Financial Accounting IFRS Edition 2nd Edition By Weygandt, Kimmel, Kieso – Test Bank A+

$35.00
Financial Accounting IFRS Edition 2nd Edition By Weygandt, Kimmel, Kieso – Test Bank A+

Financial Accounting IFRS Edition 2nd Edition By Weygandt, Kimmel, Kieso – Test Bank A+

$35.00
Financial Accounting IFRS Edition 2nd Edition By Weygandt, Kimmel, Kieso – Test Bank A+
  1. Describe the steps in determining inventory quantities. The steps are (1) taking a physical inventory of goods on hand and (2) determining the ownership of goods in transit or on consignment.
  2. Explain the accounting for inventories and apply the inventory cost flow methods. The primary basis of accounting for inventories is cost. Cost of goods available for sale includes (a) cost of beginning inventory and (b) the cost of goods purchased. The inventory costing methods are: specific identification and two assumed cost flow methods—FIFO and average-cost.
  3. Explain the financial effects of the inventory cost flow assumptions. Companies may allocate the cost of goods available for sale to cost of goods sold and ending inventory by specific identification or by a method based on an assumed cost flow. When prices are rising, the first-in, first-out (FIFO) method results in lower cost of goods sold and higher net income than average-cost. The reverse is true when prices are falling. In the statement of financial position, FIFO results in an ending inventory that is closer to current value; inventory under average-cost is farther from current value. Average-cost results in the lower income taxes.
  4. Explain the lower-of-cost-or-net realizable value basis of accounting for inventories. Companies may use the lower-of-cost-or-net realizable value (LCNRV) basis when the net realizable value is less than cost. Under LCNRV, companies recognize the loss in the period in which the price decline occurs.

  1. Indicate the effects of inventory errors on the financial statements. In the income statement of the current year: (a) An error in beginning inventory will have a reverse effect on net income. (b) An error in ending inventory will have a similar effect on net income. In the following period, its effect on net income for that period is reversed, and total net income for the two years will be correct. In the statement of financial position: Ending inventory errors will have the same effect on total assets and total equity and no effect on liabilities.
  2. Compute and interpret the inventory turnover ratio. The inventory turnover ratio is cost of goods sold divided by average inventory. To convert it to average days in inventory, divide 365 days by the inventory turnover ratio.

a7. Apply the inventory cost flow methods to perpetual inventory records. Under FIFO and a perpetual inventory system, companies charge to cost of goods sold the cost of the earliest goods on hand prior to each sale. Under the moving-average (average-cost) method and a perpetual system, companies compute a new average cost after each purchase.

a8. Describe the two methods of estimating inventories. The two methods of estimating inventories are the gross profit method and the retail inventory method. Under the gross profit method, companies apply a gross profit rate to net sales to determine estimated cost of goods sold. They then subtract estimated cost of goods sold from cost of goods available for sale to determine the estimated cost of the ending inventory. Under the retail inventory method, companies compute a cost-to-retail ratio by dividing the cost of goods available for sale by the retail value of the goods available for sale. They then apply this ratio to the ending inventory at retail to determine the estimated cost of the ending inventory.

a9. Apply the LIFO inventory costing method. The LIFO (last-in, first-out) method assumes that the latest goods purchased are the first to be sold. LIFO seldom coincides with the actual physical flow of goods. This method matches costs of the most recently purchased items with revenues in the period. In periods of rising prices, use of the LIFO method results in lower income taxes and higher cash flow.

TRUE-FALSE STATEMENTS

  1. Transactions that affect inventories on hand have an effect on both the statement of financial position and the income statement.

Ans: T, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

  1. The more inventory a company has in stock, the greater the company’s profit.

Ans: F, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Business Economic

  1. Raw materials inventories are the goods that a manufacturer has completed and are ready to be sold to customers.

Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economic

  1. Goods that have been purchased FOB destination but are in transit, should be excluded from a physical count of goods.

Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

  1. Goods out on consignment should be included in the inventory of the consignor.

Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

  1. All inventories are reported as current assets on the statement of financial position.

Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

  1. One reason a company using a perpetual inventory system must make a physical count of goods is to determine the amount of inventory on hand as of the statement of financial position date.

Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

  1. IFRS allows companies to cost inventory using either the LIFO or the FIFO cost flow assumption.

Ans: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

  1. The average cost method costs units using a weighted-average unit cost.

Ans: T, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

  1. The specific identification method of costing inventories tracks the actual physical flow of the goods available for sale.

Ans: T, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

  1. Management may choose any inventory costing method it desires as long as the cost flow assumption chosen is consistent with the physical movement of goods in the company.

Ans: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

  1. The first-in, first-out (FIFO) inventory method results in an ending inventory valued at the most recent cost.

Ans: T, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

  1. IFRS requires that the cost flow assumption be consistent with the physical movement of the goods.

Ans: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

  1. The specific identification method of inventory valuation is desirable when a company sells a large number of low-unit cost items.

Ans: F, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economic

  1. If a company has no beginning inventory and the unit cost of inventory items does not change during the year, the value assigned to the ending inventory will be the same under FIFO and average cost flow assumptions.

Ans: T, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

  1. If the unit price of inventory is increasing during a period, a company using the average-cost inventory method will show less gross profit for the period, than if it had used the FIFO inventory method.

Ans: T, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

  1. If a company has no beginning inventory and the unit price of inventory is increasing during a period, the cost of goods available for sale during the period will be the same under the average-cost and FIFO inventory methods.

Ans: T, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

  1. Use of the FIFO inventory valuation method enables a company to report higher net income when in a period of falling prices.

Ans: F, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

  1. If a company changes its inventory valuation method, the effect of the change on net income should be disclosed in the financial statements.

Ans: T, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

  1. In a period of rising prices, if a company uses the FIFO cost flow assumption, income tax expense will be lower than if they used average-costing.

Ans: F, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

  1. In a period of rising prices, the statement of financial position will report a higher inventory amount if FIFO, rather than average-costing, is the cost flow assumption used.

Ans: T, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

  1. The accounting concept of prudence dictates that the accounting principle used should be the one least likely to overstate assets and income.

Ans: T, LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

  1. Accountants believe that the write down from cost to net realizable value should not be made in the period in which the price decline occurs.

Ans: F, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

  1. An error that overstates the ending inventory will also cause net income for the period to be overstated.

Ans: T, LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economic

  1. If an error understates the beginning inventory, net income will also be understated.

Ans: F, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

  1. If the inventory reported on the statement of financial position is understated, then net income reported on the income statement is understated.

Ans: T, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

a27. Accounting for inventories under IFRS is very similar to accounting under GAAP.

Ans: T, LO: 9, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

a28. A major difference between IFRS and GAAP is that GAAP specifically prohibits use of the FIFO cost flow assumption.

Ans: F, LO: 9, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

  1. Inventory turnover is calculated as cost of goods sold divided by ending inventory.

Ans: F, LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

a30. If a company uses the FIFO cost assumption, the cost of goods sold for the period will be the same under a perpetual or periodic inventory system.

Ans: T, LO: 7, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economic

a31. In all cases when average-costing is used, the cost of goods sold would be the same whether a perpetual or periodic system is used.

Ans: F, LO: 7, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economic

a32. The moving-average cost flow assumption for a perpetual inventory system and the average-cost cost flow assumption for a periodic inventory system will allocate the same amounts to ending inventory and cost of goods sold.

Ans: F, LO: 7, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economic

a33. Companies have the choice of physically counting inventory on hand at the end of the year or using the gross profit method to estimate the ending inventory.

Ans: F, LO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

a34. The retail inventory method requires a company to value its inventory on the statement of financial position at retail prices.

Ans: F, LO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

a35. In applying the LIFO assumption in a perpetual inventory system, the cost of the units most recently purchased prior to sale is allocated first to the units sold.

Ans: T, LO: 9, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economic

a36. A major advantage of LIFO is that the inventory reported on the statement of financial position will approximate current cost.

Ans: F, LO: 9, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economic

a37. The LIFO cost flow assumption can also be called the LISH assumption.

Ans: F, LO: 9, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economic

  1. Finished goods are a classification of inventory for a manufacturer that are completed and ready for sale.

Ans: T, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

  1. Under the FIFO method, the costs of the earliest units purchased are the first charged to cost of goods sold.

Ans: T, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

  1. The specific identification method of inventory costing is appropriate for costly, easily distinguishable items such as cars, pianos, and antigues.

Ans: T, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economic

  1. In a period of falling prices, the average-cost method results in a lower cost of goods sold than the FIFO method.

Ans: T, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economic

  1. The lower-of-cost-or-net realizable value basis is an example of the accounting concept of prudence.

Ans: T, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

  1. Inventories are reported in the current assets section of the statement of financial position immediately before receivables.

