross profit method
c. inventory turnover method
d. average cost method
ANSWER: a
DIFFICULTY: Easy
BUSPROG: Analytic
117. On the basis of the following data, what is the estimated cost of the merchandise inventory on May 31 using
the retail method?
Cost Retail
May 1 Merchandise inventory $125,000 $166,667
May 1–31 Purchases 235,000 313,333
May 1–31 Sales 230,000
a. $250,000
b. $360,000
c. $172,500
d. $187,500
ANSWER: d
Bloom's: Applying
BUSPROG: Analytic
118. If the estimated rate of gross profit is 30%, what is the estimated cost of the merchandise inventory on
September 30, based on the following data?
Sep. 1 Merchandise inventory (at cost) $125,000

Sep. 1–30 Purchases, net (at cost) 300,000
Sep. 1–30 Sales 150,000
a. $320,000
b. $192,500
c. $275,000
d. $105,000
ANSWER: a
Bloom's: Applying
BUSPROG: Analytic
119. All of the following are reasons to use an estimated method of costing inventory except
a. Perpetual inventory records are not maintained.
b. Purchase records are not maintained.
c. A disaster has destroyed the inventory records and the inventory.
d. Interim financial statements are required but physical inventory is only taken at the end of the
financial accounting period.
ANSWER: b
BUSPROG: Analytic
120. Garrison Company uses the retail method of inventory costing. It started the year with an inventory that had a
retail cost of $45,000. During the year, Garrison purchased an inventory with a retail sales value of $300,000.
After performing a physical inventory, Garrison calculated the inventory at retail to be $80,000. The mark up is
100% of cost. Determine the ending inventory at its estimated cost.
a. $160,000
b. $80,000
c. $40,000
d. $45,000
ANSWER: c
Bloom's: Applying
BUSPROG: Analytic
121. A company will most likely use an estimated method of determining inventory when
a. the company decides not to do a physical inventory
b. a natural disaster has destroyed most of the inventory
c. the company has not kept up with its inventory records
d. the company is preparing annual financial statements
ANSWER: b
BUSPROG: Analytic
122. Stevens Company started the year with an inventory cost of $145,000. During the month of January,
Stevens purchased inventory that cost $53,000. January sales totaled $140,000. Estimated gross profit is
35%. The estimated ending inventory as of January 31 is
a. $58,000
b. $91,000
c. $107,000
d. $69,300
ANSWER: c
Bloom's: Applying
BUSPROG: Analytic
123. Determine the total value of the merchandise using net realizable value.
Item Quantity Selling Price Commission

Doll 10 $7 $2
Horse 5 9 3
a. $35
b. $80
c. $115
d. $25
ANSWER: b
DIFFICULTY: Easy
Bloom's: Applying
BUSPROG: Analytic
124. If a company values inventory at the lower of cost or market, which of the following is the value of
merchandise inventory on the balance sheet? Apply the lower-of-cost-or-market method to inventory as a
whole.
Item Inventory Quantity Unit Cost Price Unit Market Price

Product C 420 $ 6 $ 5
Product D 370 12 14
a. $6,960
b. $7,700
c. $6,540
d. $7,280
ANSWER: c
DIFFICULTY: Easy
Bloom's: Applying
BUSPROG: Analytic
125. Safeguarding inventory from damage or theft is a primary objective for the control of inventory. If you
were running a clothing store, name three specific controls you would implement to guard inventory from
theft.
ANSWER: Answers will vary but may include ink tags, alarm tags, bells that signal a
customer is entering the area to try on clothing, chains that hook through the
sleeves of garments and are locked onto clothing racks, scanners to screen
customers as they leave the store for unpaid merchandise, and greeters at the
store's entrance to keep customers from bringing in bags that can be used to
shoplift merchandise.
DIFFICULTY: Easy
Bloom's: Applying
BUSPROG: Analytic
126. List three different security measures taken to safeguard inventory.
ANSWER: Answers will vary and may include

- storing inventory in areas that are restricted to only authorized employees
- using physical devices such as two-way mirrors, cameras, and security guards
- locking high-priced inventory in cabinets
- placing sensors at each of the exits that are set off by alarm tags
BUSPROG: Analytic
127. Three identical units of merchandise were purchased during March, as shown:
Steele Plate Units Cost

Mar. 3 Purchase 1 $ 830
10 Purchase 1 840
19 Purchase 1 880
Total 3 $2,550
Assume that one unit is sold on March 23 for $1,125. Determine the gross profit for March and ending inventory
on March 31 using (a) FIFO and (b) LIFO.
ANSWER:
Gross Profit Ending Inventory
a. First-in, first-out (FIFO) $295 ($1,125 – $830) $1,720 ($840 + $880)
b. Last-in, first-out (LIFO) $245 ($1,125 – $880) $1,670 ($830 + $840)
DIFFICULTY: Easy
Bloom's: Applying
BUSPROG: Analytic
128. Three identical units of merchandise were purchased during May, as follows:
Magnesium XP Units Cost

May 3 Purchase 1 $130
10 Purchase 1 136
19 Purchase 1 142
Total 3 $408
Assume that two units are sold on May 23 for $313 total. Determine the gross profit for May and ending
inventory on May 31 using (a) FIFO, (b) LIFO, and (c) average cost methods.
ANSWER:
Gross Profit Ending Inventory
a. First-in, first-out (FIFO) $47 [$313 – ($130 + $136)] $142
b. Last-in, first-out (LIFO) $35 [$313 – ($142 + $136)] $130
c. Average cost $408/3 = $136 average cost $136

$41 [$313 – ($136 × 2 units)]
DIFFICULTY: Easy
Bloom's: Applying
BUSPROG: Analytic
129. Assume that three identical units of merchandise were purchased during October, as follows:
Units Cost
October 5 Purchase 1 $ 5
12 Purchase 1 13
28 Purchase 1 15
Total 3 $33
Assume one unit is sold on October 31 for $28. Determine cost of merchandise sold, gross profit, and ending
inventory under the LIFO method.
ANSWER: October 31
Sales $28
Cost of merchandise sold 15
Gross profit $13
Ending inventory ($5 + $13) $18
DIFFICULTY: Easy
Bloom's: Applying
BUSPROG: Analytic
130. Assume that three identical units of merchandise were purchased during October, as follows:
Units Cost
October 5 Purchase 1 $ 5
12 Purchase 1 13
28 Purchase 1 15
Total 3 $33
inventory under the average cost method.
ANSWER: October 31
Sales $28
Cost of merchandise sold ($33/3) 11
Gross profit $17
Ending inventory ($11 × 2) $22
DIFFICULTY: Easy
Bloom's: Applying
BUSPROG: Analytic
131. Assume that three identical units of merchandise are purchased during October, as follows:
Units Cost
October 5 Purchase 1 $5
12 Purchase 1 13
28 Purchase 1 15
Total 3 $33
inventory under the FIFO method.
ANSWER:
October 31
Sales $28
Cost of merchandise sold 5
Gross profit $23
Ending inventory ($13 + $15) $28
DIFFICULTY: Easy
Bloom's: Applying
BUSPROG: Analytic
132. Three identical units of merchandise were purchased during July, as follows:
Date Product Basic H Units Cost

