Ch.8 Inventories Measurement Test Questions & Answers 10e

Intermediate Accounting, 10e (Spiceland)

Chapter 8 Inventories: Measurement

1) Physical counts of inventory are never made with perpetual inventory systems.

Difficulty: 1 Easy

Topic: Perpetual inventory system

Learning Objective: 08-01 Explain the types of inventory and the differences between a perpetual inventory system and a periodic inventory system.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

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

Difficulty: 1 Easy

Topic: Periodic vs Perpetual inventory system

Learning Objective: 08-01 Explain the types of inventory and the differences between a perpetual inventory system and a periodic inventory system.

Bloom's: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

3) Inventory shipped f.o.b. shipping point remains in the seller's accounting records during transit.

Difficulty: 1 Easy

Topic: Included in inventory—Goods in transit

Learning Objective: 08-02 Explain which physical units of goods should be included in inventory.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: Keyboard Navigation

4) Inventory shipped f.o.b. destination is included the seller's inventory during transit.

Difficulty: 1 Easy

Topic: Included in inventory—Goods in transit

Learning Objective: 08-02 Explain which physical units of goods should be included in inventory.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: Keyboard Navigation

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

Difficulty: 1 Easy

Topic: Included in inventory—Consignment

Learning Objective: 08-02 Explain which physical units of goods should be included in inventory.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: Keyboard Navigation

6) Cost of goods on consignment is included in the consignor's inventory until sold.

Difficulty: 1 Easy

Topic: Included in inventory—Consignment

Learning Objective: 08-02 Explain which physical units of goods should be included in inventory.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: Keyboard Navigation

7) A company includes in ending inventory the cost of merchandise sold that it anticipates will be returned.

Difficulty: 1 Easy

Topic: Included in inventory—Sales returns

Learning Objective: 08-02 Explain which physical units of goods should be included in inventory.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: Keyboard Navigation

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

Difficulty: 1 Easy

Topic: Included in inventory—Net purchases

Learning Objective: 08-03 Account for transactions that affect net purchases and prepare a cost of goods sold schedule.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: Keyboard Navigation

9) Insurance during transit paid by the buyer is recorded by the buyer at the time of shipment.

Difficulty: 2 Medium

Topic: Included in inventory—Net purchases

Learning Objective: 08-03 Account for transactions that affect net purchases and prepare a cost of goods sold schedule.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: Keyboard Navigation

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

Difficulty: 1 Easy

Topic: Included in inventory—Net purchases

Learning Objective: 08-03 Account for transactions that affect net purchases and prepare a cost of goods sold schedule.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: Keyboard Navigation

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

Difficulty: 1 Easy

Topic: Cost flow methods—LIFO

Learning Objective: 08-04 Differentiate between the specific identification, FIFO, LIFO, and average cost methods used to determine the cost of ending inventory and cost of goods sold.

Bloom's: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

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

Difficulty: 1 Easy

Topic: Cost flow methods—FIFO

Learning Objective: 08-04 Differentiate between the specific identification, FIFO, LIFO, and average cost methods used to determine the cost of ending inventory and cost of goods sold.

Bloom's: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

13) Periodic average cost and perpetual average cost always produce the same dollar amounts for ending inventory.

Difficulty: 1 Easy

Topic: Cost flow methods—FIFO

Learning Objective: 08-04 Differentiate between the specific identification, FIFO, LIFO, and average cost methods used to determine the cost of ending inventory and cost of goods sold.

Bloom's: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: Keyboard Navigation

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

Difficulty: 1 Easy

Topic: Cost flow in general

Learning Objective: 08-04 Differentiate between the specific identification, FIFO, LIFO, and average cost methods used to determine the cost of ending inventory and cost of goods sold.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

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

Difficulty: 1 Easy

Topic: Comparison of cost flow methods

Learning Objective: 08-04 Differentiate between the specific identification, FIFO, LIFO, and average cost methods used to determine the cost of ending inventory and cost of goods sold.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

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

Difficulty: 1 Easy

Topic: Factors influencing method choice

Learning Objective: 08-05 Discuss the factors affecting a company's choice of inventory method.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: Keyboard Navigation

17) LIFO usually provides a better match of revenue and expense than does FIFO.

Difficulty: 1 Easy

Topic: Factors influencing method choice

Learning Objective: 08-05 Discuss the factors affecting a company's choice of inventory method.

Bloom's: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

18) LIFO usually results in the reported amount of inventory better approximating the current cost of inventory than does FIFO.

Difficulty: 1 Easy

Topic: Factors influencing method choice

Learning Objective: 08-05 Discuss the factors affecting a company's choice of inventory method.

Bloom's: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: Keyboard Navigation

19) The primary reason most companies choose LIFO is to reduce tax payments.

Difficulty: 1 Easy

Topic: Factors influencing method choice

Learning Objective: 08-05 Discuss the factors affecting a company's choice of inventory method.

Bloom's: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: Keyboard Navigation

20) The LIFO conformity rules allow companies to report LIFO for tax purposes and any method other than FIFO for financial reporting purposes.

Difficulty: 1 Easy

Topic: Factors influencing method choice

Learning Objective: 08-05 Discuss the factors affecting a company's choice of inventory method.

Bloom's: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: Keyboard Navigation

21) The LIFO reserve is the amount by which the current year's cost of goods sold differs between LIFO and FIFO.

Difficulty: 1 Easy

Topic: LIFO reserves

Learning Objective: 08-06 Understand supplemental disclosures of LIFO reserves and the effect of LIFO liquidations on net income.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: Keyboard Navigation

22) In a year that the LIFO reserve increases, net income under LIFO is lower than it would have been under FIFO.

Difficulty: 2 Medium

Topic: LIFO reserves

Learning Objective: 08-06 Understand supplemental disclosures of LIFO reserves and the effect of LIFO liquidations on net income.

Bloom's: Understand; Analyze

AACSB: Reflective Thinking; Analytical Thinking

AICPA/Accessibility: Keyboard Navigation

23) Cost of goods sold is credited for the amount of the decrease in the LIFO reserve.

Difficulty: 2 Medium

Topic: LIFO reserves

Learning Objective: 08-06 Understand supplemental disclosures of LIFO reserves and the effect of LIFO liquidations on net income.

Bloom's: Understand; Analyze

AACSB: Reflective Thinking; Analytical Thinking

AICPA/Accessibility: Keyboard Navigation

24) LIFO liquidation refers to the reduction in reported profits from using LIFO in periods of rising inventory costs.

Difficulty: 1 Easy

Topic: LIFO liquidations

Learning Objective: 08-06 Understand supplemental disclosures of LIFO reserves and the effect of LIFO liquidations on net income.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: Keyboard Navigation

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

Difficulty: 1 Easy

Topic: LIFO liquidations

Learning Objective: 08-06 Understand supplemental disclosures of LIFO reserves and the effect of LIFO liquidations on net income.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

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

Difficulty: 1 Easy

Topic: Dollar-value LIFO

Learning Objective: 08-08 Determine ending inventory using the dollar-value LIFO inventory method.

Bloom's: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: Keyboard Navigation

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

Difficulty: 1 Easy

Topic: Inventory management—Ratios

Learning Objective: 08-07 Calculate the key ratios used by analysts to monitor a company's investment in inventories.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: BB Critical Thinking; FN Risk Analysis / Keyboard Navigation

28) Dollar-value LIFO eliminates the risk of LIFO liquidations.

Difficulty: 1 Easy

Topic: Dollar-value LIFO

Learning Objective: 08-08 Determine ending inventory using the dollar-value LIFO inventory method.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: BB Critical Thinking; FN Measurement; FN Risk Analysis / Keyboard Navigation

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

Difficulty: 1 Easy

Topic: IFRS—Inventory cost flow assumptions

Learning Objective: 08-09 Discuss the primary difference between U.S. GAAP and IFRS with respect to determining the cost of inventory.

Bloom's: Remember

AACSB: Reflective Thinking; Diversity

AICPA/Accessibility: BB Global; FN Measurement / Keyboard Navigation

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

A) Purchases.

B) Cost of goods sold.

C) Inventory.

D) Accounts payable.

Difficulty: 1 Easy

Topic: Perpetual inventory system

Learning Objective: 08-01 Explain the types of inventory and the differences between a perpetual inventory system and a periodic inventory system.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

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

A) Purchases.

B) Cost of goods sold.

C) Inventory.

D) Accounts payable.

Difficulty: 1 Easy

Topic: Periodic inventory system

Learning Objective: 08-01 Explain the types of inventory and the differences between a perpetual inventory system and a periodic inventory system.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

32) 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.

Difficulty: 1 Easy

Topic: Perpetual inventory system

Learning Objective: 08-01 Explain the types of inventory and the differences between a perpetual inventory system and a periodic inventory system.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

33) In a perpetual inventory system, which of the following is recorded at the time of the sale?

A) Sales revenue only.

B) Both sales revenue and cost of goods sold.

C) Cost of goods sold only.

D) Neither sales revenue nor cost of goods sold.

Difficulty: 1 Easy

Topic: Perpetual inventory system

Learning Objective: 08-01 Explain the types of inventory and the differences between a perpetual inventory system and a periodic inventory system.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

34) In a periodic 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.

Difficulty: 1 Easy

Topic: Periodic inventory system

Learning Objective: 08-01 Explain the types of inventory and the differences between a perpetual inventory system and a periodic inventory system.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

35) One difference between periodic and perpetual inventory systems is:

A) Cost of goods sold is not recorded under a perpetual system until the end of the period.

B) Cost of goods sold is not recorded under a periodic system until the end of the period.

C) Cost of goods sold is always significantly higher under a perpetual system.

D) Cost of goods sold is always significantly higher under a periodic system.

Difficulty: 2 Medium

Topic: Periodic vs Perpetual inventory system

Learning Objective: 08-01 Explain the types of inventory and the differences between a perpetual inventory system and a periodic inventory system.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

36) 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.

Difficulty: 1 Easy

Topic: Types of inventory

Learning Objective: 08-01 Explain the types of inventory and the differences between a perpetual inventory system and a periodic inventory system.

Bloom's: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

37) A company has decided that because it employs a perpetual system, a physical count of inventory at the end of the year is not needed. Which of the following choices most likely identifies a flaw with this decision?

A) A physical count is needed because there is no record of units sold during the year.

B) A physical count is needed to understand whether inventory costs have increased or decreased during the year.

C) A physical count is needed because theft, breakage, and spoilage during the year likely have not been captured in a perpetual system.

D) A physical count is needed to understand whether the selling prices of inventory have increased or decreased during the year.

Difficulty: 2 Medium

Topic: Perpetual inventory system

Learning Objective: 08-01 Explain the types of inventory and the differences between a perpetual inventory system and a periodic inventory system.

Bloom's: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: Keyboard Navigation

38) Which of the following might explain why a company has switched from a periodic system to a perpetual system to record inventory transactions?

A) An attempt by management to overstate performance and total assets in the year-end financial statements.

B) The cost of inventory has increased during the year.

C) The selling price of inventory has decreased during the year.

D) The company has made several technological upgrades to its system for tracking inventory items.

Difficulty: 2 Medium

Topic: Periodic vs Perpetual inventory system

Learning Objective: 08-01 Explain the types of inventory and the differences between a perpetual inventory system and a periodic inventory system.

