Accounting, 9e, Global Edition (Horngren)

Chapter 6 Merchandising Inventory

Learning Objective 6-1

1) The consistency principle states that a business should use the same accounting methods from period to period.
Answer: TRUE
Diff: 1
LO: 6-1
EOC Ref: E6-14
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement

2) The lower-of-cost-or-market rule demonstrates accounting conservatism in action.

Answer: TRUE
Diff: 1
LO: 6-1
EOC Ref: E6-15
AACSB: Reflective Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement

3) A company reports that it uses the FIFO method of inventory costing. This is an example of the disclosure
principle.
Answer: TRUE
Diff: 1
LO: 6-1
EOC Ref: E6-15
AACSB: Reflective Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

4) 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
EOC Ref: E6-15
AACSB: Reflective Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

5) 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
EOC Ref: E6-15
AACSB: Reflective Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

1
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6) A company is uncertain whether a complex transaction should be recorded as an asset or an expense. Under the
conservatism principle, they should choose to treat it as an asset.
Answer: FALSE
Diff: 1
LO: 6-1
EOC Ref: E6-15
AACSB: Reflective Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

7) A company is uncertain whether a complex transaction should be recorded as gain or loss. Under the
conservatism principle, they should choose to treat it a loss.
Answer: TRUE
Diff: 1
LO: 6-1
EOC Ref: E6-15
AACSB: Reflective Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

8) 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, they should choose to show it at the lower amount.
Answer: TRUE
Diff: 1
LO: 6-1
EOC Ref: E6-15
AACSB: Reflective Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

9) The consistency principle states that businesses should use the same accounting methods from period to period.
Answer: TRUE
Diff: 1
LO: 6-1
EOC Ref: E6-15
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

10) The materiality concept requires that a company should report enough information for outsiders to make wise
decisions about the company.
Answer: FALSE
Diff: 1
LO: 6-1
EOC Ref: E6-15
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

2
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11) A company discovers that its Cost of goods sold is understated by an insignificant amount. They do NOT need
to correct the error because of the conservatism principle.
Answer: FALSE
Diff: 1
LO: 6-1
EOC Ref: E6-15
AACSB: Reflective Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

12) A company discovers that its Cost of goods sold is understated by an insignificant amount. They do not need to
correct the error because of the materiality concept.
Answer: TRUE
Diff: 1
LO: 6-1
EOC Ref: E6-15
AACSB: Reflective Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

13) 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) Accounting conservatism
D) Disclosure principle
Answer: B
Diff: 1
LO: 6-1
EOC Ref: E6-15
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

14) 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) Accounting conservatism
B) Materiality concept
C) Disclosure principle
D) Consistency principle
Answer: B
Diff: 1
LO: 6-1
EOC Ref: E6-15
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

3
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15) A company decides to ignore a very small error in their inventory balance. This is an example of which of the
following principles?
A) Accounting conservatism
B) Materiality concept
C) Disclosure principle
D) Consistency principle
Answer: B
Diff: 1
LO: 6-1
EOC Ref: E6-15
AACSB: Reflective Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

16) Changing from the LIFO (Last-In, First-Out) to specific-identification method of valuing inventory ignores the:
A) principle of conservatism.
B) principle of consistency.
C) principle of disclosure.
D) concept of materiality.
Answer: B
Diff: 1
LO: 6-1
EOC Ref: E6-15
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Reporting

17) Which of the following states that a business must report enough information for outsiders to make
knowledgeable decisions about the company?
A) Accounting conservatism
B) Materiality concept
C) Disclosure principle
D) Consistency principle
Answer: C
Diff: 1
LO: 6-1
EOC Ref: E6-15
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

18) Which of the following requires that financial statements should report the LEAST favorable figures?
A) Accounting conservatism
B) Materiality concept
C) Disclosure principle
D) Consistency principle
Answer: A
Diff: 1
LO: 6-1
EOC Ref: E6-15
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

4
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19) Which of the following principles are reflected in the lower-of-cost-or-market rule?
A) Accounting conservatism
B) Materiality concept
C) Disclosure principle
D) Consistency principle
Answer: A
Diff: 2
LO: 6-1
EOC Ref: E6-15
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

20) The accounting principle that states that we should never anticipate gains is which of the following?
A) Accounting conservatism
B) Materiality concept
C) Disclosure principle
D) Consistency principle
Answer: A
Diff: 1
LO: 6-1
EOC Ref: E6-15
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

21) Which of the following concepts states that a company must perform strictly proper accounting ONLY for
significant items?
A) Accounting conservatism
B) Materiality concept
C) Disclosure principle
D) Consistency principle
Answer: B
Diff: 1
LO: 6-1
EOC Ref: E6-15
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

Learning Objective 6-2

1) Ending inventory equals the number of units on hand multiplied by the unit cost.
Answer: TRUE
Diff: 1
LO: 6-2
EOC Ref: P6-31A
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement

5
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2) Ending inventory equals the cost of goods available for sale less beginning inventory.
Answer: FALSE
Diff: 1
LO: 6-2
EOC Ref: P6-31A
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement

3) Under Last-In, First-Out, the Cost of goods sold is based on the oldest purchases.
Answer: FALSE
Diff: 1
LO: 6-2
EOC Ref: P6-31A
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement

4) The various costing methods are necessary because the cost per unit of acquiring new inventory fluctuates
frequently.
Answer: TRUE
Diff: 1
LO: 6-2
EOC Ref: P6-31A
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement

5) When a company uses FIFO, the Cost of goods sold correlates to the most recently purchased goods, and the
ending inventory correlates to the oldest goods in stock.
Answer: FALSE
Diff: 1
LO: 6-2
EOC Ref: P6-31A
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement

6) When a company uses LIFO, 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
EOC Ref: P6-31A
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement

6
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7) The specific-unit-cost method of inventory costing is recommended when a business deals in unique and high-
priced inventory items.
Answer: TRUE
Diff: 1
LO: 6-2
EOC Ref: P6-31A
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement

8) Which of the following inventory costing methods is based on the actual cost of each particular unit of inventory?
A) Specific-unit-cost
B) Average-cost
C) Last-In, First-Out
D) First-In, First-Out
Answer: A
Diff: 1
LO: 6-2
EOC Ref: P6-31A
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

9) Under which of the following inventory costing methods is the Cost of goods sold based on the cost of the oldest
purchases?
A) Specific-unit-cost
B) Average-cost
C) Last-In, First-Out
D) First-In, First-Out
Answer: D
Diff: 1
LO: 6-2
EOC Ref: P6-31A
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

10) Under which of the following inventory costing methods is ending inventory based on the cost of the oldest
purchases?
A) Specific-unit-cost
B) Average-cost
C) Last-In, First-Out
D) First-In, First-Out
Answer: C
Diff: 2
LO: 6-2
EOC Ref: P6-31A
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

7
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11) Under which of the following inventory costing methods is ending inventory based on the cost of the most
recent purchases?
A) Specific-unit-cost
B) Average-cost
C) Last-In, First-Out
D) First-In, First-Out
Answer: D
Diff: 2
LO: 6-2
EOC Ref: P6-31A
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

12) A new average cost is calculated after each purchase when a business is using which of the following methods?
A) Specific-unit-cost
B) Average-cost
C) Last-In, First-Out
D) First-In, First-Out
Answer: B
Diff: 1
LO: 6-2
EOC Ref: P6-31A
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

Learning Objective 6-3

1) A company purchased 100 units for $20 each on January 31. It purchased 100 units for $30 on February 28. It
sold 150 units for $45 each from March 1 through December 31. If the company uses the First-In, First-Out
inventory costing method, what is the amount of ending inventory on December 31?
A) $1,500
B) $1,250
C) $1,000
D) $2,250
Answer: A
Explanation: A) Calculations: 50 × $30 = $1,500
Diff: 2
LO: 6-3
EOC Ref: P6-31A
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