July 3 Purchase 1 $ 35
10 Purchase 1 36
24 Purchase 1 37
Total 3 $108
Average cost per unit $ 36
Assume one unit sells on July 28 for $45.
Determine the gross profit, cost of merchandise sold, and ending inventory on July 31 using (a) first-in, first-out,
(b) last-in, first-out, and (c) average cost flow methods.
ANSWER:
Cost of Merchandise
Gross Profit Sold Ending Inventory
a) First-in, first-out $45 – $35 = $10 $35 $108 – $35 = $73
b) Last-in, first-out $45 – $37 = $8 $37 $108 – $37 = $71
c) Average $45 – $36 = $9 $36 $108 – $36 = $72
Bloom's: Applying
BUSPROG: Analytic
133. Beginning inventory, purchases, and sales for an inventory item are as follows:
Sep. 1 Beginning inventory 24 units @ $15

5 Sale 17 units
17 Purchase 10 units @ $20
30 Sale 8 units
Assuming a perpetual inventory system and the first-in, first-out method, determine (a) the cost of the
merchandise sold for the September 30 sale and (b) the inventory on September 30.
ANSWER: a) Cost of merchandise sold:

7 units @ $15 = $105
1 unit @ $20 = 20
8 units $125
b) Inventory, September 30:

9 units @ $20 = $180
Bloom's: Applying
BUSPROG: Analytic
Beginning inventory 150 units @ $755

Sale 120 units
First purchase 400 units @ $785
Sale 200 units
Second purchase 300 units @ $805
Sale 290 units
The firm uses the perpetual inventory system and there are 240 units of the item on hand at the end of the year.
What is the total cost of ending inventory according to FIFO?
ANSWER: $805 × 240 units = $193,200
Bloom's: Applying
FNMN.WARD.16.06-03 - LO: 06-03
BUSPROG: Analytic
Beginning inventory 150 units @ $755

Sale 120 units
First purchase 400 units @ $785
Sale 200 units
Second purchase 300 units @ $805
Sale 290 units
The firm uses the perpetual inventory system and there are 240 units of the item on hand at the end of the year.
What is the total cost of ending inventory according to LIFO?
ANSWER: ($755 × 30 units) + ($785 × 200 units) + ($805 × 10 units) = $187,700
Bloom's: Applying
FNMN.WARD.16.06-03 - LO: 06-03
BUSPROG: Analytic
Sep. 1 Beginning inventory 24 units @ $10
5 Sale 17 units
30 Sale 8 units
Assuming a perpetual inventory system and the last-in, first-out method, determine (a) the cost of the
merchandise sold for the September 30 sale and (b) the inventory on September 30.
ANSWER: (a) Cost of merchandise sold:

8 units @ $15 = $120
(b) Inventory on September 30:

7 units @ $10 = $ 70
2 units @ $15 = 30
9 units $100
Bloom's: Applying
BUSPROG: Analytic
137. Using a LIFO perpetual cost flow, calculate the value of the ending inventory and the cost of merchandise sold
for the month of November of Beamer Company using the data below.
Nov. 1 Purchased 600 units $80 each

4 Sold 200 units
11 Purchased 350 units $82 each
12 Sold 275 units
22 Purchased 175 units $84 each
23 Sold 155 units
Calculate the following:
(a) Inventory valuation at the end of November
(b) Calculate the cost of merchandise sold for November
ANSWER: (a) Inventory valuation:
400 @ $80 = $32,000

75 @ $82 = 6,150
20 @ $84 = 1,680
$39,830
(b) Cost of merchandise sold:
200 @ $80 = $16,000

275 @ $82 = 22,550
155 @ $84 = 13,020
$51,570
Bloom's: Applying
BUSPROG: Analytic
138. Complete the following table using the perpetual FIFO method of inventory flow.
Inventory Valuation—Perpetual FIFO

Inventory Inventory
Purchased Unit Units Unit Units Unit Dollar
Date Units Cost Sold Cost Balance Costs Balance
July 2 600 $12
Bal.
July 5 200 $13
Bal.
July 7 300
Bal.
July 10 325 $14
Bal.
July 12 300
150
Bal.
July 18 250 $13
Bal.
July 22 50
205
Bal.
July 25 120
180
Bal.
July 28 330 $15
Bal.
July 31 70
5
Ending FIFO INVENTORY
Balance VALUATION:
ANSWER:
Inventory Valuation—Perpetual FIFO
Inventory Inventory
Purchased Unit Units Unit Units Unit Dollar
Date Units Cost Sold Cost Balance Costs Balance
July 2 600 $12 600 $12 $ 7,200
Bal. $ 7,200
July 5 200 $13 600 $12 $ 7,200
200 $13 2,600
Bal. $ 9,800
July 7 300 $12 300 $12 $ 3,600
200 $13 2,600
Bal. $ 6,200
July 10 325 $14 300 $12 $ 3,600
200 $13 2,600
325 $14 4,550
Bal. $10,750
July 12 300 $12 50 $13 650
150 $13 325 $14 4,550
Bal. $ 5,200
July 18 250 $13 50 $13 $ 650
325 $14 4,550
250 $13 3,250
Bal. $ 8,450
July 22 50 $13 120 $14 $ 1,680
205 $14 250 $13 3,250
Bal. $ 4,930
July 25 120 $14 70 $13 $ 910
180 $13
Bal. $ 910
July 28 330 $15 70 $13 $ 910
330 $15 4,950
Bal. $ 5,860
July 31 70 $13 325 $15 $ 4,875
5 $15
End Bal. FIFO INVENTORY $4,875
VALUATION:
Bloom's: Applying
BUSPROG: Analytic
139. Beginning inventory, purchases, and sales data for tennis rackets are as follows:
April 3 Inventory 12 units @ $45