Ans: T, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

a44. In a perpetual inventory system, the cost of goods sold under the FIFO method is based on the cost of the latest goods on hand during the period.

Ans: F, LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

a45. The gross profit method is based on the assumption that the rate of gross profit remains constant from one year to the next.

Ans: T, LO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Answers to True-False Statements

ItemAns.ItemAns.ItemAns.ItemAns.ItemAns.ItemAns.ItemAns.
1.T8.F15.T22.T29.Fa36.F43.T
2.F9.T16.T23.Fa30.Ta37.Fa44.F
3.F10.T17.T24.Ta31.F38.Ta45.T
4.T11.F18.F25.Fa32.F39.T
5.T12.T19.T26.Ta33.F40.T
6.T13.F20.F27.Ta34.F41.T
7.T14.F21.T28.Fa35.T42.T

MULTIPLE CHOICE QUESTIONS

  1. Inventories affect
  2. only the statement of financial position.
  3. only the income statement.
  4. both the statement of financial position and the income statement.
  5. neither the statement of financial position nor the income statement.

Ans: C, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

  1. Merchandise inventory is
  2. reported under the classification of Property, Plant, and Equipment on the statement of financial position.
  3. often reported as a miscellaneous expense on the income statement.
  4. reported as a current asset on the statement of financial position.
  5. generally valued at the price for which the goods can be sold.

Ans: C, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

  1. Items not yet placed into production are considered to be
  2. raw materials.
  3. work in process.
  4. finished goods.
  5. merchandise inventory.

Ans: A, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

  1. In a manufacturing business, inventory that is ready for sale is called
  2. raw materials inventory.
  3. work in process inventory.
  4. finished goods inventory.
  5. store supplies inventory.

Ans: C, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

  1. The factor which determines whether goods in transit should be included in a physical count of inventory is
  2. physical possession.
  3. legal title.
  4. management’s judgment.
  5. whether or not the purchase price has been paid.

Ans: B, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

  1. If goods in transit are shipped FOB destination
  2. the seller has legal title to the goods until they are delivered.
  3. the buyer has legal title to the goods until they are delivered.
  4. the transportation company has legal title to the goods while the goods are in transit.
  5. no one has legal title to the goods until they are delivered.

Ans: A, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

  1. An auto manufacturer would classify vehicles in various stages of production as
  2. finished goods.
  3. merchandise inventory.
  4. raw materials.
  5. work in process.

Ans: D, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

  1. Which of the following should be included in the physical inventory of a company?
  2. Goods held on consignment from another company.
  3. Goods in transit to another company shipped FOB shipping point.
  4. Goods in transit from another company shipped FOB shipping point.
  5. Both goods in transit to and from another company shipped FOB shipping point.

Ans: C, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Internal Controls

  1. Manufacturers usually classify inventory into all the following general categories except
  2. work in process
  3. finished goods
  4. merchandise inventory
  5. raw materials

Ans: C, LO: 1, Blooms Taxonomy: C, Difficulty: Easy, AACSB: Analytic, AICPA BB: Critical Thinking, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

  1. Blosser Company’s goods in transit at December 31 include:

sales made purchases made

(1) FOB destination (3) FOB destination

(2) FOB shipping point (4) FOB shipping point

Which items should be included in Blosser’s inventory at December 31?

  1. (2) and (3)
  2. (1) and (4)
  3. (1) and (3)
  4. (2) and (4)

Ans: B, LO: 1, Bloom: C, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

  1. The term “FOB” denotes
  2. free on board.
  3. freight on board.
  4. free only (to) buyer.
  5. freight charge on buyer.

Ans: A, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: None, AICPA PC: None, IMA: Business Economic

  1. As a result of a thorough physical inventory, Hastings Company determined that it had inventory worth $570,000 at December 31, 2014. This count did not take into consideration the following facts: Carlin Consignment store currently has goods worth $104,000 on its sales floor that belong to Hastings but are being sold on consignment by Carlin. The selling price of these goods is $150,000. Hastings purchased $40,000 of goods that were shipped on December 27 FOB destination, that will be received by Hastings on January 3. Determine the correct amount of inventory that Hastings should report.
  2. $610,000.
  3. $714,000.
  4. $674,000.
  5. $720,000.

Ans: C, LO: 1, Bloom: C, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

  1. Bellingham Inc. took a physical inventory at the end of the year and calculated that £1,450,000 of goods were on hand. Bellingham determined that £25,000 of goods were in transit. The goods were shipped f.o.b. shipping point and were received by Bellingham two days after the inventory count. The company also had £275,000 of goods out on consignment. What amount should Bellingham report for inventory on its statement of financial position?
  2. £1,150,000.
  3. £1,450,000.
  4. £1,725,000.
  5. £1,750,000.

Ans: D, LO: 1, Bloom: C, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

  1. Godchaux Inc. took a physical inventory at December 31, 2013 and determined that €295,000 of goods were on hand. In addition, the following items were not included in the physical count: (1) €60,000 of goods were in transit, shipped f.o.b. destination (goods were received by Godchaux three days on January 3, 2014) and (2) the company shipped f.o.b. destination €25,000 worth of inventory on December 29. The goods arrived at the buyer’s place of business on January 2, 2014. What amount should Godchaux report as inventory at the end of 2013?
  2. €295,000.
  3. €355,000.
  4. €320,000.
  5. €380,000.

Ans: C, LO: 1, Bloom: C, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

  1. Ching Inc. took a physical inventory at December 31, 2013 and determined that ¥4,570,000 of goods were on hand. On December 29, the company had ordered ¥1,010,000 of goods which were in transit. The goods were shipped f.o.b. shipping point and arrived on January 2, 2014. The company had also sold and shipped f.o.b. destination ¥950,000 worth of inventory on December 28. The goods arrived at the buyer’s place of business on January 4, 2014. Ching’s December 31, 2013 statement of financial position will report inventory of
  2. ¥3,560,000.
  3. ¥4,570,000.
  4. ¥5,580,000.
  5. ¥6,530,000.

Ans: D, LO: 1, Bloom: C, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

  1. Keiko Company took a physical inventory at December 31, 2013 and determined that ¥3,530,000 of goods were on hand. In addition, the company had goods consigned with Chang Company that had a cost of ¥700,000. On December 29, Keiko sold and shipped f.o.b. shipping point ¥600,000 worth of inventory. These goods arrived at the buyer’s place of business on January 4, 2014. What amount should Keiko report as inventory on its December 31, 2013 statement of financial position?
  2. ¥3,530,000.
  3. ¥4,130,000.
  4. ¥4,230,000.
  5. ¥4,730,000.

Ans: C, LO: 1, Bloom: C, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

  1. Chang Company took a physical inventory at December 31, 2013 and determined that ¥3,950,000 of goods were on hand. Included in the count was inventory of ¥700,000 on consignment from Keiko Company. On December 30, Chang sold and shipped f.o.b. destination ¥820,000 worth of inventory. These goods arrived at the buyer’s place of business on January 2, 2014. What amount should Chang report for inventory on its December 31, 2013 statement of financial position?
  2. ¥3,950,000.
  3. ¥4,070,000.
  4. ¥3,370,000.
  5. ¥4,770,000.

Ans: B, LO: 1, Bloom: C, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

  1. The following information was available from the inventory records of Queen Company for July:

Units Unit Cost Total Cost

Balance at July 1 30,000 £ 4.50 £135,000

Purchases:

July 6 20,000 5.10 102,000

July 26 27,000 5.20 140,400

Sales:

July 7 (25,000)

July 31 (40,000)

Balance at July 31 12,000

What is Queen’s cost of goods available for sale?

  1. £38,500.
  2. £142,400.
  3. £377,400.
  4. cannot be determined.

Ans: C, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: None, AICPA PC: None, IMA: Business Economic

  1. The following information was available from the inventory records of Queen Company for July:

Units Unit Cost Total Cost

Balance at July 1 30,000 £ 4.50 £135,000

Purchases:

July 6 20,000 5.10 102,000

July 26 27,000 5.20 140,400

Sales:

July 7 (25,000)

July 31 (40,000)

Balance at July 31 12,000

What should be the inventory reported on Queen’s July 31 statement of financial position using the average-cost inventory method (round per unit amounts to two decimal places)?

  1. £54,000.
  2. £58,800.
  3. £59,220.
  4. £63,000.

Ans: B, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: None, AICPA PC: None, IMA: Business Economic

  1. The following information was available from the inventory records of Queen Company for July:

Units Unit Cost Total Cost

Balance at July 1 30,000 £ 4.50 £135,000

Purchases:

July 6 20,000 5.10 102,000

July 26 27,000 5.20 140,400

Sales:

July 7 (25,000)

July 31 (40,000)

Balance at July 31 12,000

What should be the inventory reported on Queen’s July 31 statement of financial position using the FIFO inventory method?

