Test Bank For Accounting 25th Edition Carl S Warren Download

Test Bank for Accounting 25th Edition Carl S Warren Download
Test Bank for Accounting 25th Edition Carl S Warren

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Chapter 7--Inventories
Student: ___________________________________________________________________________
1. One of the two internal control procedures over inventory is to properly report inventory on the financial
statements.
True False
2. A purchase order establishes an initial record of the receipt of the inventory.

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

True False
4. A subsidiary inventory ledger can be an aid in maintaining inventory levels at their proper levels.
True False
5. Safeguarding inventory and proper reporting of the inventory in the books are the reasons for controlling the
inventory.
True False
6. Inventory controls start when the merchandise is shelved in the store area.
True False
7. A physical inventory should be taken at the end of every month.

True False
8. The specific identification inventory method should be used when the inventory consists of identical, low
cost units that are purchased and sold frequently.
True False
9. The selection of an inventory costing method has no significant impact on the financial statements.
True False
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.
True False
11. When using the FIFO inventory costing method, the most recent costs are assigned to the cost of goods
sold.
True False
12. FIFO is the inventory costing method that follows the physical flow of the goods.
True False
13. Under the LIFO inventory costing method, the most recent costs are assigned to ending inventory.
True False
14. The average cost inventory method is the rarely used with a perpetual inventory system.
True False
15. If the perpetual inventory system is used, the account entitled Merchandise Inventory is debited for
purchases of merchandise.
True False
16. Under the periodic inventory system, the merchandise inventory account continuously discloses the amount
of inventory on hand.
True False
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.
True False
18. The three inventory costing methods will normally each yield different amounts of net income.
True False
19. The average cost method will always yield results between FIFO and LIFO.
True False
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.
True False
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.
True False
22. During periods of rapidly rising costs, the use of the LIFO method results in illusory or inventory profits.
True False
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.
True False
24. During periods of increasing costs, an advantage of the LIFO inventory cost method is that it matches more
recent costs against current revenues.
True False
25. In valuing damaged merchandise for inventory purposes, net realizable value is the estimated selling price
less any direct costs of disposal.
True False
26. Unsold consigned merchandise should be included in the consignee's inventory.

True False
27. If ending inventory for the year is understated, net income for the year is overstated.
True False
28. If ending inventory for the year is overstated, owner's equity reported on the balance sheet at the end of the
year is understated.
True False
29. The lower of cost or market is a method of inventory valuation.

True False
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 its owner.
True False
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.
True False
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.
True False
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.
True False
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.
True False
35. Most large companies will use only one inventory costing methods for all of its different segments.
True False
36. Direct disposal costs do not include special advertising or sales commissions.
True False
37. Inventory errors, if not discovered, will self-correct in two years.

True False
38. Generally, the lower the number of days' sales in inventory, the better.
True False
39. One negative effect of carrying too much inventory is risk that customers will change their buying habits.
True False
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.
True False
41. Inventory turnover measures the length of time is takes to acquire, sell and replace the inventory.
True False
42. In the retail inventory method, the cost to retail ratio is equal to the cost of goods sold divided by the retail
price of the good sold.
True False
43. Use of the retail inventory method requires taking a physical count of inventory.
True False
44. If a fire destroys the merchandise inventory, the gross profit method can be used to estimate the cost of
merchandise destroyed.
True False
45. If a company uses the periodic inventory system to cost its inventory, the gross profit method is a method
that can be used to check on theft when the actual inventory is taken by the company.
True False
46. Match the following documents used for inventory control:
1. authorizes the purchase of inventory from an Vendor’s

approved vendor Invoice ____
2. establishes an initial record of the receipt of
inventory Purchase Order ____
3. last document in the chain, use to compare all three Receiving
for accuracy Report ____
47. Match the following cost flow assumption to their inventory costing method:
1. Cost flow is an average of the costs. Average Cost ____

2. Cost flow is in the reverse order in which the Last-in, Last-out
cost were incurred. (LIFO) ____
3. Cost flow matches the unit sold to the unit Specific
purchased. Identification ____
4. Cost flow is in the order in which the costs were First-in, First-out
incurred. (FIFO) ____
48. 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
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
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
51. 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.
52. 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
53. 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
54. 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
55. The two most widely used methods for determining the cost of inventory are
A. FIFO and LIFO
B. FIFO and average
C. LIFO and average
D. gross profit and average
56. Cost flow is in the order in which costs were incurred when using
A. average cost
D. weighted average
57. Cost flow is in the reverse order in which costs were incurred when using
A. weighted average
D. average cost
58. The inventory method that assigns the most recent costs to cost of goods sold is
A. FIFO
B. LIFO
C. average
59. Inventory costing methods place primary emphasis on assumptions about

A. flow of goods
B. flow of costs
C. flow of goods or flow of costs depending on the method
D. neither flow of goods or flow of costs
60. The inventory costing method that reports the most current prices in ending inventory is
A. FIFO
B. Specific identification
C. LIFO
D. Average cost
61. The inventory costing method that reports the earliest costs in ending inventory is
A. FIFO
B. LIFO
C. Average cost
D. Specific identification
62. 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. Wal-Mart
63. 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
If Addison uses FIFO, the cost of the ending merchandise inventory on September 30 is
A. $800
B. $650
C. $750
D. $700

4 Sold 10 units
17 Sold 20 units
If Addison uses LIFO, the cost of the ending merchandise inventory on September 30 is
A. $800
B. $650
C. $750
D. $700
65. 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.
66. Under the _________ inventory method, accounting records maintain a continuously updated inventory
value.
A. retail
B. periodic
C. physical
D. perpetual
67. 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

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
69. Use the following information to answer the following questions.
The Boxwood Company sells blankets for $60 each. The following was taken from the inventory records
during May. The company had no beginning inventory on May 1.
Date Product Z Units Cost

May 3 Purchase 5 $20
May 10 Sale 3
May 20 Sale 6
May 23 Sale 3
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

May 10 Sale 3
May 20 Sale 6
May 23 Sale 3
Assuming that the company uses the perpetual inventory system, determine the cost of merchandise sold for the sale of May 20 using the FIFO
A. $120
B. $180
C. $136
D. $144

May 10 Sale 3
May 20 Sale 6
May 23 Sale 3
Assuming that the company uses the perpetual inventory system, determine the ending inventory value for the month of May using the FIFO
A. $364
B. $372
C. $324
D. $320

May 10 Sale 3
May 20 Sale 6
May 23 Sale 3
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

May 10 Sale 3
May 20 Sale 6
May 23 Sale 3
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

May 10 Sale 3
May 20 Sale 6
May 23 Sale 3
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
75. 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.
The value of ending inventory using FIFO is:

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

The value of ending inventory using LIFO is:

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

The value of ending inventory using average cost is:

A. $1,353
B. $1,263
C. $1,375
D. $1,150
78. The following lots of a particular commodity were available for sale during the year:

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

of the year according to the FIFO method?
A. $655
B. $620
C. $690
D. $659

of the year according to the average cost method?
A. $655
B. $620
C. $690
D. $659

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 cost of good sold for the year according to the average cost method?
A. $1,380
B. $1,375
C. $1,510
D. $1,250

What is the amount of cost of goods sold for the year according to the FIFO method?
A. $1,380
B. $1,375
C. $1,510
D. $1,250

What is the amount of cost of goods sold for the year according to the LIFO method?
A. $1,380
B. $1,375
C. $1,510
D. $1,250
84. 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