14 Sale 18 units
25 Sale 10 units
Complete the inventory cost card assuming the business maintains a perpetual inventory system and calculates the
cost of merchandise sold and ending inventory using FIFO.
Cost of
Purchases Merchandise Sold Inventory
Unit Total Unit Total Unit Total

Date Qty. Cost Cost Qty. Cost Cost Qty. Cost Cost
Balances
ANSWER:
Cost of
April 3 12 $45 $540
13 $47 $611 12 $45 $540
11
13 $47 611
12 $45 $ 540 7 $47 $329
14
6 $47 282
9 $60 $540 7 $47 $329
21
9 $60 540
7 $47 $ 329 6 $60 $360
25
3 $60 180
Balances $1,331 $360
Bloom's: Applying
BUSPROG: Analytic
140. Beginning inventory, purchases, and sales data for tennis rackets are as follows:

14 Sale 18 units
25 Sale 10 units
Complete the inventory cost card assuming the business maintains a perpetual inventory system and calculates
the cost of merchandise sold and ending inventory using LIFO.
Cost of

Balances
ANSWER:
Cost of
April 3 12 $45 $540
13 $47 $611 12 $45 $540
11
13 $47 611
13 $47 $ 611 7 $45 $315
14
5 $45 225
9 $60 $540 7 $45 $315
21
9 $60 540
9 $60 $ 540 6 $45 $270
25
1 $45 45
Balances $1,421 $270
Bloom's: Applying
BUSPROG: Analytic
141. Beginning inventory, purchases, and sales data for widgets are as follows:

14 Sale 18 units
25 Sale 10 units
the cost of merchandise sold and ending inventory using FIFO.
Cost of

Balances
ANSWER:
Cost of
April 3 15 $30 $450
12 $27 $324 15 $30 $450
11
12 27 324
15 $30 $450 9 $27 $243
14
3 $27 81
7 $25 $175 9 $27 $243
21
7 25 175
9 $27 $243 6 $25 $150
25
1 $25 25
Balances $799 $150
Bloom's: Applying
BUSPROG: Analytic
142. Beginning inventory, purchases, and sales data for widgets are as follows:

14 Sale 18 units
25 Sale 10 units
the cost of merchandise sold and ending inventory using LIFO.
Cost of

Balances
ANSWER:
Cost of
Apr. 3 15 $30 $450
12 $27 $324 15 $30 $450
11
12 $27 324
12 $27 $324 9 $30 $270
14
6 $30 180
7 $25 $175 9 $30 $270
21
7 $25 175
7 $25 $175 6 $30 $180
25
3 $30 90
Balances $769 $180
Bloom's: Applying
BUSPROG: Analytic
143. The units of an item available for sale during the year were as follows:
January 10 Inventory 27 units @ $90

February 27 Purchase 54 units @ $98
July 11 Purchase 63 units @ $106
November 13 Purchase 36 units @ $115
There are 50 units of the item in the physical inventory at December 31. The periodic inventory system is used.
Determine the ending 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.
ANSWER: (a) $5,624 (36 units at $115 plus 14 units at $106 = $4,140; $4,140 + $1,484)
(b) $4,684 (27 units at $90 plus 23 units at $98 = $2,430; $2,430 + $2,254)
(c) $5,150 ($18,540*/180 units = $103; 50 units at $103)
*Cost of merchandise available for sale:

27 units at $90 $ 2,430
54 units at $98 5,292
63 units at $106 6,678
36 units at $115 4,140
180 units (at average cost of $103) $18,540
Bloom's: Applying
FNMN.WARD.16.06-04 - LO: 06-04
BUSPROG: Analytic
January 11 Inventory 60 units @ $145

February 27 Purchase 90 units @ $150
November 21 Purchase 75 units @ $154
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.
ANSWER: (a) $7,392 (48 units × $154)

(b) $6,960 (48 units × $145)
(c) $7,200 ($33,750*/225 units = $150; 48 units × $150)
*Cost of merchandise available for sale:

60 units at $145 $ 8,700
90 units at $150 13,500
75 units at $154 11,550
225 units (at average cost of $150) $33,750
Bloom's: Applying
FNMN.WARD.16.06-04 - LO: 06-04
BUSPROG: Analytic
145. The units of Manganese Plus available for sale during the year were as follows:
Mar. 1 Inventory 16 units @ $30 $ 480

June 16 Purchase 30 units @ $35 1,050
Nov. 28 Purchase 45 units @ $39 1,755
91 units $3,285
There are 15 units of the product in the physical inventory at November 30. The periodic inventory system is
used. Determine the inventory cost by (a) FIFO, (b) LIFO, and (c) average cost methods.
ANSWER: (a) 15 units @ $39 = $585
(b) 15 units @ $30 = $450
(c) $3,285/91 = $36.10 per unit; 15 units @ $36.10 = $541.50
Bloom's: Applying
BUSPROG: Analytic
146. Complete the chart, indicating whether LIFO or FIFO would give the highest and lowest amounts for each item,
assuming a period of increasing costs.
Highest Amount Lowest Amount

Cost of merchandise sold
Gross profit
Net income
Ending merchandise inventory
ANSWER: Highest Amount Lowest Amount

Cost of merchandise sold LIFO FIFO
Gross profit FIFO LIFO
Net income FIFO LIFO
Ending merchandise inventory FIFO LIFO
Bloom's: Applying
BUSPROG: Analytic
147. The units of Manganese Plus available for sale during the year were as follows:
Mar. 1 Inventory 16 units @ $30 $ 480

June 16 Purchase 30 units @ $35 1,050
Nov. 28 Purchase 45 units @ $39 1,755
91 units $3,285
There are 15 units of the product in the physical inventory at November 30. The periodic inventory system is
used. Determine the difference in gross profit between the LIFO and FIFO inventory cost systems.
ANSWER: FIFO cost of merchandise sold (16 × $30) + (30 × $35) +

(30 × $39) $2,700
LIFO cost of merchandise sold (45 × $39) + (30 × $35) +
(1 × $30) 2,835
Difference $ 135
Bloom's: Applying
BUSPROG: Analytic
148. Applying the lower of cost or market to each item of inventory, what should the total inventory value be for
the following items?
Market
Inventory Cost per value per Total Total
Item Quantity Unit Unit Cost Market
A 300 $15.00 $14.50 $4,500 $4,350
B 200 $14.00 $15.00 $2,800 $3,000
C 100 $17.00 $17.50 $1,700 $1,750
ANSWER:
Total
Inventory Cost per Market Value