  1. £54,000.
  2. £58,800.
  3. £62,400.
  4. £63,000.

Ans: C, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: None, AICPA PC: None, IMA: Business Economic

  1. Brocken Co. has the following data related to an item of inventory:

Inventory, May 1 2,000 units @ £4.20

Purchase, May 7 7,000 units @ £4.40

Purchase, May 16 1,400 units @ £4.50

Inventory, May 31 2,600 units

The value assigned to cost of goods sold if Brocken uses average-cost is

  1. £34,124.
  2. £33,800.
  3. £33,922.
  4. £35,040.

Ans: A, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: None, AICPA PC: None, IMA: Business Economic

  1. Brocken Co. has the following data related to an item of inventory:

Inventory, May 1 2,000 units @ £4.20

Purchase, May 7 7,000 units @ £4.40

Purchase, May 16 1,400 units @ £4.50

Inventory, May 31 2,600 units

The value assigned to cost of goods sold if Brocken uses FIFO is

  1. £33,800.
  2. £33,920.
  3. £34,138.
  4. £34,164.

Ans: B, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: None, AICPA PC: None, IMA: Business Economic

  1. Vestle Company uses the periodic inventory system. For January 2014, the beginning inventory consisted of 24,000 units that cost CHF12 each. During the month, the company made two purchases: 10,000 units at CHF13 each and 40,000 units at CHF13.50 each. Vestle sold 43,000 units during the month for CHF19.50 per unit. Using the average-cost method, what is the amount of cost of goods sold for the month of January 2014 (round per unit amount to two decimal places)?
  2. CHF556,850.
  3. CHF579,000.
  4. CHF539,500.
  5. CHF559,000.

Ans: A, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: None, AICPA PC: None, IMA: Business Economic

  1. Nolvo Company uses the periodic inventory system. For February 2014, the beginning inventory consisted of 400 units that cost CHF65 each. During the month, the company made two purchases: 1,600 units at CHF68 each and 600 units at CHF72 each. Nolvo sold 2,000 units during the month of February at CHF110 per unit. Using the average cost method, what is the amount of ending inventory at February 28, 2014?
  2. CHF43,200.
  3. CHF42,000.
  4. CHF41,076.
  5. CHF39,000.

Ans: C, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: None, AICPA PC: None, IMA: Business Economic

  1. Kershaw Bookstore had 1,000 units on hand at January 1, costing €18 each. Purchases and sales during the month of January were as follows:

Date Purchases Sales

Jan. 14 750 @ €28

17 500 @ €20

25 500 @ €22

29 500 @ €32

Kershaw does not maintain perpetual inventory records. According to a physical count, 750 units were on hand at January 31.

The cost of the inventory at January 31, under the FIFO method is:

  1. €2,000.
  2. €13,500.
  3. €15,500.
  4. €16,000.

Ans: D, LO: 2, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

  1. Colletti Company recorded the following data:

Units Unit

Date Received Sold On Hand Cost

1/1 Inventory 600 $3.00

1/8 Purchased 900 1,500 3.30

1/12 Sold 1,200 300

The weighted average unit cost of the inventory at January 31 is:

  1. $3.00.
  2. $3.15.
  3. $3.18.
  4. $3.30.

Ans: C, LO: 2, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

  1. Beginning inventory plus the cost of goods purchased equals
  2. cost of goods sold.
  3. cost of goods available for sale.
  4. net purchases.
  5. total goods purchased.

Ans: B, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economic

  1. A company just starting in business purchased three inventory items at the following prices. First purchase $80; Second purchase $95; Third purchase $85. If the company sold two units for a total of $260 and used FIFO costing, the gross profit for the period would be
  2. $85.
  3. $95.
  4. $80.
  5. $70.

Ans: A, LO: 2, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

  1. A company just starting business made the following four inventory purchases in June:

June 1 150 units ¥ 5,200

June 10 200 units 7,800

June 15 200 units 8,400

June 28 150 units 6,600

¥28,000

A physical count of merchandise inventory on June 30 reveals that there are 100 units on hand. Using the FIFO inventory method, the amount allocated to cost of goods sold for June is

  1. ¥4,400.
  2. ¥24,000.
  3. ¥23,600.
  4. ¥24,533.

Ans: C, LO: 2, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

  1. A company just starting business made the following four inventory purchases in June:

June 1 150 units ¥ 5,200

June 10 200 units 7,800

June 15 200 units 8,400

June 28 150 units 6,600

¥28,000

A physical count of merchandise inventory on June 30 reveals that there are 100 units on hand. Using the average-cost method, the amount allocated to the ending inventory on June 30 is

  1. ¥28,000.
  2. ¥24,000.
  3. ¥4,400.
  4. ¥4,000.

Ans: D, LO: 2, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

  1. A company just starting business made the following four inventory purchases in June:

June 1 150 units ¥ 5,200

June 10 200 units 7,800

June 15 200 units 8,400

June 28 150 units 6,600

¥28,000

A physical count of merchandise inventory on June 30 reveals that there are 100 units on hand. The inventory method which results in the highest gross profit for June is

  1. the FIFO method.
  2. the specific identification method.
  3. the average-cost method.
  4. not determinable.

Ans: A, LO: 2, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

  1. A company purchased inventory as follows:

200 units at $5

300 units at $6

The average unit cost for inventory is

  1. $5.00.
  2. $5.50.
  3. $5.60.
  4. $6.00.

Ans: C, LO: 2, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

  1. The cost of goods available for sale is allocated between
  2. beginning inventory and ending inventory.
  3. beginning inventory and cost of goods on hand.
  4. ending inventory and cost of goods sold.
  5. beginning inventory and cost of goods purchased.

Ans: C, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

  1. Ted’s Used Cars uses the specific identification method of costing inventory. During March, Ted purchased three cars for $8,000, $10,000, and $13,000, respectively. During March, two cars are sold for $11,000 each. Ted determines that at March 31, the $13,000 car is still on hand. What is Ted’s gross profit for March?
  2. $3,000.
  3. $4,000.
  4. $1,000.
  5. $9,000.

Ans: B, LO: 2, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

  1. Of the following companies, which one would not likely employ the specific identification method for inventory costing?
  2. Music store specializing in organ sales
  3. Farm implement dealership
  4. Antique shop
  5. Hardware store

Ans: D, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

  1. A problem with the specific identification method is that
  2. inventories can be reported at actual costs.
  3. management can manipulate income.
  4. matching is not achieved.
  5. the lower-of-cost-or-net realizable value basis cannot be applied.

Ans: B, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Business Economic

  1. The selection of an appropriate inventory cost flow assumption for an individual company is made by
  2. the external auditors.
  3. the IASB.
  4. the internal auditors.
  5. company management.

Ans: D, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economic

  1. Which one of the following inventory methods is often impractical to use?
  2. Specific identification
  3. Average cost
  4. FIFO
  5. All of these answer choices are practical to use

Ans: A, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: None, AICPA PC: None, IMA: Business Economic

  1. The accounting principle that requires that the cost flow assumption be consistent with the physical movement of goods is
  2. called the matching principle.
  3. called the consistency principle.
  4. nonexistent; that is, there is no accounting requirement.
  5. called the physical flow assumption.

Ans: C, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

  1. Which of the following statements is correct with respect to inventories?
  2. The FIFO method assumes that the costs of the earliest goods acquired are the last to be sold.
  3. It is generally good business management to sell the most recently acquired goods first.
  4. Under FIFO, the ending inventory is based on the latest units purchased.
  5. FIFO seldom coincides with the actual physical flow of inventory.

Ans: C, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economic

  1. The cost of goods available for sale is allocated to the cost of goods sold and the
  2. beginning inventory.
  3. ending inventory.
  4. cost of goods purchased.
  5. gross profit.

Ans: B, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

  1. At May 1, 2014, Deitrich Company had beginning inventory consisting of 200 units with a unit cost of €3.50. During May, the company purchased inventory as follows:

400 units at €3.50

600 units at €4.00

The company sold 1,000 units during the month for €6 per unit. Deitrich uses the average-cost method. The average cost per unit for May is

  1. €3.50.
  2. €3.75.
  3. €3.80.
  4. €4.00.

Ans: B, LO: 2, Bloom: AP, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

  1. At May 1, 2014, Deitrich Company had beginning inventory consisting of 200 units with a unit cost of €3.50. During May, the company purchased inventory as follows:

400 units at €3.50

600 units at €4.00

The company sold 1,000 units during the month for €6 per unit. Deitrich uses the average cost method. The value of Deitrich’s inventory at May 31, 2014 is

  1. €700.
  2. €750.
  3. €800.
  4. €4,500.

