Full file at ... · Horngren's Financial & Managerial Accounting, 5e (Miller) Chapter 6 Merchandise Inventory Learning Objective 6-1 1) The consistency principle states that a business

1 Copyright © 2016 Pearson Education, Inc.

Horngren's Financial & Managerial Accounting, 5e (Miller) Chapter 6 Merchandise Inventory Learning Objective 6-1 1) The consistency principle states that a business should use the same accounting methods and procedures from period to period. Answer: TRUE Diff: 1 LO: 6-1 AICPA Functional: Measurement PE Question Type: Concept H2 : Accounting Principles 2) A company reports in its financial statements that it uses the FIFO method of inventory costing. This is an example of the disclosure principle. Answer: TRUE Diff: 1 LO: 6-1 AACSB: Application of knowledge AICPA Functional: Measurement PE Question Type: Application H2 : Accounting Principles 3) A company should not change the inventory costing method each period in order to maximize net income. This is an example of the disclosure principle. Answer: FALSE Diff: 1 LO: 6-1 AACSB: Application of knowledge AICPA Functional: Measurement PE Question Type: Application H2 : Accounting Principles 4) A company changes its inventory costing method each period in order to maximize net income. This is a violation of the consistency principle. Answer: TRUE Diff: 1 LO: 6-1 AACSB: Application of knowledge AICPA Functional: Measurement PE Question Type: Application H2 : Accounting Principles

Full file at https://TestBanku.eu/Test-Bank-for-Horngrens-Financial-and-Managerial-Accounting-5th-Edition-by-Miller-Nobles


https://TestBanku.eu/Test-Bank-for-Horngrens-Financial-and-Managerial-Accounting-5th-Edition-by-Miller-Nobles


5) A company is uncertain whether a complex transaction should be recorded as an asset or an expense. Under the conservatism principle, it should choose to treat it as an asset. Answer: FALSE Diff: 1 LO: 6-1 AACSB: Application of knowledge AICPA Functional: Measurement PE Question Type: Application H2 : Accounting Principles

6) A company is uncertain whether a complex transaction should be recorded as gain or loss. Under the conservatism principle, it should choose to treat it a loss. Answer: TRUE Diff: 1 LO: 6-1 AACSB: Application of knowledge AICPA Functional: Measurement PE Question Type: Application H2 : Accounting Principles 7) A company is uncertain whether a complex transaction should result in an asset being recorded at $100,000 or at $150,000. Under the conservatism principle, it should choose to show it at $100,000. Answer: TRUE Diff: 1 LO: 6-1 AACSB: Application of knowledge AICPA Functional: Measurement PE Question Type: Application H2 : Accounting Principles 8) The consistency principle states that businesses should report the same amount of ending merchandise inventory from period to period. Answer: FALSE Diff: 1 LO: 6-1 AICPA Functional: Measurement PE Question Type: Concept H2 : Accounting Principles 9) The disclosure principle states that a company should report enough information for outsiders to make knowledgeable decisions about the company. Answer: TRUE Diff: 1 LO: 6-1 AICPA Functional: Measurement PE Question Type: Concept H2 : Accounting Principles



https://TestBanksCafe.eu/Test-Bank-for-Horngrens-Financial-and-Managerial-Accounting-5th-Edition-by-Miller-Nobles



10) A company discovers that its cost of goods sold is understated by an insignificant amount. It does not need to correct the error because of the conservatism principle. Answer: FALSE Diff: 1 LO: 6-1 AICPA Functional: Measurement PE Question Type: Concept H2 : Accounting Principles

11) A company discovers that its cost of goods sold is understated by an insignificant amount. It does not need to correct the error because of the materiality concept. Answer: TRUE Diff: 1 LO: 6-1 AACSB: Application of knowledge AICPA Functional: Measurement PE Question Type: Application H2 : Accounting Principles 12) Which of the following states that the business should use the same accounting methods from period to period? A) materiality concept B) consistency principle C) conservatism D) disclosure principle Answer: B Diff: 1 LO: 6-1 AICPA Functional: Measurement PE Question Type: Concept H2 : Accounting Principles 13) Which of the following states that a company must perform strictly proper accounting only for items that are significant to the business's financial statements? A) conservatism B) materiality concept C) disclosure principle D) consistency principle Answer: B Diff: 1 LO: 6-1 AICPA Functional: Measurement PE Question Type: Concept H2 : Accounting Principles






14) A company decides to ignore a very small error in its inventory balance. This is an example of the application of the ________. A) conservatism B) materiality concept C) disclosure principle D) consistency principle Answer: B Diff: 1 LO: 6-1 AACSB: Application of knowledge AICPA Functional: Measurement PE Question Type: Application H2 : Accounting Principles

15) Changing from the LIFO (Last-In, First-Out) to the specific identification method of valuing inventory ignores the principle of ________. A) conservatism B) consistency C) disclosure D) materiality Answer: B Diff: 1 LO: 6-1 AACSB: Application of knowledge AICPA Functional: Reporting PE Question Type: Application H2 : Accounting Principles 16) Which of the following principles states that a business's financial statements must report enough information for outsiders to make knowledgeable decisions about the company? A) conservatism B) materiality concept C) disclosure principle D) consistency principle Answer: C Diff: 1 LO: 6-1 AICPA Functional: Measurement PE Question Type: Concept H2 : Accounting Principles






17) The goal of reporting realistic figures and never overstating assets or net income applies to the ________. A) conservatism principle B) materiality concept C) disclosure principle D) consistency principle Answer: A Diff: 1 LO: 6-1 AACSB: Application of knowledge AICPA Functional: Measurement PE Question Type: Concept H2 : Accounting Principles 18) Which of the following is an application of conservatism? A) reporting inventory at the lower of cost or market B) reporting only material amounts in the financial statements C) reporting all relevant information in the financial statements D) using the same depreciation method from period to period Answer: A Diff: 2 LO: 6-1 AACSB: Application of knowledge AICPA Functional: Measurement PE Question Type: Application H2 : Accounting Principles

19) Which of the following principles states that a business should not report anticipated gains? A) conservatism B) materiality concept C) disclosure D) consistency Answer: A Diff: 1 LO: 6-1 AICPA Functional: Measurement PE Question Type: Concept H2 : Accounting Principles 20) The disclosure principle states that a company should disclose all major accounting methods and procedures in the ________. A) balance sheet B) income statement C) footnotes to the financial statements D) internal accounting documents Answer: C Diff: 1 LO: 6-1 AICPA Functional: Measurement PE Question Type: Concept H2 : Accounting Principles






21) The materiality concept states that a company must ________. A) report only such information that enhances the financial position of the company B) perform strictly proper accounting only for significant items C) report enough information for outsiders to make knowledgeable decisions about the company D) use the same accounting methods and procedures from period to period Answer: B Diff: 1 LO: 6-1 AICPA Functional: Measurement PE Question Type: Concept H2 : Accounting Principles 22) Properly recording inventory when sold and removing the units sold from the inventory count will prevent a company from running out of inventory. Answer: TRUE Diff: 1 LO: 6-1 AICPA Functional: Measurement PE Question Type: Concept H2 : Control Over Merchandise Inventory

23) Maintaining good controls over merchandise inventory ensures that inventory purchases are properly authorized and accounted for by the accounting system. Answer: TRUE Diff: 1 LO: 6-1 AICPA Functional: Measurement PE Question Type: Concept H2 : Control Over Merchandise Inventory 24) Which of the following statements is true of a good merchandise inventory control system? A) It eliminates the need for authorization of merchandise purchases. B) It ensures that a physical count of inventory is not required. C) It often prevents the company from a stockout. D) It eliminates the need to examine inventory purchases for damage. Answer: C Diff: 1 LO: 6-1 AICPA Functional: Measurement PE Question Type: Concept H2 : Control Over Merchandise Inventory






25) The tracking of inventory shrinkage due to theft, damage, or errors is done with the help of a (n) ________ of inventory. A) authorization B) sale C) physical count D) delivery Answer: C Diff: 1 LO: 6-1 AICPA Functional: Measurement PE Question Type: Concept H2 : Control Over Merchandise Inventory

26) List and briefly discuss three measures that can be taken to maintain good controls over merchandise inventory. Answer: Any three of the following are acceptable: 1. Ensuring merchandise inventory is not purchased without proper authorization, including purchasing only from approved vendors and within acceptable dollar ranges. 2. After inventory is purchased, the order should be tracked and properly documented when received. At time of delivery, a count of inventory received should be completed and each item should be examined for damage. 3. Damaged inventory should be properly recorded and then should either be used, disposed of, or returned to the vendor. 4. A physical count of inventory should be completed at least once a year to track inventory shrinkage due to theft, damage, and errors. 5. When sales are made, the inventory sold should be properly recorded and removed from the inventory count. This will prevent the company from running out of inventory, often called a stockout. Diff: 3 LO: 6-1 AACSB: Application of knowledge AICPA Functional: Measurement PE Question Type: Application H2 : Control Over Merchandise Inventory