Bloom's: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: Keyboard Navigation

39) The Mateo Corporation's inventory at December 31, 2021, 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, 2021, was received on January 5, 2022.

• Merchandise costing $22,000, shipped f.o.b. destination from a vendor on December 28, 2021, was received on January 3, 2022.

• 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, 2022.

• Merchandise costing $12,000 was being held on consignment by Traynor Company.

What amount should Mateo Corporation report as inventory in its December 31, 2021, balance sheet?

A) $367,000.

B) $427,000.

C) $405,000.

D) $325,000.

Difficulty: 3 Hard

Topic: Included in inventory—Goods in transit

Learning Objective: 08-02 Explain which physical units of goods should be included in inventory.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

40) 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 these answer choices is correct.

Difficulty: 2 Medium

Topic: Included in inventory—Goods in transit

Learning Objective: 08-02 Explain which physical units of goods should be included in inventory.

Bloom's: Analyze

AACSB: Analytical Thinking

AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

41) A company implements the following policy regarding inventory in transit: Goods purchased are included in inventory records, while goods sold are not included in inventory records. Management feels this policy is reasonable because it assigns inventory in transit to the party that initiated the transactions. Which of the following concepts is management not considering in implementing this policy?

A) The likelihood that inventory purchased or sold will be returned.

B) The quantity of the inventory involved in the transaction.

C) The party who has title to the inventory while in transit.

D) The materiality of shipping costs.

Difficulty: 2 Medium

Topic: Included in inventory—Goods in transit

Learning Objective: 08-02 Explain which physical units of goods should be included in inventory.

Bloom's: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: Keyboard Navigation

42) A company does not include in ending inventory any goods that have been shipped to consignees to be sold on consignment. The company has a policy of removing those goods from the inventory records at the time of shipment. Which of the following is an accurate statement regarding the company's policy?

A) The policy is correct if management believes it is probable the inventory will be sold within the next year.

B) The policy is not correct because the company has title to consignment goods until those goods are sold to a third-party customer.

C) The policy is correct if the current selling price of inventory is above its original purchase cost.

D) The policy is not correct because inventory is recorded at fair value, and fair value is not known until those goods are sold.

Difficulty: 2 Medium

Topic: Included in inventory—Consignment

Learning Objective: 08-02 Explain which physical units of goods should be included in inventory.

Bloom's: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: Keyboard Navigation

43) Mogul Company ships merchandise to Ski Outfit in a consignment arrangement. The arrangement specifies that Ski Outfit will attempt to sell the merchandise, and in return, Mogul will pay to Ski Outfit a 20% sales commission on any merchandise sold. During the year, Mogul ships inventory with a cost of $80,000 to Ski Outfit. By the end of the year, $60,000 of the merchandise has been sold to customers for a total of $85,000. What amount of inventory will Mogul report at year end?

A) $0.

B) $5,000.

C) $16,000.

D) $20,000.

Difficulty: 2 Medium

Topic: Included in inventory—Consignment

Learning Objective: 08-02 Explain which physical units of goods should be included in inventory.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: Keyboard Navigation

44) Mogul Company ships merchandise to Ski Outfit in a consignment arrangement. The arrangement specifies that Ski Outfit will attempt to sell the merchandise, and in return, Mogul will pay to Ski Outfit a commission of 20% of the selling price on any merchandise sold. During the year, Mogul ships inventory with a cost of $80,000 to Ski Outfit and pays shipping costs of $8,000. By the end of the year, $60,000 of the merchandise has been sold to customers for a total of $85,000. Mogul allocates $6,000 of the shipping costs to inventory sold and the other $2,000 to inventory not sold. Mogul also paid advertising costs during the year of $10,000. What amount of inventory will Mogul report at year end?

A) $20,000.

B) $22,000.

C) $42,000.

D) $52,000.

Difficulty: 3 Hard

Topic: Included in inventory—Consignment

Learning Objective: 08-02 Explain which physical units of goods should be included in inventory.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: Keyboard Navigation

45) A company's estimate of merchandise that will be returned by customers should be:

A) Included in inventory at an amount equal to the selling price of the merchandise.

B) Included in inventory at an amount equal to the cost of the merchandise.

C) Excluded from inventory but deducted from sales revenue and accounts receivable.

D) None of these answer choices are correct.

Difficulty: 2 Medium

Topic: Included in inventory—Sales returns

Learning Objective: 08-02 Explain which physical units of goods should be included in inventory.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

46) The Constance Corporation's inventory at December 31, 2021, was $125,000 (at cost) based on a physical count of inventory on hand, before any necessary adjustment for the following:

• Merchandise costing $15,000, shipped f.o.b. shipping point from a vendor on December 27, 2021, was received by Constance on January 5, 2022.

• Merchandise costing $45,000 was shipped to a customer f.o.b. shipping point on December 28, 2021, arrived at the customer's location on January 6, 2022.

• Merchandise costing $21,000 was being held on hand for Jess Company on consignment.

• Estimated sales returns are 10% of annual sales. Sales revenue was $550,000 with a gross profit ratio of 25%.

What amount should Constance Corporation report as inventory in its December 31, 2021, balance sheet?

A) $160,250.

B) $145,250.

C) $187,250.

D) $190,250.

Difficulty: 3 Hard

Topic: Included in inventory—Goods in transit; Included in inventory—Sales returns; Inventory management—Ratios; Included in inventory—Goods on consignment

Learning Objective: 08-02 Explain which physical units of goods should be included in inventory.; 08-07 Calculate the key ratios used by analysts to monitor a company's investment in inventories.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

47) 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.

Difficulty: 1 Easy

Topic: Included in inventory—Net purchases

Learning Objective: 08-03 Account for transactions that affect net purchases and prepare a cost of goods sold schedule.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

48) A company purchases inventory for $10,000, with terms 3/10, n/30. The company uses a perpetual system and the net method to record purchases. To record this transaction, the company debits the Inventory account for $9,970. Which of the following statements is correct?

A) The company should instead credit Inventory.

B) The company should instead debit Purchases.

C) The recorded amount should instead be $9,700.

D) Two of the other answers are correct.

Difficulty: 2 Medium

Topic: Included in inventory—Net purchases

Learning Objective: 08-03 Account for transactions that affect net purchases and prepare a cost of goods sold schedule.

Bloom's: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: Keyboard Navigation

49) Management adopts of policy of reporting all shipping costs (freight-in and freight-out) in an operating expense account—Shipping Expense—at the time those costs are incurred. The cost of the physical units sold are reported in the Cost of Goods Sold account at the time those units are sold. Management believes this policy better communicates its inventory decisions to financial statement users. Which of the following statements is correct?

A) Management's policy is not correct because the cost of inventory includes all costs necessary to get the inventory ready for sale.

B) Management's policy is not correct because freight-in should be expensed only when the inventory is sold.

C) Management's policy is not correct because the cost of freight-out represents a reduction of revenue, not an expense.

D) Two of the other answers are correct.

Difficulty: 2 Medium

Topic: Included in inventory—Net purchases

Learning Objective: 08-03 Account for transactions that affect net purchases and prepare a cost of goods sold schedule.

Bloom's: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: Keyboard Navigation

50) Using the gross method, purchase discounts lost are:

A) Included in inventory purchased.

B) Added to accounts payable.

C) Included as a reduction to purchase returns.

D) Deducted from discount income.

Difficulty: 2 Medium

Topic: Included in inventory—Net purchases

Learning Objective: 08-03 Account for transactions that affect net purchases and prepare a cost of goods sold schedule.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

51) 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.

Difficulty: 1 Easy

Topic: Included in inventory—Net purchases

Learning Objective: 08-03 Account for transactions that affect net purchases and prepare a cost of goods sold schedule.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

52) Under the gross method, purchase discounts taken are:

A) Deducted from purchase allowances.

B) Added to net purchases.

C) Added to interest income.

D) Deducted from inventory purchased.

Difficulty: 1 Easy

Topic: Included in inventory—Net purchases

Learning Objective: 08-03 Account for transactions that affect net purchases and prepare a cost of goods sold schedule.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

53) 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.

Difficulty: 2 Medium

Topic: Included in inventory—Net purchases

Learning Objective: 08-03 Account for transactions that affect net purchases and prepare a cost of goods sold schedule.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

54) Northwest Fur Co. started 2021 with $94,000 of merchandise inventory on hand. During 2021, $400,000 in merchandise was purchased on account with credit terms of 1/15, n/45. All discounts were taken. Purchases were all made f.o.b. shipping point. Northwest paid freight charges of $7,500. Merchandise with an invoice amount of $5,000 was returned for credit. Cost of goods sold for the year was $380,000. Northwest uses a perpetual inventory system.

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.

Difficulty: 3 Hard

Topic: Included in inventory—Net purchases

Learning Objective: 08-03 Account for transactions that affect net purchases and prepare a cost of goods sold schedule.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

55) Northwest Fur Co. started 2021 with $94,000 of merchandise inventory on hand. During 2021, $400,000 in merchandise was purchased on account with credit terms of 1/15, n/45. All discounts were taken. Purchases were all made f.o.b. shipping point. Northwest paid freight charges of $7,500. Merchandise with an invoice amount of $5,000 was returned for credit. Cost of goods sold for the year was $380,000. Northwest uses a perpetual inventory system.

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.

Difficulty: 3 Hard

Topic: Included in inventory—Net purchases

Learning Objective: 08-03 Account for transactions that affect net purchases and prepare a cost of goods sold schedule.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

56) Cinnamon Buns Co. (CBC) started 2021 with $52,000 of merchandise on hand. During 2021, $280,000 in merchandise was purchased on account with credit terms of 2/10, n/30. All discounts were taken. Purchases were all made f.o.b. shipping point. CBC paid freight charges of $9,000. Merchandise with an invoice amount of $4,000 was returned for credit. Cost of goods sold for the year was $316,000. CBC uses a perpetual inventory system.

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.

Difficulty: 3 Hard

Topic: Included in inventory—Net purchases

Learning Objective: 08-03 Account for transactions that affect net purchases and prepare a cost of goods sold schedule.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

57) Cinnamon Buns Co. (CBC) started 2021 with $52,000 of merchandise on hand. During 2021, $280,000 in merchandise was purchased on account with credit terms of 2/10, n/30. All discounts were taken. Purchases were all made f.o.b. shipping point. CBC paid freight charges of $9,000. Merchandise with an invoice amount of $4,000 was returned for credit. Cost of goods sold for the year was $316,000. CBC uses a perpetual inventory system.

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.

Difficulty: 3 Hard

Topic: Included in inventory—Net purchases

Learning Objective: 08-03 Account for transactions that affect net purchases and prepare a cost of goods sold schedule.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

58) Cinnamon Buns Co. (CBC) started 2021 with $52,000 of merchandise on hand. During 2021, $280,000 in merchandise was purchased on account with credit terms of 2/10, n/30. All discounts were taken. Purchases were all made f.o.b. shipping point. CBC paid freight charges of $9,000. Merchandise with an invoice amount of $4,000 was returned for credit. Cost of goods sold for the year was $316,000. CBC uses a perpetual inventory system.

