Test bank accounting 25th editon warren chapter 7 inventories

If Beginning Inventory BI + Purchases P - Ending Inventory EI = Cost of Goods Sold COGS, an equivalent equation can be written as?. Determine the gross profit, cost of merchandise sold,

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9 The selection of an inventory costing method has no significant impact on the financial statements

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

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

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

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

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

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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 last document in the chain, use to compare all three

for accuracy

Vendor’s Invoice

2 establishes an initial record of the receipt of

3 authorizes the purchase of inventory from an

approved vendor

Receiving Report

47 Match the following cost flow assumption to their inventory costing method:

1 Cost flow matches the unit sold to the unit

2 Cost flow is in the reverse order in which the

cost were incurred

Last-in, Last-out

(LIFO)

3 Cost flow is an average of the costs

Specific Identification

4 Cost flow is in the order in which the costs were

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

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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

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

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

C flow of goods or flow of costs depending on the method

D neither flow of goods or flow of costs

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

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

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66 Under the _ inventory method, accounting records maintain a continuously updated inventory value

67 The inventory data for an item for November are:

68 The inventory data for an item for November are:

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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

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75 The following units of an inventory item were available for sale during the year:

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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:

The value of ending inventory using LIFO is:

The value of ending inventory using average cost is:

78 The following lots of a particular commodity were available for sale during the year:

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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?

of the year according to the FIFO method?

of the year according to the average cost method?

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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?

What is the amount of cost of goods sold for the year according to the FIFO method?

What is the amount of cost of goods sold for the year according to the LIFO method?

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

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What is the amount of the inventory at the end of the year using the FIFO method?

What is the amount of the inventory at the end of the year using the LIFO method?

What is the amount of the inventory at the end of the year using the average cost method?

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88 If Beginning Inventory (BI) + Purchases (P) - Ending Inventory (EI) = Cost of Goods Sold (COGS), an equivalent equation can be written as?

89 During a period of consistently rising prices, the method of inventory that will result in reporting the

greatest cost of merchandise sold is

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

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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?

95 Damaged merchandise that can be sold only at prices below cost should be valued at

A net realizable value

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

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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 states the effect of the error?

A owner's equity is overstated

B cost of merchandise sold is overstated

C gross profit is understated

D net income is understated

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

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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

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?

A inventory turnover

B number of days’ sales in inventory

C retail method of inventory costing

D gross profit method of inventory costing

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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

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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

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

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118 Determine the total value of the merchandise using Net Realizable Value:

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

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122 Three identical units of Item Steele Plate are purchased during March, as shown below

123 Three identical units of Item Magnesium XP are purchased during May, as shown below

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Assume one unit is sold on October 31 for $28 Determine Cost of Merchandise Sold, Gross Profit, and Ending Inventory under the LIFO method.

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127 The three identical units of Product Basic H are purchased during July, as shown below

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

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:

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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?

130 The following units of a particular item were available for sale during the year:

131 Beginning inventory, purchases, and sales for Product - Weld TM are as follows:

Sep 1 Beginning Inventory 24 units @ $10

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.

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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

Nov 12 Sold 275 units

Nov 23 Sold 155 units

Calculate the following:

1 Inventory valuation at the end of November

2 Calculate the Cost of Goods Sold for November

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133 Complete the following table using the perpetual FIFO method of inventory flow

t

Units Sold

U n

it C o s

t

Inventory Units Balance

U n i

t C o s t

s

Inventory Dollar Balance

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Ending

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:

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

Purchase

s

Cost of Merchandise Sold

Inventory Date Qty Unit Cost Total Cost Qty Unit Cost Total Cost Qty Unit Cost Total Cost

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135 Beginning inventory, purchases and sales data for tennis rackets are as follows:

ending inventory using LIFO

Purchase

s

136 Beginning inventory, purchases and sales data for widgets are as follows:

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ending inventory using LIFO

Purchase

s

137 Beginning inventory, purchases and sales data for widgets are as follows:

ending inventory using FIFO

Purchase

s

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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.

139 The units of an item available for sale during the year were as follows:

January 11 Inventory 60 units @ $145

February 27 Purchase 90 units @ $150

November 21 Purchase 75 units @ $154

There are 48 units of the item in the physical inventory at December 31 The periodic inventory system is used Determine the inventory cost by (a) the first-in, first-out method, (b) the last-in, first-out method, and (c) the average cost method Show your work.

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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

141 Complete the chart using the LIFO and FIFO costing methods, assuming a period of increasing costs:

142 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

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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

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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

145 Determine the total value of the merchandise using Net Realizable Value:

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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

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149 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

Item Inventory Quantity Unit Cost Price Unit Market Price

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?

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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?

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