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Chapter 6

Inventory Costing

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Q1

• The more inventory a company has in stock, the greater the company's profit. True or False

• Answer:

• False

Q2

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

• Answer:

• False

Q3

• Goods out on consignment should be included in the inventory of the consignor. True or False?

• Answer:

• True

Q4

• Goods that have been purchased FOB shipping point but are in transit should be included in the buyer’s physical count of goods. True or False?

• Answer:

• True

Q5

• A periodic inventory system results in a detailed inventory record of inventory items at any point in time. True or False?

• Answer:

• False

Q6

• The periodic inventory system requires a second journal entry, increasing Cost of Goods Sold and decreasing Merchandise Inventory when goods are sold. True or False?

• Answer:

• False

Q7

• Cost of goods sold, in a periodic inventory system, is determined by adding the cost of goods purchased to the ending inventory. True or False?

• Answer:

• False

Q8

• The income statement for a merchandising company using a periodic inventory system contains less detail for the cost of goods sold. True or False?

• Answer:

• False

Q8

• The specific identification method of costing inventories tracks the actual physical flow of the goods available for sale. True or False?

• Answer:

• True

Q9

• The First-in, First-out (FIFO) inventory method results in an ending inventory valued at the most recent cost. True or False?

• Answer:

• True

Q10

• If the unit price of inventory is increasing during a period, a company using the LIFO inventory method will show less gross profit for the period, than if it had used the FIFO inventory method. True or False?

• Answer:

• True

Q11

• A company may use more than one inventory costing method concurrently True or False?

• Answer:

• False

Q12

• If a company changes its inventory valuation method, the effect of the change should be disclosed in the financial statements. True or False?

• Answer:

• True

Q13

• The factor which determines whether or not goods should be included in a physical count of inventory is

a. physical possession.b. legal title.c. management's judgement.d. whether or not the purchase price has been

paid.• Answer:• B – legal Title

Q15

• Under a consignment arrangement, thea. consignor has ownership until goods are sold

to a customer.b. consignor has ownership until goods are

shipped to the consignee.c. consignee has ownership when the goods are

in the consignee's possession.d. consigned goods are included in the inventory

of the consignee.• Answer:• A – consignor has ownership until sold.

Q16

• The FIFO inventory method assumes that the cost of the latest units purchased are

a. the last to be allocated to cost of goods sold.

b. the first to be allocated to ending inventory.

c. the first to be allocated to cost of goods sold.

d. not allocated to cost of goods sold or ending inventory.

• Answer:• B – first allocated to ending inventory

Q17June 1 150 units $ 780June 10 200 units 1,170June 15 200 units 1,260June 28 150 units 990

$4,200A physical count on June 30 shows 250 units on hand.

Calculate ending inventory using LIFO on June 30th. a. $1,365.b. $1,620.c. $2,580.d. $2,835.• Answer:• A - $1,365

Q18June 1 150 units $ 780June 10 200 units 1,170June 15 200 units 1,260June 28 150 units 990

$4,200A physical count on June 30 shows 250 units on hand.

Calculate COGS using FIFO on June 30th. a. $1,620.b. $2,290.c. $2,580.d. $2,835.• Answer:• C - $2,580

Q19June 1 150 units $ 780June 10 200 units 1,170June 15 200 units 1,260June 28 150 units 990

$4,200A physical count on June 30 shows 250 units on hand.

Calculate ending inventory using Average Cost on June 30th.

a. $4,200.b. $2,700.c. $1,150.d. $1,500• Answer:• D - $1,500

Q20• Levy's Used Cars uses the specific identification

method of costing inventory. During March, Levy purchased three cars for $5,000, $6,500, and $8,000, respectively. During March, two cars are sold for $7,500 each. Levy determines that at March 31, the $8,000 car is still on hand. What is Levy's gross profit for March?

a. $2,000.b. $3,500.c. $500.d. $7,000.• Answer:• B - $3,500

Q21• The journal entry to record a return of merchandise

purchased on account under a periodic inventory system would be

a. Accounts PayablePurchase Returns and Allowances

b. Purchases Returns and AllowancesAccounts Payable

c. Accounts PayableInventory

d. InventoryAccounts Payable

• Answer:• A

Q22• Beginning inventory $120, purchases $1080,

freight in $110, net purchases is $1020, ending inventory is $310. How much is purchase returns and allowances?

a. $70

b.$290

c.$180

d. $60

• Answer:

• D $60

Q23• Beginning inventory $20,000, Cost of Goods

Purchased $150,000, Cost of Goods Available for Sale is $170,000, Cost of Goods Sold is $140,000. How much is ending inventory?

a. $200,000

b.$20,000

c.$30,000

d. $50,000

• Answer:

• C $30,000

Q24• In 2009 Beginning inventory $20,000, Cost of Goods

Purchased $150,000, Cost of Goods Available for Sale is $170,000, Ending Inventory is $30,000, Cost of Goods Sold is $140,000. If Beginning inventory in 2009 is understated by $4,000 and ending inventory is overstated by $6,000 – How much is the correct COGS in 2009?

a.$130,000b.$150,000c.$138,000d. $142,000• Answer:• B $150,000