8
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2) A company purchased 100 units for $20 each on January 31. It purchased 100 units for $30 on February 28. It
sold 150 units for $45 each from March 1 through December 31. If the company uses the average-cost inventory
costing method, what is the amount of ending inventory on December 31?
A) $1,000
B) $1,250
C) $2,250
D) $1,500
Answer: B
Explanation: B) Calculations: 50 × $25 = $1,250
Diff: 2
LO: 6-3
EOC Ref: P6-31A
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

3) A company purchased 100 units for $20 each on January 31. It purchased 100 units for $30 on February 28. It
sold 150 units for $45 each from March 1 through December 31. If the company uses the Last-In, First-Out
inventory costing method, what is the amount of ending inventory on December 31?
A) $1,500
B) $1,250
C) $1,000
D) $2,250
Answer: C
Explanation: C) Calculations: 50 × $20 = $1,000
Diff: 2
LO: 6-3
EOC Ref: P6-31A
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

4) A company purchased 100 units for $20 each on January 31. It purchased 100 units for $30 on February 28. It
sold 150 units for $45 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 December 31 income statement?
A) $6,750
B) $4,000
C) $3,500
D) $3,750
Answer: C
Explanation: C) Calculations: $2,000 + $1,500 = $3,500
Diff: 2
LO: 6-3
EOC Ref: P6-31A
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

9
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5) A company purchased 100 units for $20 each on January 31. It purchased 100 units for $30 on February 28. It
sold 150 units for $45 each from March 1 through December 31. If the company uses the average cost inventory
costing method, what is the amount of Cost of goods sold on the December 31 income statement?
A) $6,750
B) $3,750
C) $4,000
D) $3,500
Answer: B
Explanation: B) Calculations: 150 × $25 = $3,750
Diff: 2
LO: 6-3
EOC Ref: P6-31A
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

6) A company purchased 100 units for $20 each on January 31. It purchased 100 units for $30 on February 28. It
sold 150 units for $45 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 December 31 income statement?
A) $4,000
B) $3,750
C) $6,750
D) $3,500
Answer: A
Explanation: A) Calculations: $3,000 + $1,000 = $4,000
Diff: 2
LO: 6-3
EOC Ref: P6-31A
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

7) Samson Company had the following balances and transactions during 2013.

Beginning inventory 10 units at $70

March 10 Sold 8 units
June 10 Purchased 20 units at $80
October 30 Sold 15 units

What would the company's Inventory amount be on the December 31, 2013 balance sheet if the perpetual First-In,
First-Out costing method is used? (Answers are rounded to the nearest dollar.)
A) $490
B) $540
C) $560
D) $554
Answer: C
Explanation: C) Calculations: 7 × $80 = $560
Diff: 2
LO: 6-3
EOC Ref: P6-31A
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

10
Copyright © 2012 Pearson Education
8) Samson Company had the following balances and transactions during 2013.

Beginning inventory 10 units at $70

March 10 Sold 8 units
June 10 Purchased 20 units at $80
October 30 Sold 15 units

What would the company's Cost of goods sold be on the December 31, 2013 income statement if the perpetual First-
In, First-Out costing method is used? (Answers are rounded to the nearest dollar.)
A) $1,760
B) $1,610
C) $1,740
D) $1,840
Answer: C
Explanation: C) Calculations: $700 + $1,040 = $1,740
Diff: 2
LO: 6-3
EOC Ref: P6-31A
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

9) Samson Company had the following balances and transactions during 2013.

Beginning inventory 10 units at $70

March 10 Sold 8 units
June 10 Purchased 20 units at $80
October 30 Sold 15 units

What would the company's Inventory amount be on the December 31, 2013 balance sheet if the perpetual Last-In,
First-Out costing method is used? (Answers are rounded to the nearest dollar.)
A) $490
B) $554
C) $560
D) $540
Answer: D
Explanation: D) Calculations: $140 + $400 = $540
Diff: 2
LO: 6-3
EOC Ref: P6-31A
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

11
Copyright © 2012 Pearson Education
10) Samson Company had the following balances and transactions during 2013.

Beginning inventory 10 units at $70

March 10 Sold 8 units
June 10 Purchased 20 units at $80
October 30 Sold 15 units

What would the company's Cost of goods sold be on the December 31, 2013 income statement if the perpetual Last-
In, First-Out costing method is used? (Answers are rounded to the nearest dollar.)
A) $1,760
B) $1,810
C) $1,690
D) $1,540
Answer: A
Explanation: A) Calculatoins: $560 + $1,200 = $1,760
Diff: 2
LO: 6-3
EOC Ref: P6-31A
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

11) Samson Company had the following balances and transactions during 2013.

Beginning inventory 10 units at $70

March 10 Sold 8 units
June 10 Purchased 20 units at $80
October 30 Sold 15 units

What would the company's Inventory amount be on the December 31, 2013 balance sheet if the perpetual average-
costing method is used? (Answers are rounded to the nearest dollar.)
A) $537
B) $554
C) $490
D) $560
Answer: B
Explanation: B) Calculations: $140 + $1,600/22 = $79.09 × 7 = $554
Diff: 2
LO: 6-3
EOC Ref: P6-31A
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

12
Copyright © 2012 Pearson Education
12) Samson Company had the following balances and transactions during 2013.

Beginning inventory 10 units at $70

March 10 Sold 8 units
June 10 Purchased 20 units at $80
October 30 Sold 15 units

What would the company's Cost of goods sold be on the December 31, 2013 income statement if the perpetual
average-costing method is used? (Answers are rounded to the nearest dollar.)
A) $1,590
B) $1,840
C) $1,746
D) $1,652
Answer: C
Explanation: C) Calculations: 8 × $70 + 15 × $79.09 = $1,746
Diff: 2
LO: 6-3
EOC Ref: P6-31A
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

13) Metro Computer Company had the following balances and transactions during 2014.

Beginning inventory 100 units at $75

March 10 Sold 50 units
June 10 Purchased 200 units at $80
October 30 Sold 150 units

What would the company's Inventory amount be on the December 31, 2014 balance sheet if the perpetual Last-In,
First-Out costing method is used? (Answers are rounded to the nearest dollar.)
A) $7,500
B) $8,000
C) $7,750
D) $7,300
Answer: C
Explanation: C) Calculations: $3,750 + $4,000 = $7,750
Diff: 2
LO: 6-3
EOC Ref: P6-31A
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

13
Copyright © 2012 Pearson Education
14) Metro Computer Company had the following balances and transactions during 2014.

Beginning inventory 100 units at $75

March 10 Sold 50 units
June 10 Purchased 200 units at $80
October 30 Sold 150 units

What would the Cost of goods sold be as reported on the income statement at December 31, 2014 if the perpetual
Last-In, First-Out costing method is used? (Answers are rounded to the nearest dollar.)
A) $15,750
B) $12,000
C) $3,750
D) $15,000
Answer: A
Explanation: A) Calculations: $3,750 + $12,000 = $15,750
Diff: 2
LO: 6-3
EOC Ref: P6-31A
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

15) Metro Computer Company had the following balances and transactions during 2014.

Beginning inventory 100 units at $75

March 10 Sold 50 units
June 10 Purchased 200 units at $80
October 30 Sold 150 units

What would the Cost of goods sold be as reported on the income statement at December 31, 2014 if the perpetual
First-In, First-Out costing method is used? (Answers are rounded to the nearest dollar.)
A) $15,000
B) $12,000
C) $16,000
D) $15,500
Answer: D
Explanation: D) Calculations: $7,500 + $8,000 = $15,500
Diff: 2
LO: 6-3
EOC Ref: P6-31A
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

14
Copyright © 2012 Pearson Education
16) Metro Computer Company had the following balances and transactions during 2014.

Beginning inventory 100 units at $75

March 10 Sold 50 units
June 10 Purchased 200 units at $80
October 30 Sold 150 units

What would the Inventory amount be as reported on the balance sheet at December 31, 2014 if the perpetual First-
In, First-Out costing method is used? (Answers are rounded to the nearest dollar.)
A) $7,000
B) $8,600
C) $8,000
D) $7,750
Answer: C
Explanation: C) Calculations: 100 × $80 = $8,000
Diff: 2
LO: 6-3
EOC Ref: P6-31A
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

17) Metro Computer Company had the following balances and transactions during 2014.