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

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

What is the amount of the inventory at the end of the year using the average cost method?
A. $1,685
B. $1,575
C. $1,805
D. $3,705
88. If Beginning Inventory (BI) + Purchases (P) - Ending Inventory (EI) = Cost of Goods Sold (COGS), an
equivalent equation can be written as?
A. BI + P = COGS - EI
B. BI - P = COGS + EI
C. BI + P = COGS + EI
D. EI + P = COGS - BI
89. 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
90. 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 goods sold than FIFO.
C. FIFO will result in a higher net income than LIFO.
D. LIFO will result in higher income taxes than FIFO.
91. If the revenues are correctly reported and the Gross Profit of a company is understated, what is the effect on
Owner’s Equity?
A. Understated
B. Overstated
C. Correctly Stated
D. None of the above
92. 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
93. 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
94. During a period of falling prices, which of the following inventory methods generally results in the lowest
balance sheet amount for inventory.
A. average method
B. LIFO method
C. FIFO method
D. can not tell without more information
95. 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
96. 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
97. 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 owner's equity?
A. net income is overstated, assets are overstated, owner's equity is understated
B. net income is overstated, assets are overstated, owner's equity is overstated
C. net income is understated, assets are understated, owner's equity is understated
D. net income is understated, assets are understated, owner's equity is overstated
98. 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
99. Merchandise inventory at the end of the year is overstated. Which of the following statements correctly
A. owner's equity is overstated
B. cost of merchandise sold is overstated
C. gross profit is understated
D. net income is understated
100. 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
101. Kristin’s Boutiques has identified the following items for possible inclusion in its December 31, 2010
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, 2010.
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.
102. During the taking of its physical inventory on December 31, 2014, Barry’s Bike Shop incorrectly counted
its inventory as $350,000 instead of the correct amount of $280,000. The effect on the balance sheet and
income statement would be as follows:
A. assets overstated by $70,000;retained earnings understated by $70,000; net income statement understated by
$70,000.
B. assets overstated by $70,000;retained earnings understated by $70,000; no effect on the income statement.
C. assets and retained earnings overstated by $70,000; net income overstated by $70,000.
D. assets and retained earnings overstated by $70,000; net income understated by $70,000.
103. 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.
104. 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 is affected.
105. Too much inventory on hand

A. reduces solvency
B. increases the cost to safeguard the assets
C. increases the losses due to price declines
D. all of the above
106. 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
107. 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
108. Which of the following measures the length of time it takes to acquire, sell and replace inventory?
B. number of days’ sales in inventory
109. For the year ended December 31, 2014 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
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
111. The method of computing inventory that uses records of the selling prices of the merchandise is called
A. retail method
D. average cost
112. 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 (net) 235,000 313,333
May 1-31 Sales (net) 230,000
A. $250,000
B. $360,000
C. $172,500
D. $187,500
113. 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 $ 125,000

Sep. 1-30 Purchases (net) 300,000
Sep. 1-30 Sales (net) 150,000
A. $320,000
B. $192,500
C. $275,000
D. $105,000
114. 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.
115. Garrison Company uses the retail method of inventory costing. They started the year with an inventory
that had a retail cost of $45,000. During the year they purchased an inventory with a retail cost of
$300,000. After performing a physical inventory, they calculated their inventory cost 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
116. 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 their inventory.
C. the company has not kept up with their inventory records.
D. the company is preparing annual financial statements.
117. Stevens Company started the year with an inventory cost of $145,000. During the month of January they
purchased inventory that cost of $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
118. 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
119. 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
120. 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.
121. List three different security measures taken by stores to safeguard inventory.
122. Three identical units of Item Steele Plate are purchased during March, as shown below.
Item Steele Plate Units Cost

Mar. 3 Purchase 1 $830
Mar. 10 Purchase 1 840
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, (b)
LIFO, and (c) average cost methods.
123. Three identical units of Item Magnesium XP are purchased during May, as shown below.
Item Magnesium XP Units Cost

May 10 Purchase 1 136
Total 3 $408
Assume that two units are sold on May 23 for $313. Determine the gross profit for May and ending inventory on May 31 using (a) FIFO, (b) LIFO,
and (c) average cost methods.
124. 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
Assume one unit is sold on October 31 for $28. Determine Cost of Merchandise Sold, Gross Profit, and Ending Inventory under the LIFO method.
Units Cost
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 Average Cost
method.
Units Cost
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 FIFO method.
127. The three identical units of Product Basic H are purchased during July, as shown below.
Date Product Basic H Units Cost

July 3 Purchase 1 $35
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 last out, (c) average cost
flow methods.
128. Beginning inventory, purchases, and sales for Product - Weld TM are as follows:
Sep. 1 Beginning Inventory 24 units @ $15

Sep. 5 Sale 17 units
Sep. 17 Purchase 10 units @ $20
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.
129. The following units of a particular item were available for sale during the year:
Beginning inventory 150 units @ $755

Sale 120 units @ $925
First purchase 400 units @ $785
Second purchase 300 units @ $805
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?

inventory according to LIFO?

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.
132. Using a LIFO perpetual cost flow, calculate the value of the ending inventory and the cost of goods sold
for the month of November of Beamer Company using the data below.
Nov 1 Purchased 600 units $80 each

Nov 4 Sold 200 units
Calculate the following:

1. Inventory valuation at the end of November
2. Calculate the Cost of Goods Sold for November
133. Complete the following table using the perpetual FIFO method of inventory flow.
Inventory
Valuation
Perpetual
FIFO
Date Purchased Units U Units U Inventory Units UInventory
n Sold n Balance nDollar
it it i Balance
C C t
o o C
s s o
t t s
t
s
2-Jul 600 1
2
Bal.
5-Jul 200 1
3
Bal.
7-Jul 300
Bal.
10-Jul 325 1
4
Bal.
12-Jul 300
150
Bal.
18-Jul 250 1
3
Bal.
22-Jul 50
205
Bal.
25-Jul 120
180
Bal.
28-Jul 330 1
5
Bal.
31-Jul 70
5
Ending F
Balance I
F
O
I
N
V
E
N
T
O
R
Y
V
A
L
U
A
T
I
O
N
:
134. Beginning inventory, purchases and sales data for tennis rackets are as follows:
Apr 3 Inventory 12 units @ $45

11 Purchase 13 units @ $47
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
Purchase Merchandise Inventory
s Sold
Date Qty Unit Cost Total Cost Qty Unit Cost Total Cost Qty Unit Cost Total Cost
Balances

14 Sale 18 units
25 Sale 10 units
ending inventory using LIFO.
Cost of
s Sold
Balances
136. Beginning inventory, purchases and sales data for widgets are as follows:

14 Sale 18 units
25 Sale 10 units
Cost of
s Sold
Balances

14 Sale 18 units
25 Sale 10 units
Cost of
s Sold
Balances
138. 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.

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.
140. 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.
141. Complete the chart using the LIFO and FIFO costing methods, assuming a period of increasing costs:
Highest Amount Lowest Amount

Cost of merchandise sold
Gross Profit
Net Income
Ending Merchandise Inventory

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.
143. Using the lower of cost or market, what should the total inventory value be for the following items:
Item Quantity Unit cost price Unit market price Total cost price Tota
l
mar
ket
price
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
Apply the lower-of-cost-or-market method to inventory as a whole.

