Chapter 6

1.
	Under which method of inventory cost flows is the cost flow assumed to be in the reverse order in which the expenditures were made? Student Response Value Correct Answer Feedback 1. weighted average 2. last-in, first-out 100% 3. first-in, first-out 4. average cost Score: 1/1
2.
	The LIFO cost of ending inventory will always be the same for a periodic inventory system and a perpetual inventory system. Student Response Value Correct Answer Feedback 1. False 2. True 0% Score: 0/1
3.
	Of the three widely used inventory costing methods (FIFO, LIFO, and average), the LIFO method of costing inventory is based on the assumption that costs are charged against revenues in the reverse order in which they were incurred. Student Response Value Correct Answer Feedback 1. False 2. True 100% Score: 1/1
4.
	Generally, the lower the number of days' sales in inventory, the better. Student Response Value Correct Answer Feedback 1. True 100% 2. False Score: 1/1
5.
	Beginning inventory, purchases and sales data for tennis rackets are as follows: Apr 3 Inventory 12 units @ $45 11 Purchase 13 units @ $47 14 Sale 18 units 21 Purchase 9 units @ $60 25 Sale 10 units Assuming the business maintains a perpetual inventory system, calculate the cost of merchandise sold and ending inventory under First-in, first-out: Student Response Value Correct Answer Feedback 1. cost of merchandise sold $180; ending inventory $1,151 2. cost of merchandise sold $1,151; ending inventory $180 3. cost of merchandise sold $1,331; ending inventory $360 100% 4. cost of merchandise sold $360; ending inventory $1,331 General Feedback: Cost of merchandise sold = $1,331 (540+282+329+180) Ending Inventory = $360 (6 units @ $60) Purchases Cost of Merchandise Sold Inventory Date Qty Unit Cost Total Cost Qty Unit Cost Total Cost Qty Unit Cost Total Cost Apr 3 12 45.00 540.00 Apr 11 13 47.00 611.00 12 45.00 540.00 13 47.00 611.00 Apr 14 12 45.00 540.00 7 47.00 329.00 6 47.00 282.00 Apr 21 9 60 540.00 7 47.00 329.00 9 60.00 540.00 Apr 25 7 47.00 329.00 6 60.00 360.00 3 60.00 180.00 Score: 1/1
6.
	If the perpetual inventory system is used and a physical count disclosed a shortage, the cost of merchandise sold should be debited and the merchandise inventory account credited. Student Response Value Correct Answer Feedback 1. True 100% 2. False Score: 1/1
7.
	Safeguarding inventory and proper reporting of the inventory in the books are the reasons for controlling the inventory. Student Response Value Correct Answer Feedback 1. True 100% 2. False Score: 1/1
8.
	One difference between the periodic and the perpetual inventory systems is that under the perpetual method the purchases account is not used. Student Response Value Correct Answer Feedback 1. False 2. True 100% Score: 1/1
9.
	One negative effect of carrying too much inventory is risk that customers will change their buying habits. Student Response Value Correct Answer Feedback 1. False 2. True 100% Score: 1/1
10.
	If a company mistakenly counts more items during a physical inventory than actually exist, how will the error affect their bottom line? Student Response Value Correct Answer Feedback 1. Net income will be overstated 100% 2. No change to net income. 3. Net income will be understated. 4. Only gross profit will be affected. Score: 1/1
11.
	Most large companies will use only one inventory costing methods for all of its different segments. Student Response Value Correct Answer Feedback 1. False 100% 2. True Score: 1/1
12.
	Inventory turnover Student Response Value Correct Answer Feedback 1. is computed by dividing average inventory by cost of merchandise sold 2. is computed by dividing the beginning inventory plus the ending inventory by two 3. increases the risk of loss from damaged merchandise 4. measures the relationship between the volume of goods sold and amount of inventory carried 100% Score: 1/1
13.
	The inventory costing method that reflects the cost flow in the reverse order and will report the earliest costs in ending inventory is Student Response Value Correct Answer Feedback 1. Average cost 2. First in first out 0% 3. Last in first out 4. Specific identification Score: 0/1
14.
	If ending inventory for the year is overstated, stockholders’ equity reported on the balance sheet at the end of the year is understated. Student Response Value Correct Answer Feedback 1. False 2. True 0% Score: 0/1
15.
	A subsidiary inventory ledger can be an aid in maintaining inventory levels at their proper levels. Student Response Value Correct Answer Feedback 1. False 2. True 100% Score: 1/1
16.
	On the basis of the following data, what is the estimated cost of the merchandise inventory on May 31 by the retail method? Cost Retail May 1 Merchandise Inventory $125,000 $166,667 May 1-31 Purchases (net) 235,000 313,333 May 1-31 Sales (net) 230,000 Student Response Value Correct Answer Feedback 1. $360,000 2. $172,500 3. $250,000 0% 4. $187,500 Score: 0/1
17.
	During a period of falling prices, which of the following inventory methods generally results in the lowest balance sheet amount for inventory. Student Response Value Correct Answer Feedback 1. FIFO method 100% 2. can not tell without more information 3. average method 4. LIFO method Score: 1/1
18.
	If the estimated rate of gross profit is 30%, what is the estimated cost of the merchandise inventory on September 30, based on the following data? Sep. 1 Merchandise inventory $ 125,000 Sep. 1-30 Purchases (net) 300,000 Sep. 1-30 Sales (net) 150,000 Student Response Value Correct Answer Feedback 1. $380,000 2. $275,000 0% 3. $105,000 4. $320,000 Score: 0/1
19.
	The following lots of a particular commodity were available for sale during the year: Beginning inventory 10 units at $55 First purchase 25 units at $65 Second purchase 30 units at $68 Third purchase 15 units at $70 The firm uses the periodic system and there are 20 units of the commodity on hand at the end of the year. What is the amount of the inventory at the end of the year according to the lower of cost or market, using the first-in, first-out method, if the current replacement cost is $68 a unit? Student Response Value Correct Answer Feedback 1. $1,390 2. $1,100 3. $1,360 100% 4. $1,200 Score: 1/1
20.
	Merchandise inventory at the end of the year is overstated. Which of the following statements correctly states the effect of the error? Student Response Value Correct Answer Feedback 1. cost of merchandise sold is overstated 2. gross profit is understated 3. stockholders’ equity is overstated 100% 4. net income is understated Score: 1/1