Beginning inventory 100 units at $75

March 10 Sold 50 units
June 10 Purchased 200 units at $80
October 30 Sold 150 units

What would the Inventory amount be as reported on the balance sheet at December 31, 2014 if the perpetual
average-costing method is used? (Answers are rounded to the nearest dollar.)
A) $7,900
B) $8,600
C) $8,000
D) $7,750
Answer: A
Explanation: A) Calculations: 100 × $79 = $7,900
Diff: 3
LO: 6-3
EOC Ref: P6-31A
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

15
Copyright © 2012 Pearson Education
18) Metro Computer Company had the following balances and transactions during 2014.

Beginning inventory 100 units at $75

March 10 Sold 50 units
June 10 Purchased 200 units at $80
October 30 Sold 150 units

What would the Cost of goods sold be as reported on the income statement at December 31, 2014 if the perpetual
average-costing method is used? (Answers are rounded to the nearest dollar.)
A) $13,900
B) $14,600
C) $15,600
D) $17,750
Answer: C
Explanation: C) Calculations: 50 × $75 + 150 × $79 = $15,600
Diff: 3
LO: 6-3
EOC Ref: P6-31A
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

19) Martin Sales had a Beginning inventory balance of $120 made up of 10 units purchased for $12.00 per unit.
Early in the month, they purchased 16 units at $10.00 per unit. Later that month, they sold 15 units. Martin uses a
perpetual inventory system, and applies FIFO. How much is the Cost of goods sold for the month?
A) $170
B) $150
C) $180
D) $165
Answer: A
Explanation: A) Calculations: 10 × $12 + 5 × $10 = $170
Diff: 1
LO: 6-3
EOC Ref: P6-31A
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

20) Martin Sales had a Beginning inventory balance of $120 made up of 10 units purchased for $12.00 per unit.
Early in the month, they purchased 16 units at $10.00 per unit. Later that month, they sold 15 units. Martin uses a
perpetual inventory system, and applies FIFO. How much is the Ending inventory balance?
A) $116
B) $130
C) $132
D) $110
Answer: D
Explanation: D) Calculations: 11 × $10 = $110
Diff: 1
LO: 6-3
EOC Ref: P6-31A
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

16
Copyright © 2012 Pearson Education
21) Martin Sales had a Beginning inventory balance of $120 made up of 10 units purchased for $12.00 per unit.
Early in the month, they purchased 16 units at $10.00 per unit. Later that month, they sold 15 units. Martin uses a
perpetual inventory system, and applies LIFO. How much is the Ending inventory balance?
A) $116
B) $130
C) $132
D) $110
Answer: B
Explanation: B) Calculations: 10 × $12 + 1 × $10 = $130
Diff: 1
LO: 6-3
EOC Ref: P6-31A
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

22) Martin Sales had a Beginning inventory balance of $120 made up of 10 units purchased for $12.00 per unit.
Early in the month, they purchased 16 units at $10.00 per unit. Later that month, they sold 15 units. Martin uses a
perpetual inventory system, and applies LIFO. How much is Cost of goods sold for the month?
A) $180
B) $170
C) $150
D) $110
Answer: C
Explanation: C) Calculations: 15 × $10 = $150
Diff: 1
LO: 6-3
EOC Ref: P6-31A
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

23) Martin Sales had a Beginning inventory balance of $120 made up of 10 units purchased for $12.00 per unit.
Early in the month, they purchased 16 units at $10.00 per unit. Later that month, they sold 15 units. Martin uses a
perpetual inventory system, and applies the average-costing method. How much is Cost of goods sold for the
month?

(When calculating average cost, please round to the nearest cent. When calculating Cost of goods sold and Ending
inventory, please round to the nearest whole dollar.)
A) $162
B) $170
C) $158
D) $168
Answer: A
Explanation: A) Calculations: 15 × $10.77 = $162
Diff: 1
LO: 6-3
EOC Ref: P6-31A
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

17
Copyright © 2012 Pearson Education
24) Martin Sales had a Beginning inventory balance of $120 made up of 10 units purchased for $12.00 per unit.
Early in the month, they purchased 16 units at $10.00 per unit. Later that month, they sold 15 units. Martin uses a
perpetual inventory system, and applies the average-costing method. How much is the Ending inventory balance?

(When calculating average cost, please round to the nearest cent. When calculating Cost of goods sold and Ending
inventory, please round to the nearest whole dollar.)
A) $122
B) $126
C) $118
D) $109
Answer: C
Explanation: C) Calculations: 11 × $10.77 = $118
Diff: 1
LO: 6-3
EOC Ref: P6-31A
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

25) Santa Fe Tile Company had the following inventory purchases and sales during the month of May. The
company uses the periodic inventory method.

If Santa Fe uses FIFO costing, how much was the Cost of goods sold for the month?
A) $1,400
B) $1,520
C) $1,380
D) $1,850
Answer: A
Explanation: A) Calculations: $400 + $1,000 =$1,400
Diff: 3
LO: 6-3
EOC Ref: P6-31A
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

18
Copyright © 2012 Pearson Education
26) Santa Fe Tile Company had the following inventory purchases and sales during the month of May. The
company uses the periodic inventory method.

If Santa Fe uses FIFO costing, how much was the Ending inventory balance?
A) $2.980
B) $3,120
C) $2,200
D) $2,930
Answer: D
Explanation: D) Calculations: $600 + $1,050 + $1,280 = $2,930
Diff: 3
LO: 6-3
EOC Ref: P6-31A
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

19
Copyright © 2012 Pearson Education
27) Santa Fe Tile Company had the following inventory purchases and sales during the month of May. The
company uses the periodic inventory method.

If Santa Fe uses LIFO costing, how much was the Cost of goods sold for the month?
A) $1,400
B) $1,850
C) $1,380
D) $1,640
Answer: B
Explanation: B) Calculations: $500 + $1,050 +$300 = $1,850
Diff: 3
LO: 6-3
EOC Ref: P6-31A
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

20
Copyright © 2012 Pearson Education
28) Santa Fe Tile Company had the following inventory purchases and sales during the month of May. The
company uses the periodic inventory method.

If Santa Fe uses LIFO costing, how much was the Ending inventory balance?
A) $2.980
B) $3,120
C) $2,480
D) $2,930
Answer: C
Explanation: C) Calculations: $400 + $500 + $300 + $1,280 = $2,480
Diff: 3
LO: 6-3
EOC Ref: P6-31A
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

21
Copyright © 2012 Pearson Education
29) Santa Fe Tile Company had the following inventory purchases and sales during the month of May. The
company uses the periodic inventory method.

If Santa Fe uses average-cost, how much was the Cost of goods sold for the month?
A) $1,400
B) $1,850
C) $1,380
D) $1,615
Answer: D
Explanation: D) Calculations: 100 × $4.67 + 200 × $5.74 = $1,615
Diff: 3
LO: 6-3
EOC Ref: P6-31A
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

22
Copyright © 2012 Pearson Education
30) Santa Fe Tile Company had the following inventory purchases and sales during the month of May. The
company uses the periodic inventory method.

If Santa Fe uses average-cost, how much was the Ending inventory balance?
A) $2.980
B) $2,480
C) $2,715
D) $2,930
Answer: C
Explanation: C) Calculations: 250 × $5.74 + 160 × $8 = $2,715
Diff: 3
LO: 6-3
EOC Ref: P6-31A
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

23
Copyright © 2012 Pearson Education
31) Berring Sales uses FIFO. The partially completed inventory record for January appears below.

On January 14, the company sold 10 units. On January 29, the company sold 50 units. Complete the inventory
record through the January 14 sale and calculate the Cost of goods sold for the sale on January 14. (Please round to
the nearest whole dollar.)
A) $40
B) $46
C) $38
D) $43
Answer: A
Explanation: A) Calculations: 10 × $4 = $40
Diff: 1
LO: 6-3
EOC Ref: P6-31A
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

24
Copyright © 2012 Pearson Education
32) Berring Sales uses FIFO. The partially completed inventory record for January appears below.