Assume instead that (a) freight costs were paid by the vendor, (b) no discounts were taken, and (c) the merchandise on hand at the beginning of 2021 was determined by a physical count that failed to realize that $10,000 of merchandise was being held on consignment for Frosting R Us Inc. What is cost of goods available for sale, assuming CBC uses the gross method to record purchase discounts?

A) $318,000.

B) $327,000.

C) $321,480.

D) $337,000.

Difficulty: 3 Hard

Topic: Included in inventory—Net purchases; Included in inventory—Goods on consignment

Learning Objective: 08-02 Explain which physical units of goods should be included in inventory.; 08-03 Account for transactions that affect net purchases and prepare a cost of goods sold schedule.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

59) 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.

Difficulty: 1 Easy

Topic: Cost flow in general

Learning Objective: 08-04 Differentiate between the specific identification, FIFO, LIFO, and average cost methods used to determine the cost of ending inventory and cost of goods sold.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

60) 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 these answer choices are correct.

Difficulty: 2 Medium

Topic: Cost flow methods—FIFO; Comparison of cost flow methods

Learning Objective: 08-04 Differentiate between the specific identification, FIFO, LIFO, and average cost methods used to determine the cost of ending inventory and cost of goods sold.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

61) 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.

Difficulty: 2 Medium

Topic: Cost flow methods—Average cost perpetual

Learning Objective: 08-04 Differentiate between the specific identification, FIFO, LIFO, and average cost methods used to determine the cost of ending inventory and cost of goods sold.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

62) 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.

Difficulty: 2 Medium

Topic: Comparison of cost flow methods

Learning Objective: 08-04 Differentiate between the specific identification, FIFO, LIFO, and average cost methods used to determine the cost of ending inventory and cost of goods sold.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

63) 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.

Difficulty: 2 Medium

Topic: Comparison of cost flow methods

Learning Objective: 08-04 Differentiate between the specific identification, FIFO, LIFO, and average cost methods used to determine the cost of ending inventory and cost of goods sold.

Bloom's: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

64) 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.

Difficulty: 2 Medium

Topic: Comparison of cost flow methods

Learning Objective: 08-04 Differentiate between the specific identification, FIFO, LIFO, and average cost methods used to determine the cost of ending inventory and cost of goods sold.

Bloom's: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

65) 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.

Difficulty: 2 Medium

Topic: Comparison of cost flow methods

Learning Objective: 08-04 Differentiate between the specific identification, FIFO, LIFO, and average cost methods used to determine the cost of ending inventory and cost of goods sold.

Bloom's: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

66) Which of the following is false regarding the FIFO inventory method?

A) FIFO under a perpetual inventory system results in the same cost of goods sold as FIFO under a periodic inventory system.

B) A company can choose to account for the flow of inventory using the FIFO method even if this doesn't match the actual flow of its inventory.

C) Perishable goods often follow an actual physical flow that is consistent with the FIFO method assumptions.

D) All of the other answer choices are true.

Difficulty: 2 Medium

Topic: Cost flow methods—FIFO

Learning Objective: 08-04 Differentiate between the specific identification, FIFO, LIFO, and average cost methods used to determine the cost of ending inventory and cost of goods sold.

Bloom's: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

67) 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

Difficulty: 2 Medium

Topic: Comparison of cost flow methods; Inventory management—Ratios

Learning Objective: 08-04 Differentiate between the specific identification, FIFO, LIFO, and average cost methods used to determine the cost of ending inventory and cost of goods sold.; 08-07 Calculate the key ratios used by analysts to monitor a company's investment in inventories.

Bloom's: Analyze

AACSB: Analytical Thinking

AICPA/Accessibility: BB Critical Thinking; FN Risk Analysis / Keyboard Navigation

68) 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

Difficulty: 2 Medium

Topic: Comparison of cost flow methods; Inventory management—Ratios

Learning Objective: 08-04 Differentiate between the specific identification, FIFO, LIFO, and average cost methods used to determine the cost of ending inventory and cost of goods sold.; 08-07 Calculate the key ratios used by analysts to monitor a company's investment in inventories.

Bloom's: Analyze

AACSB: Analytical Thinking

AICPA/Accessibility: BB Critical Thinking; FN Risk Analysis / Keyboard Navigation

69) A company uses the periodic average cost method to account for inventory. For the year, the company had the following beginning inventory and purchases:

Sales for the year totaled 1,000 units, leaving 300 units on hand at the end of the year. The company reported ending inventory for $900,000. Which of the following is correct?

A) The amount reported for ending inventory is incorrect because management used a simple average instead of weighted-average to calculate the unit cost of inventory for the year.

B) The amount reported for ending inventory cannot be determined with the information given because the amount depends on which of the 1,000 units were assumed to be sold.

C) The amount reported for ending inventory is incorrect because the unit cost of ending inventory should be the average cost of the last 300 units purchased.

D) The amount reported for ending inventory is correct.

Difficulty: 2 Medium

Topic: Cost flow methods—Average cost periodic

Learning Objective: 08-04 Differentiate between the specific identification, FIFO, LIFO, and average cost methods used to determine the cost of ending inventory and cost of goods sold.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: Keyboard Navigation

70) A company uses the periodic FIFO method to account for inventory. For the year, the company had the following beginning inventory and purchases:

Sales for the year totaled 1,000 units, leaving 300 units on hand at the end of the year. The company reported cost of goods sold as $3,120,000 [(400 units @ $3,000) + (600 units @ $3,200)]. Which of the following is correct?

A) The amount reported for cost of goods sold is incorrect because it assumes the units sold based on a perpetual system instead of a periodic system.

B) The amount reported for cost of goods sold is incorrect because the units assumed sold would first include those in beginning inventory.

C) The amount reported for cost of goods sold is incorrect because the units assumed sold would include all of those purchased on September 1.

D) The amount reported for cost of goods sold is correct.

Difficulty: 2 Medium

Topic: Cost flow methods—FIFO

Learning Objective: 08-04 Differentiate between the specific identification, FIFO, LIFO, and average cost methods used to determine the cost of ending inventory and cost of goods sold.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: Keyboard Navigation

71) Fulbright Corp. uses the periodic inventory system. During its first year of operations, Fulbright made the following purchases (listed in chronological order of acquisition):

• 40 units at $100 per unit

• 70 units at $80 per unit

• 170 units at $60 per unit

Sales for the year totaled 270 units, leaving 10 units on hand at the end of the year.

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

A) $650.

B) $1,000.

C) $707.

D) $600.

Difficulty: 2 Medium

Topic: Cost flow methods—Average cost periodic

Learning Objective: 08-04 Differentiate between the specific identification, FIFO, LIFO, and average cost methods used to determine the cost of ending inventory and cost of goods sold.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

72) Fulbright Corp. uses the periodic inventory system. During its first year of operations, Fulbright made the following purchases (listed in chronological order of acquisition):

• 40 units at $100 per unit

• 70 units at $80 per unit

• 170 units at $60 per unit

Sales for the year totaled 270 units, leaving 10 units on hand at the end of the year.

Ending inventory using the FIFO method is:

A) $650.

B) $1,000.

C) $707.

D) $600.

Difficulty: 2 Medium

Topic: Cost flow methods—FIFO

Learning Objective: 08-04 Differentiate between the specific identification, FIFO, LIFO, and average cost methods used to determine the cost of ending inventory and cost of goods sold.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

73) Fulbright Corp. uses the periodic inventory system. During its first year of operations, Fulbright made the following purchases (listed in chronological order of acquisition):

• 40 units at $100 per unit

• 70 units at $80 per unit

• 170 units at $60 per unit

Sales for the year totaled 270 units, leaving 10 units on hand at the end of the year.

Ending inventory using the LIFO method is:

A) $650.

B) $1,000.

C) $707.

D) $600.

Difficulty: 2 Medium

Topic: Cost flow methods—LIFO periodic

Learning Objective: 08-04 Differentiate between the specific identification, FIFO, LIFO, and average cost methods used to determine the cost of ending inventory and cost of goods sold.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

74) Fulbright Corp. uses the periodic inventory system. During its first year of operations, Fulbright made the following purchases (listed in chronological order of acquisition):

• 40 units at $100 per unit

• 70 units at $80 per unit

• 170 units at $60 per unit

Sales for the year totaled 270 units, leaving 10 units on hand at the end of the year.

In comparing the ending inventory balances of FIFO and LIFO, the ending inventory value under FIFO less the ending inventory balance under LIFO results in a difference of:

A) $400.

B) $(400).

C) $0.

D) $50.

Difficulty: 2 Medium

Topic: Comparison of cost flow methods

Learning Objective: 08-04 Differentiate between the specific identification, FIFO, LIFO, and average cost methods used to determine the cost of ending inventory and cost of goods sold.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

75) Nu Company reported the following pretax data for its first year of operations.

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

A) $480.

B) $360.

C) $1,360.

D) $180.

Difficulty: 3 Hard

Topic: Cost flow methods—FIFO; Factors influencing method choice

Learning Objective: 08-04 Differentiate between the specific identification, FIFO, LIFO, and average cost methods used to determine the cost of ending inventory and cost of goods sold.; 08-05 Discuss the factors affecting a company's choice of inventory method.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

76) Nu Company reported the following pretax data for its first year of operations.

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

A) $288.

B) $180.

C) $240.

D) $480.

Difficulty: 3 Hard

Topic: Cost flow methods—LIFO; Factors influencing method choice

Learning Objective: 08-04 Differentiate between the specific identification, FIFO, LIFO, and average cost methods used to determine the cost of ending inventory and cost of goods sold.; 08-05 Discuss the factors affecting a company's choice of inventory method.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

77) Nu Company reported the following pretax data for its first year of operations.

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

A) 80%.

B) 49%.

C) 40%.

D) 6.4%.

Difficulty: 3 Hard

Topic: Inventory management—Ratios

Learning Objective: 08-07 Calculate the key ratios used by analysts to monitor a company's investment in inventories.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

78) Nueva Company reported the following pretax data for its first year of operations.

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

A) 30%.

B) 32%.

C) 12.9%.

D) 60%.

Difficulty: 3 Hard

Topic: Inventory management—Ratios

Learning Objective: 08-07 Calculate the key ratios used by analysts to monitor a company's investment in inventories.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

79) Nueva Company reported the following pretax data for its first year of operations.

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

A) $440.

B) $330.

C) $620.

D) $465.

Difficulty: 3 Hard

Topic: Cost flow methods—FIFO; Factors influencing method choice

Learning Objective: 08-04 Differentiate between the specific identification, FIFO, LIFO, and average cost methods used to determine the cost of ending inventory and cost of goods sold.; 08-05 Discuss the factors affecting a company's choice of inventory method.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

80) Nueva Company reported the following pretax data for its first year of operations.

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

A) $440.

B) $330.

C) $620.

D) $465.

Difficulty: 3 Hard

Topic: Cost flow methods—LIFO; Factors influencing method choice

Learning Objective: 08-04 Differentiate between the specific identification, FIFO, LIFO, and average cost methods used to determine the cost of ending inventory and cost of goods sold.; 08-05 Discuss the factors affecting a company's choice of inventory method.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

81) Nueva Company reported the following pretax data for its first year of operations.

How much more will Nueva report in income tax if it elects FIFO instead of LIFO?

A) $135.

B) $110.

C) $155.

D) $45.