Ans: B, LO: 2, Bloom: AP, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

  1. At May 1, 2014, Deitrich Company had beginning inventory consisting of 200 units with a unit cost of €3.50. During May, the company purchased inventory as follows:

400 units at €3.50

600 units at €4.00

The company sold 1,000 units during the month for €6 per unit. Deitrich uses the average cost method. Deitrich’s gross profit for the month of May is

  1. €2,250.
  2. €3,750.
  3. €4,500.
  4. €6,000.

Ans: A, LO: 3, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

  1. Graham Company uses a periodic inventory system. Details for the inventory account for the month of January, 2014 are as follows:

Units Per unit price Total

Balance, 1/1/14 200 $5.00 $1,000

Purchase, 1/15/14 100 5.30 530

Purchase, 1/28/14 100 5.50 550

An end of the month (1/31/14) inventory showed that 120 units were on hand. How many units did the company sell during January 2014?

  1. 80
  2. 120
  3. 200
  4. 280

Ans: D, LO: 2, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

  1. Graham Company uses a periodic inventory system. Details for the inventory account for the month of January, 2014 are as follows:

Units Per unit price Total

Balance, 1/1/14 200 $5.00 $1,000

Purchase, 1/15/14 100 5.30 530

Purchase, 1/28/14 100 5.50 550

An end of the month (1/31/14) inventory showed that 120 units were on hand. If the company uses FIFO, what is the value of the ending inventory?

  1. $520
  2. $600
  3. $656
  4. $1,424

Ans: C, LO: 2, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

  1. Graham Company uses a periodic inventory system. Details for the inventory account for the month of January 2014 are as follows:

Units Per unit price Total

Balance, 1/1/14 200 $5.00 $1,000

Purchase, 1/15/14 100 5.30 530

Purchase, 1/28/14 100 5.50 550

An end of the month (1/31/14) inventory showed that 120 units were on hand. If the company uses FIFO and sells the units for $10 each, what is the gross profit for the month?

  1. $1,376
  2. $1,424
  3. $2,800
  4. $3,000

Ans: A, LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

  1. Holliday Company’s inventory records show the following data:

Units Unit Cost

Inventory, January 1 5,000 ₤2.25

Purchases: June 18 4,500 2.00

November 8 3,000 1.75

A physical inventory on December 31 shows 2,000 units on hand. Holliday sells the units for ₤3 each. The company has an effective tax rate of 20%. Holliday uses the periodic inventory method.

Under the FIFO method, the December 31 inventory is valued at

  1. ₤3,500.
  2. ₤3,625.
  3. ₤3,750.
  4. ₤4,500.

Ans: A, LO: 2, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

  1. Holliday Company’s inventory records show the following data:

Units Unit Cost

Inventory, January 1 5,000 ₤2.25

Purchases: June 18 4,500 2.00

November 8 3,000 1.75

A physical inventory on December 31 shows 2,000 units on hand. Holliday sells the units for ₤3 each. The company has an effective tax rate of 20%. Holliday uses the periodic inventory method. What is the cost of goods available for sale?

  1. ₤5,250
  2. ₤9,000
  3. ₤11,250
  4. ₤25,500

Ans: D, LO: 2, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

  1. Holliday Company’s inventory records show the following data:

Units Unit Cost

Inventory, January 1 5,000 ₤2.25

Purchases: June 18 4,500 2.00

November 8 3,000 1.75

A physical inventory on December 31 shows 2,000 units on hand. Holliday sells the units for ₤3 each. The company has an effective tax rate of 20%. Holliday uses the periodic inventory method. The weighted-average cost per unit is

  1. ₤1.88.
  2. ₤2.00.
  3. ₤2.04.
  4. ₤2.19.

Ans: C, LO: 2, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

  1. Holliday Company’s inventory records show the following data:

Units Unit Cost

Inventory, January 1 5,000 ₤2.25

Purchases: June 18 4,500 2.00

November 8 3,000 1.75

A physical inventory on December 31 shows 2,000 units on hand. Holliday sells the units for ₤3 each. The company has an effective tax rate of 20%. Holliday uses the periodic inventory method. If the company uses FIFO, what is the gross profit for the period?

  1. ₤500
  2. ₤2,500
  3. ₤5,250
  4. ₤9,500

Ans: D, LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

  1. Unitech has the following inventory information.

July 1 Beginning Inventory 50 units at $19 $ 950

7 Purchases 175 units at $20 3,500

22 Purchases 25 units at $22 550

$5,000

A physical count of merchandise inventory on July 31 reveals that there are 75 units on hand. Using the average-cost method, the value of ending inventory is

  1. $1,450.
  2. $1,500.
  3. $1,525.
  4. $1,550.

Ans: B, LO: 2, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

  1. Unitech has the following inventory information.

July 1 Beginning Inventory 50 units at $19 $ 950

7 Purchases 175 units at $20 3,500

22 Purchases 25 units at $22 550

$5,000

A physical count of merchandise inventory on July 31 reveals that there are 75 units on hand. Using the FIFO inventory method, the amount allocated to cost of goods sold for July is

  1. $1,450.
  2. $1,550.
  3. $3,450.
  4. $3,550.

Ans: C, LO: 2, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

  1. Neighborly Industries has the following inventory information.

July 1 Beginning Inventory 30 units at $120

5 Purchases 180 units at $112

14 Sale 120 units

21 Purchases 90 units at $115

30 Sale 84 units

Assuming that a periodic inventory system is used, what is the amount allocated to ending inventory on a FIFO basis?

  1. $10,992
  2. $11,022
  3. $23,088
  4. $23,118

Ans: B, LO: 2, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

  1. Shandy Shutters has the following inventory information.

Nov. 1 Inventory 30 units @ €6.00

8 Purchase 120 units @ €6.45

17 Purchase 60 units @ €6.30

25 Purchase 90 units @ €6.60

A physical count of merchandise inventory on November 30 reveals that there are 100 units on hand. Assume a periodic inventory system is used. Cost of goods sold under the average-cost method is

  1. €1,292.
  2. €1,284.
  3. €1,268.
  4. €1,200.

Ans: B, LO: 2, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

  1. Shandy Shutters has the following inventory information.

Nov. 1 Inventory 30 units @ €6.00

8 Purchase 120 units @ €6.45

17 Purchase 60 units @ €6.30

25 Purchase 90 units @ €6.60

A physical count of merchandise inventory on November 30 reveals that there are 100 units on hand. Assume a periodic inventory system is used. Ending inventory under FIFO is

  1. €657.
  2. €1,268.
  3. €632.
  4. €1,294.

Ans: A, LO: 2, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

  1. Shandy Shutters has the following inventory information.

Nov. 1 Inventory 30 units @ €6.00

8 Purchase 120 units @ €6.45

17 Purchase 60 units @ €6.30

25 Purchase 90 units @ €6.60

A physical count of merchandise inventory on November 30 reveals that there are 100 units on hand. Assume a periodic inventory system is used. Assuming that the specific identification method is used and that ending inventory consists of 30 units from each of the three purchases and 10 units from the November 1 inventory, cost of goods sold is

  1. €640.
  2. €1,286.
  3. €1,280.
  4. €1,254.

Ans: B, LO: 2, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

  1. Lee Industries had the following inventory transactions occur during 2014:

Units Cost/unit

2/1/14 Purchase 72 $45

3/14/14 Purchase 124 $47

5/1/14 Purchase 88 $49

The company sold 204 units at $63 each and has a tax rate of 30%. Assuming that a periodic inventory system is used, what is the company’s gross profit using FIFO? (rounded to whole dollars)

  1. $9,764
  2. $9,460
  3. $3,392
  4. $3,088

Ans: C, LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

  1. Lee Industries had the following inventory transactions occur during 2014:

Units Cost/unit

2/1/14 Purchase 72 $45

3/14/14 Purchase 124 $47

5/1/14 Purchase 88 $49

The company sold 204 units at $63 each and has a tax rate of 30%. Assuming that a periodic inventory system is used, what is the company’s after-tax income using FIFO? (rounded to whole dollars)

  1. $3,088
  2. $3,392
  3. $2,374
  4. $2,160

Ans: C, LO: 3, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

  1. Companies adopt different cost flow methods for each of the following reasons except
  2. statement of financial position effects.
  3. cash flow effects.
  4. income statements effects.
  5. tax effects.

Ans: B, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economic

  1. In periods of rising prices, the inventory method which results in the inventory value on the statement of financial position that is closest to current cost is the
  2. FIFO method.
  3. specific identification method.
  4. average-cost method.
  5. tax method.

