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Multiple Choice
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1
Which of the following costs should be included as part of the cost of merchandise inventory?
A)Import Duties
B)Freight
C)Storage
D)Insurance
E)All of the above
2
Which of the following statements is correct concerning goods in transit?
A)Goods in transit are not included in either the purchaser or seller's inventory count.
B)Goods in transit that are being shipped FOB shipping point should be included in the seller's inventory count.
C)Goods in transit that are being shipped FOB destination should be included in the buyer's inventory count.
D)Goods in transit that are being shipped FOB destination should be included in the seller's inventory count.
E)None of the above
3
Which of the following statements are correct with respect to the buyer and the counting of inventory?
A)The buyer should include items that are shipped FOB destination that are in transit but have not arrived.
B)Goods that are in possession of the consignee (but belong to the consignor) should be included.
C)Damaged and obsolete goods should be counted in inventory if they cannot be sold.
D)None of the above.
4
How should goods being held on consignment be treated in inventory counts?
A)The consignee must report these items in its inventory until sold.
B)The consignor must report these items in its inventory until sold.
C)Goods held on consignment are not reported in inventory by either the consignee or the consignor.
D)Both the consignor and consignee must report goods held on consignment in the inventory.
E)None of the above.
5
Which of the following is not a proper internal control for taking a physical count of inventory?
A)Prenumbered inventory tickets are prepared and distributed to counters.
B)Employees responsible for the inventory perform the count.
C)Counters confirm the validity of inventory, including its existence, amounts, quality, and so forth.
D)Separate counters perform second counts.
E)Managers confirm that all inventories are ticketed once, and only once.
6
Under a perpetual inventory system, which events can cause the account balance to be different from the actual inventory that is available?
A)Theft
B)Loss
C)Damage
D)Errors
E)All of the above
7
Which of the following are GAAP acceptable methods for valuing inventory for external reporting purposes?
A)Specific ID
B)FIFO and LIFO
C)Weighted Average
D)All of the above
E)None of the above
8
The specific identification method is practical for a company which has which of the following characteristics:
A)A high quantity of low cost merchandise
B)A company with expensive, custom-made inventory
C)A company that sells only one product
D)All of the above
9
Which of the following is true of perpetual inventory systems?
A)Advances in technology have greatly reduced the cost of maintaining perpetual systems.
B)It allows managers timely access to inventory information.
C)It provides a competitive advantage to the company.
D)It can help reduce levels of inventory, which can in turn reduce costs.
E)All of the above.
10
Which of the following accounting principles prescribes that a company use the same accounting method for inventory valuation period after period so that financial statements are comparable across periods?
A)the cost principle
B)the consistency principle
C)the conservatism principle
D)the communication principle
E)None of the above
11
Beginning inventory 10 units @ $10 per unit
First purchase35 units @ $11 per unit
First sale20 units
Second purchase 40 units @ $12 per unit
Second sale35 units
Third purchase 15 units @ $13 per unit

What is the value of the ending inventory using a perpetual inventory system with the LIFO costing method?

A)$485
B)$555
C)$520
D)$540
E)None of the above
12
Beginning inventory 10 units @ $10 per unit
First purchase35 units @ $11 per unit
First sale20 units
Second purchase 40 units @ $12 per unit
Second sale35 units
Third purchase 15 units @ $13 per unit

What is the value of cost of goods sold using a perpetual inventory system with the FIFO costing method?

A)$395
B)$675
C)$555
D)$605
E)None of the above
13
Beginning inventory 10 units @ $10 per unit
First purchase35 units @ $11 per unit
First sale20 units
Second purchase 40 units @ $12 per unit
Second sale35 units
Third purchase 15 units @ $13 per unit

Five units of the beginning inventory, 10 units of the first purchase, 15 units of the second purchase, and 15 units of the third purchase were not sold. What is the value of the ending inventory using a perpetual inventory system with the specific identification method?

A)$475
B)$515
C)$465
D)$535
E)$465
14
Beginning inventory 10 units @ $101 per unit
First purchase 30 units @ $105 per unit
First sale 20 units
Second purchase 35 units @ $115 per unit
Second sale 35 units
Third purchase 16 units @ $120 per unit

What is the total value of the ending inventory using a perpetual inventory system with the weighted average costing method?

A)$3,978.00
B)$6,063.75
C)$4,140.00
D)$3,744.00
E)$6,325.00
15
The assignment of costs to the goods sold and to inventory is the same for both perpetual and periodic inventory for which methods of inventory costing?
A)Specific identification
B)FIFO
C)LIFO
D)Weighted average
E)Specific identification and FIFO
16
Which of the following statements is true concerning the effects of inventory methods?
A)LIFO assigns the lowest amount to cost of goods sold during times of rising prices.
B)LIFO assigns the highest amount to cost of goods sold during times of rising prices, yielding the lowest net income.
C)FIFO assigns the highest amount of cost of goods sold during times of rising prices, yielding the highest net income.
D)Weighted average assigns the highest amount of cost of goods sold during times of rising prices.
E)None of the above.
17
Inventory at the end of the current period was erroneously understated. Which of the following is true as a result of the error?
A)Net income for the current year is overstated.
B)The cost of goods sold for the current year is understated.
C)Retained earnings at the end of the current year is overstated.
D)Net income at the end of the following year will be overstated.
E)Retained earnings at the end of the following year will be overstated.
18

Which of the following is true about errors in the ending inventory?

Ending Inventory Cost of GoodsSold Net Income
---------------- -----------------------------
A)Overstated Understated Overstated
B)Understated Understated Understated
C)Overstated Understated Understated
D)Understated Understated Overstated
E)Understated Overstated Overstated
19

Which of the following is true about errors in the beginning inventory?

