Deck 8: Inventories: Measurement

Question 1

During periods of falling prices, LIFO ending inventory will be less than FIFO ending inventory.

Answer 1

False

Question 2

LIFO always provides a better match of revenue and expense than does FIFO.

Answer 2

True

Question 3

Net purchases are reduced for discounts taken whether the net method is used or the gross method is used.

Answer 3

True

Question 4

LIFO liquidation profits occur when inventory quantity declines and costs are rising.

Question 5

The gross profit ratio is calculated by dividing gross profit by average inventory.

Question 6

Cost of goods on consignment is included in the consignee's inventory until sold.

Question 7

In a periodic inventory system, the cost of purchases is debited to:

A)Purchases.
B)Cost of goods sold.
C)Inventory.
D)Accounts payable.

Question 8

The main difference between perpetual and periodic inventory systems is the timing of the allocation of costs between inventory and cost of goods sold.

Question 9

Inventory costing methods are merely means by which costs are allocated between ending inventory and cost of goods sold.

Question 10

Shipping charges on outgoing goods are included in either cost of goods sold or selling expenses.

Question 11

The choice of cost flow assumption (FIFO, LIFO, or average) does not depend on the actual physical flow of the product.

Question 12

A company that prepares its financial statements according to International Financial Reporting Standards can use all of the same inventory valuation methods as a company that prepares its statements under U.S. GAAP.

Question 13

In a periodic inventory system, the cost of inventories sold is:

A)Debited to accounts receivable.
B)Credited to cost of goods sold.
C)Debited to cost of goods sold.
D)Not recorded at the time goods are sold.

Question 14

LIFO periodic and LIFO perpetual always produce the same amounts for ending inventory.

Question 15

In a perpetual inventory system, the cost of purchases is debited to:

A)Purchases.
B)Cost of goods sold.
C)Inventory.
D)Accounts payable.

Question 16

Unit LIFO is more costly to implement than dollar-value LIFO.

Question 17

In a perpetual inventory system, the cost of inventory sold is:

A)Debited to accounts receivable.
B)Credited to cost of goods sold.
C)Debited to cost of goods sold.
D)Not recorded at the time goods are sold.

Question 18

Physical counts of inventory are never done with perpetual inventory systems.

Question 19

Dollar-value LIFO eliminates the risk of LIFO liquidations.

Question 20

FIFO periodic and FIFO perpetual always produce the same amounts for cost of goods sold.

Question 21

The largest expense on a retailer's income statement is typically:

A)Salaries and wages.
B)Cost of goods sold.
C)Income tax expense.
D)Depreciation expense.

Question 22

Assuming Northwest uses the gross method to record purchases, what is the cost of goods available for sale?

A)$492,500.
B)$496,500.
C)$490,500.
D)$492,550.

Question 23

During periods when costs are rising and inventory quantities are stable, ending inventory will be:

A)Higher under LIFO than FIFO.
B)Lower under average cost than LIFO.
C)Higher under average cost than FIFO.
D)Higher under FIFO than LIFO.

Question 24

What is ending inventory assuming Northwest uses the gross method to record purchases?

A)$112,490.
B)$112,550.
C)$116,500.
D)$120,300.

Question 25

Ending inventory is equal to the cost of items on hand plus:

A)Items in transit sold f.o.b.shipping point.
B)Purchases in transit f.o.b.destination.
C)Items in transit sold f.o.b.destination.
D)None of the above.

Question 26

What is cost of goods available for sale, assuming CBC uses the gross method?

A)$312,480.
B)$326,000.
C)$331,480.
D)$337,000.

Question 27

Under the gross method, purchase discounts taken are:

A)Deducted from interest expense.
B)Added to net purchases.
C)Added to interest income.
D)Deducted from purchases.

Question 28

The Mateo Corporation's inventory at December 31, 2013, was $325,000 based on a physical count priced at cost, and before any necessary adjustment for the following: ▪ Merchandise costing $30,000, shipped f.o.b. shipping point from a vendor on December 30, 2013, was received on January 5, 2014.
▪ Merchandise costing $22,000, shipped f.o.b. destination from a vendor on December 28, 2013, was received on January 3, 2014.
▪ Merchandise costing $38,000 was shipped to a customer f.o.b. destination on December 28, arrived at the customer's location on January 6, 2014.
▪ Merchandise costing $12,000 was being held on consignment by Traynor Company.
What amount should Mateo Corporation report as inventory in its December 31, 2013, balance sheet?

