Deck 6: Inventories

Question 1

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.

Answer 1

True

Question 2

FIFO is the inventory costing method that follows the physical flow of the goods.

Answer 2

True

Question 3

Inventory controls start when the merchandise is shelved in the store area.

Answer 3

False

Question 4

When using the FIFO inventory costing method, the most recent costs are assigned to the cost of goods sold.

Question 5

The weighted average cost method will always yield results between FIFO and LIFO.

Question 6

Under the LIFO inventory costing method, the most recent costs are assigned to ending inventory.

Question 7

Under the periodic inventory system, the inventory account continuously discloses the amount of inventory on hand.

Question 8

One of the two internal control procedures over inventory is to properly report inventory on the financial statements.

Question 9

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.

Question 10

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

Question 11

Under the periodic inventory system, a physical inventory is taken to determine the cost of the inventory on hand and the cost of the goods sold.

Question 12

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

Question 13

If the perpetual inventory system is used, the inventory account is debited for purchases of merchandise.

Question 14

A subsidiary inventory ledger can be an aid in maintaining inventory levels at their proper levels.

Question 15

Safeguarding inventory and proper reporting of the inventory in the financial statements are the reasons for controlling the inventory.

Question 16

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

Question 17

The three inventory costing methods will normally each yield different amounts of net income.

Question 18

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.

Question 19

The choice of an inventory costing method has no significant impact on the financial statements.

Question 20

The specific identification inventory method should be used when the inventory consists of identical, low-cost units that are purchased and sold frequently.

Question 21

When 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.

Question 22

If ending inventory for the year is overstated, stockholders' equity reported on the balance sheet at the end of the year is understated.

Question 23

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.

Question 24

One negative effect of carrying too much inventory is risk that customers will change their buying habits.

Question 25

Direct disposal costs do not include special advertising or sales commissions.

Question 26

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

Question 27

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

Question 28

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.

Question 29

Generally, the lower the number of days' sales in inventory, the better.

Question 30

Inventory turnover measures the length of time it takes to acquire, sell, and replace the inventory.

Question 31

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.

Question 32

In valuing merchandise for inventory purposes, net realizable value is the estimated selling price less any direct costs of disposal.

Question 33

It's not unusual for large companies to use different inventory costing methods for different segments of its inventory.

Question 34

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

Question 35

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.

Question 36

If ending inventory for the year is understated, net income for the year is overstated.

Question 37

During periods of increasing costs, an advantage of the LIFO inventory cost method is that it matches more recent costs against current revenues.

Question 38

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.

Question 39

During periods of rapidly rising costs, the use of the LIFO method results in illusory or inventory profits.

Question 40

"Market" as used in the phrase "lower of cost or market" for valuing inventory, refers to the price at which the inventory is being offered for sale by the company.

Question 41

​All of the following are documents used for inventory control except

A)a ​petty cash voucher
B)a ​vendor's invoice
C)​a receiving report
D)​a purchase order

Question 42

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

Question 43

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
B)last-in, first-out
C)first-in, first-out
D)average cost

Question 44

The inventory method that assigns the most recent costs to cost of goods sold is

A)FIFO
B)LIFO
C)weighted average
D)specific identification

Question 45

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

Question 46

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 goods sold.

Question 47

The inventory costing method that reports the earliest costs in ending inventory is

A)FIFO
B)LIFO
C)weighted average
D)specific identification

Question 48

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.

Question 49

The primary objectives of control over inventory are

A)safeguarding the inventory from damage and maintaining constant observation of the inventory
B)reporting inventory in the financial statements
C)maintaining constant observation of the inventory and reporting inventory in the financial statements
D)safeguarding inventory from damage and reporting inventory in the financial statements

Question 50

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

Question 51

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

Question 52

Cost flow is in the order in which costs were incurred when using

A)average cost
B)last-in, first-out
C)first-in, first-out
D)weighted average

Question 53

Which document authorizes the purchase of the inventory from an approved vendor?

A)the purchase order
B)the petty cash voucher
C)the receiving report
D)the vendor's invoice

Question 54

If a fire destroys the inventory, the gross profit method can be used to estimate the cost of merchandise destroyed.

Question 55

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

Question 56

Cost flow is in the reverse order in which costs were incurred when using

A)weighted average
B)last-in, first-out
C)first-in, first-out
D)average cost

Question 57

Which document establishes an initial record of the receipt of the inventory?​

A)​receiving report
B)​vendor's invoice
C)​purchase order
D)​petty cash voucher

Question 58

Use of the retail inventory method requires taking a physical count of inventory.

Question 59

The inventory costing method that reports the most current prices in ending inventory is

A)FIFO
B)specific identification
C)LIFO
D)average cost

Question 60

If a company uses a periodic inventory system, the gross profit method can be used to estimate inventory for monthly or quarterly statements.