144. The following information was extracted from the Stone Company’s records.
Gross Sales $232,566

Gross Profit $87,990
Sales Discounts $1,125 (= 1/2 % of Net Sales)
Total Operating Expenses $88, 440
Selling Expenses $33, 560
Complete the following:
Gross Sales
Sales Discounts
Sales Returns & Allowances
Net Sales
Cost of Goods Sold
Gross Profit
Operating Expenses:
Gen. & Admin Expenses
Selling Expenses
Total Operating Expenses
Net Income (Loss)

Doll 10 $7 $2
Horse 5 9 3
146. During the taking of its physical inventory on December 31, 2011, Gentry Supplies Company incorrectly
counted its inventory as $245,000 instead of the correct amount of $254,000. Indicate the affect of the
misstatement on Gentry Supplies Company’s balance sheet and income statement for the year ended December
31, 2011.
147. While taking a physical inventory, a company counts their inventory as less than the actual amount on
hand. How will this error affect the income statement?
148. 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 420 $6 $5
Product D 370 12 14

Gear X 100 $33 $29
Gear Y 75 27 28
150. The following data were taken from the annual reports of Jong Inc., a manufacturer of fireworks, and
Hobson Inc., a manufacturer of computers.
Jong, Inc. Hobson, Inc.

Cost of Goods Sold $830,000 $11,540,000
Inventory, end of year $185,000 315,000
Inventory, beginning of year $235,000 155,000
(a) Determine the (1) inventory turnover and (2) number of day’s sales in inventory for Jong and Hobson. Round your answer to two decimal places.
(b) How would you expect these measures to compare between the companies? Why?
151. 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 (net) 835,000
152. 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?
153. Based upon the following data estimate the cost of ending merchandise inventory:
Sales (net) $250,000

Estimated gross profit rate 25%
Beginning merchandise inventory $9,000

Purchases (net) $211,000
Merchandise available for sale $220,000
154. 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 (net) ?
Merchandise at Retail, October 31 25,340
Merchandise at Cost, October 31 ?
155. 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
156. Describe three inventory cost flow assumptions and how they impact the financial statements.
157. 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 (1) the first-in, first-out (FIFO) method and (2) the last-in, first-out (LIFO)
method. Identify the quantity, unit price, and total cost of each lot in the inventory.
158. 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
Purchases Merc Inventory
handise
Sold
Mar 3
Mar 11
Mar 14
Mar 21
Mar 25
Balances
b. Last-in, first-out
Cost of
Purchases Mer Inventory
chandise
Sold
Mar 3
Mar 11
Mar 14
Mar 21
Mar 25
Balances
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.

Apr. 4 Purchase 15 units at $24
May. 20 Purchase 20 units at $28
Oct. 30 Purchase 18 units at $30
cost using LIFO.
161. 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 $85 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.
162. 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)
163. The units of Product Green-2 available for sale during the year were as follows:

Jun 16 Purchase 29 units @ $33
Sep 28 Purchase 45 units @ $35
There are 17 units of the product in the physical inventory at Sep 30. The periodic inventory system is used. Determine the cost of merchandise
sold by (a) FIFO, (b) LIFO, and (c) average cost methods.
164. Brutus Corporation, a newly formed corporation, has the following transactions during May, 2011, it’s first
month of operation.
May 1 Purchased 500 units @ $25.00 each

May 6 Sold 400 units @ $38.00 each
Calculate total sales, cost of goods 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)
165. Basic inventory data for April 30 are presented below for a business that employs the lower of cost or
market basis of inventory valuation.
Unit Unit Total

Cost Market Lower of
Commodity Quantity Price Price Cost Market C or M
A 35 $ 52 $ 55 _______ _______ _______
B 10 155 150 _______ _______ _______
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.
166. 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.
Indicate which items should be added to (answer: yes) and which items should not be added to (answer: no) the December 31 inventory count.
167. 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
2. What happens if inventory errors are not found and corrected?
168. On the basis of the following data for Barker Industries as of December 31, 2011, 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 Unit Cost Price Unit Market Price

Size 4 9 $17 $19
Size 5 10 17 14
Size 6 14 23 20
Size 7 12 13 15
169. 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 2011. Use a 365-day year. (d) If an inventory
turnover of 12 is average for the industry, how is this company doing?
Item 12/31/10 Amount 12/31/11 Amount

Cost of merchandise sold $172,900 $160,600
Inventory 18,000 12,000
170. The following data were taken from Bowman Inc.
2014
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 Bowman Inc. Round to two decimal places.
171. 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.
April 30, 2012

Cost of merchandise sold $195,640
Inventory:
Beginning 20,500
Ending 18,628
172. During August, the first month of the fiscal year, sales totaled $875,000 and the cost of merchandise
available for sale totaled $700,000. Estimate the cost of the merchandise inventory as of August 31, based on
an estimated gross profit rate of 45%.
173. On the basis of the following data, estimate the cost of the merchandise inventory at March 31 by the retail
method:
Cost Retail
March 1-31 Purchases (net) 850,000 1,650,000
174. 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 (net) 400,000
Chapter 7--Inventories Key
1. One of the two internal control procedures over inventory is to properly report inventory on the financial
statements.
TRUE
2. A purchase order establishes an initial record of the receipt of the inventory.

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

TRUE
4. A subsidiary inventory ledger can be an aid in maintaining inventory levels at their proper levels.
TRUE
5. Safeguarding inventory and proper reporting of the inventory in the books are the reasons for controlling the
inventory.
TRUE
6. Inventory controls start when the merchandise is shelved in the store area.
FALSE
7. A physical inventory should be taken at the end of every month.

FALSE
8. The specific identification inventory method should be used when the inventory consists of identical, low
cost units that are purchased and sold frequently.
FALSE
9. The selection of an inventory costing method has no significant impact on the financial statements.
FALSE
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.
TRUE
11. When using the FIFO inventory costing method, the most recent costs are assigned to the cost of goods
sold.
FALSE
12. FIFO is the inventory costing method that follows the physical flow of the goods.
TRUE
13. Under the LIFO inventory costing method, the most recent costs are assigned to ending inventory.
FALSE
14. The average cost inventory method is the rarely used with a perpetual inventory system.
TRUE
15. If the perpetual inventory system is used, the account entitled Merchandise Inventory is debited for
purchases of merchandise.
TRUE
16. Under the periodic inventory system, the merchandise inventory account continuously discloses the amount
of inventory on hand.
FALSE
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.
TRUE
18. The three inventory costing methods will normally each yield different amounts of net income.
TRUE
19. The average cost method will always yield results between FIFO and LIFO.
TRUE
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.
TRUE
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.
TRUE
22. During periods of rapidly rising costs, the use of the LIFO method results in illusory or inventory profits.
FALSE
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.
FALSE
24. During periods of increasing costs, an advantage of the LIFO inventory cost method is that it matches more
recent costs against current revenues.
TRUE
25. In valuing damaged merchandise for inventory purposes, net realizable value is the estimated selling price
less any direct costs of disposal.
TRUE
26. Unsold consigned merchandise should be included in the consignee's inventory.

FALSE
27. If ending inventory for the year is understated, net income for the year is overstated.
FALSE
28. If ending inventory for the year is overstated, owner's equity reported on the balance sheet at the end of the
year is understated.
FALSE
29. The lower of cost or market is a method of inventory valuation.

TRUE
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 its owner.
FALSE
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.
TRUE
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.
FALSE
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.
TRUE
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.
TRUE
35. Most large companies will use only one inventory costing methods for all of its different segments.
FALSE
36. Direct disposal costs do not include special advertising or sales commissions.
FALSE
37. Inventory errors, if not discovered, will self-correct in two years.