Ans: A, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

  1. If companies have identical inventory costs but use different inventory flow assumptions when the price of goods have not been constant, then the
  2. cost of goods sold of the companies will be identical.
  3. cost of goods available for sale of the companies will be identical.
  4. ending inventory of the companies will be identical.
  5. net income of the companies will be identical.

Ans: B, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economic

  1. The specific identification method of inventory costing
  2. always maximizes a company’s net income.
  3. always minimizes a company’s net income.
  4. has no effect on a company’s net income.
  5. may enable management to manipulate net income.

Ans: D, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economic

  1. The accountant at Paige Company is figuring out the difference in income taxes the company will pay depending on the choice of either FIFO or average-cost as an inventory costing method. The tax rate is 30% and the FIFO method will result in income before taxes of $18,200. The average-cost method will result in income before taxes of $16,450. What is the difference in tax that would be paid between the two methods?
  2. $1,750.
  3. $750.
  4. $525.
  5. Cannot be determined from the information provided.

Ans: C, LO: 3, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

  1. The accountant at Reber Company has determined that income before income taxes amounted to $6,750 using the FIFO costing assumption. If the income tax rate is 30% and the amount of income taxes paid would be $315 greater if the average-cost assumption were used, what would be the amount of income before taxes under the average-cost assumption?
  2. $7,065
  3. $7,800
  4. $6,015
  5. $6,435

Ans: B, LO: 3, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Quantitative Methods

  1. The manager of Yates Company is given a bonus based on income before income taxes. Net income, after taxes, is $10,500 for FIFO and $9,450 for average-cost. The tax rate is 30%. The bonus rate is 20%. How much higher is the manager’s bonus if FIFO is adopted instead of average-cost?
  2. $375
  3. $563
  4. $300
  5. $1,050

Ans: C, LO: 3, Bloom: AN, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

  1. The consistent application of an inventory costing method is essential for
  2. prudence.
  3. accuracy.
  4. comparability.
  5. efficiency.

Ans: C, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

  1. Which inventory costing method most closely approximates current cost for each of the following?

Ending Inventory Cost of Goods Sold

  1. FIFO FIFO
  2. FIFO Average-cost
  3. Average-cost FIFO
  4. Average-cost Average-cost

Ans: B, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

  1. In a period of rising prices, the inventory method which tends to report the lowest inventory is
  2. FIFO.
  3. LISH.
  4. Specific identification.
  5. Average-cost.

Ans: D, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

  1. In a period of rising prices which inventory method generally provides the greatest amount of net income?
  2. Average-cost.
  3. FIFO.
  4. LISH.
  5. Cannot be determined.

Ans: B, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

  1. In a period of falling prices, which inventory method would result in the lowest tax burden?
  2. Average-cost.
  3. FIFO.
  4. No difference.
  5. Cannot be determined.

Ans: B, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

  1. Henri Company uses the average-cost inventory method. Its 2014 ending inventory was €40,000, but it would have been €60,000 if FIFO had been used. Thus, if FIFO had been used, Henri’s income before income taxes would have been
  2. €20,000 greater.
  3. €20,000 less.
  4. the same.
  5. not determinable without the tax rate.

Ans: A, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

  1. Franco Company uses the FIFO inventory method. Its 2014, the company reported net income of €820,000. Had average-cost been used, the company would have reported net income of €760,000. Assuming a 40% tax rate, what is the impact of the inventory cost flow assumption on Franco’s taxes for 2014?
  2. Franco would pay €24,000 more in taxes for 2014 as a result of using FIFO inventory method rather than average-cost.
  3. Franco would pay €36,000 less in taxes for 2014 as a result of using FIFO inventory method rather than average-cost.
  4. The inventory method does not impact the amount of income tax paid.
  5. Not determinable without income before taxes.

Ans: A, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

  1. Breguet Company uses the FIFO inventory method. The company reported inventory of CHF2,270,000 on its December 31, 2014 statement of financial position. Had average-cost been used, the company would have reported inventory of CHF1,860,000. The company’s tax rate is 30%. What is the impact of the inventory cost flow assumption on Breguet’s 2014 financial statements?
  2. Income before taxes reported by Breguet would be CHF410,000 lower as a result of using the FIFO cost flow assumption.
  3. Breguet would pay CHF123,000 less in taxes for 2014 as a result of using the FIFO cost flow assumption.
  4. Income after taxes reported by Breguet would be CHF287,000 higher as a result of using the FIFO cost flow assumption.
  5. The only financial statement affected by the cost flow assumption is the statement of financial position, which would report CHF410,000 more in inventory as a result of using the FIFO cost flow assumption.

Ans: C, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

  1. Aiwa Inc. uses the average-cost inventory method. In 2014, the company reported net income of ¥59,600,000. Had average-cost been used, the company would have reported net income of ¥58,900,000. Assuming a 25% tax rate, what is the impact of the inventory cost flow assumption on Aiwa’s taxes for 2014?
  2. Aiwa would pay ¥175,000 less in taxes for 2014 as a result of using the average-cost inventory method rather than FIFO.
  3. Aiwa would pay ¥525,000 less in taxes for 2014 as a result of using the average-cost inventory method rather than FIFO.
  4. The inventory method does not impact the amount of income tax paid.
  5. Not determinable without income before taxes.

Ans: A, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

  1. For the current month, the beginning inventory of Elipresse Inc. consisted of 3 units that cost CHF5,500 each. During the month, the company made two purchases: 4 units at CHF5,800 each and 1 units at CHF5,750. Elipresse sold 5 units during the month. If Elipresse uses specific identification and wishes to maximize net income, the units costs allocated to cost of goods sold will be:
  2. 5 units@CHF5,500.
  3. 4 units@CHF5,800 and 1 unit @CHF5,750
  4. 3 units@CHF5,500 and 1 unit @CHF5,800
  5. 3 units@CHF5,500, 1 unit @CHF5,750and 1 unit @CHF5,800

Ans: D, LO: 3, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

  1. At year-end, Dana Corporation has 3,000 units of Lolland, 3,000 units of Falster, and 4,500 units of Jultand in its ending inventory. Specific data with respect to each product follows:

Lolland Falster Jutland

Historical cost €55 €70 €98

Net realizable value 48 77 94

What amount will Dana report for ending inventory using lower-of-cost-or-net realizable value?

  1. €777,000.
  2. €792,000.
  3. €816,000.
  4. €837,000.

Ans: A, LO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

  1. Carlsberg Corporation has 2,000 units of product#1and 4,000 units of product#2 in its inventory at December 31, 2014. Specific data with respect to each product follows:

Product#1 Product#2

Historical cost CHF40 CHF70

Net realizable value 45 54

What amount will be reported on the company statement of financial position at December 31, 2014 for ending inventory using lower-of-cost-or-net realizable value?

  1. CHF220,000.
  2. CHF288,000.
  3. CHF296,000.
  4. CHF306,000.

Ans: C, LO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

  1. At December 31, 2014, Bosan Corporation has 4,900 units of model 63 and 3,500 units of model 64 in its ending inventory. Specific data with respect to each product follows:

Model 63 Model 64

Historical cost W7800 W8700

Net realizable value 7700 8800

What amount will be reported for inventory on Boson’s statement of financial position after the company applies LCNRV?

  1. W75,950,000.
  2. W69,020,000.
  3. W68,530,000.
  4. W68,180,000.

Ans: D, LO: 4, Bloom: C, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

  1. Net realizable value is
  2. original cost plus costs to complete and sell.
  3. selling price.
  4. original cost less costs to complete and sell.
  5. selling cost less costs to complete and sell.

Ans: D, LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

  1. Net realizable value refers to
  2. the net amount the company expects to realize from the sale.
  3. the selling price.
  4. the cost to replace the item.
  5. the gross profit realized from the sale.

Ans: A, LO: 4, Bloom: AN, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

  1. Which costing method cannot be used to determine the cost of inventory items before lower-of-cost-or-net realizable value market is applied?
  2. Specific identification
  3. FIFO
  4. Average-cost
  5. All of these methods can be used.

Ans: D, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

  1. Inventory is reported in the financial statements at
  2. cost.
  3. net realizable value.
  4. the higher-of-cost-or-net realizable value.
  5. the lower-of-cost-or-net realizable value.

Ans: D, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

  1. The lower-of-cost-or-net realizable value basis of valuing inventories is an example of
  2. comparability.
  3. the cost principle.
  4. prudence.
  5. consistency.

Ans: C, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

  1. Never Company developed the following information about its inventories in applying the lower-of-cost-or-net realizable value (LCNRV) basis in valuing inventories:

Product Cost NRV

A $171,000 $180,000

B 120,000 114,000

C 240,000 243,000

If Never applies the LCNRV basis, the value of the inventory reported on the statement of financial position would be

  1. $531,000.
  2. $537,000.
  3. $525,000.
  4. $543,000.