Question 61

Addison, Inc. uses a perpetual inventory system. Below is information about one inventory item for the month of September. Use this information to answer the questions that follow.
When using a perpetual inventory system, the journal entry to record the cost of goods sold is:

A)debit Cost of Goods Sold; credit Sales
B)debit Cost of Goods Sold; credit Inventory
C)debit Inventory; credit Cost of Goods Sold
D)No journal entry is made to record the cost of goods sold.

Question 62

Addison, Inc. uses a perpetual inventory system. Below is information about one inventory item for the month of September. Use this information to answer the questions that follow.
If Addison uses LIFO, the September 30 inventory balance is

A)$800
B)$650
C)$750
D)$700

Question 63

Which of the following companies would be more likely to use the specific identification inventory costing method?

A)Gordon's Jewelers
B)Lowe's
C)Best Buy
D)Walmart

Question 64

The following lots of Commodity Z were available for sale during the year. Use this information to answer the questions that follow.
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 ending inventory balance at the end of the year according to the LIFO method?

A)$655
B)$620
C)$690
D)$659

Question 65

Addison, Inc. uses a perpetual inventory system. Below is information about one inventory item for the month of September. Use this information to answer the questions that follow.
If Addison uses FIFO, the September 30 inventory is

A)$800
B)$650
C)$750
D)$700

Question 66

Use the information below to answer the following questions.The Boxwood Company sells blankets for $60 each. The following was taken from the inventory records during May. The company had no beginning inventory on May 1.
Assuming that the company uses the perpetual inventory system, determine the May 31 inventory balance using the FIFO inventory cost method.​

A)$364
B)$372
C)$324
D)$320

Question 67

The following units of an inventory item were available for sale during the year. Use this information to answer the following questions.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 ending inventory cost rounded to nearest dollar using average cost is:

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

Question 68

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

Question 69

The following units of an inventory item were available for sale during the year. Use this information to answer the following questions.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 ending inventory cost using FIFO is

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

Question 70

Use the information below to answer the following questions.The Boxwood Company sells blankets for $60 each. The following was taken from the inventory records during May. The company had no beginning inventory on May 1.
Assuming that the company uses the perpetual inventory system, determine the cost of goods sold for the sale of May 20 using the FIFO inventory cost method.

A)$120
B)$180
C)$136
D)$144

Question 71

The following lots of Commodity Z were available for sale during the year. Use this information to answer the questions that follow.
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 ending inventory balance at the end of the year rounded to nearest dollar according to the average cost method?

A)$655
B)$620
C)$690
D)$659

Question 72

The following lots of Commodity Z were available for sale during the year. Use this information to answer the questions that follow.
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 ending inventory balance at the end of the year according to the FIFO method?

A)$655
B)$620
C)$690
D)$659

Question 73

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

Question 74

Use the information below to answer the following questions.The Boxwood Company sells blankets for $60 each. The following was taken from the inventory records during May. The company had no beginning inventory on May 1.
Assuming that the company uses the perpetual inventory system, determine the cost of goods sold for the sale of May 20 using the LIFO inventory cost method.

A)$136
B)$144
C)$180
D)$120

Question 75

The following lots of a Commodity P were available for sale during the year. Use this information to answer the questions that follow. 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 goods sold for the year according to the average cost method?

A)$1,380
B)$1,375
C)$1,510
D)$1,250

Question 76

Addison, Inc. uses a perpetual inventory system. Below is information about one inventory item for the month of September. Use this information to answer the questions that follow.
The inventory data for an item for November are: Using a perpetual system, what is the cost of the goods sold for November if the company uses LIFO?

A)$610
B)$600
C)$590
D)$580

Question 77

The following units of an inventory item were available for sale during the year. Use this information to answer the following questions.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 ending inventory cost using LIFO is

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

Question 78

The following lots of a Commodity P were available for sale during the year. Use this information to answer the questions that follow. 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 goods sold for the year according to the FIFO method?

A)$1,380
B)$1,375
C)$1,510
D)$1,250

Question 79

Addison, Inc. uses a perpetual inventory system. Below is information about one inventory item for the month of September. Use this information to answer the questions that follow.
Under the _____ inventory method, accounting records maintain a continuously updated inventory value.

A)retail
B)periodic
C)physical
D)perpetual

Question 80

Use the information below to answer the following questions.The Boxwood Company sells blankets for $60 each. The following was taken from the inventory records during May. The company had no beginning inventory on May 1.
Assuming that the company uses the perpetual inventory system, determine the May 31 inventory balance using the LIFO inventory cost method.

A)$324
B)$372
C)$320
D)$364