Question 1 Which of the following methods is appropriate for a business whose inventory consists of a relatively small number of unique, high-cost items? Answer FIFO LIFO ave

Question 1

Which of the following methods is appropriate for a business whose inventory consists of a relatively small number of unique, high-cost items?

Answer

FIFO

LIFO

average

specific identification

2 points

Question 2

Which of the following measures the relationship between cost of merchandise sold and the amount of inventory carried during the period?

Answer

inventory turnover

number of days’ sales in inventory

retail method of inventory costing

gross profit method of inventory costing

2 points

Question 3

Which of the following is used to analyze the efficiency and effectiveness of inventory management?

Answer

inventory turnover only

number of days’ sales in inventory only

both inventory turnover and number of days’ sales in inventory

neither inventory turnover or number of days’ sales in inventory

2 points

Question 4

When merchandise sold is assumed to be in the order in which the purchases were made, the company is using

Answer

first-in, last-out

last-in, first-out

first-in, first-out

average cost

2 points

Question 5

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.

Date

Product Z

Units

Cost

May 3

Purchase

5

$30

May 10

Sale

3

May 17

Purchase

10

$34

May 20

Sale

6

May 23

Sale

3

May 30

Purchase

10

$40

Assuming that the company uses the perpetual inventory system, determine the cost of merchandise sold for the sale of May 20 using the FIFO inventory cost method.

Answer

$250

$180

$196

$204

2 points

Question 6

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.

Date

Product Z

Units

Cost

May 3

Purchase

5

$30

May 10

Sale

3

May 17

Purchase

10

$34

May 20

Sale

6

May 23

Sale

3

May 30

Purchase

10

$40

Assuming that the company uses the perpetual inventory system, determine the ending inventory value for the month of May using the FIFO inventory cost method.

Answer

$494

$502

$422

$520

2 points

Question 7

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.

Date

Product Z

Units

Cost

May 3

Purchase

5

$30

May 10

Sale

3

May 17

Purchase

10

$34

May 20

Sale

6

May 23

Sale

3

May 30

Purchase

10

$40

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.

Answer

$78

$90

$102

$180

2 points

Question 8

Too much inventory on hand

Answer

reduces solvency

increases the cost to safeguard the assets

increases the losses due to price declines

all of the above

2 points

Question 9

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

Answer

FIFO

Specific identification

LIFO

Average cost

2 points

Question 10

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

Answer

FIFO

LIFO

Average cost

Specific identification

2 points

Question 11

Taking a physical count of inventory

Answer

is not necessary when a periodic inventory system is used

should be dine near year-end

has no internal control relevance

is not necessary when a perpetual inventory system is used

2 points

Question 12

Merchandise inventory at the end of the year was understated. Which of the following statements correctly states the effect of the error?

Answer

net income is understated

net income is overstated

cost of merchandise sold is understated

merchandise inventory reported on the balance sheet is overstated

2 points

Question 13

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?

Answer

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.

Kristin has in its warehouse merchandise on consignment from Abby Co.

Kristin has sent merchandise to various retailers on a consignment basis.

Kristin has merchandise on hand which has been returned by customers because of wrong size.

2 points

Question 14

If the cost of an item of inventory is $50 and the current replacement cost is $57, the amount included in inventory according to the lower of cost or market is

Answer

$7

$50

$57

$107

2 points

Question 15

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?

Answer

average cost

LIFO

FIFO

weighted average

2 points

Question 16

If merchandise inventory is being valued at cost and the price level is steadily rising, the method of costing that will yield the highest net income is

Answer

periodic

LIFO

FIFO

average

2 points

Question 17

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

Answer

net realizable value

LIFO

FIFO

average

2 points

Question 18

For the year ended December 31, 2011 Depot Max’s cost of merchandise sold was $54,350. Inventory at the beginning of the year was $6,540. Ending inventory was $7,250. Depot Max’s number of days sales in inventory is closest to

Answer

43

50

8

47

2 points

Question 19

For the year ended December 31, 2011 Depot Max’s cost of merchandise sold was $54,350. Inventory at the beginning of the year was $6,540. Ending inventory was $7,250. Compute Depot Max’s inventory turnover for the year.

Answer

8.3

7.5

7.9

47

2 points

Question 20

If a manufacturer ships merchandise to a retailer on consignment, the unsold merchandise should be included in the inventory of the

Answer

consignee

retailer

manufacturer

shipper

2 points

Question 21

The two most widely used methods for determining the cost of inventory are

Answer

FIFO and LIFO

FIFO and average

LIFO and average

gross profit and average

2 points

Question 22

Under the _________ inventory method, accounting records maintain a continuously updated inventory value.

Answer

retail

periodic

physical

perpetual

2 points

Question 23

During the taking of its physical inventory on December 31, 2010, Barry’s Bike Shop incorrectly counted its inventory as $270,000 instead of the correct amount of $190,000. The effect on the balance sheet and income statement would be as follows:

Answer

assets overstated by $80,000;retained earnings understated by $80,000; net income statement understated by $80,000.

assets overstated by $80,000;retained earnings understated by $80,000; no effect on the income statement.

assets and retained earnings overstated by $80,000; net income overstated by $80,000.

assets and retained earnings overstated by $80,000; net income understated by $80,000.

2 points

Question 24

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

Beginning inventory 5 units at $61

First purchase 15 units at $63

Second purchase 10 units at $74

Third purchase 10 units at $77

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 the year according to the LIFO method?

Answer

$1,380

$1,375

$1,510

$1,250

2 points

Question 25

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?

Answer

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.

Kristin has in its warehouse merchandise on consignment from Abby Co.

Kristin has sent merchandise to various retailers on a consignment basis.

Kristin has merchandise on hand which has been returned by customers because of wrong size.

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