Learning Objective 6-2 1) Ending inventory is calculated by multiplying the number of units on hand by the unit cost. Answer: TRUE Diff: 1 LO: 6-2 AICPA Functional: Measurement PE Question Type: Concept H2 : How Are Merchandise Inventory Costs Determined Under a Perpetual Inventory System? (H1) 2) Ending inventory equals the cost of goods available for sale less beginning inventory. Answer: FALSE Diff: 1 LO: 6-2 AICPA Functional: Measurement PE Question Type: Concept H2 : How Are Merchandise Inventory Costs Determined Under a Perpetual Inventory System? (H1) 3) The specific identification method of inventory costing is recommended when a business deals in unique and high-priced inventory items. Answer: TRUE Diff: 1 LO: 6-2 AICPA Functional: Measurement PE Question Type: Concept H2 : Specific Identification Method

4) Which of the following inventory costing methods is based on the actual cost of each particular unit of inventory? A) specific identification B) weighted-average C) last-in, first-out D) first-in, first-out Answer: A Diff: 1 LO: 6-2 AICPA Functional: Measurement PE Question Type: Concept H2 : Specific Identification Method 5) Which of the following inventory valuation methods should be used for unique items? A) first-in, first-out B) last-in, first-out C) weighted-average D) specific identification Answer: D Diff: 1 LO: 6-2 AICPA Functional: Measurement PE Question Type: Concept H2 : Specific Identification Method






6) A company that uses the perpetual inventory system purchased 500 pallets of industrial soap for $12,000 and paid $770 for the freight-in. The company sold the whole lot to a supermarket chain for $13,000 on account. The company uses the specific-identification method of inventory costing. Which of the following entries correctly records the cost of goods sold? A) Cost of Goods Sold 12,770 Merchandise Inventory 12,770 B) Merchandise Inventory 12,770 Cost of Goods Sold 12,770 C) Cost of Goods Sold 12,000 Sales Revenue 12,000 D) Cost of Goods Sold 12,000 Merchandise Inventory 12,000 Answer: A Diff: 2 LO: 6-2 AACSB: Application of knowledge AICPA Functional: Measurement PE Question Type: Application H2 : Specific Identification Method

7) When a company uses the first-in, first-out (FIFO) method, the cost of goods sold correlates to the most recently purchased goods, and the value of ending inventory correlates to the oldest goods in stock. Answer: FALSE Diff: 1 LO: 6-2 AICPA Functional: Measurement PE Question Type: Concept H2 : First-In, First-Out (FIFO) Method 8) The total cost spent on inventory that was available to be sold during a period is called the cost of goods sold. Answer: FALSE Diff: 1 LO: 6-2 AICPA Functional: Measurement PE Question Type: Concept H2 : First-In, First-Out (FIFO) Method






9) Which of the following inventory costing methods uses the cost of the oldest purchases to calculate the cost of goods sold? A) specific identification B) weighted-average C) last-in, first-out D) first-in, first-out Answer: D Diff: 2 LO: 6-2 AICPA Functional: Measurement PE Question Type: Concept H2 : First-In, First-Out (FIFO) Method 10) Under which of the following inventory costing methods is the ending inventory based on the costs of the most recent purchases? A) specific identification B) weighted-average C) last-in, first-out D) first-in, first-out Answer: D Diff: 2 LO: 6-2 AACSB: Application of knowledge AICPA Functional: Measurement PE Question Type: Application H2 : First-In, First-Out (FIFO) Method

11) A company purchased 300 units for $30 each on January 31. It purchased 360 units for $36 each on February 28. It sold a total of 460 units for $40 each from March 1 through December 31. What is the amount of ending inventory on December 31 if the company uses the first-in, first-out (FIFO) inventory costing method? (Assume that the company uses a perpetual inventory system.) A) $7,200 B) $5,360 C) $6,000 D) $640 Answer: A Explanation: Ending merchandise inventory = (300 + 360 - 460) × $36 = Diff: 2 LO: 6-2 AACSB: Application of knowledge AICPA Functional: Measurement PE Question Type: Application H2 : First-In, First-Out (FIFO) Method






12) A company purchased 100 units for $30 each on January 31. It purchased 170 units for $25 each on February 28. It sold 170 units for $70 each from March 1 through December 31. If the company uses the first-in, first-out inventory costing method, what is the amount of Cost of Goods Sold on the income statement for the year ending December 31? (Assume that the company uses a perpetual inventory system.) A) $3,000 B) $4,250 C) $4,750 D) $7,250 Answer: C Explanation:

Number of units sold = 170 units. As FIFO is used, 100 units will be valued at $30 per unit (Jan 31) and remaining 70 units will be valued at $25 per unit (Feb 28.) Cost of Goods Sold = ((100 units × $30) + (70 units × $25)) = $3,000 + $1,750 = $4,750 Diff: 2 LO: 6-2 AACSB: Application of knowledge AICPA Functional: Measurement PE Question Type: Application H2 : First-In, First-Out (FIFO) Method






13) Malcom, Inc. had the following balances and transactions during 2017: Beginning Merchandise Inventory as of January 1, 2017 150 units at $81 March 10 Sold 60 units June 10 Purchased 270 units at $85 October 30 Sold 210 units What would be reported as Cost of Goods Sold on the income statement for the year ending December 31, 2017 if the perpetual inventory system and the first-in, first-out inventory costing method are used? A) $12,150 B) $17,490 C) $35,100 D) $22,350 Answer: D Explanation:

Diff: 2 LO: 6-2 AACSB: Application of knowledge AICPA Functional: Measurement PE Question Type: Application H2 : First-In, First-Out (FIFO) Method






14) Mosher, Inc. had the following balances and transactions during 2017: Beginning Merchandise Inventory as of January 1, 2017 100 units at $82 March 10 Sold 70 units June 10 Purchased 200 units at $85 October 30 Sold 170 units What would be reported for Ending Merchandise Inventory on the balance sheet at December 31, 2017 if the perpetual inventory system and the first-in, first-out inventory costing method are used? A) $5,740 B) $17,000 C) $5,100 D) $8,200 Answer: C Explanation:

Ending Merchandise Inventory = $25,200 - $20,100 = $5,100 Diff: 2 LO: 6-2 AACSB: Application of knowledge AICPA Functional: Measurement PE Question Type: Application H2 : First-In, First-Out (FIFO) Method






15) A company that uses the perpetual inventory system sold goods to a customer on account for $2,100. The cost of the goods sold was $1,050. Which of the following journal entries correctly records this transaction? A) Cost of Goods Sold 2,100 Sales Revenue 2,100 B) Merchandise Inventory 2,100 Costs of Goods Sold 2,100 C) Accounts Receivable 2,100 Cash 2,100 Costs of Goods Sold 1,050 Merchandise Inventory 1,050 D) Accounts Receivable 2,100 Sales Revenue 2,100 Costs of Goods Sold 1,050 Merchandise Inventory 1,050 Answer: D Diff: 1 LO: 6-2 AACSB: Application of knowledge AICPA Functional: Measurement PE Question Type: Application H2 : First-In, First-Out (FIFO) Method






16) A company that uses the perpetual inventory system sold goods to a customer for cash for $3,500. The cost of the goods sold was $600. Which of the following journal entries correctly records this transaction? A) Cost of Goods Sold 3,500 Sales Revenue 3,500 B) Cash 3,500 Sales Revenue 3,500 Cost of Goods Sold 600 Merchandise Inventory 600 C) Accounts Receivable 3,500 Cash 3,500 Cost of Goods Sold 600 Merchandise Inventory 600 D) Merchandise Inventory 3,500 Sales Revenue 3,500 Answer: B Diff: 1 LO: 6-2 AACSB: Application of knowledge AICPA Functional: Measurement PE Question Type: Application H2 : First-In, First-Out (FIFO) Method






17) A company that uses the perpetual inventory system sold goods for $3,500 to a customer on account. The company had purchased the inventory for $900. Which of the following journal entries correctly records the cost of goods sold? A) Cost of Goods Sold 900 Sales Revenue 900 B) Merchandise Inventory 900 Cost of Goods Sold 900 C) Cost of Goods Sold 900 Merchandise Inventory 900 D) Accounts Receivable 900 Sales Revenue 900 Answer: C Diff: 1 LO: 6-2 AACSB: Application of knowledge AICPA Functional: Measurement PE Question Type: Application H2 : First-In, First-Out (FIFO) Method






18) A company that uses the perpetual inventory system purchased 500 pallets of industrial soap for $7,000 and paid $800 for the freight-in. The company sold the whole lot to a supermarket chain for $14,000 on account. Which of the following entries correctly records the sale? A) Accounts Receivable 14,000 Sales Revenue 14,000 Cost of Goods Sold 7,800 Merchandise Inventory 7,800 B) Merchandise Inventory 14,000 Cost of Goods Sold 14,000 C) Cost of Goods Sold 14,000 Sales Revenue 14,000 D) Accounts Receivable 14,000 Sales Revenue 14,000 Cost of Goods Sold 7,000 Merchandise Inventory 7,000 Answer: A Diff: 2 LO: 6-2 AACSB: Application of knowledge AICPA Functional: Measurement PE Question Type: Application H2 : First-In, First-Out (FIFO) Method 19) Henderson Sales purchased $6,000 of inventory on account. Provide the journal entry. (Assume a perpetual inventory system.) Answer: Merchandise Inventory 6,000 Accounts Payable 6,000Diff: 1 LO: 6-2 AACSB: Application of knowledge AICPA Functional: Measurement PE Question Type: Application H2 : First-In, First-Out (FIFO) Method






