Q&A Hero

Q: For a merchandiser, inventory turnover refers to how many times: A) during the period the company replaces its raw materials inventory. B) the company purchases and sells its inventory of goods. C) the company produces and delivers its inventory of goods to customers. D) the company orders merchandise.

Q: Use the information above to answer the following question. What is the number of days to sell? A) 91.25 days B) 94.30 days C) 88.16 days D) 182.50 days

Q: Use the information above to answer the following question. What is the inventory turnover ratio? A) 3.87 times B) 4.00 times C) 4.14 times D) 2.00 times

Q: Use the information above to answer the following question. How long on average does it take to sell something from inventory after it is purchased? A) 12.5 days B) 24.8 days C) 29.2 days D) 165.9 days

Q: Use the information above to answer the following question. What is the inventory turnover ratio? A) 12.5 times B) 13.4 times C) 14.7 times D) 2.2 times

Q: The number of days to sell is calculated as: A) 365 divided by ending inventory. B) Cost of goods sold divided by ending inventory. C) 365 divided by Inventory turnover ratio. D) Cost of goods sold divided by Average inventory.

Q: The inventory turnover ratio is calculated as: A) cost of goods sold divided by sales. B) cost of goods sold divided by average inventory. C) ending inventory divided by cost of goods sold. D) average inventory divided by cost of goods sold.

Q: An increasing balance in the Inventory account accompanied by an increase in the inventory turnover ratio would imply that the inventory build-up is occurring because: A) inventory is not selling as fast as anticipated. B) the company is expecting to sell more inventory in the future. C) inventory is selling, but it is taking longer to collect payment from customers. D) the economy is slowing down.

Q: A declining inventory turnover ratio may mean that: A) goods are not selling as fast as they were in the past. B) the company is expecting to sell more in the future. C) goods are selling, but it is taking longer to collect payment. D) goods cannot be shipped fast enough.

Q: An increasing inventory turnover ratio indicates: A) a longer time span between the ordering and receiving of inventory. B) a shorter time span between the ordering and receiving of inventory. C) a shorter time span between the purchase and sale of inventory. D) a longer time span between the purchase and sale of inventory.

Q: The process of buying and selling inventory is known as inventory: A) circulation. B) management. C) turnover. D) allocation.

Q: When the lower of cost or market rule requires an inventory adjustment, the: A) adjustment usually, but not always, reduces the book value of inventory. B) write-down is usually reported as a part of cost of goods sold. C) inventory adjustment is recorded in a contra-account called Inventory Allowances. D) write-down does not affect any of the financial statements.

Q: Which of the following statements about the lower of cost or market rule is not correct? A) The lower of cost or market rule sometimes causes the book value of inventory to be written down below cost, but will never cause the book value of inventory to be increased above cost. B) The amount of inventory write-down is an expense which most companies report as cost of goods sold. C) Lower of cost or market is an inventory cost method used to determine cost of goods sold and ending inventory. D) The lower of cost or market (LCM) rule results in reporting inventory conservatively, at an amount that does not exceed its actual value.

Q: One of the most common sources of misstatement in financial statements is the: A) use of alternating inventory costing methods. B) failure to write down inventory when the market value is below cost. C) failure to report stock issues appropriately. D) incorrectly calculating the inventory turnover ratio.

Q: If the market value of goods in inventory is $26,000 below its cost, the company should: A) do nothing, because assets are reported at their original purchase price. B) credit Inventory for $26,000. C) debit Inventory for $26,000. D) use the weighted average cost method since that method provides a more accurate indicator of current value.

Q: Your company has 100 units in inventory, purchased at $16 per unit. These units have a current market value of $14. The entry to write-down the inventory will include a: A) credit to Cost of Goods Sold for $200. B) debit to Cost of Goods Sold for $1,400. C) credit to Inventory for $200. D) debit to Inventory for $1,400.

Q: Your company has 500 units in inventory that were purchased for $12 each. These units have a current market value of $15 each. Your supplier has just announced a price increase to $16.50 that will go into effect at the beginning of next year. Management should: A) make no adjustments to the inventory account. B) adjust the inventory account using the lower of the recent market values, which is $15. C) adjust the inventory account using the cost, which is $12.00. D) adjust the inventory account using the average of the recent market values, which is $14.50.

Q: When the market value of inventory drops below the cost recorded in the financial records, applying the lower of cost or market (LCM) rule causes: A) a decrease in cost of goods sold. B) no change in net income, other things being equal. C) a decrease in total assets. D) an increase in net income.