On January 14, the company sold 10 units. On January 29, the company sold 50 units. Complete the inventory
record through the January 14 sale and calculate the inventory balance after the sale on January 14. (Please round to
the nearest whole dollar.)
A) $230
B) $228
C) $330
D) $216
Answer: A
Explanation: A) Calculations: 15 × $4 + 40 × $4.25 = $230
Diff: 2
LO: 6-3
EOC Ref: P6-31A
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

25
Copyright © 2012 Pearson Education
33) Berring Sales uses FIFO. The partially completed inventory record for January appears below.

On January 14, the company sold 10 units. On January 29, the company sold 50 units. Complete the inventory
record and calculate the Cost of goods sold for the month of January. (Please round to the nearest whole dollar.)
A) $240
B) $246
C) $249
D) $388
Answer: C
Explanation: C) Calculations: 10 × $4 + 15 × $4 + 35 × $4.25 = $249
Diff: 2
LO: 6-3
EOC Ref: P6-31A
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

26
Copyright © 2012 Pearson Education
34) Berring Sales uses FIFO. The partially completed inventory record for January appears below.

On January 14, the company sold 10 units. On January 29, the company sold 50 units. Complete the inventory
record and calculate the Ending inventory balance at the end of January. (Please round to the nearest whole dollar.)
A) $128
B) $135
C) $112
D) $388
Answer: B
Explanation: B) Calculations: 5 × $4.25 + 30 × $3.80 = $135
Diff: 2
LO: 6-3
EOC Ref: P6-31A
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

27
Copyright © 2012 Pearson Education
35) Berring Sales uses LIFO. The partially completed inventory record for January appears below.

On January 14, the company sold 10 units. On January 29, the company sold 50 units. Complete the inventory
record through the January 14 sale, and calculate the Cost of goods sold for the January 14 sale. (Please round to the
nearest whole dollar.)
A) $38
B) $33
C) $43
D) $40
Answer: C
Explanation: C) Calculations: 10 × $4.25 = $43
Diff: 1
LO: 6-3
EOC Ref: P6-31A
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

28
Copyright © 2012 Pearson Education
36) Berring Sales uses LIFO. The partially completed inventory record for January appears below.

On January 14, the company sold 10 units. On January 29, the company sold 50 units. Complete the inventory
record through the January 14 sale, and calculate the Inventory balance after the January 14 sale. (Please round to
the nearest whole dollar.)
A) $380
B) $330
C) $230
D) $228
Answer: D
Explanation: D) Calculations: 25 × $4 + 30 × $4.25 = $228
Diff: 2
LO: 6-3
EOC Ref: P6-31A
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

29
Copyright © 2012 Pearson Education
37) Berring Sales uses LIFO. The partially completed inventory record for January appears below.

On January 14, the company sold 10 units. On January 29, the company sold 50 units. Complete the inventory
record and calculate the Cost of goods sold for the month of January. (Please round to the nearest whole dollar.)
A) $242
B) $249
C) $230
D) $228
Answer: A
Explanation: A) Calculations: 10 × $4.25 + 30 × $3.80 + 20 × $4.25 = $242
Diff: 3
LO: 6-3
EOC Ref: P6-31A
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

30
Copyright © 2012 Pearson Education
38) Berring Sales uses LIFO. The partially completed inventory record for January appears below.

On January 14, the company sold 10 units. On January 29, the company sold 50 units. Complete the inventory
record and calculate the Inventory balance at the end of January. (Please round to the nearest whole dollar.)
A) $135
B) $249
C) $143
D) $228
Answer: C
Explanation: C) Calculations: 25 × $4 + 10 × $4.25 = $143
Diff: 3
LO: 6-3
EOC Ref: P6-31A
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

31
Copyright © 2012 Pearson Education
39) Berring Sales uses the average-cost method. The partially completed inventory record for January appears
below.

On January 14, the company sold 10 units. On January 29, the company sold 50 units. Complete the inventory
record through the January 14 sale, and calculate the Cost of goods sold for the January 14 sale. (Please round to the
nearest whole dollar.)
A) $38
B) $33
C) $42
D) $40
Answer: C
Explanation: C) Calculations: 10 × $4.15 = $42
Diff: 1
LO: 6-3
EOC Ref: P6-31A
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

32
Copyright © 2012 Pearson Education
40) Berring Sales uses the average-cost method. The partially completed inventory record for January appears
below.

On January 14, the company sold 10 units. On January 29, the company sold 50 units. Complete the inventory
record through the January 14 sale, and calculate the Inventory balance after the January 14 sale. (Please round to
the nearest whole dollar.)
A) $380
B) $330
C) $230
D) $228
Answer: D
Explanation: D) Calculations: 55 × $4.15 = $228
Diff: 2
LO: 6-3
EOC Ref: P6-31A
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

33
Copyright © 2012 Pearson Education
41) Berring Sales uses the average-cost method. The partially completed inventory record for January appears
below.

On January 14, the company sold 10 units. On January 29, the company sold 50 units. Complete the inventory
record and calculate the Cost of goods sold for the month of January. (Please round to the nearest whole dollar.)
A) $243
B) $249
C) $230
D) $228
Answer: A
Explanation: A) Calculations: 10 × $4.15 + 50 × $4.02 = $243
Diff: 3
LO: 6-3
EOC Ref: P6-31A
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

34
Copyright © 2012 Pearson Education
42) Berring Sales uses the average-cost method. The partially completed inventory record for January appears
below.

On January 14, the company sold 10 units. On January 29, the company sold 50 units. Complete the inventory
record and calculate the Inventory balance at the end of January. (Please round to the nearest whole dollar.)
A) $135
B) $249
C) $141
D) $228
Answer: C
Explanation: C) Calculations: 35 × $4.02 = $141
Diff: 3
LO: 6-3
EOC Ref: P6-31A
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

35
Copyright © 2012 Pearson Education
43) A company that uses the perpetual inventory system sold $1,000 of goods to a customer on account. Which of
the following journal entries correctly records the Sales revenue?
A)
Cost of goods sold 1,000
Sales revenue 1,000
B)
Inventory 1,000
Cost of goods sold 1,000
C)
Accounts receivable 1,000
Cash 1,000
D)
Accounts receivable 1,000
Sales revenue 1,000

Answer: D
Diff: 1
LO: 6-3
EOC Ref: P6-31A
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

44) A company that uses the perpetual inventory system sold $1,000 of goods to a customer for cash. Which of the
following journal entries correctly records the Sales revenue?
A)
Cost of goods sold 1,000
Sales revenue 1,000
B)
Cash 1,000
Sales revenue 1,000
C)
Accounts receivable 1,000
Cash 1,000
D)
Inventory 1,000
Sales revenue 1,000

Answer: B
Diff: 1
LO: 6-3
EOC Ref: P6-31A
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

36
Copyright © 2012 Pearson Education
45) A company that uses the perpetual inventory system sold $1,000 of goods to a customer on account. The
inventory had been purchased by the company for $400. Which of the following journal entries correctly records
the Cost of goods sold?
A)
Cost of goods sold 400
Sales revenue 400
B)
Inventory 400
Cost of goods sold 400
C)
Cost of goods sold 400
Inventory 400
D)
Accounts receivable 400
Sales revenue 400

Answer: C
Diff: 1
LO: 6-3
EOC Ref: P6-31A
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

46) A company that uses the perpetual inventory system purchased an order of 500 pallets of industrial soap for
$8,000 and paid $750 for the freight-in. The company sold the whole lot to a supermarket chain for $10,000 on
account. Which of the following entries correctly records the Sales revenue?
A)
Accounts receivable 10,000
Sales revenue 10,000
B)
Inventory 10,000
Cost of goods sold 10,000
C)
Cost of goods sold 10,000
Sales revenue 10,000
D)
Sales revenue 10,000
Inventory 10,000