20) Clark Sales sold 450 units of product to a customer on account. The company uses the perpetual inventory system. The selling price was $28 per unit, and the cost, according to the company's inventory records, was $12 per unit. Provide the journal entries to record the sale. Answer: Accounts Receivable 12,600 Sales Revenue 12,600 Cost of Goods Sold 5,400 Merchandise Inventory 5,400 Note: Sales Revenue = 450 units × $28 per unit = $12,600 Diff: 1 LO: 6-2 AACSB: Application of knowledge AICPA Functional: Measurement PE Question Type: Application H2 : First-In, First-Out (FIFO) Method 21) Cobbe Sales sold 400 units of product to a customer on account. The selling price was $28 per unit, and the cost, according to the company's inventory records, was $14 per unit. Provide the journal entry to record the cost of goods sold. (Assume a perpetual inventory system.) Answer: Cost of Goods Sold 5,600 Merchandise Inventory 5,600 Note: Cost of Goods Sold = 400 units × $14 per unit = $5,600 Diff: 1 LO: 6-2 AACSB: Application of knowledge AICPA Functional: Measurement PE Question Type: Application H2 : First-In, First-Out (FIFO) Method 22) Martell, Inc. purchased inventory on account for $6,500. Provide the journal entry to record the purchase of inventory on account. (Assume a perpetual inventory system.) Answer: Merchandise Inventory 6,500 Accounts Payable 6,500Diff: 1 LO: 6-2 AACSB: Application of knowledge AICPA Functional: Measurement PE Question Type: Application H2 : First-In, First-Out (FIFO) Method






23) Universal, Inc. purchased 500 units of inventory at $25 per unit by payment of cash. Provide the journal entry to record the purchase of inventory. (Assume a perpetual inventory system.) Answer: Merchandise Inventory 12,500 Cash 12,500 Note: Purchases = 500 units × $25 per unit = $12,500 Diff: 1 LO: 6-2 AACSB: Application of knowledge AICPA Functional: Measurement PE Question Type: Application H2 : First-In, First-Out (FIFO) Method 24) Blue Sky, Inc. sold 500 units of inventory at $25 per unit for cash. The company uses the perpetual inventory system. The cost of the units sold was $10 per unit. Provide the journal entries to record the sale. Answer: Cash 12,500 Sales Revenue 12,500 Cost of Goods Sold 5,000 Merchandise Inventory 5,000 Note: Sales Revenue = 500 units × $25 per unit = $12,500 Diff: 1 LO: 6-2 AACSB: Application of knowledge AICPA Functional: Measurement PE Question Type: Application H2 : First-In, First-Out (FIFO) Method






25) South Meadows, Inc. sold 500 units of inventory at $25 per unit on account. The company uses the perpetual inventory system. The cost of the units sold was $10 per unit. Provide the journal entries to record the sale. Answer: Accounts Receivable 12,500 Sales Revenue 12,500 Cost of Goods Sold 5,000 Merchandise Inventory 5,000 Note: Sales Revenue = 500 units × $25 per unit = $12,500 Diff: 1 LO: 6-2 AACSB: Application of knowledge AICPA Functional: Measurement PE Question Type: Application H2 : First-In, First-Out (FIFO) Method






26) Modern Décor Furniture began June with merchandise inventory of 45 sofas that cost a total of $31,500. During the month, Modern Décor purchased and sold merchandise on account as follows:

June 7Purchase 25 sofas @ $750 each 14Sale 30 sofas @ 1,150 each 18Purchase 50 sofas @ $775 each 27Sale 35 sofas @ $1,200 each

Prepare a perpetual inventory record, using the FIFO inventory costing method, and determine the company's cost of goods sold, ending merchandise inventory, and gross profit.

Answer:







27) Under the last-in, first-out (LIFO) method, the cost of goods sold is based on the oldest purchases. Answer: FALSE Diff: 1 LO: 6-2 AICPA Functional: Measurement PE Question Type: Concept H2 : Last-In, First-Out (LIFO) Method

28) When a company uses the last-in, first-out (LIFO) method, the cost of goods sold correlates to the most recently purchased goods, and the ending inventory correlates to the oldest goods in stock. Answer: TRUE Diff: 1 LO: 6-2 AICPA Functional: Measurement PE Question Type: Concept H2 : Last-In, First-Out (LIFO) Method 29) Which of the following inventory costing methods uses the costs of the oldest purchases to calculate the value of the ending inventory? A) specific identification B) weighted-average C) last-in, first-out D) first-in, first-out Answer: C Diff: 2 LO: 6-2 AACSB: Application of knowledge AICPA Functional: Measurement PE Question Type: Application H2 : Last-In, First-Out (LIFO) Method 30) A company purchased 400 units for $20 each on January 31. It purchased 200 units for $30 each on February 28. It sold a total of 270 units for $90 each from March 1 through December 31. If the company uses the last-in, first-out inventory costing method, calculate the amount of ending inventory on December 31. (Assume that the company uses a perpetual inventory system.) A) $9,900 B) $23,100 C) $6,600 D) $330 Answer: C Explanation: The units in ending merchandise inventory are 330 units that were purchased on January 31 for $20 per unit. Ending Merchandise Inventory = 330 units × $20 = $6,600 Diff: 2 LO: 6-2 AACSB: Application of knowledge AICPA Functional: Measurement PE Question Type: Application H2 : Last-In, First-Out (LIFO) Method






31) A company purchased 400 units for $30 each on January 31. It purchased 95 units for $40 each on February 28. It sold 150 units for $55 each from March 1 through December 31. If the company uses the last-in, first-out inventory costing method, what is the amount of Cost of Goods Sold on the income statement for the year ending December 31? (Assume that the company uses a perpetual inventory system.) A) $5,450 B) $3,800 C) $12,000 D) $15,800 Answer: A Explanation:

Number of units sold = 150 units of which 95 units were purchased on Feb. 28 at $40 per unit and 55 units were purchased on Jan. 31 at $30 per unit.

Diff: 2 LO: 6-2 AACSB: Application of knowledge AICPA Functional: Measurement PE Question Type: Application H2 : Last-In, First-Out (LIFO) Method






32) Metro Computer, Inc. had the following balances and transactions during 2017: Beginning Merchandise Inventory as of January 1, 2017 240 units at $71 March 10 Sold 80 units June 10 Purchased 720 units at $76 October 30 Sold 125 units What would the company's ending merchandise inventory amount be on December 31, 2017 if the perpetual inventory system and the last-in, first-out inventory costing method are used? A) $15,180 B) $71,760 C) $56,580 D) $54,720 Answer: C Explanation:

Ending merchandise inventory = Total inventory available for sale - Cost of goods







33) Harris, Inc. had the following balances and transactions during 2017: Beginning Merchandise Inventory as of January 1, 2017 160 units at $70 March 10 Sold 80 units June 10 Purchased 175 units at $77 October 30 Sold 175 units What would be reported for Cost of Goods Sold on the income statement for the year ending December 31, 2017 if the perpetual inventory system and the last-in, first-out inventory costing method are used? A) $19,075 B) $13,475 C) $5,600 D) $17,850 Answer: A Explanation:







34) Open Space Furniture began June with merchandise inventory of 45 sofas that cost a total of $31,500. During the month, Open Space purchased and sold merchandise on account as follows:


Prepare a perpetual inventory record, using the LIFO inventory costing method, and determine the company's cost of goods sold, ending merchandise inventory, and gross profit.

Answer:







35) When using the weighted-average inventory costing method in a perpetual inventory system, a new weighted average cost per unit is computed at the end of each quarter. Answer: FALSE Explanation: A new weighted average cost per unit is computed after each purchase. Diff: 1 LO: 6-2 AICPA Functional: Measurement PE Question Type: Concept H2 : Weighted-Average Method 36) Weighted average cost per unit is determined by dividing the cost of goods available for sale by the number of units available. Answer: TRUE Diff: 1 LO: 6-2 AICPA Functional: Measurement PE Question Type: Concept H2 : Weighted-Average Method 37) Which of the following inventory costing methods requires the calculation of a new average cost after each purchase? A) specific identification B) weighted-average C) last-in, first-out D) first-in, first-out Answer: B Diff: 1 LO: 6-2 AICPA Functional: Measurement PE Question Type: Application H2 : Weighted-Average Method






38) A company purchased 300 units for $60 each on January 31. It purchased 150 units for $25 each on February 28. It sold a total of 250 units for $70 each from March 1 through December 31. If the company uses the weighted-average inventory costing method, calculate the amount of ending inventory on December 31. (Assume that the company uses a perpetual inventory system. Round any intermediate calculations two decimal places, and your final answer to the nearest dollar.) A) $21,750 B) $9,666 C) $12,084 D) $8,500 Answer: B Explanation:

Ending merchandise inventory = (300 + 150 - 250) × $48.33 = Diff: 2 LO: 6-2 AACSB: Application of knowledge AICPA Functional: Measurement PE Question Type: Application H2 : Weighted-Average Method






39) A company purchased 110 units for $40 each on January 31. It purchased 200 units for $25 each on February 28. It sold 200 units for $50 each from March 1 through December 31. If the company uses the weighted-average inventory costing method, calculate the amount of Cost of Goods Sold on the income statement for the year ending December 31. (Assume the company uses the perpetual inventory system. Round any intermediate calculations two decimal places, and your final answer to the nearest dollar.) A) $9,400 B) $6,064 C) $4,400 D) $5,000 Answer: B Explanation:

Cost of Goods Sold = 200 units × $30.32 = $6,064 Diff: 2 LO: 6-2 AACSB: Application of knowledge AICPA Functional: Measurement PE Question Type: Application H2 : Weighted-Average Method