Q: A company had been selling its product for $20 per unit, but recently lowered the selling price to $15 per unit. The companys current inventory consists of 200 units purchased at $16 per unit. The market value of this inventory is currently $13 per unit. At what amount should the companys inventory be reported on the balance sheet? A) $2,600 B) $3,200 C) $3,000 D) $4,000

Q: An adjustment to ending inventory under the lower of cost or market (LCM) rule would be least likely to be recorded by a company that sells: A) a household staple like laundry detergent. B) a fad product like Slap Wraps bracelets. C) seasonal items like snow blowers. D) high-tech goods like cell phones.

Q: Generally accepted accounting principles (GAAP) require that the inventory be reported at: A) market value. B) historical cost. C) lower of cost or market. D) retail value.

Q: Which of the following statements about inventory costing methods is correct? A) A change in inventory method is allowed only if it improves the accuracy of the companys financial results. B) During a period of rising prices, LIFO results in a higher income tax expense than does FIFO. C) International Financial Reporting Standards (IFRS) allow the use of LIFO but not FIFO. D) In the U.S., if a company uses LIFO on the income tax return, it may use a different method for financial reporting.

Q: In a period of rising prices, the inventory costing method that will cause the company to have the lowest income tax expense is: A) LIFO. B) FIFO. C) Weighted average. D) Specific identification.

Q: Generally, which inventory costing method approximates most closely the current cost for each of the following? Ending Inventory Cost of Goods Sold A) FIFO LIFO B) LIFO LIFO C) FIFO FIFO D) LIFO FIFO

Q: In a period of falling prices, the inventory costing method that assigns a value to inventory that approximates current cost is: A) FIFO B) LIFO. C) Specific identification. D) Weighted average

Q: In a period of rising prices, the inventory costing method that assigns a value to inventory that approximates current cost is: A) LIFO. B) FIFO. C) Weighted average. D) Specific identification.

Q: In a period of falling prices, the inventory costing method that will cause the company to have the lowest cost of goods sold is: A) LIFO. B) FIFO. C) Weighted average. D) Specific identification.

Q: In a period of rising prices, the inventory costing method that will cause the company to have the lowest cost of goods sold is: A) LIFO. B) FIFO. C) Weighted average. D) Specific identification.

Q: Which of the following will occur when inventory costs are decreasing? A) FIFO will result in a lower net income but a higher ending inventory than will LIFO. B) FIFO will result in a higher net income but a lower ending inventory than will LIFO. C) FIFO will result in a lower net income and a lower ending inventory than will LIFO. D) FIFO will result in a higher net income and a higher ending inventory than will LIFO.

Q: Which of the following statements is correct? A) FIFO results in a lower net income than LIFO when costs are rising. B) LIFO results in a higher net income than FIFO when costs are rising. C) LIFO results in a higher net income than FIFO when costs are falling. D) LIFO results in the same net income as FIFO when costs are rising.

Q: Which of the following statements is correct? A) Specific identification is the most practical, but least accurate, measure of cost and net income. B) When unit costs are increasing, the weighted average cost method yields a cost of goods sold between that of FIFO and LIFO. C) FIFO will lead to the highest net income if unit costs are falling. D) LIFO will always yield a smaller net income than FIFO.

Q: Which of the following would not be affected by the choice of an inventory costing method (that is, choosing between FIFO, LIFO, weighted average, and specific identification)? A) Sales revenue B) Cost of goods sold C) Gross profit D) Net income

Q: Use the information above to answer the following question. Xu sells 150 units during the quarter. If Xu uses the weighted average method, what is its cost of goods sold? A) $600 B) $705 C) $750 D) $900

Q: Use the information above to answer the following question. Xu sells 300 units during the quarter. If Xu uses the LIFO method, what is its cost of goods sold? A) $1,600 B) $1,400 C) $1,500 D) $1,800

Q: Use the information above to answer the following question. If Bailey Company uses the weighted average inventory costing method, what is the cost of its ending inventory? (Round the per unit cost to two decimal places and then round your answer to the nearest whole dollar.) A) $4,200 B) $2,700 C) $1,400 D) $1,365

Q: Use the information above to answer the following question. If Bailey Company uses the LIFO costing method, what is the cost of its ending inventory? A) $1,365 B) $1,494 C) $1,620 D) $2,835

Q: Use the information above to answer the following question. If Bailey Company uses the FIFO costing method, what is the cost of its ending inventory? A) $1,494 B) $2,290 C) $2,580 D) $2,706

Q: Use the information above to answer the following question. If Alphabet Company uses the weighted average method, what is the cost of its ending inventory? (Round the per unit cost to two decimal places and then round your answer to the nearest whole dollar.) A) $38 B) $48 C) $67 D) $75