Answer: A
Diff: 1
LO: 6-3
EOC Ref: P6-31A
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

37
Copyright © 2012 Pearson Education
47) A company that uses the perpetual inventory system purchased an order of 500 pallets of industrial soap for
$8,000 and paid $750 for the freight-in. The company sold the whole lot to a supermarket chain for $10,000 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 8,750
Inventory 8,750
B)
Inventory 8,750
Cost of goods sold 8,750
C)
Cost of goods sold 8,000
Sales revenue 8,000
D)
Cost of goods sold 8,000
Inventory 8,000

Answer: A
Diff: 2
LO: 6-3
EOC Ref: P6-31A
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

48) A company uses perpetual inventory in connection with the specific-identification method. The company
purchased 30 industrial diamonds for $500 per unit. Later in the month, they purchased another 20 diamonds from
another supplier for $480 per unit. On the last day of the month, they sold 18 diamonds to a customer at a price of
$800 per unit. Of the 18 diamonds, 3 came from the first batch and the remainder came from the second batch.
Which of the following journal entries correctly records the Sales revenues?
A)
Cash 14,400
Sales revenue 14,400
B)
Sales revenue 14,400
Inventory 14,400
C)
Cash 8,700
Sales revenue 8,700
D)
Inventory 8,700
Sales revenue 8,700

Answer: A
Explanation: A) Calculations: $800 × 18 = $14,400
Diff: 2
LO: 6-3
EOC Ref: P6-31A
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

38
Copyright © 2012 Pearson Education
49) A company uses perpetual inventory in connection with the specific-identification method. The company
purchased 30 industrial diamonds for $500 per unit. Later in the month, they purchased another 20 diamonds from
another supplier for $480 per unit. On the last day of the month, they sold 18 diamonds to a customer at a price of
$800 per unit. Of the 18 diamonds, 3 came from the first batch and the remainder came from the second batch.
Which of the following journal entries correctly records the Cost of goods sold?
A)
Inventory 14,400
Cost of goods sold 14,400
B)
Sales revenue 14,400
Inventory 14,400
C)
Cost of goods sold 8,700
Sales revenue 8,700
D)
Cost of goods sold 8,700
Inventory 8,700

Answer: D
Explanation: D) Calculations: 3 × $500 + 15 × $480 = $8,700
Diff: 2
LO: 6-3
EOC Ref: P6-31A
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

50) Henderson Sales purchased $500 of inventory on account. Please provide the journal entry.

Answer:
Inventory 500
Accounts payable 500

Explanation: This question is not available in MyAccountingLab.

Diff: 1
LO: 6-3
EOC Ref: P6-31A
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

39
Copyright © 2012 Pearson Education
51) Henderson Sales sold 400 units of product to a customer on account. The selling price was $25 per unit, and the
cost, according to the company's inventory records, was $12 per unit. Please provide the journal entry to record the
Sales revenue.

Answer:
Accounts receivable 10,000
Sales revenue 10,000

Explanation: Calculations: 400 × $25 = $10,000

This question is not available in MyAccountingLab.

Diff: 1
LO: 6-3
EOC Ref: P6-31A
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

52) Henderson Sales sold 400 units of product to a customer on account. The selling price was $25 per unit, and the
cost, according to the company's inventory records, was $12 per unit. Please provide the journal entry to record
Cost of goods sold.

Answer:
Cost of goods sold 4,800
Inventory 4,800

Explanation: Calculations: 400 × $12 = $4,800

This question is not available in MyAccountingLab.

Diff: 1
LO: 6-3
EOC Ref: P6-31A
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

Learning Objective 6-4

1) In a period of rising costs, FIFO produces lower cost of goods sold and higher gross profit than LIFO.
Answer: TRUE
Diff: 2
LO: 6-4
EOC Ref: E6-21
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement

40
Copyright © 2012 Pearson Education
2) Given the same purchase and sales data, the three major costing methods will result in three different amounts for
Cost of goods sold.
Answer: TRUE
Diff: 1
LO: 6-4
EOC Ref: E6-21
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

3) Given the same purchase and sales data, the three major costing methods will result in three different amounts for
Sales revenue.
Answer: FALSE
Diff: 1
LO: 6-4
EOC Ref: E6-21
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

4) Given the same purchase and sales data, the three major costing methods will result in three different amounts for
Gross profit.
Answer: TRUE
Diff: 1
LO: 6-4
EOC Ref: E6-21
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

5) The sum of the Cost of goods sold and the Ending inventory equals the Cost of goods available.
Answer: TRUE
Diff: 1
LO: 6-4
EOC Ref: E6-21
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

6) Which of the following inventory costing methods yields the highest cost of goods sold when costs are rising
during the accounting period?
A) Specific-unit-cost
B) Average-cost
C) Last-In, First-Out
D) First-In, First-Out
Answer: C
Diff: 2
LO: 6-4
EOC Ref: E6-21
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

41
Copyright © 2012 Pearson Education
7) Which of the following inventory costing methods yields the lowest cost of goods sold when costs are rising
during the accounting period?
A) Specific-unit-cost
B) Average-cost
C) Last-In, First-Out
D) First-In, First-Out
Answer: D
Diff: 2
LO: 6-4
EOC Ref: E6-21
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

8) Which of the following inventory costing methods yields the highest gross profit when costs are rising during the
accounting period?
A) Specific-unit-cost
B) Average-cost
C) Last-In, First-Out
D) First-In, First-Out
Answer: D
Diff: 2
LO: 6-4
EOC Ref: E6-21
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

9) Which of the following inventory costing methods yields the lowest gross profit when costs are rising during the
accounting period?
A) Specific-unit-cost
B) Average-cost
C) Last-In, First-Out
D) First-In, First-Out
Answer: C
Diff: 2
LO: 6-4
EOC Ref: E6-21
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

10) Which of the following inventory costing methods yields the highest ending inventory when costs are rising
during the accounting period?
A) Specific-unit-cost
B) Average-cost
C) Last-In, First-Out
D) First-In, First-Out
Answer: D
Diff: 2
LO: 6-4
EOC Ref: E6-21
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

42
Copyright © 2012 Pearson Education
11) Which of the following inventory costing methods yields the lowest ending inventory when costs are rising
during the accounting period?
A) Specific-unit-cost
B) Average-cost
C) Last-In, First-Out
D) First-In, First-Out
Answer: C
Diff: 2
LO: 6-4
EOC Ref: E6-21
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

12) Which inventory valuation model minimizes income tax when costs are rising?
A) First-In, First-Out
B) Last-In, First-Out
C) Average-cost
D) Specific-unit-cost
Answer: B
Diff: 1
LO: 6-4
EOC Ref: E6-21
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

13) Which inventory valuation model deals with unique or high dollar items?
A) First-In, First-Out
B) Last-In, First-Out
C) Average-cost
D) Specific-unit-cost
Answer: D
Diff: 1
LO: 6-4
EOC Ref: E6-21
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

14) Which inventory valuation model serves as a middle-of-the-road approach for taxes and income?
A) First-In, First-Out
B) Last-In, First-Out
C) Average-cost
D) Specific-unit-cost
Answer: C
Diff: 1
LO: 6-4
EOC Ref: E6-21
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

43
Copyright © 2012 Pearson Education
15) The Cost of goods available for sale is equal to the:
A) Cost of goods sold minus the Ending inventory.
B) Sales revenue minus the Cost of goods sold.
C) Cost of goods sold plus the Ending inventory.
D) Ending inventory plus the Sales revenues.
Answer: C
Diff: 1
LO: 6-4
EOC Ref: E6-21
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

Learning Objective 6-5

1) If the historical cost of inventory falls below replacement cost, the business must write down the inventory cost.
Answer: FALSE
Diff: 1
LO: 6-5
EOC Ref: E6-25
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Reporting

2) Which of the following assets must be reported at the lower-of-cost-or-market?