A)$367,000.
B)$427,000.
C)$405,000.
D)$325,000.

Question 29

During periods when costs are rising and inventory quantities are stable, cost of goods sold will be:

A)Higher under FIFO than LIFO.
B)Higher under FIFO than average cost.
C)Lower under average cost than LIFO.
D)Lower under LIFO than FIFO.

Question 30

The LIFO Conformity Rule states that if LIFO is used for:

A)One class of inventory, it must be used for all classes of inventory.
B)Tax purposes, it must be used for financial reporting.
C)One company in an affiliated group, it must be used by all companies in an affiliated group.
D)Domestic companies, it must be used by foreign partners.

Question 31

Assuming CBC uses the gross method to record purchases, ending inventory would be:

A)$6,480.
B)$15,400.
C)$15,480.
D)$21,000.

Question 32

Inventory does not include:

A)Materials used in the production of goods to be sold.
B)Assets intended to be sold in the normal course of business.
C)The cost of office equipment.
D)Assets currently in production for normal sales.

Question 33

In a perpetual average cost system:

A)A new weighted-average unit cost is calculated each time additional units are purchased.
B)The cost allocated to ending inventory is generally the same as it would be in a periodic inventory system.
C)The moving-average unit cost is determined following each sale.
D)The average is determined by dividing the total number of units sold by the cost of units purchased during the period.

Question 34

In a period when costs are rising and inventory quantities are stable, the inventory method that would result in the highest ending inventory is:

A)Weighted average.
B)Moving average.
C)FIFO.
D)LIFO.

Question 35

Purchases equal the invoice amount:

A)Plus freight-in, plus discounts lost.
B)Less purchase returns, plus purchase allowances.
C)Plus freight-in, less purchase discounts.
D)Plus discounts, less purchase returns.

Question 36

The inventory method that will always produce the same amount for cost of goods sold in a periodic inventory system as in a perpetual inventory system would be:

A)FIFO.
B)LIFO.
C)Weighted average.
D)None of the above.

Question 37

Using the gross method, purchase discounts lost are:

A)Included in purchases.
B)Added to accounts payable.
C)Included in interest expense.
D)Deducted from discount income.

Question 38

Under the net method, purchase discounts lost are:

A)Included in purchases.
B)Added to accounts payable.
C)Included in interest expense.
D)Deducted from discount income.

Question 39

Cost of goods sold is given by:

A)Beginning inventory - net purchases + ending inventory.
B)Beginning inventory + accounts payable - net purchases.
C)Net purchases + ending inventory - beginning inventory.
D)Net Purchases + beginning inventory - ending inventory.

Question 40

Alison's dress shop buys dresses from McGuire Manufacturing. Alison purchased dresses from McGuire on July 17 and received an invoice with a list price amount of $6,000 and payment terms of 2/10, n/30. Alison uses the net method to record purchases. Alison should record the purchase at:

A)$5,940.
B)$5,880.
C)$6,000.
D)$6,120.

Question 41

The ending inventory assuming FIFO is:

A)$5,140.
B)$5,080.
C)$5,060.
D)$5,050.

Question 42

What is Nueva's net income if it elects FIFO?

A)$440.
B)$264.
C)$620.
D)$372.

Question 43

What is Nueva's gross profit ratio (rounded) if it elects FIFO?

A)30%.
B)32%.
C)10.7%.
D)60%.

Question 44

The ending inventory under a periodic inventory system assuming average cost (rounding unit cost to three decimal places) is:

A)$5,087.
B)$5,107.
C)$5,077.
D)$5,005.

Question 45

The use of LIFO in accounting for a firm's inventory:

A)Usually matches the physical flow of goods through the business.
B)Is usually used for internal management purposes.
C)Usually provides a better match of expenses with revenues.
D)None of the above is correct.

Question 46

What is Nueva's net income if it elects LIFO?

A)$440.
B)$264.
C)$620.
D)$372.

Question 47

In periods when costs are rising, LIFO liquidations:

A)Can't occur.
B)Are used to reduce tax liabilities.
C)Are a source of off-balance-sheet financing.
D)Distort the net income.

