Quiz 3 – Version A

1. Which of the following should be included in the physical inventory of a company?

a. Goods held on consignment from another company

b. Goods in transit to another company shipped FOB shipping point
c. Goods in transit from another company shipped FOB shipping point
d. Both b and c above

2. Inventory is

a. Reported under the classification of Property, Plant, and Equipment on the balance
sheet.
b. Often reported as a miscellaneous expense on the income statement.
c. Reported as a current asset on the balance sheet.
d. Generally valued at the price for which the goods can be sold.

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5. Of the following companies, which one would not likely employ the specific
identification method for inventory costing?
a. Music store specializing in organ sales
b. Farm implement dealership
c. Antique shop
d. Hardware store

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7. Beginning inventory plus the cost of goods purchased equals

a. Cost of good sold
b. Cost of goods available for sale
c. Net purchases
d. Total goods purchased

8. Which of the following is not a common cost flow assumption used in costing inventory?
a. First-in, first-out
b. Middle-in, first-out
c. Last-in, first-out
d. Average cost

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10. Inventoriable costs include all of the following except the
a. Freight costs incurred when buying inventory
b. Costs of the purchasing and warehousing departments
c. Cost of the beginning inventory
d. Cost of goods purchased

11. The specific identification method of costing inventories is used when the
a. Physical flow of units cannot be determined
b. Company sells large quantities of relatively low cost homogeneous items
c. Company sells large quantities of relatively low cost heterogeneous items
d. Company sells a limited quantity of high-unit cost items

12. Inventoriable costs may be thought of as a pool of costs consisting of which two
elements?
a. The cost of beginning inventory and the cost of ending inventory.
b. The cost of ending inventory and the cost of goods purchased during the year
c. The cost of beginning inventory and the cost of goods purchased during the year.
d. The difference between the costs of goods purchased and the cost of goods sold
during the year

13. Two companies report the same cost of goods available for sale but each employs a
different inventory costing method. If the price of goods has increase during the period,
the the company using
a. LIFO will have the highest ending inventory
b. FIFO will have the highest cost of good sold
c. FIFO will have the highest ending inventory
d. LIFO will have the lowest cost of goods sold

14. In a period of rising prices, the costs allocated to ending inventory may be understated in
the
a. Average-cost method
b. FIFO method
c. Gross profit method
d. LIFO method

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17. If companies have identical inventoriable costs but use different inventory flow
assumptions when the price of goods have not been constant, then the
a. Cost of goods sold of the companies will be identical
b. Cost of goods available for sale of the companies will be identical
c. Ending inventory of the companies will be identical
d. Net income of the companies will be identical

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20. Selection of an inventory costing method by management does not usually depend on
a. The fiscal year end
b. Income statement effect
c. Balance sheet effect
d. Tax effect

21. The lower-of-cost-or-market basis of valuing inventories is an example of

a. Comparability
b. The cost principle
c. Conservatism
d. Consistency

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23. Overstating ending inventory will overstate all of the following except
a. Assets
b. Cost of good sold
c. Net income
d. Owner’s equity

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25. Delmar Company had beginning inventory of $90,000, ending inventory of $110,000,
cost of good sold of $500,000, and sale of $800,000. Delmar’s day in inventory is
a. 45.6 days
b. 65.2 days
c. 73.0 days
d. 81.1 days
Version B
Question 1 As a result of a thorough physical inventory, Horace Company determined that it had
inventory worth $270,000 at December 31, 2012. This count did not take into consideration the
following facts: Herschel Consignment currently has goods worth $47,000 on its sales floor that
belong to Horace but are being sold on consignment by Herschel. The selling price of these
goods is $75,000. Horace purchased $22,000 of goods that were shipped on December 27. FOB
destination, that will be received by Horace on January 3. Determine the correct amount of
inventory that Horace should report.
$270,000.
$290,000.
$317,000.
$337,000.
Question 2 If goods in transit are shipped FOB destination
the seller has legal title to the goods until they are delivered.
the buyer has legal title to the goods until they are delivered.
the transportation company has legal title to the goods while the goods are in transit.
no one has legal title to the goods until they are delivered.

Question 3

Netta Shutters has the following inventory information.

A physical count of merchandise inventory on November 30 reveals that there are 45 units on
hand. Assume a periodic inventory system is used. Ending inventory under FIFO is
$369.
$396.
$870.
$897.
Question 4

A company purchased inventory as follows:

The average unit cost for inventory is
$10.00.
$11.00.
$11.40.
$12.00.
Question 5 The LIFO inventory method assumes that the cost of the latest units purchased are
the last to be allocated to cost of goods sold.
the first to be allocated to ending inventory.
the first to be allocated to cost of goods sold.
not allocated to cost of goods sold or ending inventory.
Question 6

Netta Shutters has the following inventory information.