A) Accounts receivable
B) Inventory
C) Prepaid insurance
D) Cash
Answer: B
Diff: 1
LO: 6-5
EOC Ref: E6-25
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

3) Which of the following is used for market when valuing inventory at lower-of-cost-or-market?
A) Sales price less the company's normal mark-up percentage
B) Current replacement price
C) Cost plus the company's normal mark-up percentage
D) Sales price
Answer: B
Diff: 2
LO: 6-5
EOC Ref: E6-25
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

44
Copyright © 2012 Pearson Education
4) Which of the following amounts would be reported for Inventory on the balance sheet if the cost of an item is
$80, the current selling price is $100 and the current replacement cost is $75?
A) $100
B) The average of $75 and $80
C) $80
D) $75
Answer: D
Diff: 1
LO: 6-5
EOC Ref: E6-25
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

5) Twenty units of inventory on hand at the end of the year are recorded at their cost of $5.00 per unit using FIFO.
Current replacement cost is $4.50 per unit. What amount would be reported as inventory on the balance sheet?
A) $100.00
B) $5.00
C) $4.50
D) $90.00
Answer: D
Explanation: D) Calculations: 20 × $4.50 = $90
Diff: 2
LO: 6-5
EOC Ref: E6-25
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

6) Better Buy has six CD players in inventory on December 31. The players were purchased in November for $170.
Price lists from Better Buy's supplier indicate that the same CD player would now cost the company $175. The
current sales price for each of the CD players is $320. What would be the amount reported as Inventory on the
balance sheet?
A) $1,050
B) $1,035
C) $1,020
D) $1,920
Answer: C
Explanation: C) Calculations: 6 × $170 = $1,020
Diff: 2
LO: 6-5
EOC Ref: E6-25
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

45
Copyright © 2012 Pearson Education
7) Better Buy has six CD players in inventory on December 31. The players were purchased in November for $170.
Price lists from Better Buy's supplier indicate that the same CD player would now cost the company $168. The
current sales price for each of the CD players is $320. What would be the amount reported as Inventory on the
balance sheet?
A) $1,008
B) $1,035
C) $1,020
D) $1,920
Answer: A
Explanation: A) Calculations: 6 × $168 = $1,008
Diff: 2
LO: 6-5
EOC Ref: E6-25
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

8) Better Buy has six CD players in inventory on December 31. The players were purchased in November for $170.
Price lists from Better Buy's supplier indicate that the same CD player would now cost the company $168. The
current sales price for each of the CD players is $320. The adjustment would have what effect on Cost of goods
sold?
A) Cost of goods sold would increase by $2.
B) Cost of goods sold would not be affected.
C) Cost of goods sold would decrease by $12.
D) Cost of goods sold would increase by $12.
Answer: D
Explanation: D) Calculations: 6 × 2 = $12
Diff: 2
LO: 6-5
EOC Ref: E6-25
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

9) Better Buy has six CD players in inventory on December 31. The players were purchased in November for $170.
Price lists from Better Buy's supplier indicate that the same CD player would now cost the company $168. The
current sales price for each of the CD players is $320. The adjustment would have what effect on Gross profit?
A) Gross Profit would increase by $2.
B) Gross Profit would not be affected.
C) Gross Profit would decrease by $12.
D) Gross Profit would increase by $12.
Answer: C
Explanation: C) Calculations: 6 × 2 = $12
Diff: 2
LO: 6-5
EOC Ref: E6-25
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

46
Copyright © 2012 Pearson Education
10) 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 Purchases and credit Inventory
B) Debit Inventory and credit Purchases
C) Debit Cost of goods sold and credit Inventory
D) Debit Inventory and credit Cost of goods sold
Answer: C
Diff: 1
LO: 6-5
EOC Ref: E6-25
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

11) Williams Company had the following balances and transactions during 2013.

Beginning inventory 10 units at $70

June 10 Purchased 20 units at $80
December 30 Sold 15 units
December 31 Replacement cost $60

What would the company's inventory amount be on the December 31, 2013 balance sheet if the perpetual FIFO
method is used? (Answers are rounded to the nearest dollar.)
A) $1,200
B) $900
C) $1,050
D) $1,100
Answer: B
Explanation: B) Calculations: 15 × $60 = $900
Diff: 3
LO: 6-5
EOC Ref: E6-25
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

47
Copyright © 2012 Pearson Education
12) Williams Company had the following balances and transactions during 2013.

Beginning inventory 10 units at $70

June 10 Purchased 20 units at $80
December 30 Sold 15 units
December 31 Replacement cost $60

What would the company's inventory amount be on the December 31, 2013 balance sheet if the perpetual LIFO
method is used? (Answers are rounded to the nearest dollar.)
A) $1,050
B) $1,100
C) $900
D) $1,200
Answer: C
Explanation: C) Calculations: 15 × $60 = $900
Diff: 3
LO: 6-5
EOC Ref: E6-25
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

13) Williams Company had the following balances and transactions during 2013.

Beginning inventory 10 units at $70

June 10 Purchased 20 units at $80
December 30 Sold 15 units
December 31 Replacement cost $60

What would the company's inventory amount be on the December 31, 2013 balance sheet if the perpetual average-
costing method is used? (Answers are rounded to the nearest dollar.)
A) $1,200
B) $1,150
C) $1,050
D) $900
Answer: D
Explanation: D) Calculations: 15 × $60 = $900
Diff: 3
LO: 6-5
EOC Ref: E6-25
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

48
Copyright © 2012 Pearson Education
14) Williams Company had the following balances and transactions during 2013.

Beginning inventory 10 units at $70

June 10 Purchased 20 units at $80
December 30 Sold 15 units
December 31 Replacement cost $78

What would the company's inventory amount be on the December 31, 2013 balance sheet if the perpetual FIFO
method is used? (Answers are rounded to the nearest dollar.)
A) $1,200
B) $1,170
C) $1,050
D) $1,100
Answer: B
Explanation: B) Calculations: 15 × $78 = $1,170

Diff: 3
LO: 6-5
EOC Ref: E6-25
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

15) Williams Company had the following balances and transactions during 2013.

Beginning inventory 10 units at $70

June 10 Purchased 20 units at $80
December 30 Sold 15 units
December 31 Replacement cost $78

What would the company's inventory amount be on the December 31, 2013 balance sheet if the perpetual LIFO
method is used? (Answers are rounded to the nearest dollar.)
A) $1,050
B) $1,100
C) $900
D) $1,200
Answer: B
Explanation: B) Calculations: 10 × $70 + 5 × $80 = $1,100
Diff: 3
LO: 6-5
EOC Ref: E6-25
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

49
Copyright © 2012 Pearson Education
16) Williams Company had the following balances and transactions during 2013.

Beginning inventory 10 units at $70

June 10 Purchased 20 units at $80
December 30 Sold 15 units
December 31 Replacement cost $78

What would the company's inventory amount be on the December 31, 2013 balance sheet if the perpetual average-
costing method is used? (Answers are rounded to the nearest dollar.)
A) $1,200
B) $1,150
C) $1,050
D) $900
Answer: B
Explanation: B) Calculations: 15 × $76.67 = $1,150
Diff: 3
LO: 6-5
EOC Ref: E6-25
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

17) One hundred units of inventory on hand at the end of the year are recorded at their cost of $10 each using LIFO.
Current replacement cost is $8.00. What amount would be reported as Inventory on the balance sheet?
A) $1,000.00
B) $10.00
C) $800.00
D) $8.00
Answer: C
Explanation: C) Calculations: 100 × $8 = $800
Diff: 2
LO: 6-5
EOC Ref: E6-25
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

18) One hundred units of inventory on hand at the end of the year are recorded at their cost of $10 each using LIFO.
Current replacement cost is $11.00. What amount would be reported as Inventory on the balance sheet?
A) $1,000.00
B) $10.00
C) $800.00
D) $8.00
Answer: A
Explanation: A) Calculations: 100 × $10 = $1,000
Diff: 2
LO: 6-5
EOC Ref: E6-25
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

