1. Under a perpetual inventory system, the amount of each type of merchandise on hand is available in the
a. inventory ledger.
b. purchase ledger.
c. customer’s ledger.
d. creditor’s ledger.
2. Taking a physical count of inventory
a. has no internal control relevance.
b. is not necessary when a perpetual inventory system is used.
c. is not necessary when a periodic inventory system is used.
d. should be done near year-end.
3. Control of inventory should begin as soon as the inventory is received. Which of the following internal control steps is not done to meet this goal?
a. Check the invoice extensions and totals
b. Check the invoice to the purchase order
c. Check the invoice with the person who specifically purchased the item
d. Check the invoice to the receiving report
4. Which of the following is not an example for safeguarding inventory?
a. Matching receiving documents, purchase orders, and vendor’s invoice.
b. Returning inventory that is defective or broken.
c. Physical devices such as two-way mirrors, cameras, and alarms.
d. Storing inventory in restricted areas.
5. Which of the following methods is appropriate for a business whose inventory consists of a relatively small number of unique, high-cost items?
a. Specific Identification
6. Ending inventory is made up of the oldest purchases when a company uses
a. average cost.
b. retail method.
c. last-in, first-out.
d. first-in, first-out.
7. The two most widely used methods for determining the cost of inventory are
a. FIFO and LIFO.
b. LIFO and average.
c. gross profit and average.
d. FIFO and average.
8. Cost flow is in the order in which costs were incurred when using
a. last-in, first-out.
b. first-in, first-out.
c. average cost.
d. weighted average.
9. Which of the following companies would be more likely to use the specific identification inventory costing method?
b. Best Buy
c. Gordon’s Jewelers
10. The inventory data for an item for November are:
Nov. 01 Inventory 20 units at $20.00
Nov. 04 Sold 11 units
Nov. 10 Purchased 30 units at $19.00
Nov. 17 Sold 22 units
Nov. 30 Purchased 23 units at $24.00
Using the perpetual LIFO system, what is the cost of the merchandise sold for November?
11. The Boxwood Company sells blankets for $ 34.00 each. The following was taken from the inventory records during May. The company had no beginning inventory on May 1.
Date Product Z Units Cost
May 03 Purchase 8 $18.00
May 10 Sale 5
May 17 Purchase 11 $17.00
May 20 Sale 4
May 23 Sale 2
May 30 Purchase 8 $22.00
Assuming that the company uses the perpetual inventory system, determine the ending inventory value for the month of May using the FIFO inventory cost method.
12. The following lots of a particular commodity were available for sale during the year:
Beginning inventory 8 units at $47.00
First purchase 16 units at $55.00
Second purchase 54 units at $59.00
Third purchase 19 units at $62.00
The firm uses the periodic system and there are 22 units of the commodity on hand at the end of the year. What is the amount of inventory at the end of the year according to the LIFO method?
13. If the cost of an item of inventory is $53.00 and the current replacement cost is $65.00, what is the amount included in inventory according to the lower of cost or market?
14. During the taking of its physical inventory on December 31, 2014, Barry’s Bike Shop incorrectly counted its inventory as $218,938.00 instead of the correct amount of $178,577.00. What would be the effect on the balance sheet and income statement?
assets overstated by $40,361.00 retained earnings understated by $40,361.00 net income statement understated by $40,361.00.
assets overstated by $218,938.00 retained earnings understated by $178,577.00 no effect on the income statement.
assets and retained earnings overstated by $40,361.00 net income overstated by $40,361.00.
assets and retained earnings overstated by $178,577.00 net income understated by $218,938.00.
15. Garrison Company uses the retail method of inventory costing. They started the year with an inventory that had a retail cost of $44,741.00. During the year they purchased an inventory with a retail cost of $662,662.00. After performing a physical inventory, they calculated their inventory cost at retail to be $66,731.00. The mark up is 100% of cost. Determine the ending inventory at its estimated cost.
16. A business using the retail method of inventory costing determines that merchandise inventory at retail is $511,100. If the ratio of cost to retail price is 50%, what is the amount of inventory to be reported on the financial statements?
17. On the basis of the following data, what is the estimated cost of the merchandise inventory on May 31 using the retail method?
May 01Merchandise Inventory $23,960 $39,930
May 01-31Purchases (net) $45,860 $61,850
May 01-31Sales (net) $96,960
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. 01Merchandise inventory $88,513.00
Sep. 01-30Purchases (net) $175,962.00
Sep. 01-30Sales (net) $126,601.00
19. The Boxwood Company sells blankets for $31.00 each. The following was taken from the inventory records during May. The company had no beginning inventory on May 1.
Date Product Z Units Cost
May 03 Purchase 27 $18.00
May 10 Sale 11
May 17 Purchase 32 $20.00
May 20 Sale 14
May 23 Sale 8
May 30 Purchase 29 $21.00
Assuming that the company uses the perpetual inventory system, determine the gross profit for the sale of May 23 using the FIFO inventory cost method.