Question 48

Ending inventory assuming LIFO in a periodic inventory system would be:

A)$5,040.
B)$5,055.
C)$5,075.
D)$5,135.

Question 49

The ending inventory assuming LIFO and a periodic inventory system is:

A)$1,580.
B)$1,510.
C)$1,575.
D)$1,470.

Question 50

Company A is identical to Company B in every regard except that Company A uses FIFO and Company B uses LIFO. In an extended period of rising inventory costs, Company A's gross profit and inventory turnover ratio, compared to Company B's, would be:

A)Option a
B)Option b
C)Option c
D)Option d

Question 51

Ending inventory using the average cost method (rounded) is:

A)$650.
B)$1,000.
C)$707.
D)$600.

Question 52

Ending inventory using the FIFO method is:

A)$650.
B)$1,000.
C)$707.
D)$600.

Question 53

The ending inventory assuming LIFO and a perpetual inventory system is:

A)$1,545.
B)$1,470.
C)$1,580.
D)$1,510.

Question 54

The use of LIFO during a long inflationary period can result in:

A)A net increase in income tax expense.
B)An inflated balance sheet.
C)Significant cash flow advantages over FIFO.
D)A reduction in inventory turnover over FIFO.

Question 55

What is Nu's net income if it elects LIFO?

A)$288.
B)$144.
C)$240.
D)$480.

Question 56

What is Nu's gross profit ratio if it elects LIFO?

A)80%.
B)49%.
C)40%.
D)5%.

Question 57

Ending inventory using the LIFO method is:

A)$650.
B)$1,000.
C)$707.
D)$600.

Question 58

Company C is identical to Company D in every respect except that Company C uses LIFO and Company D uses average costs. In an extended period of rising inventory costs, Company C's gross profit and inventory turnover ratio, compared to Company D's, would be:

A)Option a
B)Option b
C)Option c
D)Option d

Question 59

Ending inventory assuming LIFO in a perpetual inventory system would be:

A)$4,960.
B)$5,060.
C)$5,080.
D)$5,140.

Question 60

What is Nu's net income if it elects FIFO?

A)$480.
B)$288.
C)$1,360.
D)$144.

Question 61

The average days inventory for ATC (rounded) for 2013 is:

A)Less than 100 days.
B)114 days
C)132 days.
D)151 days.

Question 62

Robertson Corporation's inventory balance was $22,000 at the beginning of the year and $20,000 at the end. The inventory turnover ratio for the year was 6.0 and the gross profit ratio 40%. What were net sales for the year?

A)$126,000.
B)$200,000.
C)$120,000.
D)$210,000.

Question 63

Suppose that Badger's 2015 ending inventory, valued at year-end costs, was $153,600 and that the relative cost index for this inventory in 2015 was 1.20. What inventory balance would Badger report on its 12/31/15 balance sheet?

A)$128,000.
B)$129,800.
C)$153,600.
D)None of the above is correct.

Question 64

ATC's inventory turnover ratio for 2013 is:

A)2.42.
B)2.76.
C)3.21.
D)None of the above is correct.

Question 65

Bond Company adopted the dollar-value LIFO inventory method on January 1, 2013. In applying the LIFO method, Bond uses internal cost indexes and the multiple-pools approach. The following data were available for Inventory Pool No. 3 for the two years following the adoption of LIFO: Under the dollar-value LIFO method, the inventory at December 31, 2014, should be

A)$357,600.
B)$350,000.
C)$351,600.
D)None of the above.

Question 66

HH Company uses LIFO. HH disclosed that if FIFO had been used, inventory at the end of 2013 would have been $20 million lower than the difference between LIFO and FIFO at the end of 2012. Assuming HH has a 30% income tax rate:

A)Its reported cost of goods for 2013 would have been $14 million less if it had used FIFO rather than LIFO for its financial statements.
B)Its reported cost of goods for 2013 would have been $20 million less if it had used FIFO rather than LIFO for its financial statements.
C)Its reported cost of goods sold for 2013 would have been $14 million higher if it had used FIFO rather than LIFO for its financial statements.
D)Its reported cost of goods sold for 2013 would have been $20 million higher if it had used FIFO rather than LIFO for its financial statements.