50
Copyright © 2012 Pearson Education
19) One hundred units of inventory on hand at the end of the year are recorded at their cost of $10 each using LIFO.
Current replacement cost is $8.00. How would the Cost of goods sold be affected by the adjusting entry needed
under lower-of-cost-or-market?
A) Cost of goods sold would not be affected.
B) Cost of goods sold would go down by $80.
C) Cost of goods sold would go up by $200.
D) Cost of goods sold would go down by $200.
Answer: C
Explanation: C) Calculations: 100 × 2 = $200
Diff: 2
LO: 6-5
EOC Ref: E6-25
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

20) One hundred units of inventory on hand at the end of the year are recorded at their cost of $10 each using LIFO.
Current replacement cost is $8.00. How would the Gross profit be affected by the adjusting entry needed under
lower-of-cost-or-market?
A) Gross profit would not be affected.
B) Gross profit would go down by $80.
C) Gross profit would go up by $200.
D) Gross profit would go down by $200.
Answer: D
Explanation: D) Calculations: 100 × 2 = $200
Diff: 2
LO: 6-5
EOC Ref: E6-25
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

21) A company's ending inventory is $450,000 using the perpetual FIFO inventory costing method. Replacement
cost for the ending inventory is $420,000. Prepare the journal entry to adjust inventory.

Answer:
Cost of goods sold 30,000
Inventory 30,000

Explanation: This question is not available in MyAccountingLab.

Diff: 1
LO: 6-5
EOC Ref: E6-25
AACSB: Reflective Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

51
Copyright © 2012 Pearson Education
Learning Objective 6-6

1) An overstatement of ending inventory in the current period results in the understatement of Net income in the
current year.
Answer: FALSE
Diff: 1
LO: 6-6
EOC Ref: S6-12
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

2) Ending inventory for the current year is overstated by $20,000. What effect will this error have on the following
year's Net income?
A) The inventory overstatement will not affect Net income.
B) Net income will be overstated by $20,000.
C) Net income will be understated by $20,000.
D) Net income will be understated by $40,000.
Answer: C
Diff: 2
LO: 6-6
EOC Ref: S6-12
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

3) Ending inventory for the current accounting period is overstated by $3,500. What will be effect of this error?
A) Net income for the current period will be overstated by $3,500.
B) Cost of goods sold for the current period will be overstated by $3,500.
C) Ending inventory for the next period will be overstated by $3,500.
D) Equity at the end of the next accounting period will be overstated by $3,500.
Answer: A
Diff: 2
LO: 6-6
EOC Ref: S6-12
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

4) Ending inventory for the current period is understated. What effect will this error have on equity?
A) Equity will be overstated at the end of the current period, but it will be correct at the end of the next period.
B) Equity will be overstated at the end of the current period and understated at the end of the next period.
C) Equity will be understated at the end of the current period, but it will be correct at the end of the next period.
D) Equity will be overstated at the end of the current period and overstated at the end of the next period.
Answer: C
Diff: 2
LO: 6-6
EOC Ref: S6-12
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

52
Copyright © 2012 Pearson Education
5) Ending 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?
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: 6-6
EOC Ref: S6-12
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

6) 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?
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: 6-6
EOC Ref: S6-12
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

53
Copyright © 2012 Pearson Education
7) Which of the following are clues that a company may have been "cooking the books" by fraudulently increasing
their level of net sales?
A) Several shipping clerks checked into hospitals from lifting heavy boxes.
B) There was a very high level of returned goods shortly after year-end.
C) Several company warehouses reported burglaries.
D) There was a high level of inventory purchases in the following period.
Answer: B
Diff: 3
LO: 6-6
EOC Ref: S6-12
AACSB: Reflective Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

Learning Objective 6-7

1) Estimated ending inventory can be computed by subtracting Estimated cost of goods sold from Cost of goods
available for sale.
Answer: TRUE
Diff: 1
LO: 6-7
EOC Ref: S6-14
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

2) Gross profit is Sales revenue divided by Cost of goods sold.

Answer: FALSE
Diff: 1
LO: 6-7
EOC Ref: S6-14
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

3) The gross profit method is a way to estimate inventory on the basis of the cost of goods sold model.
Answer: TRUE
Diff: 1
LO: 6-7
EOC Ref: S6-14
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

54
Copyright © 2012 Pearson Education
4) Revenue is $400,000 and Cost of goods sold is $100,000. How much is the gross profit percent?
A) 75%
B) 25%
C) 60%
D) 40%
Answer: A
Explanation: A) Calculations: $300,000/$400,000 = 75%
Diff: 1
LO: 6-7
EOC Ref: S6-14
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

5) Revenue is $400,000 and Cost of goods sold is $320,000. How much is the gross profit percent?
A) 75%
B) 20%
C) 60%
D) 80%
Answer: B
Explanation: B) Calculations: $80,000/$400,000 = 20%
Diff: 1
LO: 6-7
EOC Ref: S6-14
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

6) Beginning inventory is $28,000. Purchases for the year are $110,000. Sales revenues are $180,000. The
company's normal gross profit percent is 60%. How much is Estimated ending inventory?
A) $72,000
B) $246,000
C) $30,000
D) $66,000
Answer: D
Explanation: D) Calculations: $28,000 + $110,000 - 40% × $180,000 = $66,000
Diff: 2
LO: 6-7
EOC Ref: S6-14
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

55
Copyright © 2012 Pearson Education
7) Haley's Florist Shop has the following account balances at the end of the current accounting period.

Beginning inventory $53,500

Net purchases 75,500
Net sales revenue 93,700

A normal gross profit percent is 30%. What is the estimated ending inventory as determined by the gross profit
method?
A) $100,890
B) $28,110
C) $63,410
D) $65,590
Answer: C
Explanation: C) Calculations: $53,500 + $75,500 - 70% × $93,700 = $63,410
Diff: 2
LO: 6-7
EOC Ref: S6-14
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

8) Golden Oak Antique Shop has the following account balances at the end of the current accounting period.

Beginning inventory $73,250

Net purchases 57,650
Net sales revenue 85,500

A normal gross profit for the company is $45%. What is the company's estimated cost of goods sold for the
accounting period?
A) $92,425
B) $38,475
C) $47,025
D) $83,875
Answer: C
Explanation: C) Calculations: $85,500 × 55% = $47,025
Diff: 2
LO: 6-7
EOC Ref: S6-14
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

56
Copyright © 2012 Pearson Education
9) Callahan Computers stores its inventory in a warehouse that burned to the ground in late November, 2012. Their
sales office was at a different location. In order to file a claim with their insurance, the owners ask you to estimate
the inventory in the warehouse. The following information is available:

Beginning inventory $375,500

Purchases through November 30 470,250
Net sales revenue through November 31 793,000

The company's gross profit has historically been 40% of Net sales revenue. Estimate the value of the inventory
destroyed in the fire using the gross profit method.
A) $369,950
B) $528,550
C) $410,000
D) $388,450
Answer: A
Explanation: A) Calculations: $375,500 + $470,250 - 60% × $793,000 = $369,950
Diff: 2
LO: 6-7
EOC Ref: S6-14
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

10) Owens Janitor Supply has the following account balances at the end of the current accounting period.