Difficulty: 3 Hard

Topic: Comparison of cost flow methods; Factors influencing method choice

Learning Objective: 08-04 Differentiate between the specific identification, FIFO, LIFO, and average cost methods used to determine the cost of ending inventory and cost of goods sold.; 08-05 Discuss the factors affecting a company's choice of inventory method.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

82) Inventory records for Herb's Chemicals revealed the following:

March 1, 2021, inventory: 1,000 gallons @ $7.20 per gallon = $7,200

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

A) $5,040.

B) $5,055.

C) $5,075.

D) $5,135.

Difficulty: 2 Medium

Topic: Cost flow methods—LIFO periodic

Learning Objective: 08-04 Differentiate between the specific identification, FIFO, LIFO, and average cost methods used to determine the cost of ending inventory and cost of goods sold.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

83) Inventory records for Herb's Chemicals revealed the following:

March 1, 2021, inventory: 1,000 gallons @ $7.20 per gallon = $7,200

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

A) $4,960.

B) $5,060.

C) $5,080.

D) $5,140.

Difficulty: 3 Hard

Topic: Cost flow methods—LIFO perpetual

Learning Objective: 08-04 Differentiate between the specific identification, FIFO, LIFO, and average cost methods used to determine the cost of ending inventory and cost of goods sold.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

84) Inventory records for Herb's Chemicals revealed the following:

March 1, 2021, inventory: 1,000 gallons @ $7.20 per gallon = $7,200

The ending inventory assuming FIFO is:

A) $5,140.

B) $5,080.

C) $5,060.

D) $5,050.

Difficulty: 3 Hard

Topic: Cost flow methods—FIFO

Learning Objective: 08-04 Differentiate between the specific identification, FIFO, LIFO, and average cost methods used to determine the cost of ending inventory and cost of goods sold.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

85) Inventory records for Herb's Chemicals revealed the following:

March 1, 2021, inventory: 1,000 gallons @ $7.20 per gallon = $7,200

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.

Difficulty: 3 Hard

Topic: Cost flow methods—Average cost periodic

Learning Objective: 08-04 Differentiate between the specific identification, FIFO, LIFO, and average cost methods used to determine the cost of ending inventory and cost of goods sold.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

86) Texas Petrochemical reported the following April activity for its VC-30 lubricant, which had a balance of 300 qts. @ $2.40 per quart on April 1.

The ending inventory assuming LIFO and a periodic inventory system is: (Round your final answer to nearest whole dollar amount.)

A) $1,580.

B) $1,510.

C) $1,575.

D) $1,470.

Difficulty: 2 Medium

Topic: Cost flow methods—LIFO periodic

Learning Objective: 08-04 Differentiate between the specific identification, FIFO, LIFO, and average cost methods used to determine the cost of ending inventory and cost of goods sold.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

87) 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.

Difficulty: 1 Easy

Topic: Factors influencing method choice

Learning Objective: 08-05 Discuss the factors affecting a company's choice of inventory method.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

88) 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 these answer choices are correct.

Difficulty: 1 Easy

Topic: Factors influencing method choice

Learning Objective: 08-05 Discuss the factors affecting a company's choice of inventory method.

Bloom's: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

89) 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.

Difficulty: 2 Medium

Topic: Factors influencing method choice

Learning Objective: 08-05 Discuss the factors affecting a company's choice of inventory method.

Bloom's: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

90) 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.

Difficulty: 2 Medium

Topic: Factors influencing method choice

Learning Objective: 08-05 Discuss the factors affecting a company's choice of inventory method.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

91) Which of the following statements is/are true?

A) In a period of rising costs and stable inventory levels, using the LIFO method leads to a lower taxable income and higher net income compared to the FIFO method.

B) In a period of rising costs and stable inventory levels, using the FIFO method leads to a higher taxable income and higher net income compared to the LIFO method.

C) In a period of falling costs and stable inventory levels, cost of goods sold is the same under LIFO and FIFO.

D) All of the other answer choices are true.

Difficulty: 2 Medium

Topic: Factors influencing method choice

Learning Objective: 08-05 Discuss the factors affecting a company's choice of inventory method.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

92) 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.

Difficulty: 2 Medium

Topic: LIFO liquidations

Learning Objective: 08-06 Understand supplemental disclosures of LIFO reserves and the effect of LIFO liquidations on net income.

Bloom's: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

93) 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.

Difficulty: 2 Medium

Topic: LIFO reserves

Learning Objective: 08-06 Understand supplemental disclosures of LIFO reserves and the effect of LIFO liquidations on net income.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

94) CMN Inc. uses LIFO and has experienced increasing costs since its founding. CMN disclosed that the LIFO reserve (also known as the LIFO allowance) at the end of 2021 was $3 million. The balance sheet showed ending inventory of $17 million at the end of 2021. What would the ending inventory have been if CMN had always used FIFO?

A) $20 million.

B) $17 million.

C) $14 million.

D) None of these answer choices are correct.

Difficulty: 2 Medium

Topic: LIFO reserves

Learning Objective: 08-06 Understand supplemental disclosures of LIFO reserves and the effect of LIFO liquidations on net income.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

95) TNM Inc. uses LIFO and was founded in on January 1, 2020. At the end of 2020, TNM disclosed that the LIFO reserve was $1 million, indicating that the ending inventory balance would have been $1 million higher under FIFO. At the end of 2021, the LIFO reserve decreased to $0.5 million and inventory balances were relatively stable compared to 2020. Which of the following is true regarding TNM's costs?

A) Costs have been increasing since TNM was founded because the LIFO reserve is greater than zero.

B) Costs have been decreasing since TNM was founded because the LIFO reserve is greater than zero.

C) Costs were increasing in 2021, but decreasing in 2020.

D) Costs were decreasing in 2021, but increasing in 2020.

Difficulty: 2 Medium

Topic: LIFO reserves

Learning Objective: 08-06 Understand supplemental disclosures of LIFO reserves and the effect of LIFO liquidations on net income.

Bloom's: Analyze

AACSB: Analytical Thinking

AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

96) If a company uses LIFO, a LIFO liquidation causes a company's income taxes to increase:

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 have no effect on a company's income taxes.

Difficulty: 2 Medium

Topic: LIFO liquidations

Learning Objective: 08-06 Understand supplemental disclosures of LIFO reserves and the effect of LIFO liquidations on net income.

Bloom's: Analyze

AACSB: Analytical Thinking

AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

97) GG Inc. uses LIFO. GG disclosed that if FIFO had been used, inventory at the end of 2021 would have been $16 million higher than the difference between LIFO and FIFO at the end of 2020. Assuming GG has a 25% income tax rate:

A) Its reported cost of goods sold for 2021 would have been $12 million higher if it had used FIFO rather than LIFO for its financial statements.

B) Its reported cost of goods sold for 2021 would have been $16 million higher if it had used FIFO rather than LIFO for its financial statements.

C) Its reported net income for 2021 would have been $12 million higher if it had used FIFO rather than LIFO for its financial statements.

D) Its reported net income for 2021 would have been $16 million higher if it had used FIFO rather than LIFO for its financial statements.

Difficulty: 3 Hard

Topic: LIFO reserves

Learning Objective: 08-06 Understand supplemental disclosures of LIFO reserves and the effect of LIFO liquidations on net income.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

98) A company has the following information related to its ending inventory:

The company makes an adjusting entry with a debit to Cost of Goods Sold and a credit to LIFO Reserve for $130,000 at the end of 2021 ($480,000 − $350,000). Which of the following statements is correct?

A) The company should instead debit the LIFO Reserve.

B) The adjusting entry should instead be made for $30,000.

C) Cost of goods sold is higher under LIFO than under FIFO by $130,000 in 2021.

D) Two of the other answers are correct.

Difficulty: 2 Medium

Topic: LIFO reserves

Learning Objective: 08-06 Understand supplemental disclosures of LIFO reserves and the effect of LIFO liquidations on net income.

Bloom's: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: Keyboard Navigation

99) A company has the following information related to its ending inventory:

The company's accountant informs the CEO that because the company reports using LIFO instead of FIFO, gross profit will be lower in 2021. Which of the following statements is correct?

A) The accountant is incorrect because the LIFO reserve has increased in the current year.

B) The accountant is correct.

C) The accountant is incorrect because the choice of LIFO or FIFO does not affect gross profit.

D) The accountant is incorrect because the LIFO reserve has decreased in the current year.

Difficulty: 2 Medium

Topic: LIFO reserves

Learning Objective: 08-06 Understand supplemental disclosures of LIFO reserves and the effect of LIFO liquidations on net income.

Bloom's: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: Keyboard Navigation

100) HH Company uses LIFO. HH disclosed that if FIFO had been used, inventory at the end of 2021 would have been $20 million lower than the difference between LIFO and FIFO at the end of 2020. Assuming HH has a 25% income tax rate:

A) Its reported cost of goods for 2021 would have been $15 million less if it had used FIFO rather than LIFO for its financial statements.

B) Its reported cost of goods for 2021 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 2021 would have been $15 million higher if it had used FIFO rather than LIFO for its financial statements.

D) Its reported cost of goods sold for 2021 would have been $20 million higher if it had used FIFO rather than LIFO for its financial statements.

Difficulty: 3 Hard

Topic: LIFO reserves

Learning Objective: 08-06 Understand supplemental disclosures of LIFO reserves and the effect of LIFO liquidations on net income.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

101) During 2021, 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 $40 million. WW has a 25% income tax rate. If WW had not experienced these supplier problems and the resulting liquidation:

A) Its 2021 net income would have been $30 million lower because inventory purchase prices were rising.

B) Its 2021 net income would have been $30 million lower because inventory purchase prices were declining.

C) Its 2021 net income would have been $30 million higher because inventory purchase prices were rising.

D) Its 2021 net income would have been $30 million higher because inventory purchase prices were declining.

Difficulty: 3 Hard

Topic: LIFO liquidations

Learning Objective: 08-06 Understand supplemental disclosures of LIFO reserves and the effect of LIFO liquidations on net income.

Bloom's: Analyze

AACSB: Analytical Thinking

AICPA/Accessibility: FN Measurement / Keyboard Navigation

102) Thompson TV and Appliance reported the following in its 2021 financial statements:

Thompson's 2021 gross profit ratio is:

A) 25%.

B) 19%.

C) 20%.

D) None of these answer choices are correct.

Difficulty: 2 Medium

Topic: Inventory management—Ratios

Learning Objective: 08-07 Calculate the key ratios used by analysts to monitor a company's investment in inventories.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

103) Thompson TV and Appliance reported the following in its 2021 financial statements:

Thompson's 2021 inventory turnover ratio is:

A) 3.91.

B) 4.00.

C) 4.88.

D) 5.00.

Difficulty: 2 Medium

Topic: Inventory management—Ratios

Learning Objective: 08-07 Calculate the key ratios used by analysts to monitor a company's investment in inventories.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

104) 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.

Difficulty: 3 Hard

Topic: Inventory management—Ratios

Learning Objective: 08-07 Calculate the key ratios used by analysts to monitor a company's investment in inventories.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

105) Anthony Thomas Candies (ATC) reported the following financial data for 2021 and 2020:

ATC's gross profit ratio (rounded) in 2021 is:

A) 53.4%.

B) 51.9%.

C) 50.3%.