Question 67

When reported in financial statements, a LIFO allowance account usually:

A)Is shown in the firm's income statement.
B)Is added to LIFO cost to indicate what the inventory would cost on a FIFO basis.
C)Indicates the effect on income if LIFO were not used.
D)Shows the current rate of inflation for that asset.

Question 68

Compared to dollar-value LIFO, unit LIFO is:

A)Less costly to implement.
B)Less susceptible to LIFO liquidation.
C)More costly to implement.
D)More concerned with cost indexes.

Question 69

ATC's gross profit ratio (rounded) in 2013 is:

A)53.4%.
B)51.9%.
C)50.3%.
D)None of the above is correct.

Question 70

Suppose that Badger's 2014 ending inventory, valued at year-end costs, was $143,000 and that the relative cost index for this inventory in 2014 was 1.10. In determining the inventory balance should Badger report in its 12/31/14 balance sheet:

A)An additional layer of $23,000 is added to the 1/1/14 balance.
B)An additional layer of $22,000 is added to the 1/1/14 balance.
C)An additional layer of $11,000 is added to the 1/1/14 balance.
D)None of the above is correct.

Question 71

Thompson's 2013 inventory turnover ratio is:

A)3.91.
B)4.00.
C)4.88.
D)5.00.

Question 72

What inventory balance should Badger report on its 12/31/13 balance sheet?

A)$126,000
B)$121,000
C)$120,000
D)$100,000

Question 73

If a company uses LIFO, a LIFO liquidation is problematic for a company's income taxes:

A)When inventory purchase costs are rising.
B)When inventory purchase costs are declining.
C)Whether inventory purchase costs are declining or rising.
D)LIFO liquidations are not problematic for a company's income taxes.

Question 74

During 2013, WW Inc. reduced its LIFO eligible inventory quantities due to a problem with its major supplier. The effect of this liquidation was to increase its cost of goods sold by approximately $50 million. WW has a 40% income tax rate. If WW had not experienced these supplier problems and the resulting liquidation:

A)Its 2013 net income would have been $30 million lower because inventory purchase prices were rising.
B)Its 2013 net income would have been $30 million lower because inventory purchase prices were declining.
C)Its 2013 net income would have been $30 million higher because inventory purchase prices were rising.
D)Its 2013 net income would have been $30 million higher because inventory purchase prices were declining.

Question 75

Ramen Inc. adopted dollar-value LIFO (DVL) as of January 1, 2013, when it had a cost inventory of $600,000. Its inventory as of December 31, 2013, was $667,800 at year-end costs and the cost index was 1.06. What was DVL inventory on December 31, 2013?

A)$630,000.
B)$631,800.
C)$636,000.
D)None of the above is correct.

Question 76

GG Inc. uses LIFO. GG disclosed that if FIFO had been used, inventory at the end of 2013 would have been $15 million higher than the difference between LIFO and FIFO at the end of 2012. Assuming GG has a 40% income tax rate:

A)Its reported cost of goods sold for 2013 would have been $9 million higher if it had used FIFO rather than LIFO for its financial statements.
B)Its reported cost of goods sold for 2013 would have been $15 million higher if it had used FIFO rather than LIFO for its financial statements.
C)Its reported net income for 2013 would have been $9 million higher if it had used FIFO rather than LIFO for its financial statements.
D)Its reported net income for 2013 would have been $15 million higher if it had used FIFO rather than LIFO for its financial statements.

Question 77

Dollar-value LIFO:

A)Starts with ending inventory measured at current costs and re-creates LIFO layers for measuring inventory costs.
B)Increases the recordkeeping costs of LIFO.
C)Only is allowed for internal reporting purposes.
D)None of the above is correct.

Question 78

Thompson's 2013 gross profit ratio is:

A)25%.
B)19%.
C)20%.
D)None of the above is correct.

Question 79

In a period when costs are falling and inventory quantities are stable, the lowest taxable income would be reported by using the inventory method of:

A)Weighted average.
B)LIFO.
C)Moving average.
D)FIFO.

Question 80

The primary reason for the popularity of LIFO is that it:

A)Provides better matching of physical flow and cost flow.
B)Saves income taxes currently.
C)Simplifies recordkeeping.
D)Provides a permanent reduction of income taxes.