TRUE
38. Generally, the lower the number of days' sales in inventory, the better.
TRUE
39. One negative effect of carrying too much inventory is risk that customers will change their buying habits.
TRUE
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.
TRUE
41. Inventory turnover measures the length of time is takes to acquire, sell and replace the inventory.
FALSE
42. In the retail inventory method, the cost to retail ratio is equal to the cost of goods sold divided by the retail
price of the good sold.
FALSE
43. Use of the retail inventory method requires taking a physical count of inventory.
FALSE
44. If a fire destroys the merchandise inventory, the gross profit method can be used to estimate the cost of
merchandise destroyed.
TRUE
45. If a company uses the periodic inventory system to cost its inventory, the gross profit method is a method
that can be used to check on theft when the actual inventory is taken by the company.
TRUE
46. Match the following documents used for inventory control:
1. authorizes the purchase of inventory from an approved Vendor’s

vendor Invoice 3
2. establishes an initial record of the receipt of inventory Purchase Order 1
3. last document in the chain, use to compare all three for Receiving
accuracy Report 2
47. Match the following cost flow assumption to their inventory costing method:
1. Cost flow is an average of the costs. Average Cost 1

2. Cost flow is in the reverse order in which the cost Last-in, Last-out
were incurred. (LIFO) 2
3. Cost flow matches the unit sold to the unit Specific
purchased. Identification 3
4. Cost flow is in the order in which the costs were First-in, First-out
incurred. (FIFO) 4
48. 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
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
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
51. 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.
52. 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
53. Ending inventory is made up of the oldest purchases when a company uses
A. first-in, first-out
C. average cost
D. retail method
54. 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
D. average cost
55. The two most widely used methods for determining the cost of inventory are
A. FIFO and LIFO
B. FIFO and average
C. LIFO and average
D. gross profit and average
56. Cost flow is in the order in which costs were incurred when using
A. average cost
D. weighted average
57. Cost flow is in the reverse order in which costs were incurred when using
A. weighted average
D. average cost
58. The inventory method that assigns the most recent costs to cost of goods sold is
A. FIFO
B. LIFO
C. average
59. Inventory costing methods place primary emphasis on assumptions about

A. flow of goods
B. flow of costs
C. flow of goods or flow of costs depending on the method
D. neither flow of goods or flow of costs
60. The inventory costing method that reports the most current prices in ending inventory is
A. FIFO
B. Specific identification
C. LIFO
D. Average cost
61. The inventory costing method that reports the earliest costs in ending inventory is
A. FIFO
B. LIFO
C. Average cost
D. Specific identification
62. 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. Wal-Mart

4 Sold 10 units
17 Sold 20 units
If Addison uses FIFO, the cost of the ending merchandise inventory on September 30 is
A. $800
B. $650
C. $750
D. $700

4 Sold 10 units
17 Sold 20 units
If Addison uses LIFO, the cost of the ending merchandise inventory on September 30 is
A. $800
B. $650
C. $750
D. $700
65. 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.
66. Under the _________ inventory method, accounting records maintain a continuously updated inventory
value.
A. retail
B. periodic
C. physical
D. perpetual

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

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

May 10 Sale 3
May 20 Sale 6
May 23 Sale 3
Assuming that the company uses the perpetual inventory system, determine the cost of merchandise sold for the sale of May 20 using the LIFO
A. $136
B. $144
C. $180
D. $120

May 10 Sale 3
May 20 Sale 6
May 23 Sale 3
Assuming that the company uses the perpetual inventory system, determine the cost of merchandise sold for the sale of May 20 using the FIFO
A. $120
B. $180
C. $136
D. $144

May 10 Sale 3
May 20 Sale 6
May 23 Sale 3
Assuming that the company uses the perpetual inventory system, determine the ending inventory value for the month of May using the FIFO
A. $364
B. $372
C. $324
D. $320

May 10 Sale 3
May 20 Sale 6
May 23 Sale 3
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

May 10 Sale 3
May 20 Sale 6
May 23 Sale 3
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

May 10 Sale 3
May 20 Sale 6
May 23 Sale 3
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

The value of ending inventory using FIFO is:

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

The value of ending inventory using LIFO is:

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

The value of ending inventory using average cost is:

A. $1,353
B. $1,263
C. $1,375
D. $1,150

of the year according to the LIFO method?
A. $655
B. $620
C. $690
D. $659

of the year according to the FIFO method?
A. $655
B. $620
C. $690
D. $659

of the year according to the average cost method?
A. $655
B. $620
C. $690
D. $659

What is the amount of cost of good sold for the year according to the average cost method?
A. $1,380
B. $1,375
C. $1,510
D. $1,250

What is the amount of cost of goods sold for the year according to the FIFO method?
A. $1,380
B. $1,375
C. $1,510
D. $1,250

What is the amount of cost of goods sold for the year according to the LIFO method?
A. $1,380
B. $1,375
C. $1,510
D. $1,250
84. 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

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

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

What is the amount of the inventory at the end of the year using the average cost method?
A. $1,685
B. $1,575
C. $1,805
D. $3,705
88. If Beginning Inventory (BI) + Purchases (P) - Ending Inventory (EI) = Cost of Goods Sold (COGS), an
equivalent equation can be written as?
A. BI + P = COGS - EI
B. BI - P = COGS + EI
C. BI + P = COGS + EI
D. EI + P = COGS - BI
89. 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
90. 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 goods sold than FIFO.
C. FIFO will result in a higher net income than LIFO.
D. LIFO will result in higher income taxes than FIFO.
91. If the revenues are correctly reported and the Gross Profit of a company is understated, what is the effect on
Owner’s Equity?
A. Understated
B. Overstated
C. Correctly Stated
D. None of the above
92. 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
93. 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
94. During a period of falling prices, which of the following inventory methods generally results in the lowest
balance sheet amount for inventory.
A. average method
B. LIFO method
C. FIFO method
D. can not tell without more information
95. 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
96. 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
97. 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 owner's equity?
A. net income is overstated, assets are overstated, owner's equity is understated
B. net income is overstated, assets are overstated, owner's equity is overstated
C. net income is understated, assets are understated, owner's equity is understated
D. net income is understated, assets are understated, owner's equity is overstated
98. Merchandise inventory at the end of the year was understated. Which of the following statements correctly
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
99. Merchandise inventory at the end of the year is overstated. Which of the following statements correctly
A. owner's equity is overstated
B. cost of merchandise sold is overstated
C. gross profit is understated
D. net income is understated
100. 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
101. Kristin’s Boutiques has identified the following items for possible inclusion in its December 31, 2010
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, 2010.
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.
102. During the taking of its physical inventory on December 31, 2014, Barry’s Bike Shop incorrectly counted
its inventory as $350,000 instead of the correct amount of $280,000. The effect on the balance sheet and
income statement would be as follows:
A. assets overstated by $70,000;retained earnings understated by $70,000; net income statement understated by
$70,000.
B. assets overstated by $70,000;retained earnings understated by $70,000; no effect on the income statement.
C. assets and retained earnings overstated by $70,000; net income overstated by $70,000.
D. assets and retained earnings overstated by $70,000; net income understated by $70,000.
103. 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.
104. 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 is affected.
105. Too much inventory on hand

A. reduces solvency
B. increases the cost to safeguard the assets
C. increases the losses due to price declines
D. all of the above
106. 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
107. Which of the following measures the relationship between cost of merchandise sold and the amount of
inventory carried during the period?
B. Fixed asset turnover
108. Which of the following measures the length of time it takes to acquire, sell and replace inventory?
B. number of days’ sales in inventory
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
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
111. The method of computing inventory that uses records of the selling prices of the merchandise is called
A. retail method
D. average cost
112. 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 (net) 235,000 313,333
May 1-31 Sales (net) 230,000
A. $250,000
B. $360,000
C. $172,500
D. $187,500
113. 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 $ 125,000

Sep. 1-30 Purchases (net) 300,000
Sep. 1-30 Sales (net) 150,000
A. $320,000
B. $192,500
C. $275,000
D. $105,000
114. 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.
115. Garrison Company uses the retail method of inventory costing. They started the year with an inventory
that had a retail cost of $45,000. During the year they purchased an inventory with a retail cost of
$300,000. After performing a physical inventory, they calculated their inventory cost 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
116. 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 their inventory.
C. the company has not kept up with their inventory records.
D. the company is preparing annual financial statements.
117. Stevens Company started the year with an inventory cost of $145,000. During the month of January they
purchased inventory that cost of $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

Doll 10 $7 $2
Horse 5 9 3
A. $35
B. $80
C. $115
D. $25
119. 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.