Beginning Inventory Cost of Goods Sold Net Income
------------------------------------------------
A)Overstated Overstated Overstated
B)Understated Understated Understated
C)Overstated Overstated Understated
D)Understated Overstated Understated
E)Understated Overstated Overstated
20
During periods of inflation, which of the following is true?
A)FIFO will generate the highest net income
B)LIFO will generate the lowest net income
C)The weighted average net income will fall somewhere between the results of FIFO and LIFO.
D)All of the above
E)None of the above
21

Lipton Hardware prepared the following schedule of unit costs and market prices for three items of merchandise inventory.

ItemUnitsCost per unitMarket price per unit
A1,000$.50$.60
B2,000.45.30
C1,500.50.75

Applying the lower-of-cost-or-market price rule, the total value of the entire inventory of the units would be reported as which of the following?

A)$1,850.00
B)$1,267.50
C)$2,080.00
D)$2,580.00
E)None of the above
22
Beginning inventory totals $100,000 and ending inventory totals $140,000. Net sales totals $800,000 and cost of goods sold is $600,000. What is the inventory turnover ratio?
A)2.25
B)2.00
C)5.0
D)6.67
E)None of the above
23
Beginning inventory totals $100,000 and ending inventory totals $140,000. Net sales totals $800,000 and cost of goods sold is $600,000. What is the days' sales in inventory (to the nearest hundredth)?
A)22.25
B)32.50
C)55.33
D)60.65
E)85.17
24

THE NEXT FOUR QUESTIONS ARE BASED ON THE PERIODIC INVENTORY SYSTEM AND MATERIALS PRESENTED IN APPENDIX A OF CHAPTER 5.

DateQuantity CostPer Unit Total Cost
Jan 1, Beginning Inventory 100 $18.00 $ 1,800.00
Mar 4, Purchase400 19.00 7,600.00
May 8, Purchase 800 20.00 16,000.00
Nov 3, Purchase 500 21.00 10,500.00
Merchandise Available 1,800$35,900.00

Five-hundred and seventy units are unsold. Using FIFO costing and a periodic inventory system, what is the cost assigned to the ending merchandise inventory?

A)$10,800
B)$11,900
C)$11,970
D)$11,368
E)None of the above
25
Beginning inventory 10 units @ $10 per unit
First purchase 35 units @ $11 per unit
Second purchase 40 units @ $12 per unit
Third purchase 15 units @ $13 per unit

If 83 units are sold, what is the value of the ending inventory under FIFO costing and a periodic inventory system?

A)$177
B)$905
C)$219
D)$204
E)None of the above
26
Beginning inventory10 units @ $10 per unit
First purchase 35 units @ $11 per unit
Second purchase 40 units @ $12 per unit
Third purchase 15 units @ $13 per unit

If 83 units are unsold, what is the value of the ending inventory under FIFO costing and a periodic inventory system?

A)$977
B)$983
C)$800
D)$941
E)None of the above
27
Date Quantity Cost Per Unit Total Cost
Jan 1, Beginning Inventory 100 $18.00$ 1,800.00
Mar 4, Purchase 400 19.00 7,600.00
May 8, Purchase 800 20.00 16,000.00
Nov 3, Purchase 500 21.00 10,500.00
Merchandise Available 1,800 $35,900.00

Five hundred and twenty units are unsold. Using LIFO costing and a periodic inventory system, what is the value assigned to cost of goods sold?

A)$10,900
B)$25,000
C)$26,100
D)$9,800
E)None of the above
28
Date Quantity Cost Per Unit Total Cost
Jan 1, Beginning Inventory 100 $18.00 $ 1,800.00
Mar 4, Purchase 400 19.00 7,600.00
May 8, Purchase 800 18.25 14,600.00
Nov 3, Purchase 500 20.40 10,200.00
Merchandise Available 1,800$34,200.00

Five-hundred units are unsold. Using a periodic inventory system and weighted average costing, what is the cost assigned to the ending merchandise inventory?

A)$10,200
B)$ 9,400
C)$ 9,800
D)$10,500
E)None of the above
29

THE NEXT FOUR QUESTIONS ARE BASED ON THE RETAIL INVENTORY AND GROSS PROFIT METHODS TO ESTIMATE INVENTORY AND MATERIALS PRESENTED IN APPENDIX B OF CHAPTER 5.

Which of the following would be a reason for using an inventory estimation method?

A)Companies may need interim financial statements where a physical count is not practical.
B)A fire has occurred making a physical count impossible.
C)A flood has washed away a good portion of inventory making a physical count impractical.
D)All of the above
30

Harrison Hardware prepared the following schedule:

Cost Retail
Beginning merchandise inventory $ 40,000 $ 60,000
Purchases for November 80,000 140,000
Sales in November 180,000

Using the retail method for estimating the value of ending inventory, the estimated ending merchandise inventory at cost is which of the following?

A)$ 30,000
B)$180,000
C)$ 14,000
D)$ 20,000
E)None of the above
31

Emerson Furniture prepared the following schedule:

Cost Retail
Beginning merchandise inventory $ 40,000 $ 60,000
Purchases for November 80,000 140,000
Sales in November 180,000

Using the retail method for estimating the value of ending inventory, what is the cost to retail ratio?

A)67%
B)57%
C)60%
D)32%
E)None of the above
32
Work-Days Clothing had beginning merchandise inventory of $45,000. It made purchases of $80,000 and recorded sales of $130,000 during November. Its estimated gross profit on sales was 25%. On November 30, the store was destroyed by fire. What was the value of the merchandise inventory loss?
A)$ 27,500
B)$125,000
C)$ 97,500
D)$ 25,000
E)None of the above





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