40) Rodriguez, Inc. had the following balances and transactions during 2017, from January 1 to December 31: Beginning Merchandise Inventory 300 units at $80 March 10 Sold 150 units June 10 Purchased 600 units at $82 October 30 Sold 450 units What would be reported for Ending Merchandise Inventory on the balance sheet at December 31, 2017 if the perpetual inventory system and the weighted-average inventory costing method are used? (Round unit costs to two decimal places and total costs to nearest dollar.) A) $24,480 B) $12,000 C) $24,000 D) $36,000 Answer: A Explanation: | Purchases | Cost of Goods Sold | Inventory on Hand

Date

Quant Unit Cost

Total Cost

Quant

Unit Cost

Total Cost

Quant

Unit Cost

Total Cost

Jan. 1 300 $80 $24,000Mar. 1 150 $80 $12,000 150 $80 $12,000Jun. 10 600 $82 $49,200 750 $81.60 $61,200Oct. 30 450 $81.60 $36,720 300 $81.60 $24,480Totals 600 $49,200 600 $48,720 300 $24,480Diff: 3 LO: 6-2 AACSB: Application of knowledge AICPA Functional: Measurement PE Question Type: Application H2 : Weighted-Average Method






41) Lewis, Inc. had the following balances and transactions during 2016: Beginning Merchandise Inventory 150 units at $80 March 10 Sold 50 units June 10 Purchased 300 units at $82 October 30 Sold 130 units What would be reported as Cost of Goods Sold on the income statement for the year ending December 31, 2016 if the perpetual inventory system and the weighted-average inventory costing method are used? (Round the unit costs to two decimal places and total costs to the nearest dollar.) A) $22,005 B) $32,600 C) $14,595 D) $10,595 Answer: C Explanation: | Purchases | Cost of Goods Sold | Inventory on Hand

Date

Quant Unit Cost

Total Cost

Quant

Unit Cost

Total Cost

Quant

Unit Cost

Total Cost

Jan. 1 150 $80 $12,000Mar. 1 50 $80 $4,000 100 $80 $8,000Jun. 10 300 $82 $24,600 400 $81.50 $32,600Oct. 30 130 $81.50 $10,595 270 $81.50 $22,005Totals 450 $36,600 180 $14,595 270 $22,005 Cost of Goods Sold = $4,000 + $10,595 = $14,595 Diff: 3 LO: 6-2 AACSB: Application of knowledge AICPA Functional: Measurement PE Question Type: Application H2 : Weighted-Average Method 42) Under the weighted-average method for inventory costing, the cost per unit is determined by ________. A) dividing the cost of goods available for sale by the number of units available B) dividing the cost of goods available for sale by the number of units in beginning inventory C) multiplying the number of units purchased with the weighted-average cost D) multiplying the cost of goods available for sale by the ending weighted-average cost of the previous accounting period Answer: A Diff: 2 LO: 6-2 AICPA Functional: Measurement PE Question Type: Concept H2 : Weighted-Average Method






43) Which of the following is the correct formula to calculate weighted-average unit cost for merchandise inventory? A) Weighted-average unit cost = Cost of goods available for sale + Number of units available B) Weighted-average unit cost = Cost of goods available for sale × Number of units available C) Weighted-average unit cost = Cost of goods available for sale - Number of units available D) Weighted-average unit cost = Cost of goods available for sale / Number of units available Answer: D Diff: 1 LO: 6-2 AICPA Functional: Measurement PE Question Type: Concept H2 : Weighted-Average Method






44) McClain Designs Furniture began June with merchandise inventory of 45 sofas that cost a total of $31,500. During the month, McClain Designs purchased and sold merchandise on account as follows:


Prepare a perpetual inventory record, using the weighted-average inventory costing method, and determine the company's cost of goods sold, ending merchandise inventory, and gross profit. (Round weighted-average cost per unit to the nearest cent and all other amounts to the nearest dollar.)

Answer:

Diff: 3 LO: 6-2 AACSB: Application of knowledge AICPA Functional: Measurement PE Question Type: Application H2 : Weighted-Average Method






Learning Objective 6-3 1) In a period of rising costs, the first-in, first-out (FIFO) method results in lower cost of goods sold and higher gross profit than the last-in, first-out (LIFO) method. Answer: TRUE Diff: 2 LO: 6-3 AICPA Functional: Measurement PE Question Type: Concept H2 : Income Statement 2) In a period of rising costs, the last-in, first-out (LIFO) method results in lower cost of goods sold and higher net income than the first-in, first-out (FIFO) method. Answer: FALSE Diff: 2 LO: 6-3 AICPA Functional: Measurement PE Question Type: Concept H2 : Income Statement 3) In a period of rising costs, the first-in, first-out (FIFO) method results in higher cost of goods sold and lower gross profit than the last-in, first-out (LIFO) method. Answer: FALSE Diff: 2 LO: 6-3 AICPA Functional: Measurement PE Question Type: Concept H2 : Income Statement 4) In a period of rising costs, the last-in, first-out (LIFO) method results in higher cost of goods sold and lower net income than the first-in, first-out (FIFO) method. Answer: TRUE Diff: 2 LO: 6-3 AICPA Functional: Measurement PE Question Type: Concept H2 : Income Statement 5) Given the same purchase and sales data, and assuming the cost of inventory is rising, the costing methods for inventory will result in different amounts for cost of goods sold. Answer: TRUE Diff: 1 LO: 6-3 AICPA Functional: Measurement PE Question Type: Concept H2 : Income Statement






6) Given the same purchase and sales data, and assuming the cost of inventory is rising,the costing methods for inventory will result in different amounts for sales revenue. Answer: FALSE Diff: 1 LO: 6-3 AICPA Functional: Measurement PE Question Type: Concept H2 : Income Statement 7) Given the same purchase and sales data, and assuming the cost of inventory is rising, the costing methods for inventory will result in different amounts for net income. Answer: TRUE Diff: 1 LO: 6-3 AICPA Functional: Measurement PE Question Type: Concept H2 : Income Statement 8) Which of the following inventory costing methods yields the highest cost of goods sold during a period of rising inventory costs? A) specific identification B) weighted-average C) last-in, first-out D) first-in, first-out Answer: C Diff: 2 LO: 6-3 AICPA Functional: Measurement PE Question Type: Concept H2 : Income Statement 9) Which of the following inventory costing methods yields the lowest cost of goods sold during a period of rising inventory costs? A) specific identification B) weighted-average C) last-in, first-out D) first-in, first-out Answer: D Diff: 2 LO: 6-3 AICPA Functional: Measurement PE Question Type: Concept H2 : Income Statement






10) Which of the following inventory costing methods yields the highest net income during a period of rising inventory costs? A) specific identification B) weighted-average C) last-in, first-out D) first-in, first-out Answer: D Diff: 2 LO: 6-3 AICPA Functional: Measurement PE Question Type: Concept H2 : Income Statement 11) Which of the following inventory costing methods yields the lowest net income during a period of rising inventory costs? A) specific identification B) weighted-average C) last-in, first-out D) first-in, first-out Answer: C Diff: 2 LO: 6-3 AICPA Functional: Measurement PE Question Type: Concept H2 : Income Statement 12) Which of the following inventory valuation methods minimizes income tax expense during a period of rising inventory costs? A) first-in, first-out B) last-in, first-out C) weighted-average D) specific identification Answer: B Diff: 1 LO: 6-3 AICPA Functional: Measurement PE Question Type: Concept H2 : Income Statement






13) When inventory costs are declining, which of the following inventory costing methods will result in the highest cost of goods sold? A) first-in, first-out B) last-in, first-out C) weighted-average D) specific identification Answer: A Diff: 1 LO: 6-3 AICPA Functional: Measurement PE Question Type: Concept H2 : Income Statement

14) During a period of declining inventory costs, which of the following inventory costing methods should be used by a company that intends to minimize its income tax expenses? A) first-in, first-out B) last-in, first-out C) weighted-average D) specific identification Answer: A Diff: 2 LO: 6-3 AICPA Functional: Measurement PE Question Type: Concept H2 : Income Statement 15) When using the FIFO inventory costing method, ending merchandise inventory will be the highest, as compared to LIFO and weighted-average inventory costing methods, when costs are decreasing. Answer: FALSE Explanation: When using the FIFO inventory costing method, ending merchandise inventory will be the highest when costs are increasing. Diff: 1 LO: 6-3 AICPA Functional: Measurement PE Question Type: Concept H2 : Balance Sheet 16) When using the LIFO inventory costing method, ending merchandise inventory will be the lowest, as compared to FIFO and weighted-average inventory costing methods, when costs are increasing. Answer: TRUE Diff: 1 LO: 6-3 AICPA Functional: Measurement PE Question Type: Concept H2 : Balance Sheet






17) When using the specific identification inventory costing method, ending inventory amounts depend on which costs are assigned to the inventory sold. Answer: TRUE Diff: 1 LO: 6-3 AICPA Functional: Measurement PE Question Type: Concept H2 : Balance Sheet