D) None of these answer choices are correct.

Difficulty: 2 Medium

Topic: Inventory management—Ratios

Learning Objective: 08-07 Calculate the key ratios used by analysts to monitor a company's investment in inventories.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

106) Anthony Thomas Candies (ATC) reported the following financial data for 2021 and 2020:

ATC's inventory turnover ratio for 2021 is:

A) 2.42.

B) 2.76.

C) 3.21.

D) None of these answer choices are correct.

Difficulty: 3 Hard

Topic: Inventory management—Ratios

Learning Objective: 08-07 Calculate the key ratios used by analysts to monitor a company's investment in inventories.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

107) Anthony Thomas Candies (ATC) reported the following financial data for 2021 and 2020:

The average days inventory for ATC (rounded) for 2021 is:

A) Less than 100 days.

B) 114 days.

C) 132 days.

D) 151 days.

Difficulty: 3 Hard

Topic: Inventory management—Ratios

Learning Objective: 08-07 Calculate the key ratios used by analysts to monitor a company's investment in inventories.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

108) 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 these answer choices are correct.

Difficulty: 1 Easy

Topic: Dollar-value LIFO

Learning Objective: 08-08 Determine ending inventory using the dollar-value LIFO inventory method.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

109) 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.

Difficulty: 2 Medium

Topic: Dollar-value LIFO

Learning Objective: 08-08 Determine ending inventory using the dollar-value LIFO inventory method.

Bloom's: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: BB Critical Thinking; FN Measurement / Keyboard Navigation

110) A company uses the dollar-value LIFO method to report inventory. In the current year, the cost index for inventory has increased. If the company reports ending inventory at its year-end cost, which of the following statements is correct?

A) Reported ending inventory is understated.

B) Reported ending inventory is correct.

C) Reported ending inventory is overstated.

D) Cannot determine with the information given.

Difficulty: 3 Hard

Topic: Dollar-value LIFO

Learning Objective: 08-08 Determine ending inventory using the dollar-value LIFO inventory method.

Bloom's: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: Keyboard Navigation

111) A company has the following information available that was used to report inventory using the dollar-value LIFO method.

For the year ended 12/31/2021, the company reported inventory of $274,540 ($259,000 × 1.06). Which of the following statements is correct?

A) The amount reported for ending inventory should be calculated as $250,000 + ($9,000/1.06).

B) The amount reported for ending inventory should be calculated as $250,000 + ($9,000 × 1.06).

C) The amount reported for ending inventory should be calculated as $259,000/1.06.

D) The amount reported for ending inventory is correct.

Difficulty: 3 Hard

Topic: Dollar-value LIFO

Learning Objective: 08-08 Determine ending inventory using the dollar-value LIFO inventory method.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: Keyboard Navigation

112) A company has the following information available that was used to report ending inventory using the dollar-value LIFO method.

For the year ended 12/31/2021, the company reported ending inventory at its year-end cost of $347,000. Which of the following statements is correct?

A) The company should have multiplied $347,000 by 1.08 to determine ending inventory.

B) Most of the ending inventory should be reported at a cost index of 1.05, with the remainder at 1.08.

C) The company should have divided $347,000 by 1.05 to determine ending inventory.

D) Most of the ending inventory should be reported at a cost index of 1.08, with the remainder at 1.05.

Difficulty: 3 Hard

Topic: Dollar-value LIFO

Learning Objective: 08-08 Determine ending inventory using the dollar-value LIFO inventory method.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: Keyboard Navigation

113) Bond Company adopted the dollar-value LIFO inventory method on January 1, 2021. 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:

Ending Inventory

Under the dollar-value LIFO method, the inventory at December 31, 2022, should be

A) $357,600.

B) $350,000.

C) $351,600.

D) None of these answer choices are correct.

Difficulty: 3 Hard

Topic: Dollar-value LIFO

Learning Objective: 08-08 Determine ending inventory using the dollar-value LIFO inventory method.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

114) On January 1, 2021, Badger Inc. adopted the dollar-value LIFO method. The inventory cost on this date was $100,000. The ending inventory, valued at year-end costs, and the relative cost index for each of the next three years is below:

What inventory balance should Badger report on its 12/31/2021 balance sheet?

A) $126,000

B) $121,000

C) $120,000

D) $100,000

Difficulty: 3 Hard

Topic: Dollar-value LIFO

Learning Objective: 08-08 Determine ending inventory using the dollar-value LIFO inventory method.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

115) On January 1, 2021, Badger Inc. adopted the dollar-value LIFO method. The inventory cost on this date was $100,000. The ending inventory, valued at year-end costs, and the relative cost index for each of the next three years is below:

In determining the inventory balance for Badger to report in its 12/31/2022 balance sheet:

A) An additional layer of $23,000 is added to the 12/31/2021 balance.

B) An additional layer of $22,000 is added to the 12/31/2021 balance.

C) An additional layer of $11,000 is added to the 12/31/2021 balance.

D) None of these answer choices are correct.

Difficulty: 3 Hard

Topic: Dollar-value LIFO

Learning Objective: 08-08 Determine ending inventory using the dollar-value LIFO inventory method.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

116) On January 1, 2021, Badger Inc. adopted the dollar-value LIFO method. The inventory cost on this date was $100,000. The ending inventory, valued at year-end costs, and the relative cost index for each of the next three years is below:

What inventory balance would Badger report on its 12/31/2023 balance sheet?

A) $128,000.

B) $129,800.

C) $153,600.

D) None of these answer choices are correct.

Difficulty: 3 Hard

Topic: Dollar-value LIFO

Learning Objective: 08-08 Determine ending inventory using the dollar-value LIFO inventory method.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

117) Ramen Inc. adopted dollar-value LIFO (DVL) as of January 1, 2021, when it had a cost inventory of $600,000. Its inventory as of December 31, 2021, was $667,800 at year-end costs and the cost index was 1.06. What was DVL inventory on December 31, 2021?

A) $630,000.

B) $631,800.

C) $636,000.

D) None of these answer choices are correct.

Difficulty: 3 Hard

Topic: Dollar-value LIFO

Learning Objective: 08-08 Determine ending inventory using the dollar-value LIFO inventory method.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

118) Udon Inc. adopted dollar-value LIFO (DVL) as of January 1, 2021, when it had an inventory of $700,000. Its inventory as of December 31, 2021, was $777,000 at year-end costs and the cost index was 1.05. What was DVL inventory on December 31, 2021?

A) $735,000.

B) $740,000.

C) $742,000.

D) $777,000.

Difficulty: 3 Hard

Topic: Dollar-value LIFO

Learning Objective: 08-08 Determine ending inventory using the dollar-value LIFO inventory method.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

119) Linguini Inc. adopted dollar-value LIFO (DVL) as of January 1, 2021, when it had an inventory of $800,000. Its inventory as of December 31, 2021, was $811,200 at year-end costs and the cost index was 1.04. What was DVL inventory on December 31, 2021?

A) $780,000.

B) $800,000.

C) $811,200.

D) $832,000.

Difficulty: 3 Hard

Topic: Dollar-value LIFO

Learning Objective: 08-08 Determine ending inventory using the dollar-value LIFO inventory method.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

120) Buckeye Corporation adopted dollar-value LIFO on January 1, 2021, when the inventory value was $500,000 and the cost index was 1.0. On December 31, 2021, the inventory value at year-end costs was $535,000 and the cost index was 1.06. Buckeye would report a LIFO inventory of:

A) $504,717.

B) $530,000.

C) $505,000.

D) $533,019.

Difficulty: 3 Hard

Topic: Dollar-value LIFO

Learning Objective: 08-08 Determine ending inventory using the dollar-value LIFO inventory method.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

121) Tiger Inc. adopted dollar-value LIFO on January 1, 2021, when the inventory value was $360,000 and the cost index was 1.25. On December 31, 2021, the inventory was valued at year-end cost of $395,000 and the cost index was 1.30. Tiger would report a LIFO inventory of:

A) $410,800.

B) $374,400.

C) $379,808.

D) $380,600.

Difficulty: 3 Hard

Topic: Dollar-value LIFO

Learning Objective: 08-08 Determine ending inventory using the dollar-value LIFO inventory method.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement / Keyboard Navigation

122) A company that prepares its financial statements according to International Financial Reporting Standards (IFRS) can use each of the following inventory valuation methods except:

A) Average cost.

B) FIFO.

C) LIFO.

D) All of these methods can be used.

Difficulty: 1 Easy

Topic: IFRS—Inventory cost flow assumptions

Learning Objective: 08-09 Discuss the primary difference between U.S. GAAP and IFRS with respect to determining the cost of inventory.

Bloom's: Remember

AACSB: Reflective Thinking; Diversity

AICPA/Accessibility: FN Measurement / Keyboard Navigation

123) Listed below are 5 terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the number for the correct term.

Difficulty: 1 Easy

Topic: Periodic inventory system; Included in inventory—Net purchases; Factors influencing method choice

Learning Objective: 08-01 Explain the types of inventory and the differences between a perpetual inventory system and a periodic inventory system.; 08-03 Account for transactions that affect net purchases and prepare a cost of goods sold schedule.; 08-05 Discuss the factors affecting a company's choice of inventory method.

Bloom's: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: BB Critical Thinking; FN Measurement

124) Listed below are 5 terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the number for the correct term.

Difficulty: 1 Easy

Topic: Types of inventory; Perpetual inventory system; Included in inventory—Net purchases; Cost flow in general; Factors influencing method choice; LIFO liquidations

Learning Objective: 08-01 Explain the types of inventory and the differences between a perpetual inventory system and a periodic inventory system.; 08-03 Account for transactions that affect net purchases and prepare a cost of goods sold schedule.; 08-04 Differentiate between the specific identification, FIFO, LIFO, and average cost methods used to determine the cost of ending inventory and cost of goods sold.; 08-05 Discuss the factors affecting a company's choice of inventory method.

Bloom's: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: BB Critical Thinking; FN Measurement

125) Listed below are 5 terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the number for the correct term.

Difficulty: 1 Easy

Topic: Included in inventory—Consignment; Cost flow in general

Learning Objective: 08-02 Explain which physical units of goods should be included in inventory.; 08-04 Differentiate between the specific identification, FIFO, LIFO, and average cost methods used to determine the cost of ending inventory and cost of goods sold.

Bloom's: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: BB Critical Thinking; FN Measurement

126) Listed below are 5 terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the number for the correct term.

Difficulty: 2 Medium

Topic: Included in inventory—Goods in transit; Cost flow in general; Cost flow methods—Specific identification

Learning Objective: 08-02 Explain which physical units of goods should be included in inventory.; 08-04 Differentiate between the specific identification, FIFO, LIFO, and average cost methods used to determine the cost of ending inventory and cost of goods sold.

Bloom's: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: BB Critical Thinking; FN Measurement

127) Listed below are 5 terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the number for the correct term.

Difficulty: 1 Easy

Topic: Types of inventory; Included in inventory—Net purchases; Cost flow in general; Inventory management—Ratios

Learning Objective: 08-01 Explain the types of inventory and the differences between a perpetual inventory system and a periodic inventory system.; 08-03 Account for transactions that affect net purchases and prepare a cost of goods sold schedule.; 08-04 Differentiate between the specific identification, FIFO, LIFO, and average cost methods used to determine the cost of ending inventory and cost of goods sold.; 08-07 Calculate the key ratios used by analysts to monitor a company's investment in inventories.