Ans: C, LO: 4, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

  1. Paulson, Inc. has 8 computers which have been part of the inventory for over two years. Each computer cost ₤600 and originally retailed for ₤825. At the statement date, each computer has a net realizable value of ₤350. What value should Paulson, Inc., have for the computers at the end of the year?
  2. ₤2,000.
  3. ₤2,800.
  4. ₤4,800.
  5. ₤6,600.

Ans: B, LO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

  1. Paulson, Inc. has 8 computers which have been part of the inventory for over two years. Each computer cost ₤600 and originally retailed for ₤825. At the statement date, each computer has a net realizable value of ₤350. How much loss should Paulson, Inc., record for the year?
  2. ₤1,800.
  3. ₤2,000.
  4. ₤2,400.
  5. ₤2,800.

Ans: B, LO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

  1. Widner Company understated its inventory by $10,000 at December 31, 2013. It did not correct the error in 2013 or 2014. As a result, Widner’s equity was:
  2. understated at December 31, 2013, and overstated at December 31, 2014.
  3. understated at December 31, 2013, and properly stated at December 31, 2014.
  4. overstated at December 31, 2013, and overstated at December 31, 2014.
  5. understated at December 31, 2013, and understated at December 31, 2014.

Ans: B, LO: 5, Bloom: C, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

  1. Understating beginning inventory will understate
  2. assets.
  3. cost of goods sold.
  4. net income.
  5. equity.

Ans: B, LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

  1. An error in the physical count of goods on hand at the end of a period resulted in a $10,000 overstatement of the ending inventory. The effect of this error in the current period is

Cost of Goods Sold Net Income

  1. Understated Understated
  2. Overstated Overstated
  3. Understated Overstated
  4. Overstated Understated

Ans: C, LO: 5, Bloom: AN, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

  1. If beginning inventory is understated by $10,000, the effect of this error in the current period is

Cost of Goods Sold Net Income

  1. Understated Understated
  2. Overstated Overstated
  3. Understated Overstated
  4. Overstated Understated

Ans: C, LO: 5, Bloom: AN, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

  1. A company uses the periodic inventory method and the beginning inventory is overstated by $4,000 because the ending inventory in the previous period was overstated by $4,000. The amounts reflected in the current end of the period statement of financial position are

Assets Equity

  1. Overstated Overstated
  2. Correct Correct
  3. Understated Understated
  4. Overstated Correct

Ans: B, LO: 5, Bloom: AN, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

  1. Overstating ending inventory will overstate all of the following except
  2. assets.
  3. cost of goods sold.
  4. net income.
  5. equity.

Ans: B, LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

  1. The inventory reported on Lazzard Company’s statement of financial position is understated by £1,250,000. The company’s reported net income for the period will be
  2. understated by £1,250,000.
  3. overstated by £1,250,000.
  4. correct.
  5. need more information to determine.

Ans: A, LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

  1. If the inventory reported on a Gottleib Company’s statement of financial position at December 31, 2013 is overstated by €1,200,000, the company’s retained earnings balance at December 31, 2014 will be
  2. understated by €1,200,000.
  3. correct.
  4. overstated by €1,200,000.
  5. need more information to determine.

Ans: B, LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

  1. At December 31, 2014, Daewoo Inc. reported total assets of W402,590,000, and net income of W100,670,000 for the current year. Daewoo determined that inventory was overstated by W3,200,000 at the beginning of 2015 (this was not corrected). What is Daewoo’s corrected amount for total assets for 2014?
  2. W301,938,000.
  3. W399,390,000.
  4. W405,790,000.
  5. W503,260,000

Ans: B, LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

  1. Reinhoff Inc. reported total assets of €2,600,000, including €435,000 for inventory, and equity of €1,690,0000 on the December 31, 2014 statement of financial position. Reinhoff subsequently determined that the ending inventory was understated by €63,000. What is the corrected amount of equity for the year?
  2. €0.
  3. €1,627,000.
  4. €1,690,000.
  5. €1,753,000.

Ans: D, LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

  1. At December 31, 2014, Murchi Company reported total assets of Rs22,320,000, including inventory of Rs5,580,000 and net income of Rs7,365,600 for 2014. The reported inventory was overstated by Rs1,020,000. Which of the following is true with regard to Murchi’s 2014 financial statements (ignore income taxes)?
  2. Total assets are understated and total equity is overstated by Rs1,020,000.
  3. Cost of goods sold is understated and total equity is overstated by Rs1,020,000.
  4. Cost of goods sold and total equity are both understated by Rs1,020,000.
  5. Total assets and Net income are both overstated by Rs1,020,000.

Ans: B, LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

  1. Bosio Corporation’s computation of cost of goods sold is:

Beginning inventory €160,000

Add: Cost of goods purchased 505,000

Cost of goods available for sale 665,000

Ending inventory 190,000

Cost of goods sold €475,000

Bosio’s inventory turnover is

  1. 2.5 times.
  2. 2.7 times.
  3. 3.5 times.
  4. 3.8 times.

Ans: B, LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

  1. Bosio Corporation’s computation of cost of goods sold is:

Beginning inventory €160,000

Add: Cost of goods purchased 505,000

Cost of goods available for sale 665,000

Ending inventory 190,000

Cost of goods sold €475,000

The average days to sell inventory for Bosio is

  1. 96 days.
  2. 104 days.
  3. 135 days.
  4. 146 days.

Ans: C, LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

  1. India Eastern Corporation’s computation of cost of goods sold is:

Beginning inventory Rs10,960,000

Add: Cost of goods purchased 48,614,000

Cost of goods available for sale 59,574,000

Ending inventory 10,320,000

Cost of goods sold Rs49,254,000

India East’s inventory turnover is

  1. 3.39 times.
  2. 4.49 times.
  3. 4.62 times.
  4. 4.78 times.

Ans: C, LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

  1. India Eastern Corporation’s computation of cost of goods sold is:

Beginning inventory Rs10,960,000

Add: Cost of goods purchased 48,614,000

Cost of goods available for sale 59,574,000

Ending inventory 10,320,000

Cost of goods sold Rs49,254,000

The average days to sell inventory for India East is

  1. 79.0 days.
  2. 81.3 days.
  3. 107.7 days.
  4. 76.4 days.

Ans: A, LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

  1. At January 1, 2014, Britannica Inc. reported inventory of £425,000. At December 31, 2014, the inventory on hand was £501,000. If cost of goods sold for 2014 was £4,996,875, What is the inventory turnover ratio for the year?
  2. 5.8 times.
  3. 6.9 times.
  4. 10.8 times.
  5. 11.7 times.

Ans: C, LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

  1. The 2014 financial statements of Vitturo Company reported beginning inventory of €973,000, ending inventory of €1,023,000, and cost of goods sold of €5,988,000 for the year. Vitturo’s inventory turnover ratio for 2014 is
  2. 2.7 times.
  3. 3.0 times.
  4. 3.6 times.
  5. 6.0 times.

Ans: D, LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

  1. The major difference between IFRS and GAAP in accounting for inventories is that
  2. GAAP prohibits the use of specific identification.
  3. IFRS does not require that a physical inventory be taken.
  4. GAAP allows the use of the LIFO cost flow assumption.
  5. GAAP requires that the LIFO cost flow assumption be used.

Ans: C, LO: 9, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

  1. One difference between IFRS and GAAP in valuing inventories is that
  2. Under IFRS, but not GAAP, inventories written down under LCNRV can be written back up to the original cost.
  3. GAAP defines market value as replacement cost where IFRS defines market as the selling price.
  4. GAAP strictly adheres to the historical cost concept and does not allow for write-downs of inventory values.
  5. IFRS, but not GAAP, requires that inventories be valued at the lower of cost or market.

Ans: A, LO: 9, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

  1. Disclosures about inventory should include each of the following except the
  2. basis of accounting.
  3. cost method.
  4. quantity of inventory.
  5. major inventory classifications.

Ans: C, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

  1. The following information is available for Park Company at December 31, 2014: beginning inventory $80,000; ending inventory $120,000; cost of goods sold $1,200,000; and sales $1,600,000. Park’s inventory turnover in 2014 is
  2. 16 times.
  3. 15 times.
  4. 12 times.
  5. 10 times.

Ans: C, LO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

  1. The following information was available for Hoover Company at December 31, 2014: beginning inventory $110,000; ending inventory $70,000; cost of goods sold $880,000; and sales $1,200,000. Hoover’s inventory turnover ratio in 2014 was
  2. 13.3 times.
  3. 9.8 times.
  4. 12.6 times.
  5. 8.0 times.