18) Which of the following inventory costing methods results in the highest value of ending inventory during a period of rising inventory costs? A) specific identification B) weighted-average C) last-in, first-out D) first-in, first-out Answer: D Diff: 2 LO: 6-3 AICPA Functional: Measurement PE Question Type: Concept H2 : Balance Sheet 19) Which of the following inventory costing methods results in the lowest value of ending inventory during a period of rising inventory costs? A) specific identification B) weighted-average C) last-in, first-out D) first-in, first-out Answer: C Diff: 2 LO: 6-3 AICPA Functional: Measurement PE Question Type: Concept H2 : Balance Sheet 20) Which of the following remains the same regardless of the inventory costing method used by a company? Assume the cost of inventory is rising. A) purchases B) cost of goods sold C) ending merchandise inventory D) net income Answer: A Diff: 1 LO: 6-3 AICPA Functional: Measurement PE Question Type: Concept H2 : Balance Sheet






21) When inventory costs are declining, which of the following inventory costing method will result in the lowest ending merchandise inventory? A) first-in, first-out B) last-in, first-out C) weighted-average D) specific identification Answer: A Diff: 2 LO: 6-3 AICPA Functional: Measurement PE Question Type: Concept H2 : Balance Sheet

22) Complete the following table, which compares the effects of LIFO, FIFO, and weighted-average inventory costing methods on the financial statements in periods of rising inventory costs. The answer should be lowest, highest, or middle. Financial Statement Element:

LIFO

FIFO

Weighted-Average

Cost of Goods Sold Net Income Ending Merchandise Inventory Answer: Financial Statement Element:

LIFO

FIFO

Weighted- Average

Cost of Goods Sold Highest Lowest Middle Net Income Lowest Highest Middle Ending Merchandise Inventory Lowest Highest Middle Diff: 3 LO: 6-3 AACSB: Analytical thinking AICPA Functional: Measurement PE Question Type: Critical thinking H2 : Balance Sheet






23) Complete the following table, which compares the effects of LIFO, FIFO and weighted-average inventory costing methods on the financial statements in periods of declining inventory costs. The answer should be lowest, highest, or middle. Financial Statement Element:

LIFO

FIFO

Weighted- Average

Cost of Goods Sold Net Income Ending Merchandise Inventory Answer: Financial Statement Element:

LIFO

FIFO

Weighted- Average

Cost of Goods Sold Lowest Highest Middle Net Income Highest Lowest Middle Ending Merchandise Inventory Highest Lowest Middle Diff: 3 LO: 6-3 AACSB: Analytical thinking AICPA Functional: Measurement PE Question Type: Critical thinking H2 : Balance Sheet

Learning Objective 6-4 1) Which of the following assets must be reported at the lower-of-cost-or-market value? A) Accounts Receivable B) Merchandise Inventory C) Prepaid Insurance D) Notes Receivable Answer: B Diff: 1 LO: 6-4 AICPA Functional: Measurement PE Question Type: Concept H2 : How Is Merchandise Inventory Valued When Using the Lower-of-Cost-or-Market Rule? (H1) 2) If the historical cost of inventory is less than its current replacement cost, the business must write down the inventory cost. Answer: FALSE Diff: 1 LO: 6-4 AICPA Functional: Measurement PE Question Type: Concept H2 : Computing the Lower-of-Cost-or-Market






3) If the current replacement cost of inventory is less than its historical cost, the business must adjust the inventory value. Answer: TRUE Diff: 1 LO: 6-4 AICPA Functional: Reporting PE Question Type: Concept H2 : Computing the Lower-of-Cost-or-Market 4) For inventories, market value generally means the current replacement cost. Answer: TRUE Diff: 1 LO: 6-4 AICPA Functional: Measurement PE Question Type: Concept H2 : Computing the Lower-of-Cost-or-Market 5) If the merchandise inventory's market value is greater than its cost, then it must be adjusted for the difference. Answer: FALSE Diff: 1 LO: 6-4 AICPA Functional: Measurement PE Question Type: Concept H2 : Computing the Lower-of-Cost-or-Market

6) The lower-of-cost-or-market rule demonstrates accounting conservatism in action. Answer: TRUE Diff: 1 LO: 6-4 AACSB: Application of knowledge AICPA Functional: Measurement PE Question Type: Concept H2 : Computing the Lower-of-Cost-or-Market 7) Which of the following values is considered the market value when valuing inventory at lower-of-cost-or-market? A) sales price less the company's normal mark-up percentage B) current replacement cost C) cost plus the company's normal mark-up percentage D) historic cost Answer: B Diff: 1 LO: 6-4 AICPA Functional: Measurement PE Question Type: Concept H2 : Computing the Lower-of-Cost-or-Market






8) Which of the following amounts would be reported as Merchandise Inventory on the balance sheet of a company if the cost of an item is $110 and the current replacement cost is $90? A) $200 B) The average of $90 and $110 C) $110 D) $90 Answer: D Diff: 1 LO: 6-4 AACSB: Application of knowledge AICPA Functional: Measurement PE Question Type: Application H2 : Computing the Lower-of-Cost-or-Market 9) Misty, Inc. had 24,000 units of ending inventory that were recorded at the cost of $6.00 per unit using the FIFO method. The current replacement cost is $4.75 per unit. Which of the following amounts would be reported as Ending Merchandise Inventory on the balance sheet using the lower-of-cost-or-market rule? A) $144,000 B) $258,000 C) $168,000 D) $114,000 Answer: D Explanation: Ending Merchandise Inventory =

Diff: 2 LO: 6-4 AACSB: Application of knowledge AICPA Functional: Measurement PE Question Type: Application H2 : Computing the Lower-of-Cost-or-Market

10) Better Buy, Inc. has 8 units in inventory on December 31. The units were purchased in November for $160 each. The price lists from the suppliers indicate that the same items would now cost the company a total of $1,320. What would be the amount reported as Ending Merchandise Inventory on the balance sheet? A) $2,600 B) $325 C) $1,280 D) $1,320 Answer: C Explanation: Ending Merchandise Inventory =







11) Best Deals, Inc. has 13 units in ending merchandise inventory on December 31. The units were purchased in November for $155 each. The price lists from suppliers indicate the current replacement cost of the item to be $161 each. What would be the amount reported as Merchandise Inventory on the balance sheet? A) $2,015 B) $4,108 C) $316 D) $2,093 Answer: A Explanation: Ending Merchandise Inventory =


12) Jones Retail. had the following balances and transactions during 2017: Beginning Inventory 20 units at $74 June 10 Purchased 35 units at $84 December 30 Sold 30 units December 31 Replacement cost $64 The company maintains its records of inventory on a perpetual basis using the first-in, first-out inventory costing method. Calculate the amount of ending Merchandise Inventory on December 31, 2017 using the lower-of-cost-or-market rule. A) $2,240 B) $1,600 C) $1,850 D) $1,480 Answer: B Explanation: Ending Merchandise Inventory units =

Ending Merchandise Inventory =







13) Murphy, Inc. had the following balances and transactions during 2017. Beginning Inventory 10 units at $73 June 10 Purchased 20 units at $82 December 30 Sold 20 units December 31 Replacement cost $63 The company maintains its records of inventory on a perpetual basis using the last-in, first-out inventory costing method. Calculate the amount of ending Merchandise Inventory at December 31, 2017 using the lower-of-cost-or-market rule. A) $820 B) $1,260 C) $630 D) $1,890 Answer: C Explanation: Ending Merchandise Inventory units =








14) Jason Retail had the following balances and transactions during 2017. Beginning Inventory 10 units at $74 June 10 Purchased 20 units at $81 December 30 Sold 20 units December 31 Replacement cost $83 The company maintains its records of inventory on a perpetual basis using the FIFO inventory costing method. Calculate the amount of ending Merchandise Inventory at December 31, 2017 using the lower-of-cost-or-market rule. A) $810 B) $830 C) $1,660 D) $2,490 Answer: A Explanation: Ending Merchandise Inventory units =








15) Madison, Inc. had the following balances and transactions during 2017. Beginning Inventory 40 units at $72 June 10 Purchased 120 units at $76 December 30 Sold 113 units December 31 Replacement cost $79 The company maintains its records of inventory on a perpetual basis using the last-in, first-out inventory costing method. Calculate the amount of ending Merchandise Inventory at December 31, 2017 using the lower-of-cost-or-market rule. (Round any intermediate calculations two decimal places, and your final answer to the nearest dollar.) A) $2,880 B) $3,412 C) $3,713 D) $3,572 Answer: B Explanation: Ending Merchandise Inventory units Ending Merchandise Inventory = Number of units on hand × Unit cost

) Diff: 3 LO: 6-4 AACSB: Application of knowledge AICPA Functional: Measurement PE Question Type: Application H2 : Computing the Lower-of-Cost-or-Market 16) The Cost of Goods Sold account is credited to write down the inventory as per the lower-of-cost-or-market rule. Answer: FALSE Diff: 1 LO: 6-4 AICPA Functional: Measurement PE Question Type: Concept H2 : Recording the Adjusting Journal Entry to Adjust Merchandise Inventory 17) The Merchandise Inventory account is debited to write down the inventory as per the lower-of-cost-or-market rule. Answer: FALSE Diff: 1 LO: 6-4 AICPA Functional: Measurement PE Question Type: Concept H2 : Recording the Adjusting Journal Entry to Adjust Merchandise Inventory