Beginning inventory $ 50,000

Net purchases 400,000
Net sales revenue 500,000

A normal gross profit percent is 40%. What is the Estimated ending inventory as determined by the gross profit
method?
A) $150,000
B) $50,000
C) $200,000
D) $300,000
Answer: A
Explanation: A) Calculations: $50,000 + $400,000 - 60% × $500,000 = $150,000
Diff: 2
LO: 6-7
EOC Ref: S6-14
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

57
Copyright © 2012 Pearson Education
11) The following data is available:

Net sales, first month $13,000

Normal gross profit 45%
Beginning inventory 8,000
Net purchases 7,000

Using the gross profit method, the amount of Gross profit would be:
A) $15,000.
B) $6,750.
C) $5,850.
D) $3,600.
Answer: C
Explanation: C) Calculations: $13,000 × 45% = $5,850
Diff: 2
LO: 6-7
EOC Ref: S6-14
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

12) The following data is available:

Net sales, first month $13,000

Normal gross profit 45%
Beginning inventory 8,000
Net purchases 7,000

Using the gross profit method, the Cost of goods sold would be:
A) $15,000.
B) $7,150.
C) $7,850.
D) $5,850.
Answer: B
Explanation: B) Calculations: $13,000 × 55% = $7,150
Diff: 2
LO: 6-7
EOC Ref: S6-14
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

58
Copyright © 2012 Pearson Education
13) The following data is available:

Net sales, first month $13,000

Normal gross profit 45%
Beginning inventory 8,000
Net purchases 7,000

Using the gross profit method, the Estimated ending inventory balance would be:
A) $15,000.
B) $7,150.
C) $7,850.
D) $5,850.
Answer: C
Explanation: C) Calculations: $8,000 + $7,000 - 55% × $13,000 = $7,850
Diff: 2
LO: 6-7
EOC Ref: S6-14
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

Learning Objective 6-8

1) Using the FIFO costing method will always produce the same results whether a company uses perpetual or
periodic inventory.
Answer: TRUE
Diff: 1
LO: 6-8
EOC Ref: E6A-3
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

2) Using the LIFO costing method will always produce the same results whether a company uses perpetual or
periodic inventory.
Answer: FALSE
Diff: 2
LO: 6-8
EOC Ref: E6A-3
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

3) When using periodic inventory, the closing process begins with closing out the Beginning inventory to Cost of
goods sold.
Answer: TRUE
Diff: 1
LO: 6-8
EOC Ref: E6A-3
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

59
Copyright © 2012 Pearson Education
4) When using periodic inventory, the closing process begins with closing out the Beginning inventory to Cost of
goods sold. The second step is to set up the ending inventory by debiting Cost of goods sold and crediting
Inventory.
Answer: FALSE
Diff: 1
LO: 6-8
EOC Ref: E6A-2
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

5) Under periodic inventory, the company first calculates Cost of goods sold for the period, and then determines
what the Ending inventory balance is.
Answer: FALSE
Diff: 2
LO: 6-8
EOC Ref: E6A-3
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

6) Samson Company had the following balances and transactions during 2012.

Beginning inventory 10 units at $70

March 10 Sold 8 units
June 10 Purchased 20 units at $80
October 30 Sold 15 units

What would the company's Inventory amount be on the December 31, 2012 balance sheet if the periodic FIFO
costing method is used? (Answers are rounded to the nearest dollar.)
A) $554
B) $490
C) $537
D) $560
Answer: D
Explanation: D) Calculations: 7 × $80 = $560
Diff: 2
LO: 6-8
EOC Ref: E6A-3
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

60
Copyright © 2012 Pearson Education
7) Samson Company had the following balances and transactions during 2012.

Beginning inventory 10 units at $70

March 10 Sold 8 units
June 10 Purchased 20 units at $80
October 30 Sold 15 units

What would the company's Inventory amount be on the December 31, 2012 balance sheet if the periodic LIFO
costing method is used? (Answers are rounded to the nearest dollar.)
A) $560
B) $537
C) $554
D) $490
Answer: D
Explanation: D) Calculations: 7 × $70 = $490
Diff: 2
LO: 6-8
EOC Ref: P6-31A
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

8) Samson Company had the following balances and transactions during 2012.

Beginning inventory 10 units at $70

March 10 Sold 8 units
June 10 Purchased 20 units at $80
October 30 Sold 15 units

What would the company's Inventory amount be on the December 31, 2012 balance sheet if the periodic average-
costing method is used? (Answers are rounded to the nearest dollar.)
A) $540
B) $554
C) $490
D) $537
Answer: D
Explanation: D) Calculations: 2,300/30 × 7 = 537
Diff: 3
LO: 6-8
EOC Ref: E6A-3
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

61
Copyright © 2012 Pearson Education
9) A company uses periodic inventory in connection with FIFO costing. The company began the year with zero
inventory balance. They had the following transactions during the year:

Purchased 50 units at $4.00 per unit

Purchased 100 units at $4.10 per unit
Sold 80 units at a price of $12.00 per unit
Purchased 60 units at $3.20 per unit
Sold 75 units at a price of $12.75 per unit

At the end of the year, they counted the inventory and found 55 units remaining. How much was the Cost of goods
sold for the year? (Please round to the nearest whole dollar.)
A) $541
B) $582
C) $626
D) $680
Answer: C
Explanation: C) Calculations: 50 × $4 + 100 × $4.10 + 5 × $3.20 = $626
Diff: 2
LO: 6-8
EOC Ref: E6A-3
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

10) A company uses periodic inventory in connection with LIFO costing. The company began the year with zero
inventory balance. They had the following transactions during the year:

Purchased 50 units at $4.00 per unit

Purchased 100 units at $4.10 per unit
Sold 80 units at a price of $12.00 per unit
Purchased 60 units at $3.20 per unit
Sold 75 units at a price of $12.75 per unit

At the end of the year, they counted the inventory and found 55 units remaining. How much was the Cost of goods
sold for the year? (Please round to the nearest whole dollar.)
A) $541
B) $582
C) $626
D) $680
Answer: B
Explanation: B) Calculations: 95 × $4.10 + 60 × $3.20 = $582
Diff: 2
LO: 6-8
EOC Ref: E6A-3
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

62
Copyright © 2012 Pearson Education
11) A company uses periodic inventory in connection with the average-cost method. The company began the year
with zero inventory balance. They had the following transactions during the year:

Purchased 50 units at $4.00 per unit

Purchased 100 units at $4.10 per unit
Sold 80 units at a price of $12.00 per unit
Purchased 60 units at $3.20 per unit
Sold 75 units at a price of $12.75 per unit

At the end of the year, they counted the inventory and found 55 units remaining. How much was the Cost of goods
sold for the year? (Please round to the nearest whole dollar.)
A) $541
B) $582
C) $626
D) $592
Answer: D
Explanation: D) Calculations: 802/210 × 155 = $592
Diff: 2
LO: 6-8
EOC Ref: E6A-3
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

12) A company that uses the periodic inventory method provides the following information:
Beginning inventory $4,000
Purchases $120,000
Purchase discounts $2,400
Purchase returns and allowances $800

At the end of the period, the company does an inventory count and finds $16,000 of inventory on hand.
How much is the Cost of goods sold?
A) $104,800
B) $111,200
C) $108,000
D) $128,800
Answer: A
Explanation: A) Calculations: $4,000 + $120,000 - $3,200 - $16,000 = $104,800
Diff: 3
LO: 6-8
EOC Ref: E6A-3
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

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13) A company that uses the periodic inventory method provides the following information:
Beginning inventory $4,000
Net Purchases $85,000

At the end of the period, the company does an inventory count and finds $9,000 of inventory on hand.
How much is the Cost of goods sold?
A) $98,000
B) $72,000
C) $80,000
D) $90,000
Answer: C
Explanation: C) Calculations: $4,000 + $85,000 - $9,000 = $80,000
Diff: 2
LO: 6-8
EOC Ref: E6A-3
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

64
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14) Company uses the periodic inventory method and offers the following information:
Beginning inventory $4,000
Purchases $120,000
Purchase discounts $2,400
Purchase returns and allowances $800

At the end of the period, the company does an inventory count and finds $16,000 of inventory on hand.
Which of the following pairs of T-accounts accurately represents the first two closing entries?

A)

B)

C)

D)

Answer: A
Diff: 1
LO: 6-8
EOC Ref: E6A-2
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

65
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15) Company uses the periodic inventory method and offers the following information:
Beginning inventory $4,000
Purchases $120,000
Purchase discounts $2,400
Purchase returns and allowances $800

At the end of the period, the company does an inventory count and finds $16,000 of inventory on hand.
Which of the following T-accounts accurately represents the first three closing entries?
A)

B)

C)

D)

Answer: D
Diff: 3
LO: 6-8
EOC Ref: E6A-2
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

66
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