Ans: B, LO: 6, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

  1. The following information was available for Hoover Company at December 31, 2014: beginning inventory $110,000; ending inventory $70,000; cost of goods sold $880,000; and sales $1,200,000. Hoover’s days in inventory in 2014 was

a 27.4 days.

  1. 37.2 days.
  2. 29.0 days.
  3. 45.6 days.

Ans: B, LO: 6, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

  1. Jenner Company had beginning inventory of $90,000, ending inventory of $110,000, cost of goods sold of $400,000, and sales of $660,000. Jenner’s days in inventory is:

a 55.3 days.

  1. 91.3 days.
  2. 101.4 days.
  3. 60.8 days.

Ans: B, LO: 6, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

a157. During July, the following purchases and sales were made by James Company. There was no beginning inventory. James Company uses a perpetual inventory system.

Purchases Sales

July 3 60 units @ €12 July 13 75 units

11 60 units @ €13 22 30 units

20 30 units @ €15

Under the FIFO method, the cost of goods sold for each sale is:

July 13 July 22

  1. € 900 €360
  2. 975 390
  3. 915 390
  4. 1,125 450

Ans: C, LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

a158. During July, the following purchases and sales were made by James Company.
There was no beginning inventory. James Company uses a perpetual inventory system.

Purchases Sales

July 3 60 units @ €12 July 13 75 units

11 60 units @ €13 22 30 units

20 30 units @ €15

Under the LIFO method, the cost of goods sold for each sale is:

July 13 July 22

  1. € 960 €450
  2. 1,125 390
  3. 900 360
  4. 975 450

Ans: A, LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

a159. Julian Junkets has the following inventory information.

July 1 Beginning Inventory 15 units at $90

5 Purchases 90 units at $84

14 Sale 60 units

21 Purchases 45 units at $87

30 Sale 42 units

Assuming that a perpetual inventory system is used, what is the ending inventory on a FIFO basis?

  1. $4,122
  2. $4,131
  3. $4,167
  4. $8,694

Ans: C, LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

a160. Julian Junkets has the following inventory information.

July 1 Beginning Inventory 15 units at $90

5 Purchases 90 units at $84

14 Sale 60 units

21 Purchases 45 units at $87

30 Sale 42 units

Assuming that a perpetual inventory system is used, what is the ending inventory (rounded) under the average-cost method?

  1. $4,125
  2. $4,176
  3. $3,609
  4. $4,158

Ans: A, LO: 7, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

a161. A new average cost is computed each time a purchase is made in the

  1. average-cost method.
  2. moving-average cost method.
  3. weighted-average cost method.
  4. all of these methods.

Ans: B, LO: 7, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economic

a162. When valuing ending inventory under a perpetual inventory system, the

  1. valuation using the average-cost assumption is the same as the valuation using the average-cost assumption under the periodic inventory system.
  2. moving average requires that a new average be computed after every sale.
  3. valuation using the FIFO assumption is the same as under the periodic inventory system.
  4. last units purchased during the period using the FIFO assumption are allocated to the cost of goods sold when units are sold.

Ans: C, LO: 7, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

a163. Sawyer Company uses the perpetual inventory system and the moving-average method to value inventories. On August 1, there were 10,000 units valued at $50,000 in the beginning inventory. On August 10, 20,000 units were purchased for $10 per unit. On August 15, 24,000 units were sold for $20 per unit. The amount charged to cost of goods sold on August 15 was

  1. $50,000.
  2. $200,000.
  3. $240,000.
  4. $180,000.

Ans: B, LO: 7, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economic

a164. Tatsoi Company’s purchase and sales transactions for the month of May were as follows:

Purchases Sales

May 1 (beg. balance) 1,500@ ¥300 May 2 900@ ¥600

7 4,500@ 320 14 3,600@ 600

22 1,500@ 330 28 1,500@ 650

Assuming that Tatsoi keeps perpetual inventory records, the ending inventory on a FIFO basis is

  1. ¥450,000.
  2. ¥468,000.
  3. ¥495,000.
  4. ¥1,890,000.

Ans: C, LO: 7, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economic

a165. Tatsoi Company’s purchase and sales transactions for the month of May were as follows:

Purchases Sales

May 1 (beg. balance) 1,500@ ¥300 May 2 900@ ¥600

7 4,500@ 320 14 3,600@ 600

22 1,500@ 330 28 1,500@ 650

Assuming that the company keeps perpetual inventory records, Tatsoi’s cost of goods sold for the month of May on a LIFO basis is

  1. ¥468,000.
  2. ¥1,917,000.
  3. ¥2,385,000.
  4. ¥4,347,000.

Ans: B, LO: 9, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economic

a166. Bueno Company’s purchase and sales transactions for the month of July were as follows:

Purchases

July 3 (beg. balance) 4,000@ €4.00

16 12,000@ 4.40

30 3,000@ 4.75

The company sold 8,000 units on July 22.

Assuming that the Bueno keeps perpetual inventory records, July’s cost of goods sold on a FIFO basis is

  1. €33,600.
  2. €34,400.
  3. €53,400.
  4. €54,200.

Ans: A, LO: 7, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economic

a167. Bueno Company’s purchase and sales transactions for the month of July were as follows:

Purchases

July 3 (beg. balance) 4,000@ €4.00

16 12,000@ 4.40

30 3,000@ 4.75

The company sold 8,000 units on July 22.

Assuming that Bueno keeps perpetual inventory records, inventory at July 31 on a moving-average basis is

  1. €34,400.
  2. €35,300.
  3. €52,680.
  4. €48,650.

Ans: D, LO: 7, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economic

a168. Bueno Company’s purchase and sales transactions for the month of July were as follows:

Purchases

July 3 (beg. balance) 4,000@ €4.00

16 12,000@ 4.40

30 3,000@ 4.75

The company sold 8,000 units on July 22.

Assuming that the company keeps perpetual inventory records, Bueno’s ending inventory on a LIFO basis is

  1. €33,600.
  2. €35,120.
  3. €47,850.
  4. €54,200.

Ans: C, LO: 9, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economic

a169. Swiss-Mart Company’s beginning inventory balance and purchase and sales transactions for the month of June were as follows:

Purchases Sales

June 1 2,000@CHF3.00 June 8 4,500

7 6,000@ 3.20 24 6,000

22 3,500@ 3.30

Assuming that Swiss-Mart keeps perpetual inventory records, the inventory at June 30 on a FIFO basis is

  1. CHF3,000.
  2. CHF3,300.
  3. CHF5,250.
  4. CHF5,750.

Ans: B, LO: 7, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economic

a170. Swiss-Mart Company’s beginning inventory balance and purchase and sales transactions for the month of June were as follows:

Purchases Sales

June 1 2,000@CHF3.00 June 8 4,500

7 6,000@ 3.20 24 6,000

22 3,500@ 3.30

Assuming that the company keeps perpetual inventory records, Swiss-Mart’s inventory at June 30 on a LIFO basis is

  1. CHF3,000.
  2. CHF3,200.
  3. CHF3,300.
  4. CHF3,500.

Ans: A, LO: 9, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economic

  1. The following information is available through June 2014 for Kimchee Company:

Beginning inventory W 60,000,000

Purchases 180,000,000

Sales 360,000,000

Markup on sales 40%

On June 29, a fire completely destroyed Kimchee’s inventory. Using the gross profit method, the estimated value of the inventory destroyed is

  1. W120,000,000.
  2. W96,000,000.
  3. W48,000,000.
  4. W24,000,000.

Ans: D, LO: 8, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economic

  1. Major Grey Company uses the retail inventory method to value its merchandise inventory. The following information is available for the current year:

Cost Retail

Beginning inventory Rs 40,000,000 Rs 60,000,000

Purchases 145,000,000 200,000,000

Freight-in 2,500,000

Sales 205,000,000

What cost to retail ratio should be used to estimate ending inventory?

  1. Rs187,500,000 ÷ Rs260,000,000
  2. Rs187,500,000 ÷ Rs465,000,000
  3. Rs185,000,000 ÷ Rs260,000,000
  4. Rs185,000,000 ÷ Rs265,000,000

Ans: A, LO: 8, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economic

  1. Neiderhoff Inc. uses the retail inventory method to value its merchandise inventory. The following information is available for 2014:

Cost Retail

Inventory, 1/1/2014 € 2,335,000 € 4,670,000

Purchases 10,598,000 22,802,000

Freight-in 1,356,000

Sales 23,351,000

What is Neiderhoff’s estimated ending inventory at cost?