18) First Street, Inc. has 6 units in ending merchandise inventory on December 31. The units were purchased in November for $190 each. The price lists from suppliers indicate the current replacement cost of the item to be $182 each. Which of the following statements is true of the effects of the adjustments to ending merchandise inventory on the cost of goods sold? A) The cost of goods sold would increase by $8. B) The cost of goods sold would not be affected. C) The cost of goods sold would decrease by $48. D) The cost of goods sold would increase by $48. Answer: D Explanation: Merchandise Inventory to be written down to market value Total amount to be written down from Merchandise Inventory Diff: 2 LO: 6-4 AACSB: Application of knowledge AICPA Functional: Measurement PE Question Type: Application H2 : Recording the Adjusting Journal Entry to Adjust Merchandise Inventory 19) Shipman, Inc. has 7 units in inventory on December 31. The units were purchased in November for $190 each. The price lists from suppliers indicate the current replacement cost of the item to be $186 each. What is the effect on gross profit if Shipman values its ending merchandise inventory using the lower-of-cost-or-market rule? A) The gross profit would increase by $4. B) The gross profit would not be affected. C) The gross profit would decrease by $28. D) The gross profit would increase by $28. Answer: C Explanation: Merchandise Inventory to be written down to market value Total amount to be written down from Merchandise Inventory Because this will increase the cost of goods sold by $28, the gross profit will decrease by $28. Diff: 3 LO: 6-4 AACSB: Analytical thinking AICPA Functional: Measurement PE Question Type: Critical thinking H2 : Recording the Adjusting Journal Entry to Adjust Merchandise Inventory 20) When a company uses the perpetual inventory method, which of the following would be the entry to adjust inventory to lower-of-cost-or-market? A) debit Loss on Inventory and credit Merchandise Inventory B) debit Merchandise Inventory and credit Inventory Adjustment C) debit Cost of Goods Sold and credit Merchandise Inventory D) debit Merchandise Inventory and credit Cost of Goods Sold Answer: C Diff: 1 LO: 6-4 AICPA Functional: Measurement PE Question Type: Concept H2 : Recording the Adjusting Journal Entry to Adjust Merchandise Inventory






21) Sandra, Inc. had 200 units of inventory on hand at the end of the year. These were recorded at a cost of $15 each using the last-in, first-out (LIFO) method. The current replacement cost is $11 per unit. The selling price charged by Sandra, Inc. for each finished product is $18. In order to record the adjusting entry needed under the lower-of-cost-or-market rule, the Cost of Goods Sold will be ________. A) debited by $2,200 B) credited by $2,200 C) debited by $800 D) credited by $800 Answer: C Explanation: Diff: 2 LO: 6-4 AACSB: Application of knowledge AICPA Functional: Measurement PE Question Type: Application H2 : Recording the Adjusting Journal Entry to Adjust Merchandise Inventory 22) Robyn's Retail had 400 units of inventory on hand at the end of the year. These were recorded at a cost of $15 each using the last-in, first-out (LIFO) method. The current replacement cost is $13 per unit. The selling price charged by Robyn's Retail for each finished product is $22. In order to record the adjusting entry needed under the lower-of-cost-or-market rule, the Merchandise Inventory will be ________. A) debited by $5,200 B) credited by $5,200 C) debited by $800 D) credited by $800 Answer: D Explanation: Diff: 2 LO: 6-4 AACSB: Application of knowledge AICPA Functional: Measurement PE Question Type: Application H2 : Recording the Adjusting Journal Entry to Adjust Merchandise Inventory






23) Exposition, Inc. had 400 units of inventory on hand at the end of the year. These were recorded at a cost of $18 each using the last-in, first-out (LIFO) method. The current replacement cost is $15 per unit. The selling price charged by Exposition, Inc. for each finished product is $26. As a result of recording the adjusting entry as per the lower-of-cost-or-market rule, the gross profit will ________. A) increase by $6,000 B) decrease by $6,000 C) increase by $1,200 D) decrease by $1,200 Answer: D Explanation: Diff: 2 LO: 6-4 AACSB: Application of knowledge AICPA Functional: Measurement PE Question Type: Application H2 : Recording the Adjusting Journal Entry to Adjust Merchandise Inventory

24) The ending inventory of a company was $450,000 as per the perpetual inventory records. The current replacement cost for the ending inventory is $410,000. Prepare the journal entry to adjust inventory. Answer: Cost of Goods Sold 40,000 Merchandise Inventory 40,000 Note: Amount written down = $450,000 - $410,000 = $40,000 Diff: 1 LO: 6-4 AACSB: Application of knowledge AICPA Functional: Measurement PE Question Type: Application H2 : Recording the Adjusting Journal Entry to Adjust Merchandise Inventory 25) The ending inventory of a company was $552,000 as per the perpetual inventory records. The current replacement cost for the ending inventory is $547,000. Prepare the journal entry to adjust inventory. Answer: Cost of Goods Sold 5,000 Merchandise Inventory 5,000 Note: Amount written down = $552,000 - $547,000 = $5,000 Diff: 1 LO: 6-4 AACSB: Application of knowledge AICPA Functional: Measurement PE Question Type: Application H2 : Recording the Adjusting Journal Entry to Adjust Merchandise Inventory






Learning Objective 6-5 1) An overstatement of ending merchandise inventory in the current period results in an understatement of net income in the current period. Answer: FALSE Diff: 1 LO: 6-5 AACSB: Application of knowledge AICPA Functional: Measurement PE Question Type: Application H2 : What Are the Effects of Merchandise Inventory Errors on the Financial Statements (H1) 2) An overstatement of ending merchandise inventory in the current period results in an overstatement of net income in the current period. Answer: TRUE Diff: 1 LO: 6-5 AACSB: Application of knowledge AICPA Functional: Measurement PE Question Type: Application H2 : What Are the Effects of Merchandise Inventory Errors on the Financial Statements (H1)

3) An overstatement of ending merchandise inventory in the current period results in an overstatement of cost of goods sold in the current period. Answer: FALSE Diff: 1 LO: 6-5 AACSB: Application of knowledge AICPA Functional: Measurement PE Question Type: Application H2 : What Are the Effects of Merchandise Inventory Errors on the Financial Statements (H1) 4) An overstatement of ending merchandise inventory in the current period results in an understatement of cost of goods sold in the current period. Answer: TRUE Diff: 1 LO: 6-5 AACSB: Application of knowledge AICPA Functional: Measurement PE Question Type: Application H2 : What Are the Effects of Merchandise Inventory Errors on the Financial Statements (H1)






5) The ending merchandise inventory for the current year is overstated by $28,000. What effect will this error have on the following year's net income? A) The net income will be overstated by $56,000. B) The net income will be overstated by $28,000. C) The net income will be understated by $28,000. D) The net income will be understated by $56,000. Answer: C Diff: 2 LO: 6-5 AACSB: Application of knowledge AICPA Functional: Measurement PE Question Type: Application H2 : What Are the Effects of Merchandise Inventory Errors on the Financial Statements (H1) 6) The ending merchandise inventory for the current accounting period is overstated by $3,500. What will be the effect of this error? A) The net income for the current accounting period will be overstated by $3,500. B) The cost of goods sold for the current accounting period will be overstated by $3,500. C) The ending merchandise inventory for the next accounting period will be overstated by $3,500. D) The cost of goods sold for the next accounting period will be understated by $3,500. Answer: A Diff: 2 LO: 6-5 AACSB: Application of knowledge AICPA Functional: Measurement PE Question Type: Application H2 : What Are the Effects of Merchandise Inventory Errors on the Financial Statements (H1)






7) The ending Merchandise Inventory for the current accounting period is understated by $2,700. What effect will this error have on Cost of Goods Sold and Net Income for the current accounting period? A) Cost of Goods Sold Net Income Understated Understated B) Cost of Goods Sold Net Income Overstated Overstated C) Cost of Goods Sold Net Income Understated Overstated D) Cost of Goods Sold Net Income Overstated Understated Answer: D Diff: 2 LO: 6-5 AACSB: Application of knowledge AICPA Functional: Measurement PE Question Type: Application H2 : What Are the Effects of Merchandise Inventory Errors on the Financial Statements (H1)






8) Ending inventory for the current accounting period is overstated by $2,700. What effect will this error have on Cost of Goods Sold and Net Income for the current accounting period? A) Cost of Goods Sold Net Income Overstated Overstated B) Cost of Goods Sold Net Income Understated Overstated C) Cost of Goods Sold Net Income Overstated Understated D) Cost of Goods Sold Net Income Understated Understated Answer: B Diff: 2 LO: 6-5 AACSB: Application of knowledge AICPA Functional: Measurement PE Question Type: Application H2 : What Are the Effects of Merchandise Inventory Errors on the Financial Statements (H1)

9) Which of the following is affected as a result of an error in performing the physical count of inventory at the end of the accounting period? A) sales revenue B) operating expenses C) net income D) net cost of purchases Answer: C Diff: 2 LO: 6-5 AICPA Functional: Measurement PE Question Type: Concept H2 : What Are the Effects of Merchandise Inventory Errors on the Financial Statements (H1)






10) State the effects of inventory errors on cost of goods sold and net income for periods 1 and 2. The response should be overstated or understated. Period 1 Ending Merchandise Inventory is overstated

Answer:

Diff: 2 LO: 6-5 AACSB: Analytical thinking AICPA Functional: Measurement PE Question Type: Critical thinking H2 : What Are the Effects of Merchandise Inventory Errors on the Financial Statements (H1)

11) State the effects of inventory errors on cost of goods sold and net income for periods 1 and 2. The response should be overstated or understated. Period 1 Ending Merchandise Inventory is understated