Product C 420 $6 $5
Product D 370 12 14
A. $6,960
B. $7,700
C. $6,540
D. $7,280
120. 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.
Answers may vary. Some of these include ink tags, alarm tags, bells that signal a customer is entering the area
to try on clothing, or chains that hook through the sleeves of garment and are locked onto clothing racks.
121. List three different security measures taken by stores to safeguard inventory.
Answers may vary.

- Inventory should be stored in a warehouse or restricted area.
- Physical devices such as two-way mirrors, cameras, security guards.
- Inventory store under lock and key.
- Sensors at each of the exits which are set off by alarm tags.
122. Three identical units of Item Steele Plate are purchased during March, as shown below.
Item Steele Plate Units Cost

Mar. 3 Purchase 1 $830
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, (b)
LIFO, and (c) average cost methods.
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)
c. Average cost $2,550 / 3 = $850 average cost $1,700 ($850 ´ 2)

$275 ($1,125 – $850)
123. Three identical units of Item Magnesium XP are purchased during May, as shown below.
Item Magnesium XP Units Cost

Total 3 $408
Assume that two units are sold on May 23 for $313. Determine the gross profit for May and ending inventory on May 31 using (a) FIFO, (b) LIFO,
and (c) average cost methods.
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 x 2 units))
Units Cost
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.
October 31
Sales $28
Cost of Merchandise Sold 15
Gross Profit $ 13
Ending Inventory ($5 + $13) $18
Units Cost
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 Average Cost
method.
October 31
Sales $28
Cost of Merchandise Sold ($33/3) 11
Gross Profit $ 17
Ending Inventory ($33/3=$11x2) $22
Units Cost
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 FIFO method.
October 31
Sales $28
Cost of Merchandise Sold 5
Gross Profit $23
Ending Inventory ($13 + $15) $28
127. The three identical units of Product Basic H are purchased during July, as shown below.
Date Product Basic H Units Cost

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 last out, (c) average cost
flow methods.
Gross Profit Cost of Merchandise 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

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.
a) Cost of merchandise sold:

7 units @ 15 = $105
1 unit @ 20 = $20
8 units $125
b) Inventory, September 30
9 units @ $20 = $180

inventory according to FIFO?
$193,200 ($805 ´ 240 units)

inventory according to LIFO?
$187,700 [($755 ´ 30 units) + ($785 ´ 200 units) + ($805 ´ 10 units)] = $22,650 + $157,000 + $8,050

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.
a) Cost of merchandise sold:

8 units @ $15 = $120
b) Inventory September
7 units @ $10 = $ 70
2 units @ $15 = $ 30
9 units $100
132. Using a LIFO perpetual cost flow, calculate the value of the ending inventory and the cost of goods sold
for the month of November of Beamer Company using the data below.

Calculate the following:

1. Inventory valuation at the end of November
2. Calculate the Cost of Goods Sold for November
1. Inventory valuation
400 @ 80 = 32,000
75 @ 82 = 6,150
20 @ 84 = 1,680
November Inventory Valuation = $39,830
2. COGS calculation
200 @ 80 = 16,000
275 @ 82 = 22,550
155 @ 84 = 13,020
November Total COGS = $51,570
133. Complete the following table using the perpetual FIFO method of inventory flow.
Inventory
Valuation
Perpetual
FIFO
Date Purchased Units U Units U Inventory Units UInventory
n Sold n Balance nDollar
it it i Balance
C C t
o o C
s s o
t t s
t
s
2-Jul 600 1
2
Bal.
5-Jul 200 1
3
Bal.
7-Jul 300
Bal.
10-Jul 325 1
4
Bal.
12-Jul 300
150
Bal.
18-Jul 250 1
3
Bal.
22-Jul 50
205
Bal.
25-Jul 120
180
Bal.
28-Jul 330 1
5
Bal.
31-Jul 70
5
Ending F
Balance I
F
O
I
N
V
E
N
T
O
R
Y
V
A
L
U
A
T
I
O
N
:
Answers shown in RED.
Inventory
Valuation
Perpetual
FIFO
Date Purchased Units Unit Units Unit Inventory Units Unit Inventory Dollar
Cost Sold Cost Balance Costs Balance
2-Jul 600 12 600 12 7,200.00
Bal.
5-Jul 200 13 600 12 7,200.00
200 13 2,600.00
Bal. 9,800.00
7-Jul 300 12 300 12 3,600.00
200 13 2,600.00
Bal. 6,200.00
10-Jul 325 14 300 12 3,600.00
200 13 2,600.00
325 14 4,550.00
Bal. 10,750.00
12-Jul 300 12 50 13 650.00
150 13 325 14 4,550.00
Bal. 5,200.00
18-Jul 250 13 50 13 650.00
325 14 13 4,550.00
250 3,250.00
Bal. 8,450.00
22-Jul 50 13 120 14 1,680.00
205 14 250 13 3,250.00
Bal. 4,930.00
25-Jul 120 14 70 13 910.00
180 13
Bal. 910.00
28-Jul 330 15 70 13 910.00
330 15 4,950.00
Bal. 5,860.00
31-Jul 70 13 325 15 4,875.00
5 15
End Bal. FIFO 4,875.00
INVENTORY
VALUATION:

14 Sale 18 units
25 Sale 10 units
Cost of
s Sold
Balances
Cost of
s Sold
Apr 3 12 45.00 540.00
Apr 11 13 47.00 611.00 12 45.00 540.00
13 47.00 611.00
Apr 14 12 45.00 540.00 7 47.00 329.00
6 47.00 282.00
Apr 21 9 60 540.00 7 47.00 329.00
9 60.00 540.00
Apr 25 7 47.00 329.00 6 60.00 360.00
3 60.00 180.00
Balances 1,331.00 360.00

14 Sale 18 units
25 Sale 10 units
Cost of
s Sold
Balances
Cost of
s Sold
Apr 3 12 45.00 540.00
Apr 11 13 47.00 611.00 12 45.00 540.00
13 47.00 611.00
Apr 14 13 47.00 611.00 7 45.00 315.00
5 45.00 225.00
Apr 21 9 60 540.00 7 45.00 315.00
9 60.00 540.00
Apr 25 9 60.00 540.00 6 45.00 270.00
1 45.00 45.00
Balances 1,421.00 270.00