Bloom's: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: BB Critical Thinking; FN Measurement

128) Listed below are 5 terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the number for the correct term.

Difficulty: 1 Easy

Topic: Types of inventory; Cost flow in general; Dollar-value LIFO

Learning Objective: 08-01 Explain the types of inventory and the differences between a perpetual inventory system and a periodic inventory system.; 08-04 Differentiate between the specific identification, FIFO, LIFO, and average cost methods used to determine the cost of ending inventory and cost of goods sold.; 08-08 Determine ending inventory using the dollar-value LIFO inventory method.

Bloom's: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: BB Critical Thinking; FN Measurement

129) Listed below are 10 terms, followed by a list of phrases that describe or characterize

the terms. Match each phrase with the number for the correct term.

Difficulty: 1 Easy

Topic: Periodic vs Perpetual inventory system; Included in inventory—Consignment; Included in inventory—Goods in transit; Cost flow in general; Factors influencing method choice; Dollar-value LIFO

Objective: 08-01 Explain the types of inventory and the differences between a perpetual inventory system and a periodic inventory system.; 08-02 Explain which physical units of goods should be included in inventory.; 08-04 Differentiate between the specific identification, FIFO, LIFO, and average cost methods used to determine the cost of ending inventory and cost of goods sold.; 08-05 Discuss the factors affecting a company's choice of inventory method.; 08-08 Determine ending inventory using the dollar-value LIFO inventory method.

Bloom's: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: BB Critical Thinking; FN Measurement

130) Bascomb Company purchased $420,000 in merchandise on account during the month of April, and merchandise costing $350,000 was sold on account for $425,000.

Required:

1. Prepare journal entries to record the purchases and sales assuming Bascomb uses a perpetual inventory system.

2. Prepare journal entries to record the purchases and sales assuming Bascomb uses a periodic inventory system.

Difficulty: 1 Easy

Topic: Periodic vs Perpetual inventory system

Learning Objective: 08-01 Explain the types of inventory and the differences between a perpetual inventory system and a periodic inventory system.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: BB Critical Thinking; FN Measurement

131) Meteor Co. purchased merchandise on March 4, 2021, at a price of $30,000, subject to credit terms of 2/10, n/30. Meteor uses the net method for recording purchases and uses a periodic inventory system.

Required:

1. Prepare the journal entry to record the purchase.

2. Prepare the journal entry to record the appropriate payment if the entire invoice is paid on March 11, 2021.

3. Prepare the journal entry to record the appropriate payment if the entire invoice is paid on April 2, 2021.

Difficulty: 2 Medium

Topic: Periodic inventory system; Included in inventory—Net purchases

Learning Objective: 08-01 Explain the types of inventory and the differences between a perpetual inventory system and a periodic inventory system.; 08-03 Account for transactions that affect net purchases and prepare a cost of goods sold schedule.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: BB Critical Thinking; FN Measurement

132) Slinky Company purchased merchandise on June 10, 2021, at a price of $20,000, subject to credit terms of 2/10, n/30. Slinky uses the net method for recording purchases and uses a perpetual inventory system.

Required:

1. Prepare the journal entry to record the purchase.

2. Prepare the journal entry to record the appropriate payment if the entire invoice is paid on June 18, 2021.

3. Prepare the journal entry to record the appropriate payment if the entire invoice is paid on July 8, 2021.

Difficulty: 2 Medium

Topic: Perpetual inventory system; Included in inventory—Net purchases

Learning Objective: 08-01 Explain the types of inventory and the differences between a perpetual inventory system and a periodic inventory system.; 08-03 Account for transactions that affect net purchases and prepare a cost of goods sold schedule.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: BB Critical Thinking; FN Measurement

133) Bunker Auto Supply purchased merchandise on January 4, 2021, at a price of $70,000, subject to credit terms of 2/10, n/30. Bunker uses the gross method for recording purchases and uses a periodic inventory system.

Required:

1. Prepare the journal entry to record the purchase.

2. Prepare the journal entry to record the payment of one-half the invoice amount

on January 11, 2021.

3. Prepare the journal entry to record the balance of the amount due on February 2, 2021.

Difficulty: 2 Medium

Topic: Periodic inventory system; Included in inventory—Net purchases

Learning Objective: 08-01 Explain the types of inventory and the differences between a perpetual inventory system and a periodic inventory system.; 08-03 Account for transactions that affect net purchases and prepare a cost of goods sold schedule.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: BB Critical Thinking; FN Measurement

134) Patty's Pet Store purchased merchandise on October 10, 2021, at a price of $35,000, subject to credit terms of 2/10, n/30. Patty's uses the gross method for recording purchases and uses perpetual inventory system.

Required:

1. Prepare the journal entry to record the purchase.

2. Prepare the journal entry to record the payment of one-half the invoice amount

on October 18, 2021.

3. Prepare the journal entry to record the payment of the balance of the amount

due on November 8, 2021.

Difficulty: 2 Medium

Topic: Included in inventory—Net purchases

Learning Objective: 08-01 Explain the types of inventory and the differences between a perpetual inventory system and a periodic inventory system.; 08-03 Account for transactions that affect net purchases and prepare a cost of goods sold schedule.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: BB Critical Thinking; FN Measurement

135) Boston Dollar Store uses the gross method to record purchase discounts and uses a perpetual inventory system. Boston engaged in the following transactions during April:

April 12 Purchased $15,000 in merchandise subject to terms of 2/10, n/30.

The goods were shipped f.o.b. shipping point.

April 13 Received a billing from Orange Freight Lines for $300 for the April 12 purchase.

April 15 Returned $1,000 of merchandise from the April 12 purchase.

April 20 Paid balances due from April 12 purchase.

Required:

Prepare journal entries to record the above transactions.

Difficulty: 3 Hard

Topic: Perpetual inventory system; Included in inventory—Net purchases

Learning Objective: 08-01 Explain the types of inventory and the differences between a perpetual inventory system and a periodic inventory system.; 08-03 Account for transactions that affect net purchases and prepare a cost of goods sold schedule.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: BB Critical Thinking; FN Measurement

136) Hazelton Corporation uses a periodic inventory system and the LIFO method to value its inventory. The company began 2021 with $59,000 in inventory of its only product. The beginning inventory consisted of the following layers:

4,000 units at $6 per unit = $24,000

5,000 units at $7 per unit = 35,000

Total $59,000

During 2021, 6,000 units were purchased at $8 per unit and during 2022, 7,000 units were purchased at $9 per unit. Sales, in units, were 7,000 and 12,000 during 2021 and 2022, respectively.

Required:

1. Calculate cost of goods sold for 2021 and 2022.

2. Disregarding income tax, determine the LIFO liquidation profit or loss, if any, for 2021 and 2022.

Difficulty: 3 Hard

Topic: Cost flow methods—LIFO periodic; LIFO liquidations

Learning Objective: 08-04 Differentiate between the specific identification, FIFO, LIFO, and average cost methods used to determine the cost of ending inventory and cost of goods sold.; 08-06 Understand supplemental disclosures of LIFO reserves and the effect of LIFO liquidations on net income.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement

137) The Tucson Corporation's fiscal year ends on December 31. Tucson determines inventory quantity by a physical count of inventory on hand at the close of business on December 31. The company's controller has asked for your help in deciding if the following items should be included in the year-end inventory count.

1. Goods purchased from a vendor shipped f.o.b. shipping point on December 24 that arrived

on January 4.

2. Goods shipped f.o.b. shipping point on December 27 arrived at the customer's location on January 4.

3. Goods purchased from a vendor shipped f.o.b. destination on December 27 that arrived on January 5.

4. Freight charges on goods purchased in item 1.

5. Merchandise held on consignment for Masterwear, Inc.

6. Goods shipped f.o.b. destination on December 29 that arrived at the customer's location on January 2.

Required:

Determine if each of the six items above should be included or excluded from the company's year-end inventory.

Difficulty: 3 Hard

Topic: Included in inventory—Consignment; Included in inventory—Goods in transit; Included in inventory—Net purchases

Learning Objective: 08-02 Explain which physical units of goods should be included in inventory.; 08-03 Account for transactions that affect net purchases and prepare a cost of goods sold schedule.

Bloom's: Analyze

AACSB: Analytical Thinking

AICPA/Accessibility: FN Measurement

Use the following to answer the question(s) below:

The following information is taken from the accounting records of Rapid Runner Inc. for the year 2021. Missing information has been left blank.

Required:

Compute the missing amounts.

138)

Difficulty: 3 Hard

Topic: Included in inventory—Net purchases

Learning Objective: 08-03 Account for transactions that affect net purchases and prepare a cost of goods sold schedule.

Bloom's: Analyze

AACSB: Analytical Thinking

AICPA/Accessibility: BB Critical Thinking; FN Measurement

139)

Difficulty: 3 Hard

Topic: Included in inventory—Net purchases

Learning Objective: 08-03 Account for transactions that affect net purchases and prepare a cost of goods sold schedule.

Bloom's: Analyze

AACSB: Analytical Thinking

AICPA/Accessibility: BB Critical Thinking; FN Measurement

140)

Difficulty: 3 Hard

Topic: Included in inventory—Net purchases

Learning Objective: 08-03 Account for transactions that affect net purchases and prepare a cost of goods sold schedule.

Bloom's: Analyze

AACSB: Analytical Thinking

AICPA/Accessibility: BB Critical Thinking; FN Measurement

141)

Difficulty: 3 Hard

Topic: Included in inventory—Net purchases

Learning Objective: 08-03 Account for transactions that affect net purchases and prepare a cost of goods sold schedule.

Bloom's: Analyze

AACSB: Analytical Thinking

AICPA/Accessibility: FN Measurement

142)

Difficulty: 3 Hard

Topic: Included in inventory—Net purchases

Learning Objective: 08-03 Account for transactions that affect net purchases and prepare a cost of goods sold schedule.

Bloom's: Analyze

AACSB: Analytical Thinking

AICPA/Accessibility: BB Critical Thinking; FN Measurement

Use the following to answer the question(s) below:

The following information is taken from the accounting records of Madeline Inc. for the year 2021. Missing information has been left blank. Inventory is the only supply that Madeline purchases on credit.

Required:

Compute the missing amounts.

143)

Difficulty: 3 Hard

Topic: Included in inventory—Net purchases

Learning Objective: 08-03 Account for transactions that affect net purchases and prepare a cost of goods sold schedule.

Bloom's: Analyze

AACSB: Analytical Thinking

AICPA/Accessibility: BB Critical Thinking; FN Measurement

144)

Difficulty: 3 Hard

Topic: Included in inventory—Net purchases

Learning Objective: 08-03 Account for transactions that affect net purchases and prepare a cost of goods sold schedule.

Bloom's: Analyze

AACSB: Analytical Thinking

AICPA/Accessibility: BB Critical Thinking; FN Measurement

145)

Difficulty: 3 Hard

Topic: Included in inventory—Net purchases

Learning Objective: 08-03 Account for transactions that affect net purchases and prepare a cost of goods sold schedule.