Answer:

Diff: 2 LO: 6-5 AACSB: Analytical thinking AICPA Functional: Measurement PE Question Type: Critical thinking H2 : What Are the Effects of Merchandise Inventory Errors on the Financial Statements (H1)






Learning Objective 6-6 1) Inventory turnover measures the number of times a company sells its average level of merchandise inventory during a period. Answer: TRUE Diff: 1 LO: 6-6 AICPA Functional: Measurement PE Question Type: Concept H2 : Inventory Turnover 2) A high rate of inventory turnover indicates difficulty in selling inventory. Answer: FALSE Diff: 1 LO: 6-6 AICPA Functional: Measurement PE Question Type: Concept H2 : Inventory Turnover 3) A high rate of inventory turnover indicates ease in selling inventory. Answer: TRUE Diff: 1 LO: 6-6 AICPA Functional: Measurement PE Question Type: Concept H2 : Inventory Turnover

4) Inventory turnover measures ________. A) the days' sales in inventory ratio B) how rapidly merchandise inventory is purchased C) how rapidly merchandise inventory is sold D) the time period for inventory to become obsolete Answer: C Diff: 1 LO: 6-6 AICPA Functional: Measurement PE Question Type: Concept H2 : Inventory Turnover 5) Which of the following is the correct formula to calculate inventory turnover? A) Inventory turnover = Cost of goods sold / Average merchandise inventory B) Inventory turnover = Cost of goods sold × Average merchandise inventory C) Inventory turnover = Cost of goods sold + Average merchandise inventory D) Inventory turnover = Cost of goods sold - Average merchandise inventory Answer: A Diff: 1 LO: 6-6 AICPA Functional: Measurement PE Question Type: Concept H2 : Inventory Turnover






6) Which of the following is the correct formula to calculate average merchandise inventory? A) Average merchandise inventory = (Beginning merchandise inventory - Ending merchandise inventory) / 2 B) Average merchandise inventory = (Beginning merchandise inventory × Ending merchandise inventory) / 2 C) Average merchandise inventory = (Beginning merchandise inventory / Ending merchandise inventory) / 2 D) Average merchandise inventory = (Beginning merchandise inventory + Ending merchandise inventory) / 2 Answer: D Diff: 1 LO: 6-6 AICPA Functional: Measurement PE Question Type: Concept H2 : Inventory Turnover

7) Mayflower, Inc. provided the following for 2017: Cost of Goods Sold (Cost of sales) $1,100,000Beginning Merchandise Inventory 300,000Ending Merchandise Inventory 630,000 Calculate the average merchandise inventory held by Thomas, Inc. during the year. A) $930,000 B) $465,000 C) $300,000 D) $630,000 Answer: B Diff: 1 LO: 6-6 AACSB: Application of knowledge AICPA Functional: Measurement PE Question Type: Application H2 : Inventory Turnover






8) Blanchard, Inc. provided the following for 2017: Cost of Goods Sold (Cost of sales) $1,300,000Beginning Merchandise Inventory 330,000Ending Merchandise Inventory 350,000 Calculate the company's inventory turnover ratio for the year. (Round your answer to two decimal places.) A) 3.94 times per year B) 3.82 times per year C) 3.71 times per year D) 1.91 times per year Answer: B Explanation: Inventory turnover = Cost of goods sold / Average merchandise inventory 3.82 = 1,300,000 / 340,000 Diff: 2 LO: 6-6 AACSB: Application of knowledge AICPA Functional: Measurement PE Question Type: Application H2 : Inventory Turnover 9) What does inventory turnover measure? What does a high rate of inventory turnover indicate? Answer: Inventory turnover measures the number of times a company sells its average level of merchandise inventory during a period. A high rate of turnover indicates ease in selling inventory. Diff: 2 LO: 6-6 AACSB: Analytical thinking AICPA Functional: Measurement PE Question Type: Critical thinking H2 : Inventory Turnover

10) What does inventory turnover measure? What does a low rate of inventory turnover indicate? Answer: Inventory turnover measures the number of times a company sells its average level of merchandise inventory during a period. A low rate of turnover indicates difficulty in selling inventory. Diff: 2 LO: 6-6 AACSB: Analytical thinking AICPA Functional: Measurement PE Question Type: Critical thinking H2 : Inventory Turnover 11) The days' sales in inventory ratio is calculated by dividing cost of goods sold by the average merchandise inventory. Answer: FALSE Diff: 1 LO: 6-6 AICPA Functional: Measurement PE Question Type: Concept H2 : Days' Sales in Inventory






12) A lower days' sales in inventory for Moonshine, Inc., when compared to other companies, indicates that it is ________. A) selling its inventory more quickly B) spending more on inventory storage C) incurring higher insurance costs D) holding excess obsolete inventory Answer: A Diff: 2 LO: 6-6 AICPA Functional: Measurement PE Question Type: Concept H2 : Days' Sales in Inventory 13) Which of the following is the correct formula to calculate days' sales in inventory? A) Days' sales in inventory = 365 days × Inventory turnover B) Days' sales in inventory = 365 days + Inventory turnover C) Days' sales in inventory = 365 days / Inventory turnover D) Days' sales in inventory = 365 days - Inventory turnover Answer: C Diff: 1 LO: 6-6 AICPA Functional: Measurement PE Question Type: Concept H2 : Days' Sales in Inventory

14) Weller, Inc. provided the following particulars for 2017: Cost of Goods Sold (Cost of sales) $1,000,000Beginning Merchandise Inventory 335,000Ending Merchandise Inventory 600,000 Calculate the average number of days that inventory was held by Weller, Inc. during 2017. (Assume 365 days in a year. Round your intermediate calculations and final answer to two decimal places.) A) 341.12 days B) 218.56 days C) 122.07 days D) 170.56 days Answer: D Explanation: Inventory Turnover: Cost of goods sold / Average merchandise inventory 1,000,000 / 467,500 = 2.14 Days' sales in inventory: 365 days / Inventory turnover 365 / 2.14 = 170.56 Diff: 3 LO: 6-6 AACSB: Application of knowledge AICPA Functional: Measurement PE Question Type: Application H2 : Days' Sales in Inventory






15) Anderson Plumbing Fixtures reported the following income statement for the year ended December 31, 2017. Anderson Plumbing Fixtures Income Statement Year Ended December 31, 2017 Sales Revenue $ 258,000Cost of Goods Sold Beginning Merchandise Inventory $ 43,500 Net Cost of Purchases 145,000 Cost of Goods Available for Sale 188,500 Less: Ending Merchandise Inventory 38,000 Cost of Goods Sold: 150,000Gross Profit 107,500Operating Expenses 87,200Net Income $ 20,300 Compute inventory turnover rate for the year. (Round to two decimal places.) Compute days' sales in inventory for the year. (Round to two decimal places.) Answer: Inventory turnover is 3.69 times for the year. Calculations: Average merchandise inventory = (Beginning merchandise inventory + Ending merchandise inventory) / 2 = ($43.500 + $38,000) / 2 = $40,750 Inventory turnover = Cost of goods sold / Average merchandise inventory = $150,500 / $40,750 = 3.69 times for the year Days' sales in inventory is 98.92 days for the year. Calculations: Days' sales in inventory = 365 days / Inventory turnover = 365 / 3.69 times = 98.92 days Diff: 2 LO: 6-6 AACSB: Application of knowledge AICPA Functional: Measurement PE Question Type: Application H2 : Days' Sales in Inventory






16) Richardson Auto Supplies reported the following income statement for the year ended December 31,2017. Richardson Auto Supplies Income Statement Year Ended December 31, 2017 Sales Revenue $ 426,500Cost of Goods Sold Beginning Merchandise Inventory $ 36,000 Net Cost of Purchases 273,800 Cost of Goods Available for Sale 309,800 Less: Ending Merchandise Inventory 41,100 Cost of Goods Sold: 268,400Gross Profit 158,100Operating Expenses 122,600Net Income $ 35,500 Compute inventory turnover rate for the year. (Round to two decimal places.) Compute days' sales in inventory for the year. (Round to two decimal places.) Answer: Inventory turnover is 6.94 times for the year. Calculations: Average merchandise inventory = (Beginning merchandise inventory + Ending merchandise inventory) / 2 = ($36,000 + $41,400) / 2 = $38,700 Inventory turnover = Cost of goods sold / Average merchandise inventory = $268,400 / $38,700 = 6.94 times for the year Days' sales in inventory is 52.59 days for the year. Calculations: Days' sales in inventory = 365 days / Inventory turnover = 365 / 6.94 times = 52.59 days Diff: 2 LO: 6-6 AACSB: Application of knowledge AICPA Functional: Measurement PE Question Type: Application H2 : Days' Sales in Inventory






Learning Objective 6-7 1) Under the periodic inventory system, which of the following amounts will always stay the same regardless of the inventory valuation method used? A) ending merchandise inventory B) cost of goods sold C) gross profit D) purchases Answer: D Diff: 2 LO: 6-7 AICPA Functional: Measurement PE Question Type: Concept H2 : How Are Merchandise Inventory Costs Determined Under a Perpetual Inventory System? (H1) 2) Using the FIFO method of inventory valuation will always produce the same results whether a company uses perpetual or periodic inventory costing methods. Answer: TRUE Diff: 1 LO: 6-7 AICPA Functional: Measurement PE Question Type: Concept H2 : First-In, First-Out (FIFO) Method