Item Quantity Unit per Unit Cost Market LCM
A 300 $15.00 $14.50 $4,500 $4,350 $4,350
B 200 $14.00 $15.00 $2,800 $3,000 2,800
C 100 $17.00 $17.50 $1,700 $1,750 1,700
$8,850
Total
Bloom's: Applying
BUSPROG: Analytic
149. Determine the total value of the merchandise using net realizable value.
Item Quantity Selling Price Commission

Doll 10 $7 $2
Horse 5 9 3
ANSWER:
Item Quantity Selling Price Commission Total
Doll 10 $7 $2 $50
Horse 5 9 3 30
Total $80
Bloom's: Applying
BUSPROG: Analytic
150. During the taking of its physical inventory on December 31, Almond Supplies Company incorrectly counted
its inventory as $545,000 instead of the correct amount of $554,000. Indicate the effects of the misstatement
on Almond Supplies Company’s balance sheet and income statement for the year ended December 31.
ANSWER:
Amount of
Misstatement
Overstatement
(Understatement)
Balance Sheet:
Merchandise inventory understated $(9,000)
Current assets understated (9,000)
Total assets understated (9,000)
Stockholders' equity understated (9,000)
Income Statement:
Cost of merchandise sold overstated $ 9,000
Gross profit understated (9,000)
Net Income understated (9,000)
Bloom's: Applying
BUSPROG: Analytic
151. While taking a physical inventory, a company counts its inventory as less than the actual amount on hand. How
will this error affect the income statement?
ANSWER: Net income will be understated.
BUSPROG: Analytic
152. On the basis of the following data, determine the value of the inventory at the lower of cost or market. Apply
lower of cost or market to each inventory item. Show your work.

Product C 300 $ 6 $ 5
Product D 420 12 14
ANSWER:
Total
Market
Inventory Cost per Value
Product
C 300 $ 6 $ 5 $1,800 $1,500 $1,500
Product
D 420 12 14 5,040 5,880 5,040
Total $6,840 $7,380 $6,540
Bloom's: Applying
BUSPROG: Analytic
153. On the basis of the following data, determine the value of the inventory at the lower of cost or market. Apply
lower of cost or market to each inventory item. Show your work.

Gear X 175 $33 $29
Gear Y 225 27 28
ANSWER:
Total
Market
Inventory Cost per Value
Gear X 175 $33 $29 $ 5,775 $ 5,075 $ 5,075
Gear Y 225 27 28 6,075 6,300 6,075
Total $11,850 $11,375 $11,150
Bloom's: Applying
BUSPROG: Analytic
154. The following data were taken from the annual reports of Big Bang Inc., a manufacturer of fireworks, and
Orange Inc., a manufacturer of computers.
Big Bang, Inc. Orange, Inc.

Cost of merchandise sold $830,000 $11,540,000
Inventory, end of year 190,000 320,000
Inventory, beginning of year 240,000 290,000
(a) Determine the (1) inventory turnover and (2) number of days' sales in inventory for Big Bang and
Orange. Round your answers to two decimal places.
(b) How would you expect these measures to compare between the companies? Why?
ANSWER:
(a) 1. Inventory Turnover:
Big Bang, Inc.: 3.86 {$830,000/[($190,000 + $240,000)/2]}
Orange, Inc.: 37.84 {$11,540,000/[($320,000 + $290,000)/2]}
(a) 2. Number of Days' Sales in Inventory:

Big Bang, Inc.
Ave. Inv.: ($190,000 + $240,000)/2 = $215,000
Ave. Daily COMS: $830,000/365 = $2,274
$215,000/2,274 = 94.55 days
Orange, Inc.
Ave. Inv.: ($320,000 + $290,000)/2 = $305,000
Ave. Daily COMS: $11,540,000/365 = $31,616
$305,000/$31,616 = 9.65 days
(b) You would expect Big Bang’s inventory turnover to be lower. Big Bang’s
business is seasonal in nature, with most of its revenue generated during the
major holidays. Much of its nonholiday inventory will most likely turn over
very slowly. Orange, on the other hand, turns its inventory over very
quickly. A computer manufacturer maintains a low inventory, which allows
it to respond quickly to customer needs. Additionally, computer products can
quickly become obsolete, so Orange cannot risk building large
inventories. For these same reasons, Big Bang’s days' sales in inventory is
expected to be higher than Orange’s.
Bloom's: Applying
BUSPROG: Analytic
155. Based on the following data, calculate the estimated cost of the merchandise inventory on March 31 using the
retail method.
Cost Retail
March 1 Merchandise inventory $225,000 $357,600
March 1–31 Purchases (net) 454,245 612,750
March 1–31 Sales 835,000
ANSWER: Cost Retail

March 1 Merchandise inventory $225,000 $357,600
March 1–31 Purchases (net) 454,245 612,750
Merchandise available for sale $679,245 $970,350
Ratio of cost to retail:

$679,245/$970,350 = 70%

Merchandise inventory (at retail) $135,350
March 1–31 Estimated merchandise inventory at
estimated cost ($135,350 × 70%) $ 94,745
Bloom's: Applying
BUSPROG: Analytic
156. 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?
ANSWER: $2,300,000 × 55% = $1,265,000
DIFFICULTY: Easy
Bloom's: Applying
BUSPROG: Analytic
157. Based upon the following data, estimate the cost of ending merchandise inventory using the gross profit method.
Sales $250,000
Estimated gross profit rate 25%
Beginning merchandise inventory $ 9,000

Purchases (net) 211,000
Merchandise available for sale $220,000
ANSWER:
Merchandise available for sale $220,000
Sales $250,000
Less: Estimated gross profit ($250,000 × 25%) 62,500
Estimated cost of merchandise sold 187,500
Estimated ending merchandise inventory $ 32,500
Bloom's: Applying
BUSPROG: Analytic
158. Fill in the missing amounts from the chart below regarding the calculation of Bean Corporation’s estimated inventory
using the retail method of estimation.
Cost Retail
Merchandise inventory, October 1 $13,687 $19,553
Purchases for October (net) ? 98,344
Merchandise available for sale $82,528 $ ?
Ratio of cost to retail price: ?
Sales for October ?
Merchandise at retail, October 31 $25,340
Merchandise at cost, October 31 $ ?
ANSWER:
Cost Retail
Merchandise inventory, October 1 $13,687 $ 19,553
Purchases for October (net) 68,841 98,344
Merchandise available for sale $82,528 $117,897
Ratio of cost to retail price:
70% ($82,528/$117,897)
Sales for October 92,557
Merchandise at retail, October 31 $ 25,340
Merchandise at cost, October 31