14 Sale 18 units
25 Sale 10 units
Cost of
s Sold
Balances
Cost of
s Sold
Apr 3 15 30.00 450.00
Apr 11 12 27.00 324.00 15 30.00 450.00
12 27.00 324.00
Apr 14 12 27.00 324.00 9 30.00 270.00
6 30.00 180.00
Apr 21 7 25 175.00 9 30.00 270.00
7 25.00 175.00
Apr 25 7 25.00 175.00 6 30.00 180.00
3 30.00 90.00
Balances 769.00 180.00

14 Sale 18 units
25 Sale 10 units
Cost of
s Sold
Balances
Cost of
s Sold
Apr 3 15 30.00 450.00
Apr 11 12 27.00 324.00 15 30.00 450.00
12 27.00 324.00
Apr 14 15 30.00 450.00 9 27.00 243.00
3 27.00 81.00
Apr 21 7 25 175.00 9 27.00 243.00
7 25.00 175.00
Apr 25 9 27.00 243.00 6 25.00 150.00
1 25.00 25.00
Balances 799.00 150.00

July 11 Purchase 63 units @ $106
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.
a. $5,624 (36 units at $115 plus 14 units at $106) = $4,140 + $1,484

b. $4,684 (27 units at $90 plus 23 units at $98) = $2,430 + $2,254
c. $5,150 (50 units at $103; $18,540/180 units = $103)
C
o
st
o
f
m
er
c
h
a
n
di
s
e
a
v
ai
la
bl
e
f
o
r
s
al
e:
2 units $2,430
7 at $90
5 units 5,292
4 at $98
6 units 6,678
3 at
$106
36 units at $115 4,140
180 units (at $18,540
average cost
of $103)

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.
a. First-in, first-out (FIFO) method: $7,392 = (48 units ´ $154)

b. Last-in, first-out (LIFO) method: $6,960 = (48 units ´ $145)
c. Average cost method: $7,200 (48 units ´ $150.00), where average cost = $150.00 = $33,750/225 units
Cost of
merchandis
e available
for sale:
60 units at $145 $8,700
90 units at $150 13,500
75 units at $154 11,550
225 units (at $33,750
average cost
of $150)

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.
FIFO: 15 units @ $39 = $585
LIFO: 15 units @ $30 = $450
Average: $3,285 / 91 = $36.10 per unit
Average: 15 units @ $36.10 = $541.50
141. Complete the chart using the LIFO and FIFO costing methods, assuming a period of increasing costs:

Cost of merchandise sold
Gross Profit
Net Income
Ending Merchandise Inventory
Cost of merchandise sold LIFO FIFO
Gross Profit FIFO LIFO
Net Income FIFO LIFO
Ending Merchandise Inventory FIFO LIFO

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.
FIFO Cost of Merchandise Sold (16 x $30 + 30 x $35 + 30 x $39) $2,700

LIFO Cost of Merchandise Sold (45 x $39 + 30 x $35 + 1 x $30) $2,835
Difference $ 135
143. Using the lower of cost or market, what should the total inventory value be for the following items:
Item Quantity Unit cost price Unit market price Total cost price Tota
l
mar
ket
price
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
Apply the lower-of-cost-or-market method to inventory as a whole.
Item Quantity Unit cost price Unit market price Total cost price Total market price Lower of cost or
market
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
144. The following information was extracted from the Stone Company’s records.

Gross Profit $87,990
Sales Discounts $1,125 (= 1/2 % of Net Sales)
Total Operating Expenses $88, 440
Selling Expenses $33, 560
Gross Sales
Sales Discounts
Sales Returns & Allowances
Net Sales
Cost of Goods Sold
Gross Profit
Operating Expenses:
Gen. & Admin Expenses
Selling Expenses
Total Operating Expenses
Net Income (Loss)

Sales Discounts $1,125
Sales Returns & Allowances ** 6,441
Net Sales * $225,000
Cost of Goods Sold *** $137,010
Gross Profit $ 87,990
Operating Expenses:
Gen. & Adm. Expenses $54,880
Selling Expenses $33,560
Total Operating Expenses $88,440
Net Income (Loss) ($450)
* Net Sales: $1,125 = .005 X Net Sales $1,125 / .005 = $225,000

** Sales Returns & Allowances: $232,566 - $225,000 - $1,125 = $6,441
*** Cost of Goods Sold: $225,000 - $87,990 = $137,010
**** Gen. & Adm. Expenses = $88,440 - $33,560 = $54,880

Doll 10 $7 $2
Horse 5 9 3
Item Quantity Selling Price Commission Total
Doll 10 $7 $2 $50
Horse 5 9 3 30
Total $80
146. During the taking of its physical inventory on December 31, 2011, Gentry Supplies Company incorrectly
counted its inventory as $245,000 instead of the correct amount of $254,000. Indicate the affect of the
misstatement on Gentry Supplies Company’s balance sheet and income statement for the year ended December
31, 2011.
Amount of Misstatement
Overstatement (Understatement)
Balance Sheet:
Merchandise inventory understated ($9,000)
Current assets understated ($9,000)
Total assets understated ($9,000)
Owner’s equity understated ($9,000)
Income Statement:
Cost of merchandise sold overstated $9,000
Gross profit understated ($9,000)
Net Income understated ($9,000)
147. While taking a physical inventory, a company counts their inventory as less than the actual amount on
hand. How will this error affect the income statement?
Net income will be understated.

Product C 420 $6 $5
Product D 370 12 14
A B C D E F G
1 Unit Unit Total 1
2 Inventory Cost Market Lower 2
3 Item Quantity Price Price Cost Market of C or M 3
4 Product C 420 $6 $5 $2,520 $2,100 $2,100 4
5 Product D 370 12 14 4,440 5,180 4,440 5
6 Total $6,960 $7,280 $6,540 6

Gear X 100 $33 $29
Gear Y 75 27 28
A B C D E F G
1 Unit Unit Total 1
2 Inventory Cost Market Lower 2
3 Item Quantity Price Price Cost Market of C or M 3
4 Gear X 100 $33 $29 $3,300 $2,900 $2,900 4
5 Gear Y 75 27 28 2,025 2,100 2,025 5
6 Total $5,325 $5,000 $4,925 6
150. The following data were taken from the annual reports of Jong Inc., a manufacturer of fireworks, and
Hobson Inc., a manufacturer of computers.

Cost of Goods Sold $830,000 $11,540,000
Inventory, end of year $185,000 315,000
Inventory, beginning of year $235,000 155,000
(a) Determine the (1) inventory turnover and (2) number of day’s sales in inventory for Jong and Hobson. Round your answer to two decimal places.
(b) How would you expect these measures to compare between the companies? Why?
(a) 1. Inventory Turnover:
. Jong Inc.: 3.95 {$830,000/[($185,000 + $235,000)/2]}

Hobson, Inc: 49.11 {$11,540,000/[($315,000 + $155,000)/2]}
(a) 2. Number of Day’s Sales in Inventory

Ave. Inv. ($185,000 + $235,000)/2 = $ 210,000 ($315,000 + $155,000)/2 = $235,000
Ave. Daily
COGS $830,000 / 365 = $2,274 $11,540,000/ 365 = $31,616
92.35 7.43
b. You would expect Jong’s inventory turnover to be lower. Jong’s business is seasonal in nature, with most of its revenue generated
during the major holidays. Much of its non-holiday inventory will most likely turn over very slowly. Hobson, 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 Hudson cannot risk building large inventories. For these
same reasons, Jong’s Days Sales in Inventory is expected to be higher than Hudson’s.
151. Based on the following data, calculate the estimated cost of the merchandise inventory on March 31 using
the retail method.
Cost Retail
Cost Retail
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 x 70% $94,745
152. 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?
$2,300,000 x 55% = $1,265,000
153. Based upon the following data estimate the cost of ending merchandise inventory:
Sales (net) $250,000

Estimated gross profit rate 25%
Beginning merchandise inventory $9,000

Purchases (net) $211,000

Sales (net) $
2
5
0
,
0
0
0
Less: estimated gross profit ($250,000 x 25%) 6
2
,
5
0
0
Estimated cost of merchandise sold 187,500
Estimated ending merchandise inventory $ 32,500
154. 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
Purchases for October (net) ? 98,344
Merchandise Available for Sale 82,528 ?
Ratio of cost to retail price: ?
Sales for October (net) ?
Merchandise at Cost, October 31 ?