3) Samson, Inc. had the following balances and transactions during 2017: Beginning Merchandise Inventory 15 units at $92 March 10 Sold 12 units June 10 Purchased 45 units at $98 October 30 Sold 39 units What is the amount of the company's Merchandise Inventory, as disclosed in the December 31, 2017 balance sheet as per the periodic FIFO inventory costing method? A) $552 B) $588 C) $9,016 D) $882 Answer: D Explanation:

Ending Merchandise Inventory = 9 units × $98 = $882 Diff: 2 LO: 6-7 AACSB: Application of knowledge AICPA Functional: Measurement PE Question Type: Application H2 : First-In, First-Out (FIFO) Method






4) A company that uses the periodic inventory system provided the following information: 1. Beginning inventory $6,000 2. Purchases $130,000 3. Purchase discounts $2,400 4. Purchase returns and allowances $600 At the end of the period, the company does an inventory count and finds $16,000 worth of inventory on hand. What is the amount of cost of goods sold? A) $117,000 B) $104,200 C) $149,000 D) $128,800 Answer: A Explanation:







5) A company that uses the periodic inventory provides the following information: 1. Beginning Inventory $15,000 2. Net Purchases $94,000 At the end of the period, the company does an inventory count and finds $12,000 of inventory on hand. What is the amount of cost of goods sold? A) $94,000 B) $121,000 C) $97,000 D) $82,000 Answer: C Explanation:

Diff: 2 LO: 6-7 AACSB: Application of knowledge AICPA Functional: Measurement PE Question Type: Application H2 : First-In, First-Out (FIFO) Method 6) "The amounts obtained for cost of goods sold and ending merchandise inventory are always the same for FIFO perpetual and FIFO periodic." Is this statement true? Why or why not? Answer: This is a true statement. This occurs because FIFO sells the oldest inventory acquisitions first. Therefore, it does not matter when FIFO is calculated; the earliest purchase will always be the same whether the cost of goods sold is calculated on the sale date (perpetual) or at the end of the period (periodic). Diff: 2 LO: 6-7 AACSB: Analytical thinking AICPA Functional: Measurement PE Question Type: Critical thinking H2 : First-In, First-Out (FIFO) Method






7) The periodic inventory records of Lucas Dental Supply indicate the following for the month of April:

Apr. 1Beginning merchandise inventory 15 units @ $32 each7Purchase 7 units @ $34 each

18Purchase 12 units @ $37 each26Purchase 10 units @ $40 each

As of April 30, Lucas counts 8 units of merchandise inventory on hand. Compute ending merchandise inventory and cost of goods sold for Lucas using the FIFO inventory method. Answer: Ending Merchandise Inventory: 8 units × $40 = $320 Cost of goods available for sale:

Date

Quantity Unit Cost

Total Cost

Apr. 115 units $ 32 $ 48077 units $ 34 $ 238

1812 units $ 37 $ 4442610 units $ 40 $ 400

Totals44 units $ 1,562 Cost of Goods Sold: Cost of Goods Available for Sale $ 1,562 Less: Ending Merchandise Inventor 320 Cost of Goods Sold $ 1,242 Diff: 2 LO: 6-7 AACSB: Application of knowledge AICPA Functional: Measurement PE Question Type: Application H2 : First-In, First-Out (FIFO) Method 8) Using the LIFO method of inventory valuation will always produce the same results whether a company uses perpetual or periodic inventory costing methods. Answer: FALSE Diff: 2 LO: 6-7 AICPA Functional: Measurement PE Question Type: Concept H2 : Last-In, First-Out (LIFO) Method






9) Assuming that costs are changing during the accounting period, under the last-in, first-out inventory costing method, the amount of cost of goods sold calculated using the perpetual inventory system will usually differ from the amount calculated using the periodic. inventory system. Answer: TRUE Diff: 1 LO: 6-7 AICPA Functional: Measurement PE Question Type: Concept H2 : Last-In, First-Out (LIFO) Method 10) Evans, Inc. had the following balances and transactions during 2017: Beginning Merchandise Inventory 10 units at $71 March 10 Sold 8 units June 10 Purchased 20 units at $81 October 30 Sold 15 units What is the amount of the company's Merchandise Inventory, as disclosed in the December 31, 2017 balance sheet, using the periodic LIFO inventory costing method? A) $405 B) $497 C) $567 D) $355 Answer: B Explanation:

Ending Merchandise Inventory = 7 units × $71 = $497 Diff: 2 LO: 6-7 AACSB: Application of knowledge AICPA Functional: Measurement PE Question Type: Application H2 : Last-In, First-Out (LIFO) Method






11) Which of the following amounts could differ if a company, using the LIFO inventory costing method, shifts from a periodic inventory system to a perpetual inventory system? A) ending merchandise inventory B) sales revenue C) purchases D) purchase returns Answer: A Diff: 2 LO: 6-7 AICPA Functional: Measurement PE Question Type: Concept H2 : Last-In, First-Out (LIFO) Method 12) The periodic inventory records of Zucker Sales indicate the following for the month of April:



As of April 30, Zucker Sales counts 8 units of merchandise inventory on hand. Compute ending merchandise inventory and cost of goods sold for Zucker using the LIFO inventory method. Answer: Ending inventory: 8 units @ $32 = $ 256 Cost of goods available for sale:

Date Quantity

Unit Cost

Total Cost

Apr. 1 15 units $ 32 $ 4807 7 units $ 34 $ 238

18 12 units $ 37 $ 44426 10 units $ 40 $ 400

Totals 44 units $ 1,562 Cost of Goods Available for Sale $ 1,562 Less: Ending Merchandise Inventor 256 Cost of Goods Sold $ 1,306 Diff: 2 LO: 6-7 AICPA Functional: Measurement PE Question Type: Concept H2 : Last-In, First-Out (LIFO) Method






13) In the weighted-average inventory costing method, when using the periodic inventory system, a single weighted average cost per using is computed for the entire period. Answer: TRUE Diff: 1 LO: 6-7 AICPA Functional: Measurement PE Question Type: Concept H2 : Weighted-Average Method

14) When using the weighted-average inventory costing method, the dollar amounts for ending inventory and cost of goods sold are the same for both the perpetual and periodic inventory costing methods. Answer: FALSE Diff: 1 LO: 6-7 AICPA Functional: Measurement PE Question Type: Concept H2 : Weighted-Average Method 15) Ronald, Inc. had the following balances and transactions during 2017: Beginning Merchandise Inventory 15 units at $90 March 10 Sold 13 units June 10 Purchased 30 units at $87 October 30 Sold 25 units What is the amount of the company's Merchandise Inventory, as disclosed in the December 31, 2017 balance sheet, using the periodic weighted-average inventory costing method? (Round the unit costs to two decimal places and total costs to the nearest dollar.) A) $104 B) $87 C) $373 D) $616 Answer: D Explanation:

Diff: 3 LO: 6-7 AACSB: Application of knowledge AICPA Functional: Measurement PE Question Type: Application H2 : Weighted-Average Method






16) A company uses the weighted-average method of inventory valuation under a periodic inventory system. The company began the year with a zero inventory balance. They had the following transactions during the year. 1. Purchased 64 units at $5 per unit 2. Purchased 110 units at $5 per unit 3. Sold 90 units at $10 per unit 4. Purchased 55 units at $6 per unit 5. Sold 90 units at $13.50 per unit At the end of the year, the company counted the inventory and found 49 units remaining. Calculate the cost of goods sold for the year. (Round the unit costs to two decimal places and total costs to the nearest dollar.) A) $5 B) $257 C) $1,200 D) $943 Answer: D Explanation:

Diff: 2 LO: 6-7 AACSB: Application of knowledge AICPA Functional: Measurement PE Question Type: Application H2 : Weighted-Average Method 17) When using the periodic inventory system and weighted-average inventory costing method, when is the weighted average cost per unit computed? Answer: When using the periodic inventory system and weighted-average inventory costing method, the weighted average cost per unit is computed at the end of the period (a single weighted average cost per unit is computed for the entire period). Diff: 1 LO: 6-7 AICPA Functional: Measurement PE Question Type: Concept H2 : Weighted-Average Method






18) The periodic inventory records of Witte Veterinary Supply indicate the following for the month of April:



As of April 30, Witte counts 8 units of merchandise inventory on hand. Compute ending merchandise inventory and cost of goods sold for Witte using the weighted-average inventory method. (Round the per unit cost to two decimal places.) Answer: Weighted-Average cost per unit: Cost of goods available for sale / Goods available for sale $1,562 / 44 units = $35.50 Ending inventory: 8 units × $35.50 = $284 Cost of goods available for sale:

Date Quantity

Unit Cost

Total Cost

Apr. 115 units $ 32 $ 48077 units $ 34 $ 238

1812 units $ 37 $ 4442610 units $ 40 $ 400

Totals44 units $ 1,562 Cost of goods sold: Cost of Goods Available for Sale $ 1,562 Less: Ending Merchandise Inventory 284 Cost of Goods Sold $ 1,278 Diff: 2 LO: 6-7 AACSB: Application of knowledge AICPA Functional: Measurement PE Question Type: Application H2 : Weighted-Average Method





Documents

Full file at ... · Horngren's Financial & Managerial Accounting, 5e (Miller) Chapter 6 Merchandise Inventory Learning Objective 6-1 1) The consistency principle states that a business