($25,340 × 70%) $ 17,738
Bloom's: Applying
ACCT.AICPA.BB.07 - Critical Thinking
BUSPROG: Analytic
159. List the internal control objectives illustrated by the following:

(a) keeping the inventory storeroom locked
(b) counting the inventory at the end of the accounting period and comparing it with
the inventory ledger clerk's records
(c) using subsidiary ledgers and a perpetual inventory system
ANSWER: (a) safeguarding the inventory from damage or theft

(b) safeguarding the inventory from damage or theft and reporting inventory
in the financial statements
(c) keeping inventory at proper levels and reporting inventory in the
financial statements
DIFFICULTY: Easy
BUSPROG: Analytic
160. Describe three inventory cost flow assumptions and how they impact the financial statements.
ANSWER: 1. Cost flow is in the order in which costs were incurred or first-in, first-out
(FIFO). The first units purchased are assumed sold, so the oldest costs flow
to the income statement and the cost of the newest purchases are on the
balance sheet.
2. Cost flow is in the reverse order in which costs were incurred or last-in, first-
out (LIFO). The last units purchased are assumed sold, so the newest costs flow
to the income statement and the cost of the oldest purchases are on the balance
sheet.
3. Cost flow is an average of the costs. Under the average cost method, all
units are assigned the same average cost for the period.
BUSPROG: Analytic
161. The following data regarding purchases and sales of a commodity were taken from the related perpetual
inventory account:
June 1 Balance 25 units at $60

6 Sale 20 units
8 Purchase 20 units at $61
16 Sale 10 units
23 Sale 25 units
Calculate the cost of the ending inventory at June 30, using (a) the first-in, first-out
(FIFO) method and (b) the last-in, first-out (LIFO) method. Identify the quantity, unit
price, and total cost of each lot in the inventory.
ANSWER:
(a) June 20 10 units at $62 $ 620

30 15 units at $63 945
Total $1,565
(b) June 1 5 units at $60 $ 300

8 5 units at $61 305
30 15 units at $63 945
Total $1,550
Bloom's: Applying
BUSPROG: Analytic
162. Beginning inventory, purchases, and sales data for hammers are as follows:
Mar. 3 Inventory 12 units @ $15

14 Sale 18 units
25 Sale 10 units
Assuming the business maintains a perpetual inventory system, complete the inventory cards and calculate the
cost of merchandise sold and ending inventory under the following assumptions:
(a) First-in, first-out

Cost of Merchandise
Purchases Sold Inventory

Mar. 3
11
14
21
25
Balances
(b) Last-in, first-out

Cost of Merchandise
Purchases Sold Inventory

Mar. 3
11
14
21
25
Balances
ANSWER: a. First-in, first-out
Cost of
Purchases Inventory
Merchandise Sold

Mar. 3 12 $15 $180
13 $17 $221 12 $15 $180
11
13 $17 221
12 $15 $180 7 $17 $119
14
6 $17 102
9 $20 $180 7 $17 $119
21
9 $20 180
7 $17 $119 6 $20 $120
25
3 $20 60
Balances $461 $120
b. Last-in, first-out
Cost of
Purchases Inventory
Merchandise Sold

Mar. 3
12 $15 $180
11 12 $15 $180
13 $17 $221
13 $17 221
13 $17 $221
14 7 $15 $105
5 $15 75
7 $15 $105
21 9 $20 $180
9 $20 180
9 $20 $180
25 6 $15 $ 90
1 $15 15
Balances $491 $90
Bloom's: Applying
BUSPROG: Analytic
Jan. 1 Inventory 25 units at $45
Mar. 4 Purchase 15 units at $50
June 7 Purchase 35 units at $58
Nov. 15 Purchase 20 units at $65
There are 30 units of the item in the physical inventory at December 31. The periodic inventory system is
used. Determine the ending inventory cost using FIFO.
ANSWER: $1,880 (20 units at $65 and 10 units at $58)
DIFFICULTY: Easy
Bloom's: Applying
BUSPROG: Analytic
Jan. 1 Inventory 10 units at $25
Apr. 4 Purchase 15 units at $24
May. 20 Purchase 20 units at $28
Oct. 30 Purchase 18 units at $30
There are 19 units of the item in the physical inventory at December 31. The periodic inventory system is
used. Determine the ending inventory cost using LIFO.
ANSWER: $466 (10 units at $25 and 9 units at $24)
DIFFICULTY: Easy
Bloom's: Applying
BUSPROG: Analytic
165. The beginning inventory and purchases of an item for the period were as follows:
Beginning inventory 6 units at $70 each

First purchase 10 units at $75 each
Second purchase 18 units at $80 each
Third purchase 10 units at $90 each
The company uses the periodic system, and there were 15 units in the inventory at the end of the period. Determine
the cost of the 15 units in the inventory by each of the following methods, presenting details of your computations:
(a) first-in, first-out; (b) last-in, first-out; (c) average cost. Do not round your intermediate calculations. Round your
final answer to two decimal places.
ANSWER: (a)
10 units @ $90 $ 900
5 units @ $80 400
Total $1,300
(b)
6 units @ $70 $ 420
9 units @ $75 675
Total $1,095
(c)
Average unit cost = $3,510/44 = $79.7727
15 units @ $79.7727 = $1,196.59
Bloom's: Applying
BUSPROG: Analytic
166. Beginning inventory, purchases and sales data for T-shirts are as follows:

14 Sale 36 units
25 Sale 20 units
Assuming the business maintains a periodic inventory system, calculate the cost of merchandise sold and ending
inventory under the following assumptions:
a. FIFO
b. LIFO
c. Average cost (round cost of merchandise sold and ending inventory to the nearest dollar)
ANSWER: a. FIFO
April 3 Inventory 24 units @ 10 $240
11 Purchase 26 units @ 12 312
Available for sale 68 $822
14 Sale 24 units @ 10 $240

12 units @ 12 144
25 Sale 14 units @ 12 168
6 units @ 15 90
Cost of merchandise sold 56 $642
Ending inventory 12 units @ 15 $180
b. LIFO
14 Sale 18 units @ 15 $270

18 units @ 12 216
25 Sale 8 units @ 12 96
12 units @ 10 120
Cost of merchandise sold 56 $702
Ending inventory 12 units @ 10 $120
c. Average cost
Average cost $822/68 = $12.09
April 14 & 25 Cost of merchandise sold 56 × $12.09 $677
Ending inventory 12 × $12.09 $145
Bloom's: Applying
BUSPROG: Analytic
167. The units of Product Green-2 available for sale during the year were as follows:

June 16 Purchase 29 units @ $33
Sep. 28 Purchase 45 units @ $35
There are 17 units of the product in the physical inventory at September 30. The periodic inventory system
is used. Determine the cost of merchandise sold by (a) FIFO, (b) LIFO, and (c) average cost methods.
ANSWER:
(a) FIFO 15 units @ $30 = $ 450
29 units @ $33 = 957
28 units @ $35 = 980
Total $2,387
(b) LIFO 45 units @ $35 = $1,575

27 units @ $33 = 891
Total $2,466
(c) Average cost $2,982/89 = $33.51

72 units @ $33.51 = $2,412.72
IFFICULTY: Moderate
Bloom's: Applying
BUSPROG: Analytic
168. Brutus Corporation, a newly formed corporation, has the following transactions during May, its first month
of operations.
May 1 Purchased 500 units @ $25.00 each
4 Purchased 300 units @ $24.00 each
6 Sold 400 units @ $38.00 each
Calculate total sales, cost of merchandise sold, gross profit, and ending inventory using each of the
following inventory methods:
1. FIFO perpetual
2. FIFO periodic
3. LIFO perpetual
4. LIFO periodic
5. Average cost periodic (round average to nearest cent)
ANSWER: Total sales (not dependent on inventory method):
May 6 400 @ 38.00 = $15,200.00

13 450 @ 37.50 = 16,875.00
22 275 @ 36.00 = 9,900.00
27 300 @ 37.00 = 11,100.00
30 100 @ 39.00 = 3,900.00
Total sales 1,525 units $56,975.00
Total merchandise available for sale:
May 1 500 @ 25.00 = $12,500.00

4 300 @ 24.00 = 7,200.00
8 700 @ 23.00 = 16,100.00
20 250 @ 25.25 = 6,312.50
28 550 @ 26.00 = 14,300.00
Total 2,300 units $56,412.50
1. & 2. FIFO perpetual, FIFO periodic:

There is no difference between these methods since FIFO is always first-in, first-
out.
Ending inventory:
Total units – Units sold = Ending inventory units
2,300 – 1,525 = 775 units
225 @ $25.25 = $ 5,681.25

550 @ $26.00 = 14,300.00
Ending inventory $19,981.25
Cost of merchandise sold:

Total goods available $56,412.50
Less ending inventory 19,981.25
Cost of merchandise sold $36,431.25
Gross profit:
Total sales $56,975.00
Less cost of merchandise
sold 36,431,25
Gross profit $20,543.75
3. LIFO perpetual:
Purchased
Units / Units Inventory
Date Balance Price Sold Cost Balance
May 1 500 25.00 12,500.00
May 4 300 24.00 7,200.00
Bal. 19,700.00
May 6 300 24.00 (7,200.00)
100 25.00 (2,500.00)
Bal. 400 25.00 10,000.00
May 8 700 23.00 16,100.00
Bal. 400 25.00 10,000.00
700 23.00 16,100.00
26,100.00
May 13 450 23.00 (10,350.00)
Bal. 400 25.00 10,000.00
250 23.00 5,750.00
15,750.00
May 20 250 25.25 6,312.50
Bal. 22,062.50
May 22 250 25.25 (6,312.50)
25 23.00 (575.00)
May 27 225 23.00 (5,175.00)
75 25.00 (1,875.00)
Bal. 325 25.00 8,125.00
May 28 550 26.00 14,300.00
May 30 100 26.00 (2,600.00)
Bal. 325 25.00 8,125.00
450 26.00 11,700.00
Ending inventory 19,825.00

Gross profit:
Less COMS 36,587.50
4. LIFO periodic:
Ending inventory:
500 @ $25.00 = $12,500.00
275 @ $24.00 = 6,600.00
Ending inventory $19,100.00

Gross profit:
Less COMS 37,312,50
5. Average cost periodic:
Average cost: $56,412.50/2,300 units = $24.53
Ending inventory:
775 units × $24.53 = $19,010.75

$56,412.50 – $19,010.75 = $37,401.75
Gross profit:
$56,975.00 – $37,401.75 = $19,573.25
Bloom's: Applying
FNMN.WARD.16.06-04 - LO: 06-04
FNMN.WARD.16.06-05 - LO: 06-05
BUSPROG: Analytic
169. Basic inventory data for April 30 are presented below for a business that employs the lower-of-cost-or-market
basis of inventory valuation to each category.
Inventory Cost per Market Value Total

Commodity Quantity Unit per Unit Cost Market LCM
A 35 $ 52 $ 55 _______ _______ _______
B 20 155 150 _______ _______ _______
C 25 82 85 _______ _______ _______
D 40 58 55 _______ _______ _______
(a) Complete the table.
(b) Determine the amount of reduction in the inventory at April 30 attributable to
market decline.
ANSWER: (a)
Total
Market
Inventory Cost per Value per
Commodity Quantity Unit Unit Cost Market LCM
A 35 $ 52 $ 55 $1,820 $1,925 $1,820
B 20 155 150 3,100 3,000 3,000
C 25 82 85 2,050 2,125 2,050
D 40 58 55 2,320 2,200 2,200
Total $9,290 $9,250 $9,070
(b) $220 ($9,290 – $9,070)

Bloom's: Applying
BUSPROG: Analytic
170. Hampton Co. took a physical count of its inventory on December 31. In addition, it had to decide whether or
not the following items should be added to this count.
(a) Merchandise on hand had been sold earlier in the year but had been returned by customers
for various warranty repairs.
(b) Hampton Co. sent merchandise on a consignment basis on December 31 just prior to
the physical count.
(c) On December 22, Hampton Co. ordered merchandise on FOB destination terms. The
merchandise was shipped by the supplier on December 30 but had not been received by
December 31.
(d) On December 27, Hampton Co. ordered merchandise on FOB shipping point terms.
The merchandise was shipped on December 29 but had not been received by December
31.
(e) Merchandise sold FOB shipping point on December 31 was picked up by the
freight company just before closing on December 31.
(f) Merchandise shipped to a customer FOB destination was picked up by the freight
company on December 28 but had not arrived at its destination as of December 31.
Answer "yes" or "no" to indicate which items should and should not be added to the December 31 inventory count.
ANSWER: (a) no
(b) yes
(c) no
(d) yes
(e) no
(f) yes
BUSPROG: Analytic
171. 1. Explain the effect of the following on the financial statements:

Goods held on consignment were included in the ending inventory count.
Goods purchased FOB shipping point were in transit on the last day of the year.
The goods were not counted as part of ending inventory.
Goods sold FOB shipping point were in transit on the last day of the year.
These goods were not counted as part of ending inventory.
2. What happens if inventory errors are not found and corrected?
ANSWER: 1. Goods held on consignment were included in the ending inventory count:
Goods held on consignment should not be included in the consignee’s ending
inventory. By including these goods, ending inventory, gross profit and net
income are overstated and cost of merchandise sold is understated. On the
balance sheet, inventory, current assets, total assets, and stockholders' equity are
all overstated.
Goods purchased FOB shipping point were in transit on the last day of the
year. These goods were not counted as part of ending inventory: Goods
purchased FOB shipping point become part of inventory when they are shipped
to the purchaser. Thus, these goods should have been included in ending
inventory even though they were not yet received. By excluding these goods,
ending inventory, gross profit, and net income are understated and cost
of merchandise sold is overstated. On the balance sheet, inventory, current
assets, total assets, and stockholders' equity are all understated.
Goods sold FOB shipping point were in transit on the last day of the year.
These goods were not counted as part of ending inventory: When goods are
sold FOB shipping point, title transfers when they are shipped to the
purchaser. As such, they should not have been included in ending inventory so
this transaction has no error effect on the financial statements.
2. The income statement and balance sheet will have errors in the current year.
Inventory errors reverse themselves within two years. If the errors are not
discovered, the income statement and balance sheet will be correct at the end of
the next year.
BUSPROG: Analytic
172. On the basis of the following data for Sanford Industries as of December 31, determine the value of the inventory
at the lower of cost or market. Also, show how the merchandise inventory would appear on the balance sheet
(assume that the cost was determined by the FIFO method). Apply lower of cost or market to each inventory
item.
Commodity Inventory Quantity Cost per Unit Market Value per Unit
Size 4 9 $17 $19
Size 5 10 17 14
Size 6 14 20 22
Size 7 12 13 15
ANSWER: Inventory valuation = $729
Total
Inventory Cost per Market Value
Commodity Quantity Unit per Unit Cost Market LCM
Size 4 9 $17 $19 $153 $171 $153
Size 5 10 17 14 170 140 140
Size 6 14 20 22 280 308 280
Size 7 12 13 15 156 180 156
Totals $759 $799 $729
Sanford Industries
Balance Sheet
December 31
Assets
Current assets:
Merchandise inventory at lower of cost
(first-in, first-out) or market $729.00
Bloom's: Applying
BUSPROG: Analytic
173. Based on the following information: compute (a) inventory turnover; (b) average daily cost of merchandise sold;
and (c) number of days' sales in inventory for the current year. Use a 365-day year. (d) If an inventory turnover
of 12 is average for the industry, how is this company doing?
Item Prior Year Current Year

Cost of merchandise sold $172,900 $215,000
Inventory 18,000 12,000
ANSWER: (a) $215,000 ÷ [($18,000 + $12,000)/2] =

$215,000 ÷ $15,000 = 14.33 times
(b) $215,000 ÷ 365 = $589.04
(c) $15,000 ÷ $589.04 = 24.5 days
(d) This company is doing worse than the overall

industry.
Bloom's: Applying
BUSPROG: Analytic
174. The following data were taken from Castle, Inc.
Cost of merchandise sold $894,000

Inventory, end of year 78,000
Inventory, beginning of the year 92,000
Determine the inventory turnover ratio and the number of days’ sales in inventory for Castle Inc. Round to two
decimal places.
ANSWER: Inventory turnover = Cost of merchandise sold/Average inventory

Inventory turnover = $894,000/[($78,000 + $92,000)/2]
Inventory turnover = 10.52
Number of days’ sales in inventory = Average inventory/Average daily cost of

merchandise sold
Number of days’ sales in inventory = $85,000/($894,000/365)
Number of days’ sales in inventory = 34.70 days
Bloom's: Applying
BUSPROG: Analytic
175. 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.
Cost of merchandise sold $195,640

Inventory:
Beginning 20,500
Ending 18,628
ANSWER: (a) $195,640 ÷ [($20,500 + 18,628)/2] =

$195,640 ÷ $19,564 = 10
(b) $195,640 ÷ 365 = $536
(c) $19,564 ÷ $536 = 36.5 days

Bloom's: Applying
BUSPROG: Analytic
176. During August, the first month of the fiscal year, sales totaled $875,000 and the cost of merchandise available
for sale totaled $850,000. Estimate the cost of the merchandise inventory as of August 31, based on an
estimated gross profit rate of 45%.
ANSWER: Merchandise available for sale in August $850,000

August sales $875,000
Less estimated gross profit
($875,000 × 45%) 393,750
Estimated cost of merchandise sold 481,250
Estimated ending merchandise inventory $368,750
Bloom's: Applying
BUSPROG: Analytic
177. On the basis of the following data, estimate the cost of the merchandise inventory at March 31 by the retail method.
Cost Retail
March 1 Merchandise inventory $250,000 $ 350,000
March 1–31 Purchases (net) 850,000 1,650,000
ANSWER:
Cost Retail
March 1 Merchandise inventory $ 250,000 $ 350,000
March 1–31 Purchases (net) 850,000 1,650,000
Merchandise available for sale $1,100,000 $2,000,000
Ratio of cost to retail price: 55%
(1,100,000/2,000,000)
Sales for March 845,000
Merchandise inventory, March 31 at retail $1,155,000
Merchandise inventory, March 31 at est. cost
($1,155,000 × 55%) $ 635,250
Bloom's: Applying
BUSPROG: Analytic
178. On the basis of the following data, determine the estimated cost of the inventory as of March 31 by the
retail method, presenting details of the computation in good order.
Cost Retail
Mar. 1 Merchandise inventory $310,000 $550,000
1–31 Purchases (net) 307,250 515,000
1–31 Sales 400,000
ANSWER: Cost Retail

Merchandise inventory, March 1 $310,000 $ 550,000
Purchases in March (net) 307,250 515,000
Merchandise available for sale $617,250 $1,065,000
Ratio of cost to retail price:

$617,250 ÷ $1,065,000 = 58%
Sales in March 400,000
Merchandise inventory, March 31,
at retail price $ 665,000
Merchandise inventory, March 31,
at estimated cost price ($665,000 × 58%) $ 385,700
Bloom's: Applying
BUSPROG: Analytic
Match each description to the appropriate document used for inventory control (a–c).
a. Receiving report
b. Vendor’s invoice
c. Purchase order
DIFFICULTY: Easy
BUSPROG: Analytic
179. last document in the chain, use to compare all three for accuracy
ANSWER: b
180. authorizes the purchase of inventory from an approved vendor
ANSWER: c
181. establishes an initial record of the receipt of inventory
ANSWER: a
Match each description to the appropriate cost flow assumption (a–d).

a. Weighted average
b. First-in, first-out (FIFO)
c. Last-in, first-out (LIFO)
d. Specific identification
DIFFICULTY: Easy
BUSPROG: Analytic
182. The cost of the units sold and in ending inventory is a weighted average of the purchase costs.
ANSWER: a
183. Cost flow is assumed to be in the reverse order of costs incurred.
ANSWER: c
184. Cost flow matches the unit sold to the unit purchased.
ANSWER: d
185. Cost flow is in the order in which the costs were incurred.
ANSWER: b
Match each description to the appropriate inventory system (a or b).

a. Perpetual
b. Periodic
DIFFICULTY: Easy
FNMN.WARD.16.06-04 - LO: 06-04
BUSPROG: Analytic
186. This system can be costly and time consuming if not computerized.
ANSWER: a
187. Average cost is rarely used with this system.
ANSWER: a
188. Under this system, only revenue is recorded when sales are made.
ANSWER: b
189. When using this system, a physical inventory is necessary to determine cost of merchandise sold.
ANSWER: b
Match each description to the appropriate cost flow assumption (a–c).

a. FIFO
b. LIFO
c. Weighted average
FNMN.WARD.16.06-03 - LO: 06-03
FNMN.WARD.16.06-04 - LO: 06-04
FNMN.WARD.16.06-05 - LO: 06-05
ACCT.AICPA.BB.01 - Industry
BUSPROG: Analytic
190. Produces the same cost of merchandise sold under both the periodic and the perpetual inventory systems
ANSWER: a
191. Rarely used with a perpetual inventory system
ANSWER: c
192. Produces results that are similar to the specific identification method
ANSWER: a
193. Widely used for tax purposes
ANSWER: b
194. Never results in either the highest or lowest possible net income
ANSWER: c
195. Produces the highest gross profit when costs are decreasing
ANSWER: b
196. Produces the highest ending inventory when costs are increasing
ANSWER: a
197. Assigns the same value to all inventory units
ANSWER: c
198. Prohibited under International Financial Reporting Standards (IFRS)
ANSWER: b
199. Does not follow the physical flow of goods in most cases
ANSWER: b
200. Cost of the latest purchases are assigned to ending inventory
ANSWER: a
Match each situation to its impact (a–c) on the current year's net income.
a. Net income for the current year will be overstated.
b. Net income for the current year will be understated.
c. There will be no error effect on net income.
BUSPROG: Analytic
201. Purchased merchandise was shipped FOB shipping point on the last day of the year. The cost of the merchandise
was not included in ending inventory.
ANSWER: b
202. Merchandise was purchased FOB destination on the last day of the year. The cost of the merchandise purchased
was not included in ending inventory.
ANSWER: c
203. Merchandise held on consignment was included in the count of ending inventory.
ANSWER: a
204. A consignor included merchandise in the hands of the consignee in ending inventory.
ANSWER: c
205. Beginning inventory was understated.
ANSWER: a
206. Merchandise that was sold and shipped FOB destination on the last day of the year was not included in the seller’s
ending inventory.
ANSWER: b
207. Merchandise that was sold and shipped FOB shipping point on the last day of the year was not included in the seller’s
ending inventory.
ANSWER: c
208. The beginning inventory was recorded as $10,000, when actual inventory on hand was $12,000.
ANSWER: a

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CHAPTER 6: INVENTORIES

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2. A purchase order establishes an initial record of the receipt of the inventory.

3. A perpetual inventory system is an effective means of control over inventory.

7. A physical inventory should be taken at the end of every month.

26. Unsold consigned merchandise should be included in the consignee's inventory.

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

48. The primary objectives of control over inventory are

49. Taking a physical count of inventory

53. Which of the following is not an example for safeguarding inventory?

Sep. 1 Inventory 20 units at $20

68. The inventory data for an item for November are:

Nov. 1 Inventory 20 units at $19

69. The inventory data for an item for November are:

Nov. 1 Inventory 20 units at $19

Use the information below to answer the following questions.

Date Blankets Units Cost

Beginning inventory 10 units at $55

76. The value of ending inventory using FIFO is

77. The value of ending inventory using LIFO is

Beginning inventory 10 units at $30

Beginning inventory 5 units at $61

85. Under a periodic inventory system

Beginning inventory 10 units at $60

108. Too much inventory on hand

112. Excess inventory results in all of the following except

113. The number of days' sales in inventory measures

Sep. 1 Merchandise inventory (at cost) $125,000

Item Quantity Selling Price Commission

Item Inventory Quantity Unit Cost Price Unit Market Price

126. List three different security measures taken to safeguard inventory.

ANSWER: Answers will vary and may include

Steele Plate Units Cost

a. First-in, first-out (FIFO) $295 ($1,125 – $830) $1,720 ($840 + $880)

b. Last-in, first-out (LIFO) $245 ($1,125 – $880) $1,670 ($830 + $840)

Magnesium XP Units Cost

b. Last-in, first-out (LIFO) $35 [$313 – ($142 + $136)] $130

c. Average cost $408/3 = $136 average cost $136

Date Product Basic H Units Cost

Average cost per unit $ 36

Assume one unit sells on July 28 for $45.

b) Last-in, first-out $45 – $37 = $8 $37 $108 – $37 = $71

c) Average $45 – $36 = $9 $36 $108 – $36 = $72

Sep. 1 Beginning inventory 24 units @ $15

ANSWER: a) Cost of merchandise sold:

b) Inventory, September 30:

Beginning inventory 150 units @ $755

Beginning inventory 150 units @ $755

ANSWER: (a) Cost of merchandise sold:

(b) Inventory on September 30:

Nov. 1 Purchased 600 units $80 each

ANSWER: (a) Inventory valuation:

400 @ $80 = $32,000

(b) Cost of merchandise sold:

200 @ $80 = $16,000

Inventory Valuation—Perpetual FIFO

April 3 Inventory 12 units @ $45

Unit Total Unit Total Unit Total

April 3 Inventory 12 units @ $45

Unit Total Unit Total Unit Total

April 3 Inventory 15 units @ $30

Unit Total Unit Total Unit Total