Cost Retail
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 (net) 92,557
Merchandise at Cost, October 31 17,738
155. 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
(a) safeguarding the inventory from damage or theft

(b) safeguarding the inventory from damage or theft and reporting inventory in the financial statements
(c) reporting inventory in the financial statements
156. Describe three inventory cost flow assumptions and how they impact the financial statements.
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.
157. 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
16 Sale 10 units
23 Sale 25 units
Calculate the cost of the ending inventory at June 30, using (1) the first-in, first-out (FIFO) method and (2) the last-in, first-out (LIFO)
method. Identify the quantity, unit price, and total cost of each lot in the inventory.
(1) June 20 10 units at $62 $ 620

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

8 5 units at $61 305
30 15 units at $63 945
Total $1,550
158. 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
Purchases Merc Inventory
handise
Sold
Mar 3
Mar 11
Mar 14
Mar 21
Mar 25
Balances
b. Last-in, first-out
Cost of
chandise
Sold
Mar 3
Mar 11
Mar 14
Mar 21
Mar 25
Balances
a. Cost of merchandise sold = $461 (180+102+119+60)

Ending Inventory = $120 (6 units @ $20)
Cost of
chandise
Sold
Mar 3 12 15 180
Mar 11 13 17 221 12 15 180
13 17 221
Mar 14 12 15 180 7 17 119
6 17 102
Mar 21 9 20 180 7 17 119
9 20 180
Mar 25 7 17 119 6 20 120
3 20 60
Balances 461 120
b. Cost of merchandise sold = $491 (221+75+180+15)

Cost of
Purchases Merch Inventory
andise Sold
Mar 3 12 15 180
Mar 11 13 17 221 12 15 180
13 17 221
Mar 14 13 17 221 7 15 105
5 15 75
Mar 21 9 20 180 7 15 105
9 20 180
Mar 25 9 20 180 6 15 90
1 15 15
Balances 491 90

Mar. 4 Purchase 15 units at $50
June 7 Purchase 35 units at $58
Nov. 15 Purchase 20 units at $65
cost using FIFO.
$1,880 (20 units at $65 and 10 units at $58)

Apr. 4 Purchase 15 units at $24
May. 20 Purchase 20 units at $28
Oct. 30 Purchase 18 units at $30
cost using LIFO.
$466 (10 units at $25 and 9 units at $24)
161. 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 $85 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.
(a)
10 units @ $85 $ 850

5 units @ $80 400
Total $1,250
(b)
6 units @ $70 $ 420
9 units @ $75 675
Total $1,095
(c)
Average unit cost = $ 78.64
$3,460/44
15 units @ $78.64 = $1,179.55
162. 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)
a. Cost of Merchandise Sold = $642.00

Apr 3 Inventory 24 units @ 10 $240.00

Apr 11 Purchase 26 units @ 12 312.00
Available for Sale 68 $822.00
Apr 14 Sale 24 units @ 10 $240.00

12 units @ 12 144.00
Apr 25 Sale 14 units @ 12 168.00
6 units @ 15 90.00
Cost of Merchandise Sold 56 $642.00
Ending Inventory 12 units @ 15 $180.00

b. Cost of Merchandise Sold = $702.00

Apr 14 Sale 18 units @ 15 $270.00

18 units @ 12 216.00
Apr 25 Sale 8 units @ 12 96.00
12 units @ 10 120.00
Cost of Merchandise Sold 56 $702.00
Ending Inventory 12 units @ 10 $120.00
b. Cost of Merchandise Sold = $12.09 x 56 = $677.00

Ending Inventory = $12.09 x 12 units = $145.00

Average Cost $822/68 = $12.09
Apr 14 & 25 Sales: 56 x $12.09 $677.00
Ending Inv.: 12 x $12.09 $145.00
163. The units of Product Green-2 available for sale during the year were as follows:

Jun 16 Purchase 29 units @ $33
Sep 28 Purchase 45 units @ $35
There are 17 units of the product in the physical inventory at Sep 30. The periodic inventory system is used. Determine the cost of merchandise
sold by (a) FIFO, (b) LIFO, and (c) average cost methods.
FIFO 15 units @ $30 = $450

29 units @ $33 = $957
28 units @ $35 = $980
Total $2,387
LIFO 45 units @ $35 = $1,575

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

72 units @ $33.51 = $2,412.72
164. Brutus Corporation, a newly formed corporation, has the following transactions during May, 2011, it’s first
month of operation.

Calculate total sales, cost of goods 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)
Total Sales (not dependant on inventory method):
May 6 400 @ 38.00 = $ 15,200.00

May 13 450 @ 37.50 = 16,875.00
May 22 275 @ 36.00 = 9,900.00
May 27 300 @ 37.00 = 11,100.00
May 30 100 @ 39.00 = _ 3,900.00
Total Sales 1,525 units $56,975.00
Total Goods Available for Sale
May 1 500 @ 25.00 = $ 12,500.00
May 4 300 @ 24.00 = 7,200.00
May 8 700 @ 23.00 = 16,100.00
May 20 250 @ 25.25 = 6,312.50
May 28 550 @ 26.00 = 14,300.00
Total GAFS 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
Cost of Goods Sold & Ending Inventory
Ending Inventory
Total Units - Units Sold = Ending Inventory
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 Goods Sold

Total Goods Available $56,412.50
Less Ending Inventory 19,981.25
COGS: $36,431.25
Gross Profit
Total Sales $56,975.00
Less COGS 36,431,25
Gross Profit: $20,543.75
3.
Inventory
Valuation
Perpetual
LIFO
Date Purchased Units /
Balance Price Units Sold Cost Inventory Balance
1-May 500 25.00 12,500.00
4-May 300 24.00 7,200.00
Bal. 19,700.00
6-May 300 24.00 (7,200.00)
100 25.00 (2,500.00)
Bal. 400 25.00 10,000.00
8-May 700 23.00 16,100.00
Bal. 400 25.00 10,000.00
700 23.00 16,100.00
26,100.00
13-May 450 23.00 (10,350.00)
Bal. 400 25.00 10,000.00
250 23.00 5,750.00
15,750.00
20-May 250 25.25 6,312.50
Bal. 22,062.50
22-May 250 25.25 (6,312.50)
25 23.00 (575.00)
27-May 225 23.00 (5,175.00)
75 25.00 (1,875.00)
Bal. 325 25.00 8,125.00
28-May 550 26.00 14,300.00
30-May 100 26.00 (2,600.00)
End 325 25.00 8,125.00

Bal. 450 26.00 11,700.00
LIFO Valuation: 19,825.00
Ending Inventory
Total Units - Units Sold = Ending Inventory
2,300 - 1,525 = 775 Units
325 @ $25.00 = $ 8,125.00