  1. €1,940,000
  2. €1,978,000
  3. €2,143,500
  4. €4,121,000

Ans: C, LO: 8, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economic

a174. The following information is available for 2014 for Greenwich Company:

Beginning inventory £ 8,448,000

Purchases 23,997,000

Sales 45,000,000

Markup on sales 35%

In May 2014, a flood washed away Greenwich’s inventory. Using the gross profit method, the estimated value of the inventory destroyed is:

  1. £11,355,750
  2. £8,398,950
  3. £3,195,000
  4. £1,575,000

Ans: C, LO: 8, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economic

a175. Mishu Inc. uses the retail inventory method to value its merchandise inventory. The following information is available for 2014:

Cost Retail

Beginning inventory ¥ 202,000,000 ¥ 606,000,000

Purchases 1,882,000,000 5,664,000,000

Freight-in 6,000,000

Sales 5,870,000,000

What is Mishu’s estimated ending inventory at cost?

  1. ¥67,980,000
  2. ¥132,000,000
  3. ¥268,000,000
  4. ¥400,000,000

Ans: B, LO: 8, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economic

a176. Under the gross profit method, each of the following items are estimated except for the

  1. cost of ending inventory.
  2. cost of goods sold.
  3. cost of goods purchased.
  4. gross profit.

Ans: C, LO: 8, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

a177. Under the retail inventory method, the estimated cost of ending inventory is computed by multiplying the cost-to-retail ratio by

  1. net sales.
  2. goods available for sale at retail.
  3. goods purchased at retail.
  4. ending inventory at retail.

Ans: D, LO: 8, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

a178. Stark Department Store estimates inventory by using the retail inventory method. The following information was developed:

At Cost At Retail

Beginning inventory € 424,000 €1,000,000

Goods purchased 1,200,000 1,800,000

Net sales 1,600,000

The estimated cost of the ending inventory is

  1. €928,000.
  2. €696,000.
  3. €1,176,000.
  4. €1,200,000.

Ans: B, LO: 8, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

a179. Tucker Department Store utilizes the retail inventory method to estimate its inventories. It calculated its cost to retail ratio during the period at 75%. Goods available for sale at retail amounted to $800,000 and goods were sold during the period for $500,000. The estimated cost of the ending inventory is

  1. $300,000.
  2. $600,000.
  3. $225,000.
  4. $400,000.

Ans: C, LO: 8, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

a180. Wade Company prepares monthly financial statements and uses the gross profit method to estimate ending inventories. Historically, the company has had a 40% gross profit rate. During June, net sales amounted to $80,000; the beginning inventory on June 1 was $24,000; and the cost of goods purchased during June amounted to $36,000. The estimated cost of Wade Company’s inventory on June 30 is

  1. $12,000.
  2. $48,000.
  3. $20,000.
  4. $32,000.

Ans: A, LO: 8, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

a181. Kershaw Bookstore had 800 units on hand at January 1, costing €18 each. Purchases and sales during the month of January were as follows:

Date Purchases Sales

Jan. 14 600 @ €28

17 400 @ €20

25 400 @ €22

29 400 @ €32

Kershaw does not maintain perpetual inventory records. According to a physical count, 600 units were on hand at January 31.

The cost of the inventory at January 31, under the LIFO method is:

  1. €1,600.
  2. €10,800.
  3. €12,400.
  4. €12,800.

Ans: B, LO: 9, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

a182. The LIFO inventory method assumes that the cost of the latest units purchased are

  1. the last to be allocated to cost of goods sold.
  2. the first to be allocated to ending inventory.
  3. the first to be allocated to cost of goods sold.
  4. not allocated to cost of goods sold or ending inventory.

Ans: C, LO: 9, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

a183. A company just starting business made the following four inventory purchases in June:

June 1 150 units ¥ 5,200

June 10 200 units 7,800

June 15 200 units 8,400

June 28 150 units 6,600

¥28,000

A physical count of merchandise inventory on June 30 reveals that there are 100 units on hand. Using the LIFO inventory method, the value of the ending inventory on June 30 is

  1. ¥3,467.
  2. ¥4,400.
  3. ¥23,600.
  4. ¥24,533.

Ans: A, LO: 9, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

a184. Graham Company uses a periodic inventory system. Details for the inventory account for the month of January 2014 are as follows:

Units Per unit price Total

Balance, 1/1/14 200 $5.00 $1,000

Purchase, 1/15/14 100 5.30 530

Purchase, 1/28/14 100 5.50 550

An end of the month (1/31/14) inventory showed that 120 units were on hand. If the company uses LIFO, what is the value of the ending inventory?

  1. $520
  2. $600
  3. $656
  4. $1,480

Ans: B, LO: 9, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

a185. Holliday Company’s inventory records show the following data:

Units Unit Cost

Inventory, January 1 5,000 ₤2.25

Purchases: June 18 4,500 2.00

November 8 3,000 1.75

A physical inventory on December 31 shows 2,000 units on hand. Holliday sells the units for ₤3 each. The company has an effective tax rate of 20%. Holliday uses the periodic inventory method. Under the LIFO method, cost of goods sold is

  1. ₤2,625.
  2. ₤4,500.
  3. ₤21,000.
  4. ₤22,000.

Ans: C, LO: 9, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

a186. Unitech has the following inventory information.

July 1 Beginning Inventory 50 units at $19 $ 950

7 Purchases 175 units at $20 3,500

22 Purchases 25 units at $22 550

$5,000

A physical count of merchandise inventory on July 31 reveals that there are 75 units on hand. Using the LIFO inventory method, the amount allocated to cost of goods sold for July is

  1. $1,450.
  2. $1,550.
  3. $3,450.
  4. $3,550.

Ans: D, LO: 9, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

a187. Neighborly Industries has the following inventory information.

July 1 Beginning Inventory 30 units at $120

5 Purchases 180 units at $112

14 Sale 120 units

21 Purchases 90 units at $115

30 Sale 84 units

Assuming that a periodic inventory system is used, what is the amount allocated to ending inventory on a LIFO basis?

  1. $10,992
  2. $11,022
  3. $23,088
  4. $23,118

Ans: A, LO: 9, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

a188. Shandy Shutters has the following inventory information.

Nov. 1 Inventory 30 units @ €6.00

8 Purchase 120 units @ €6.45

17 Purchase 60 units @ €6.30

25 Purchase 90 units @ €6.60

A physical count of merchandise inventory on November 30 reveals that there are 100 units on hand. Assume a periodic inventory system is used. Ending inventory under LIFO is

  1. €658.
  2. €632.
  3. €1,268.
  4. €1,294.

Ans: B, LO: 9, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

a189. Lee Industries had the following inventory transactions occur during 2014:

Units Cost/unit

2/1/14 Purchase 72 $45

3/14/14 Purchase 124 $47

5/1/14 Purchase 88 $49

The company sold 204 units at $63 each and has a tax rate of 30%. Assuming that a periodic inventory system is used, what is the company’s gross profit using LIFO? (rounded to whole dollars)

  1. $9,764
  2. $9,460
  3. $3,392
  4. $3,088

Ans: D, LO: 9, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

a190. In a period of rising prices, the costs allocated to ending inventory may be understated in the

  1. average-cost method.
  2. FIFO method.
  3. gross profit method.
  4. LIFO method.

Ans: D, LO: 9, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economic

a191. Versace Company, an Italian subsidiary of a US company, uses the periodic inventory system. At November 1, the beginning inventory consisted of 2,400 units that cost €120 each. During the month, the company made two purchases: 1,000 units at €130 each and 4,000 units at €135 each. Versace sold 4,300 units during November. Using the LIFO cost flow assumption, what is the ending inventory?

  1. €372,000.
  2. €379,000.
  3. €401,460.
  4. €418,500.

Ans: B, LO: 9, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

a192. East Asia Inc., Hong Kong subsidiary of a US company, uses the periodic inventory system. At April 1, the inventory consisted of 600 units that cost HK$650 each. During the month, the company made two purchases: 900 units at HK$680 each and 450 units at HK$700 each. East Asia also sold 1,500 units during the month. Using the LIFO cost flow assumption, what is the amount of cost of goods sold for the month?

  1. HK$975,000.
  2. HK$1,002,000.
  3. HK$1,013,100.
  4. HK$1,024,500.

Ans: D, LO: 9, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

a193. Bordeaux Corp., a French subsidiary of a US company, sells one product and uses a perpetual inventory system. The beginning the inventory consisted of 20 units that cost €2,000 per unit. During the current month, the company purchased: 120 units at €2,100 each. Sales during the month totaled 90 units for €4,350 each. What is the cost of goods sold using the LIFO cost flow assumption?

  1. €180,000.
  2. €187,000.
  3. €189,000.
  4. €191,500.

Ans: C, LO: 9, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

a194. Taj Mahal Inc. uses the periodic inventory system and FIFO costing. For the year ending December 31, 2014, the company’s cost of goods sold was Rs20,670,000. Had the LIFO cost flow assumption been used, 

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