A physical count of merchandise inventory on November 30 reveals that there are 45 units on
hand. Assume a periodic inventory system is used. Assuming that the specific identification
method is used and that ending inventory consists of 10 units from each of the three purchases
and 15 units from the November 1 inventory, cost of goods sold is
$870.
$886.
$891.
$897.
Question 7

A company just starting business made the following four inventory purchases in June:
A physical count of merchandise inventory on June 30 reveals that there are 200 units on hand.
Using the average-cost method, the amount allocated to the ending inventory on June 30 is
$536.
$604.
$668.
$1,511.
Question 8

At May 1, 2013, Kibbee Company had beginning inventory consisting of 100 units with a unit
cost of $7. During May, the company purchased inventory as follows:
The company sold 500 units during the month for $12 per unit. Kibbee uses the average cost
method. The value of Kibbee’s inventory at May 31, 2013 is
$1,500.00.
$2,212.50.
$2,250.00.
$3,750.00.
Question 9 Which of the following items will increase inventoriable costs for the buyer of
goods?
Purchase returns and allowances granted by the seller
Purchase discounts taken by the purchaser
Freight charges paid by the seller
Freight charges paid by the purchaser
Question 10

Moroni Industries has the following inventory information.

Assuming that a periodic inventory system is used, what is the amount allocated to ending
inventory on a LIFO basis?
$2,875
$2,880
$8,490
$8,495
Question 11

Nick's Place recorded the following data:

The weighted average unit cost of the inventory at January 31 is:
$2.00.
$2.20.
$2.25.
$2.40.
Question 12

Priscilla has the following inventory information.

A physical count of merchandise inventory on July 31 reveals that there are 30 units on hand.
Using the FIFO inventory method, the amount allocated to cost of goods sold for July is
$1,380.
$1,390.
$1,407.
$1,430.

Question 13 Companies adopt different cost flow methods for each of the following
reasons except
balance sheet effects.
cost effects.
income statements effects.
tax effects.
Question 14 The managers of Constantine Company receive performance bonuses based on the
net income of the firm. Which inventory costing method are they likely to favor in periods of
declining prices?
LIFO
Average Cost
FIFO
Physical inventory method
Question 15

Romanoff Industries had the following inventory transactions occur during 2013:
The company sold 50 units at $70 each and has a tax rate of 30%. Assuming that a periodic
inventory system is used, what is the company’s gross profit using FIFO? (rounded to whole
dollars)
$1,106
$1,184
$2,316
$2,394
Question 16 In periods of inflation, phantom or paper profits may be reported as a result of using
the
perpetual inventory method.
FIFO costing assumption.
LIFO costing assumption.
periodic inventory method.
Question 17

At May 1, 2013, Kibbee Company had beginning inventory consisting of 100 units with a unit
cost of $7. During May, the company purchased inventory as follows:
The company sold 500 units during the month for $12 per unit. Kibbee uses the average cost
method. Kibbee’s gross profit for the month of May is
$2,250.00.
$3,750.00.
$3,787.50.
$4,500.00.
Question 18 The consistent application of an inventory costing method is essential for
conservatism.
accuracy.
comparability.
efficiency.
Question 19 The accountant at Cedric Company has determined that income before income
taxes amounted to $7,000 using the FIFO costing assumption. If the income tax rate is 30% and
the amount of income taxes paid would be $225 greater if the LIFO assumption were used, what
would be the amount of income before taxes under the LIFO assumption?
$6,250
$7,000
$7,225
$7,750
Question 20 In a period of increasing prices, which inventory flow assumption will result in the
lowest amount of income tax expense?

FIFO
LIFO
Average Cost
Income tax expense for the period will be the same under all assumptions.
Question 21 Which costing method cannot be used to determine the cost of inventory items
before lower-of-cost-or-market is applied?

Specific identification
FIFO
LIFO
All of these methods can be used.
Question 22 Switzer, Inc. has 5 computers which have been part of the inventory for over two
years. Each computer cost $600 and originally retailed for $900. At the statement date, each
computer has a current replacement cost of $400. How much loss should Switzer, Inc., record for
the year?
$1,000.
$1,500.
$2,000.
$2,500.

Question 23

A company uses the periodic inventory method and the beginning inventory is overstated by
$7,000 because the ending inventory in the previous period was overstated by $7,000. The
amounts reflected in the current end of the period balance sheet are

Question 24 Understating beginning inventory will understate

assets.
cost of goods sold.
net income.
owner's equity.
Question 25 The following information was available for Pete Company at December 31, 2013:
beginning inventory $90,000; ending inventory $70,000; cost of goods sold $656,000; and sales
$900,000. Pete’s inventory turnover ratio in 2013 was
7.3 times.
8.2 times.
9.4 times.
11.3 times.