Bloom's: Analyze

AACSB: Analytical Thinking

AICPA/Accessibility: BB Critical Thinking; FN Measurement

146)

Difficulty: 3 Hard

Topic: Included in inventory—Net purchases

Learning Objective: 08-03 Account for transactions that affect net purchases and prepare a cost of goods sold schedule.

Bloom's: Analyze

AACSB: Analytical Thinking

AICPA/Accessibility: BB Critical Thinking; FN Measurement

147)

Difficulty: 3 Hard

Topic: Included in inventory—Net purchases

Learning Objective: 08-03 Account for transactions that affect net purchases and prepare a cost of goods sold schedule.

Bloom's: Analyze

AACSB: Analytical Thinking

AICPA/Accessibility: BB Critical Thinking; FN Measurement

148) Shown below is activity for one of the products of Denver Office Equipment:

January 1 balance, 500 units @ $55 per unit $27,500

Purchases:

January 10: 500 units @ $60 per unit

January 20: 1,000 units @ $63 per unit

Sales:

January 12: 800 units

January 28: 750 units

Required: Compute the January 31 ending inventory and cost of goods sold for January, assuming Denver uses FIFO.

Difficulty: 2 Medium

Topic: Cost flow methods—FIFO

Learning Objective: 08-04 Differentiate between the specific identification, FIFO, LIFO, and average cost methods used to determine the cost of ending inventory and cost of goods sold.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement

149) Shown below is activity for one of the products of Denver Office Equipment:

January 1 balance, 500 units @ $55 per unit $27,500

Purchases:

January 10: 500 units @ $60 per unit

January 20: 1,000 units @ $63 per unit

Sales:

January 12: 800 units

January 28: 750 units

Required: Compute the January 31 ending inventory and cost of goods sold for January, assuming Denver uses LIFO and a perpetual inventory system.

Difficulty: 3 Hard

Topic: Cost flow methods—LIFO perpetual

Learning Objective: 08-04 Differentiate between the specific identification, FIFO, LIFO, and average cost methods used to determine the cost of ending inventory and cost of goods sold.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement

150) Shown below is activity for one of the products of Denver Office Equipment:

January 1 balance, 500 units @ $55 per unit $27,500

Purchases:

January 10: 500 units @ $60 per unit

January 20: 1,000 units @ $63 per unit

Sales:

January 12: 800 units

January 28: 750 units

Required: Compute the January 31 ending inventory and cost of goods sold for January, assuming Denver uses average cost and a periodic inventory system.

Difficulty: 2 Medium

Topic: Cost flow methods—Average cost periodic

Learning Objective: 08-04 Differentiate between the specific identification, FIFO, LIFO, and average cost methods used to determine the cost of ending inventory and cost of goods sold.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement

151) Shown below is activity for one of the products of Denver Office Equipment:

January 1 balance, 500 units @ $55 per unit $27,500

Purchases:

January 10: 500 units @ $60 per unit

January 20: 1,000 units @ $63 per unit

Sales:

January 12: 800 units

January 28: 750 units

Required: Compute the January 31 ending inventory and cost of goods sold for January, assuming Denver uses average cost and a perpetual inventory system.

Difficulty: 3 Hard

Topic: Cost flow methods—Average cost perpetual

Learning Objective: 08-04 Differentiate between the specific identification, FIFO, LIFO, and average cost methods used to determine the cost of ending inventory and cost of goods sold.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement

152) Shown below is activity for one of the products of Denver Office Equipment:

January 1 balance, 500 units @ $55 per unit $27,500

Purchases:

January 10: 500 units @ $60 per unit

January 20: 1,000 units @ $63 per unit

Sales:

January 12: 800 units

January 28: 750 units

Required: Compute the January 31 ending inventory and cost of goods sold for January, assuming Denver uses LIFO and a periodic inventory system.

Difficulty: 2 Medium

Topic: Cost flow methods—LIFO periodic

Learning Objective: 08-04 Differentiate between the specific identification, FIFO, LIFO, and average cost methods used to determine the cost of ending inventory and cost of goods sold.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement

153) Shown below is the activity for one of the products of Random Creations:

January 1 balance, 80 units @ $50 $4,000

Purchases:

January 18: 40 units @ $51

January 28: 40 units @ $52

Sales:

January 12: 30 units

January 22: 30 units

January 31: 45 units

Required: Compute the January 31 ending inventory and cost of goods sold for January, assuming Random Creations uses FIFO.

Difficulty: 2 Medium

Topic: Cost flow methods—FIFO

Learning Objective: 08-04 Differentiate between the specific identification, FIFO, LIFO, and average cost methods used to determine the cost of ending inventory and cost of goods sold.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement

154) Shown below is the activity for one of the products of Random Creations:

January 1 balance, 80 units @ $50 $4,000

Purchases:

January 18: 40 units @ $51

January 28: 40 units @ $52

Sales:

January 12: 30 units

January 22: 30 units

January 31: 45 units

Required: Compute the January 31 ending inventory and cost of goods sold for January, assuming Random Creations uses LIFO and perpetual inventory system.

Difficulty: 3 Hard

Topic: Cost flow methods—LIFO perpetual

Learning Objective: 08-04 Differentiate between the specific identification, FIFO, LIFO, and average cost methods used to determine the cost of ending inventory and cost of goods sold.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement

155) Shown below is the activity for one of the products of Random Creations:

January 1 balance, 80 units @ $50 $4,000

Purchases:

January 18: 40 units @ $51

January 28: 40 units @ $52

Sales:

January 12: 30 units

January 22: 30 units

January 31: 45 units

Required: Compute the January 31 ending inventory and cost of goods sold for January, assuming Random Creations uses LIFO and a periodic inventory system.

Difficulty: 2 Medium

Topic: Cost flow methods—Average cost perpetual

Learning Objective: 08-04 Differentiate between the specific identification, FIFO, LIFO, and average cost methods used to determine the cost of ending inventory and cost of goods sold.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement

156) Shown below is the activity for one of the products of Random Creations:

January 1 balance, 80 units @ $50 $4,000

Purchases:

January 18: 40 units @ $51

January 28: 40 units @ $52

Sales:

January 12: 30 units

January 22: 30 units

January 31: 45 units

Required: Compute the January 31 ending inventory and cost of goods sold for January, assuming Random Creations uses average cost and a periodic inventory system.

Difficulty: 2 Medium

Topic: Cost flow methods—Average cost periodic

Learning Objective: 08-04 Differentiate between the specific identification, FIFO, LIFO, and average cost methods used to determine the cost of ending inventory and cost of goods sold.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement

157) Shown below is the activity for one of the products of Random Creations:

January 1 balance, 80 units @ $50 $4,000

Purchases:

January 18: 40 units @ $51

January 28: 40 units @ $52

Sales:

January 12: 30 units

January 22: 30 units

January 31: 45 units

Required: Compute the January 31 ending inventory and cost of goods sold for January, assuming Random Creations uses average cost and a perpetual inventory system.

Difficulty: 3 Hard

Topic: Cost flow methods—Average cost perpetual

Learning Objective: 08-04 Differentiate between the specific identification, FIFO, LIFO, and average cost methods used to determine the cost of ending inventory and cost of goods sold.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement

158) Bettencourt Clothing Corporation uses a periodic inventory system and the LIFO cost method. The company began 2021 with the following inventory layers (listed in chronological order of acquisition):

5,000 units @ $10 per unit $50,000

8,000 units @ $12 per unit 96,000

Beginning inventory $146,000

During 2021, 20,000 units were purchased for $15 per unit. Sales for the year totaled 30,000 units at various prices, leaving 3,000 units in ending inventory.

Required:

1. Calculate cost of goods sold for 2021.

2. Determine the amount of LIFO liquidation profit that the company must report in a disclosure note to its 2021 financial statements, assuming the amount is material. Assume an income tax rate of 25%.

Difficulty: 3 Hard

Topic: Cost flow methods—LIFO periodic; LIFO liquidations

Learning Objective: 08-04 Differentiate between the specific identification, FIFO, LIFO, and average cost methods used to determine the cost of ending inventory and cost of goods sold.; 08-06 Understand supplemental disclosures of LIFO reserves and the effect of LIFO liquidations on net income.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement

159) The Foxworthy Corporation uses a periodic inventory system and the LIFO inventory cost method for its one product. Beginning inventory of 40,000 units consisted of the following, listed in chronological order of acquisition:

24,000 units at a cost of $6.00 per unit = $144,000

16,000 units at a cost of $7.00 per unit = 112,000

During 2021, inventory quantity declined by 18,000 units. All units purchased during 2021 cost $8.00 per unit.

Required:

Calculate the before-tax LIFO liquidation profit or loss that the company would report in a disclosure note assuming the amount determined is material.

Difficulty: 2 Medium

Topic: LIFO liquidations

Learning Objective: 08-04 Differentiate between the specific identification, FIFO, LIFO, and average cost methods used to determine the cost of ending inventory and cost of goods sold.; 08-06 Understand supplemental disclosures of LIFO reserves and the effect of LIFO liquidations on net income.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement

160) Modern Day Appliances, Inc. is a wholesaler of kitchen appliances. The company uses a periodic inventory system and the LIFO cost method. Modern Day's December 31, 2021, fiscal year-end inventory of its main product, double-door stainless steel refrigerators, consisted of the following (listed in chronological order of acquisition):

Units Unit Cost

100 $750

200 800

300 850

The replacement cost of the refrigerators throughout 2022 was $900. Modern Day sold 5,000 of these refrigerators during 2022. The company's selling price throughout 2022 was $1,200.

Required:

1. Compute the gross profit (sales minus cost of goods sold) and the gross profit ratio

for 2022 assuming that Modern Day purchased 5,200 units during the year.

2. Repeat requirement 1 assuming that Modern Day purchased only 4,500 units.

3. For requirements 1 and 2, what amount of before-tax LIFO liquidation profit or loss would Modern Day report in its 2022 disclosure notes, if any, assuming any calculated amount is material?

Difficulty: 3 Hard

Topic: Cost flow methods—LIFO periodic; LIFO liquidations; Inventory management—Ratios

Learning Objective: 08-04 Differentiate between the specific identification, FIFO, LIFO, and average cost methods used to determine the cost of ending inventory and cost of goods sold.; 08-06 Understand supplemental disclosures of LIFO reserves and the effect of LIFO liquidations on net income.; 08-07 Calculate the key ratios used by analysts to monitor a company's investment in inventories.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement

161) Selected financial statement data from Western Colorado Stores is shown below.

Required:

1. Compute the gross profit ratio for 2021.

2. Compute the inventory turnover ratio for 2021.

Difficulty: 2 Medium

Topic: Inventory management—Ratios

Learning Objective: 08-07 Calculate the key ratios used by analysts to monitor a company's investment in inventories.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement

162) The inventories disclosure note in the 2017 financial statements for Publix Super Markets, a large grocery chain in the United States, included the following:

"Inventories are valued at the lower of cost or market. The dollar value last-in, first-out (LIFO) method was used to determine the cost for 85% and 83% of inventories as of December 30, 2017 and December 31, 2016, respectively. The cost of the remaining inventories was determined using the first-in, first-out (FIFO) method. If all inventories were valued using the FIFO method, inventories and current assets would have been higher than reported by $464,888,000 and $441,860,000 as of December 30, 2017 and December 31, 2016, respectively. "

Cost of goods sold for the fiscal year ended December 31, 2017 was $ 25,129,717,000.