450 @ $26.00 = 11,700.00
Cost of Goods Sold

COGS: $36,587.50
Gross Profit
Less COGS 36,587.50
4.
Ending Inventory
500 @ $25.00 = $ 12,500.00

275 @ $24.00 = 6,600.00
Cost of Goods Sold

COGS: $37,312.50
Gross Profit
Less COGS 37,312,50
5.
Average Cost Calculation: $56,412.50 / 2,300 units = $24.53
Ending Inventory: 775 units x $24.53 = $19,010.75
Cost of Goods Sold: $56,412.50 - $19,010.75 = $37,401.75
Gross Profit: $56,975.00 - $37,401.75 = $19,573.25
165. Basic inventory data for April 30 are presented below for a business that employs the lower of cost or
market basis of inventory valuation.
Unit Unit Total

Cost Market Lower of
Commodity Quantity Price Price Cost Market C or M
A 35 $ 52 $ 55 _______ _______ _______
B 10 155 150 _______ _______ _______
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.
(a)
Total
Lower of
Commodity Cost_____ Market C or M
A $1,820 $1,925 $1,820
B 1,550 1,500 1,500
C 2,050 2,125 2,050
D 2,320 2,200 2,200
Total $7,740 $7,750 $7,570
(b)
$155 ($7,300 - $7,145)
166. 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.
Indicate which items should be added to (answer: yes) and which items should not be added to (answer: no) the December 31 inventory count.
(a) no
(b) yes
(c) no
(d) yes
(e) no
(f) yes
167. 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
Goods sold FOB shipping point were in transit on the last day of the year. These goods were not counted as
2. What happens if inventory errors are not found and corrected?
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 goods sold is understated. On the balance sheet, inventory,
current assets, total assets and owners’ capital 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 goods sold is overstated. On the balance sheet, inventory, current assets, total assets
and owners’ capital 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
effect on the financial statements.
2. Inventory errors reverse themselves within two years. Therefore, if not discovered the balance sheet will be
correct two years after the error occurs.
168. On the basis of the following data for Barker Industries as of December 31, 2011, 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 Unit Cost Price Unit Market Price

Size 4 9 $17 $19
Size 5 10 17 14
Size 6 14 23 20
Size 7 12 13 15
Inventory valuation = $701
Inventory Unit Cost Price Unit Market Price Lower

Commodity Quantity Cost Market of C or M
Size 4 9 $17 $19 $153 $171 $153
Size 5 10 17 14 170 140 140
Size 6 14 23 20 322 280 280
Size 7 12 13 15 156 180 156
$801 $771 $729
Baker Industries
Balance Sheet
December 31, 2011
Assets
Current assets:
Merchandise
inventory - at
lower of cost
(first-in,first-o $729.00
ut) or market
169. 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 2011. Use a 365-day year. (d) If an inventory
turnover of 12 is average for the industry, how is this company doing?
Item 12/31/10 Amount 12/31/11 Amount

Cost of merchandise sold $172,900 $160,600
Inventory 18,000 12,000
(a) $160,600  $15,000 = 10.71 times

(b) $160,600  365 = $440.00
(c) $15,000  $440.00 = 34.09 days
(d) This company is close to average, but doing somewhat worse than the overall industry.
170. The following data were taken from Bowman Inc.
2014
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 Bowman Inc. Round to two decimal places.
Inventory turnover = Cost of merchandise sold / Average inventory

Inventory turnover = 894,000 / ((78,000 + 92,000)/2)
Inventory turnover = 894,000 / 85,000
Inventory turnover = 10.52
Number of days’ sales in inventory = Average Inventory / Ave. daily cost of merch. sold
Number of days’ sales in inventory = 85,000 / (894,000/365)
Number of days’ sales in inventory = 85,000 / 2,449.32
Number of days’ sales in inventory = 34.70 days
171. 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.
April 30, 2012

Cost of merchandise sold $195,640
Inventory:
Beginning 20,500
Ending 18,628
(a) $ 195,640 ¸ (($20,500+18,628)/2) = 10

(b) $ 195,640 ¸ 365 = $536
(c) $ 19,564 ¸ $536 = 36.5 days
172. During August, the first month of the fiscal year, sales totaled $875,000 and the cost of merchandise
available for sale totaled $700,000. Estimate the cost of the merchandise inventory as of August 31, based on
an estimated gross profit rate of 45%.
Merchandise available for sale in August $700,000

August sales $875,000
Less estimated gross profit
($875,000 ´ 45%) 393,750
Estimated cost of merchandise sold 481,250
Estimated ending merchandise inventory $218,750
173. On the basis of the following data, estimate the cost of the merchandise inventory at March 31 by the retail
method:
Cost Retail
Test Bank for Accounting 25th Edition Carl S Warren Download
Estimated cost of merchandise inventory, March 31 = $635,250
Cost Retail
$1,100,000 $2,000,000
Ratio of cost to retail price: 55% (1,100,000/2,000,000)
March 1 - 31 Sales (net) 845,000

Merchandise Inventory, March 31 at retail $1,155,000
Merchandise Inventory, March 31 at est. $635,250
cost
($1,155,000 ´ 55%)
174. 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 (net) 400,000
Cost Retail
Merchandise inventory, Mar. 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 (net) 400,000
Merchandise inventory, March 28,
at retail price $665,000
Merchandise inventory, March 28, at
estimated cost price ($665,000 ´ 58%) $385,700
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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.

37. Inventory errors, if not discovered, will self-correct in two years.

46. Match the following documents used for inventory control:

1. authorizes the purchase of inventory from an Vendor’s

1. Cost flow is an average of the costs. Average Cost ____

49. Taking a physical count of inventory

59. Inventory costing methods place primary emphasis on assumptions about

Sep. 1 Inventory 20 units at $20

Sep. 1 Inventory 20 units at $20

Nov. 1 Inventory 20 units at $19

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

Nov. 1 Inventory 20 units at $19

69. Use the following information to answer the following questions.

Date Product Z Units Cost

Date Product Z Units Cost

71. Use the following information to answer the following questions.

Date Product Z Units Cost

Date Product Z Units Cost

73. Use the following information to answer the following questions.

Date Product Z Units Cost

Date Product Z Units Cost

Beginning inventory 10 units at $55

The value of ending inventory using FIFO is:

Beginning inventory 10 units at $55

The value of ending inventory using LIFO is:

Beginning inventory 10 units at $55

The value of ending inventory using average cost is:

Beginning inventory 10 units at $30

Beginning inventory 10 units at $30

Beginning inventory 10 units at $30

Beginning inventory 5 units at $61

Beginning inventory 5 units at $61

Beginning inventory 5 units at $61

84. Under a periodic inventory system

Beginning inventory 10 units at $60

Beginning inventory 10 units at $60

Beginning inventory 10 units at $60

105. Too much inventory on hand

Sep. 1 Merchandise inventory $ 125,000

Item Quantity Selling Price Commission

Item Inventory Quantity Unit Cost Price Unit Market Price

Item Steele Plate Units Cost

Item Magnesium XP Units Cost

Date Product Basic H Units Cost

Average cost per unit $36

Sep. 1 Beginning Inventory 24 units @ $15

Beginning inventory 150 units @ $755

Beginning inventory 150 units @ $755

Sep. 1 Beginning Inventory 24 units @ $10

Nov 1 Purchased 600 units $80 each

Calculate the following:

Apr 3 Inventory 12 units @ $45

Apr 3 Inventory 12 units @ $45

Apr 3 Inventory 15 units @ $30

Apr 3 Inventory 15 units @ $30