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Exam 7: Inventories

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Question 1

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Match each description to the appropriate cost flow assumption (a-c) . -Produces the highest gross profit when costs are decreasing

A) FIFO
B) LIFO
C) Weighted average

D) B) and C)
E) A) and C)

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Question 2

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All of the following are documents used for inventory control except a

A) petty cash voucher
B) vendor's invoice
C) receiving report
D) purchase order

E) B) and D)
F) B) and C)

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Question 3

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Use the information below to answer the following questions. The following units of an inventory item were available for sale during the year: $\begin{array}{ll}\text { Beginning inventory } & 10 \text { units at } \$ 55 \\\text { First purchase } & 25 \text { units at } \$ 60 \\\text { Second purchase } & 30 \text { units at } \$ 65 \\\text { Third purchase } & 15 \text { units at } \$ 70\end{array}$ The firm uses the periodic inventory system. During the year, 60 units of the item were sold.? -The value of ending inventory using FIFO is?

While taking a physical inventory, a company counts its inventory as less than the actual amount on hand. How will this error affect the income statement?

During periods of increasing costs, an advantage of the LIFO inventory cost method is that it matches more recent costs against current revenues.

Match each description to the appropriate cost flow assumption (a-c) . -Produces the highest ending inventory when costs are increasing

The units of an item available for sale during the year were as follows:? $\begin{array} { | l l | l | l | } \hline \text { January } & 10 & \text { Inventory } & 27 \text { units } @ \$ 90 \\\hline \text { February } & 27 & \text { Purchase } & 54 \text { units } @ \$ 98 \\\hline \text { July } & 11 & \text { Purchase } & 63 \text { units } @ \$ 106 \\\hline \text { November } & 13 & \text { Purchase } & 36 \text { units } @ \$ 115 \\\hline\end{array}$ There are 50 units of the item in the physical inventory at December 31. The periodic inventory system is used. Determine the ending inventory cost by (a) the first-in, first-out method, (b) the last-in, first-out method, and (c) the average cost method. Show your work.

Match each description to the appropriate document used for inventory control (a-c) . -Last document in the chain, use to compare all three for accuracy

Basic inventory data for April 30 are presented below for a business that employs the lower-of-cost-or-market basis of inventory valuation to each category.? $\begin{array}{cccccccc}& \text { Inventory }& \text { Cost per unit }& \text { Market value per unit}&& \text { Total }\\\text { Commodity } & \text { Ouantity } & \text { Unit } & \text { per Unit } & \text { Cost } & \text { Market } & \text { LCM } \\\hline \text { A } & 35 & \$ 52 & \$ 55 & \_\_\_\_\_\_\_& \_\_\_\_\_\_\_& \_\_\_\_\_\_\_ & \\\text { B } & 20 & 155 & 150 & \_\_\_\_\_\_\_& \_\_\_\_\_\_\_& \_\_\_\_\_\_\_ & \\\text { C } & 25 & 82 & 85 & \_\_\_\_\_\_\_& \_\_\_\_\_\_\_& \_\_\_\_\_\_\_ & \\\text { D } & 40 & 58 & 55 & \_\_\_\_\_\_\_& \_\_\_\_\_\_\_& \_\_\_\_\_\_\_ & \\\end{array}$ (a)Complete the table. (b)?Determine the amount of reduction in the inventory at April 30 attributable to market decline.

The average cost method will always yield results between FIFO and LIFO.

During periods of increasing costs, the use of the FIFO method of costing inventory will result in a greater amount of net income than would result from the use of the LIFO cost method.

Match each description to the appropriate cost flow assumption (a-c) . -Produces results that are similar to the specific identification method

The inventory method that assigns the most recent costs to cost of merchandise sold is

The units of an item available for sale during the year were as follows:? $\begin{array}{ccccc}\text { Jan. } 1 & \text { Inventory } &\quad~~~~~~~~~~~~&& 10 \text { units at } \$ 25 \\\text { Apr. } 4 & \text { Purchase } &&& 15 \text { units at } \$ 24 \\\text { May } 20 & \text { Purchase } &&& 20 \text { units at } \$ 28 \\\text { Oct } 30 & \text { Purchase } &&& 18 \text { units at } \$ 30 \\\end{array}$ There are 19 units of the item in the physical inventory at December 31. The periodic inventory system is used. Determine the ending inventory cost using LIFO.

A company will most likely use an estimated method of determining inventory when

Use the information below to answer the following questions. The following lots of a particular commodity were available for sale during the year: $\begin{array}{ll}\text { Beginning inventory } & 10 \text { units at } \$ 60 \\\text { First purchase } & 25 \text { units at } \$ 65 \\\text { Second purchase } & 30 \text { units at } \$ 68 \\\text { Third purchase } & 15 \text { units at } \$ 75\end{array}$ The firm uses the periodic system, and there are 25 units of the commodity on hand at the end of the year. -What is the amount of inventory at the end of the year using the FIFO method??

Match each description to the appropriate inventory system (a or b) .​ -Under this system, only revenue is recorded when sales are made.

Of the three widely used inventory costing methods (FIFO, LIFO, and average cost), the LIFO method of costing inventory assumes costs are charged based on the most recent purchases first.

During times of rising prices, which of the following is not an accurate statement?

On the basis of the following data, what is the estimated cost of the merchandise inventory on May 31 using the retail method?? $\begin{array}{llrr}&&\text { Cost } & \text { Retail } \\\text { May 1 } & \text { Merchandise inventory } & \$ 125,000 & \$ 166,667 \\\text { May 1-31 } & \text { Purchases } & 235,000 & 313,333 \\\text { May 1-31 } & \text { Sales } & & 230,000\end{array}$