1. If inventory is sold with terms of FOB shipping point, the goods belong to the seller while in transit.

True
False

2. Manufacturers have three types of inventory, which include raw materials, work in process, and
finished goods, whereas merchandisers have only raw materials inventory.
True
False

3. If a company uses LIFO to prepare its U.S. tax return, then it must use LIFO to prepare its
financial statements.
True
False

4. A lower of cost or market write-down would be recorded with a debit to Cost of Goods Sold.
True
False

5. Cortez Company updates its inventory records perpetually. The company's records showed a
beginning inventory of $8,000, cost of goods sold of $16,000, and ending inventory of $10,000. How
much inventory was purchased during the year?
$18,000.
$14,000.
$12,000.
$10,000.

6. Maxell Company uses the FIFO method to assign costs to inventory and cost of goods sold. The
company uses a periodic inventory system. Consider the following information:

Date Description # of units Cost per unit

January 1 Beginning inventory 270 $5
June 2 Purchase 70 $4
November 5 Sales 300

What amounts would be reported as the cost of goods sold and ending inventory balances for the
year?

Cost of goods sold $1,500; Ending inventory $190

Cost of goods sold $1,620; Ending inventory $180
Cost of goods sold $1,430; Ending inventory $200
Cost of goods sold $1,470; Ending inventory $160
7. The Xu Corporation uses a periodic inventory system. The company has a beginning inventory of
355 units at $5 each on January 1. Xu purchases 555 units at $4 each in February and 255 units at
$6 each in March. There were no additional purchases or sales during the remainder of the quarter.

Xu sells 355 units during the quarter. If Xu uses the LIFO method, what is its cost of goods sold for
the first quarter?

$1,930
$1,675
$1,830
$2,185.

8. If inventory costs have been falling during the year, which cost method results in the highest gross
profit for the year?
Specific identification
Weighted average cost
LIFO
FIFO

9. FIFO, LIFO, and weighted average inventory costing methods are based on:
assumptions that accountants make about the flow of inventory costs.
the actual physical flow of goods purchased and sold by a business.
surveys taken that ask real companies how they value their inventories.
the accounting equation (assets = liabilities + stockholders' equity).

10. When the market value of inventory drops below the cost recorded in the financial records,
applying the lower of cost or market/net realizable value (LCM/NRV) rule causes:
a decrease in cost of goods sold.
no change in net income, other things being equal.
a decrease in total assets.
an increase in net income.

11. Bonnie Denim Company sells blue jeans. Last year, skinny jeans were fashionable; this year,
relaxed-fit jeans are in style. The company has 475 units of skinny jeans with a cost of $22 per unit
and a market value of $20 per unit. The inventory also includes 1,100 units of relaxed-fit jeans with a
cost of $21 per unit and a market value of $24 per unit.

Required:

Prepare the journal entry, if any, that is required to adjust the Inventory account. (If no entry is
required for a transaction/event, select "No Journal Entry Required" in the first account field.)

Explanation:
Cost of goods sold [475 units × ($22 − $20)] = $950