Required:

If Publix had used FIFO for all of its LIFO inventories, what would its cost of goods sold have been for 2017?

Difficulty: 3 Hard

Topic: LIFO reserves

Learning Objective: 08-06 Understand supplemental disclosures of LIFO reserves and the effect of LIFO liquidations on net income.

Bloom's: Analyze

AACSB: Analytical Thinking

AICPA/Accessibility: FN Measurement

163) The following information comes from the 2017 Occidental Petroleum Corporation annual report to shareholders:

NOTE 4 INVENTORIES

Net carrying values of inventories valued under the LIFO method were approximately $172 million and $192 million at December 31, 2017 and 2016, respectively. Inventories consisted of the following: ($ in millions)

The LIFO reserve indicates that inventories would have been $43 million and $40 million higher at the end of 2017 and 2016, respectively, if Occidental Petroleum had used FIFO to value its entire inventory.

Required:

If Occidental Petroleum had used FIFO to value its entire inventory how would its 2017 pre-tax income be affected?

Difficulty: 3 Hard

Topic: LIFO reserves

Learning Objective: 08-06 Understand supplemental disclosures of LIFO reserves and the effect of LIFO liquidations on net income.

Bloom's: Analyze

AACSB: Analytical Thinking

AICPA/Accessibility: FN Measurement

164) The inventories disclosure note in the 2021 financial statements for Savers Market included the following:

"During fiscal 2021, 2020 and 2019, inventory quantities in certain LIFO layers were reduced. These reductions resulted in a liquidation of LIFO inventory quantities carried at lower costs prevailing in prior years as compared with the cost of fiscal 2021, 2020 and 2019 purchases. As a result, cost of goods sold decreased by $14, $6 and $9 in fiscal 2021, 2020 and 2019, respectively. All inventories are stated at the lower of cost or current market values. Cost for inventories at the majority of our operations is determined on a last-in, first-out ("LIFO") basis."

Required:

a. The disclosure note indicates an inventory liquidation during 2021, 2020, and 2019. By how much did net income in 2021 increase due to the liquidation? Assume an income tax of 25%.

b. What additional income tax payments did the 2021 liquidation cost Savers Market?

Difficulty: 3 Hard

Topic: LIFO liquidations

Learning Objective: 08-06 Understand supplemental disclosures of LIFO reserves and the effect of LIFO liquidations on net income.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement

165) Spando Apparel uses the LIFO inventory method for external reporting and for income tax purposes but maintains its internal records using FIFO. The following disclosure note was included in a recent annual report:

Inventories ($ in millions):

2021 2020

Total inventories $625 $604

LIFO reserve (83) (51)

$542 $ 553

The company's income statement reported cost of goods sold of $3,120 million for the fiscal year ended December 31, 2021.

Required:

1. Spando adjusts the LIFO reserve at the end of its fiscal year. Prepare the December 31, 2021, adjusting entry to record the cost of goods sold adjustment.

2. If Spando had used FIFO to value its inventories, what would cost of goods sold have been for the 2021 fiscal year?

Difficulty: 3 Hard

Topic: LIFO reserves

Learning Objective: 08-06 Understand supplemental disclosures of LIFO reserves and the effect of LIFO liquidations on net income.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: BB Critical Thinking; FN Measurement

166) The table below contains selected financial information from recent financial statements of KBI Toys and Little Tikes Adventure Toys, Inc., two toy manufacturing companies ($ in thousands):

KBI Toys Little Tikes

12/31/2021 12/31/2020 12/31/2021 12/31/2020

Net sales $80,622 $72,120 $63,480 $68,900

Cost of goods sold 58,900 53,800 40,786 46,325

Year-end inventory 7,400 6,900 5,800 6,300

Required:

Calculate the 2021 gross profit ratio, inventory turnover ratio, and the average days in inventory for the two companies (rounded).

Difficulty: 3 Hard

Topic: Inventory management—Ratios

Learning Objective: 08-07 Calculate the key ratios used by analysts to monitor a company's investment in inventories.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Risk Analysis

167) On January 1, 2021, the National Furniture Company adopted the dollar-value LIFO method of computing inventory. An internal cost index is used to convert ending inventory to base year. Inventory on January 1 was $200,000. Year-end inventories at year-end costs and cost indexes for its one inventory pool were as follows:

Inventory at Cost Index

Year Ended Year-end (Relative to

December 31 Costs Base Year)

2021 $259,200 1.08

2022 296,800 1.12

2023 299,000 1.15

Required:

Compute inventory amounts at the end of each year using the dollar-value LIFO method.

Difficulty: 3 Hard

Topic: Dollar-value LIFO

Learning Objective: 08-08 Determine ending inventory using the dollar-value LIFO inventory method.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement

168) Appleton Inc. adopted dollar-value LIFO on January 1, 2021, when the inventory value was $1,200,000. The December 31, 2021, ending inventory at year-end costs was $1,430,000 and the cost index for the year is 1.1.

Required:

Compute the dollar-value LIFO inventory valuation for the December 31, 2021, inventory.

Difficulty: 3 Hard

Topic: Dollar-value LIFO

Learning Objective: 08-08 Determine ending inventory using the dollar-value LIFO inventory method.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement

169) Chavez Inc. adopted dollar-value LIFO on January 1, 2021, when the inventory value was $850,000. The December 31, 2021, ending inventory at year-end cost was $950,000 and the cost index for the year is 1.08.

Required:

Compute the dollar-value LIFO inventory valuation (rounded) for the December 31, 2021, inventory.

Difficulty: 3 Hard

Topic: Dollar-value LIFO

Learning Objective: 08-08 Determine ending inventory using the dollar-value LIFO inventory method.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement

170) Liquidated Corporation had a dollar-value LIFO (DVL) inventory of $800,000 at the beginning of the current year when it adopted DVL. Its year-end inventory at year-end prices was $850,000. The index for the current year was 1.08.

Required:

Compute the DVL inventory (rounded) to be reported at the end of the year.

Difficulty: 3 Hard

Topic: Dollar-value LIFO

Learning Objective: 08-08 Determine ending inventory using the dollar-value LIFO inventory method.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement

171) On January 1, 2020, ECT Co. adopted the dollar-value LIFO method for its one inventory pool. The pool's value on this date was $600 million. The 2020 and 2021 ending inventory valued at year-end costs were $702 million and $840 million, respectively. The appropriate cost indexes are 1.08 for 2020 and 1.20 for 2021.

Required:

Calculate the inventory balance that ECT Co. would report on its year-end balance sheets for 2020 and 2021, using the dollar-value LIFO method.

Difficulty: 3 Hard

Topic: Dollar-value LIFO

Learning Objective: 08-08 Determine ending inventory using the dollar-value LIFO inventory method.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement

172) On January 1, 2020, RAY Co. adopted the dollar-value LIFO method for its one inventory pool. The pool's value on this date was $300 million. The 12/31/2020 inventory valued at year-end costs was $385 million. The 12/31/2020 inventory, using dollar-value LIFO was $355 million.

Required:

Calculate 2020 cost index for RAY's inventory.

Difficulty: 3 Hard

Topic: Dollar-value LIFO

Learning Objective: 08-08 Determine ending inventory using the dollar-value LIFO inventory method.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: BB Critical Thinking; FN Measurement

173) The Genworth Company adopted the dollar-value LIFO method on January 1, 2021 when the inventory value of its one inventory pool was $450,000. The company decided to use an external index, the Consumer Price Index (CPI), to adjust for changes in the cost level. On January 1, 2021, the CPI was 280. On December 31, 2021, inventory valued at year-end cost was $504,000 and the CPI was 294.

Required:

Calculate the inventory value at the end of 2021 using the dollar-value LIFO method.

Difficulty: 3 Hard

Topic: Dollar-value LIFO

Learning Objective: 08-08 Determine ending inventory using the dollar-value LIFO inventory method.

Bloom's: Apply

AACSB: Knowledge Application

AICPA/Accessibility: FN Measurement

174) Briefly describe why companies that use perpetual inventory systems must still perform physical inventories.

Difficulty: 2 Medium

Topic: Periodic vs Perpetual inventory system

Learning Objective: 08-01 Explain the types of inventory and the differences between a perpetual inventory system and a periodic inventory system.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: BB Critical Thinking

175) It is the end of the accounting period, and your boss asks you to help determine the inventory balance to place in the company's balance sheet. Explain which physical quantities of inventory that you will include and which you will exclude.

Difficulty: 2 Medium

Topic: Included in inventory—Consignment; Included in inventory—Goods in transit

Learning Objective: 08-02 Explain which physical units of goods should be included in inventory.; 08-03 Account for transactions that affect net purchases and prepare a cost of goods sold schedule.

Bloom's: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: BB Critical Thinking

176) Briefly explain when there would be a tax benefit from electing LIFO rather than FIFO.

Difficulty: 2 Medium

Topic: Factors influencing method choice

Learning Objective: 08-05 Discuss the factors affecting a company's choice of inventory method.

Bloom's: Remember

AACSB: Communication

AICPA/Accessibility: BB Critical Thinking; FN Measurement

177) Briefly explain how companies that use LIFO can both increase and decrease reported earnings by "managing" ending inventories.

Difficulty: 2 Medium

Topic: Factors influencing method choice; Inventory management—Earnings quality

Learning Objective: 08-05 Discuss the factors affecting a company's choice of inventory method.; 08-07 Calculate the key ratios used by analysts to monitor a company's investment in inventories.

Bloom's: Understand

AACSB: Ethics; Communication

AICPA/Accessibility: BB Critical Thinking; FN Measurement

178) Costs and prices regularly fall every year in the microcomputer industry. Briefly indicate your recommendation and rationale for an inventory method for a firm about to enter this industry.

Difficulty: 2 Medium

Topic: Factors influencing method choice; Inventory management—Earnings quality

Learning Objective: 08-05 Discuss the factors affecting a company's choice of inventory method.

Bloom's: Understand

AACSB: Reflective Thinking; Ethics; Communication

AICPA/Accessibility: BB Critical Thinking; BB Industry; FN Measurement

179) Carmen Inc., producer of high-tech boating equipment, disclosed the following information in its 2021 annual report to shareholders:

Inventories are valued at the lower of cost or net realizable value with cost determined by the last-in, first-out (LIFO) method for inventories.

Inventories at May 31 were as follows:

How does the supplemental LIFO information indicating what the value of ending inventory would have been if measured using FIFO improve the quality of financial reporting by Carmen?

Difficulty: 2 Medium

Topic: LIFO reserves

Learning Objective: 08-06 Understand supplemental disclosures of LIFO reserves and the effect of LIFO liquidations on net income.

Bloom's: Understand

AACSB: Reflective Thinking

AICPA/Accessibility: BB Critical Thinking; FN Measurement

180) Briefly explain the advantages of dollar-value LIFO (DVL).

Difficulty: 2 Medium

Topic: Dollar-value LIFO

Learning Objective: 08-08 Determine ending inventory using the dollar-value LIFO inventory method.

Bloom's: Remember

AACSB: Reflective Thinking

AICPA/Accessibility: BB Critical Thinking