Q: Use the information above to answer the following question. If Alphabet Company uses the LIFO method, what is the cost of its ending inventory? A) $24 B) $42 C) $58 D) $76

Q: Use the information above to answer the following question. If Alphabet Company uses the FIFO method, what is the cost of its ending inventory? A) $24 B) $42 C) $58 D) $76

Q: Use the information above to answer the following question. If Alphabet Company uses the specific identification method, what is the cost of its ending inventory? A) $31 B) $69 C) $76 D) $100

Q: Use the information above to answer the following question. Eaton Electronics uses the weighted average method. What is the companys weighted average cost per unit? (Round the per unit cost to the nearest dollar.) A) $1,500 B) $1,517 C) $1,527 D) $1,600

Q: Use the information above to answer the following question. Eaton Electronics uses the LIFO method. What is the cost of its ending inventory? A) $13,850 B) $13,800 C) $13,760 D) $13,600

Q: Use the information above to answer the following question. Eaton Electronics uses the FIFO method. What is the cost of its ending inventory? A) $13,850 B) $13,800 C) $13,760 D) $13,600

Q: Use the information above to answer the following question. Eaton Electronics reports $3,000 as the cost of goods sold. Eaton Electronics is using the: A) specific identification method. B) LIFO method. C) FIFO method. D) weighted average cost method.

Q: Use the information above to answer the following question. Eaton Electronics uses the specific identification method. What is its cost of goods sold? A) $3,000 B) $2,950 C) $3,200 D) $3,033

Q: Hardware Inc. has a periodic inventory system and uses the weighted average method. The company began the year with 150 large brass switch plates on hand at a cost of $4.00 each. Purchases of switch plates during the year were as follows: Date of Transaction Quantity Received Unit Cost May 7 200 $4.20 June 11 200 $4.40 November 22 250 $4.80 The switch plates sell for $7.00 each. If Hardware sells 570 switch plates during the year, what is the companys cost of goods sold? A) $3,990 B) $2,508 C) $2,480 D) $2,560

Q: Coachlight Inc. has a periodic inventory system. The company purchased 200 units of inventory at $9 per unit and 300 units at $10 per unit. What is the weighted average unit cost for these purchases of inventory? A) $9.00. B) $9.50. C) $9.60. D) $10.00.

Q: Mansfield Company has a periodic inventory system and uses the LIFO method to assign costs to inventory and cost of goods sold. Consider the following information: Date Description # of units Cost per unit January 1 Beginning inventory 100 $5 October 2 Purchase 75 $4 December 5 Sales 125 What amounts would be reported as the cost of goods sold and ending inventory balances for the period? A) Cost of goods sold $625; Ending inventory $175 B) Cost of goods sold $755; Ending inventory $225 C) Cost of goods sold $550; Ending inventory $250 D) Cost of goods sold $600; Ending inventory $200

Q: Allsop Company had no beginning inventory. The company purchases 300 units of inventory in January at $5 each, 500 units at $4 each in August, and 200 units at $6 each in November. The company sells 150 units during the year. Allsop uses a periodic inventory system and the LIFO inventory costing method. What is the cost of goods sold? A) $600 B) $934 C) $750 D) $900

Q: Maxell Company uses the FIFO method to assign costs to inventory and cost of goods sold. The company uses a periodic inventory system. Consider the following information: Date Description # of units Cost per unit January 1 Beginning inventory 100 $5 June 2 Purchase 75 $4 November 5 Sales 125 What amounts would be reported as the cost of goods sold and ending inventory balances for the year? A) Cost of goods sold $625; Ending inventory $175 B) Cost of goods sold $755; Ending inventory $225 C) Cost of goods sold $550; Ending inventory $250 D) Cost of goods sold $600; Ending inventory $200

Q: The Acme Corporation starts the year with a beginning inventory of 300 units at $5 per unit. The company purchases 500 units at $4 each in February and 200 units at $6 each in October. Acme sells 150 units during the year. Acme has a periodic inventory system and uses the FIFO inventory costing method. What is the amount of cost of goods sold? A) $600 B) $934 C) $750 D) $900

Q: Assume a periodic inventory system is used. The LIFO inventory costing method assumes that the cost of the units most recently purchased is the: A) last to be assigned to cost of goods sold. B) first to be assigned to ending inventory. C) first to be assigned to cost of goods sold. D) last to be assigned to units available for sale.

Q: Assume a periodic inventory system is used. Which inventory costing method generally results in the most recent costs being assigned to ending inventory? A) LIFO B) FIFO C) Weighted average cost D) Simple average cost

Q: The specific identification method would probably be most appropriate for which of the following goods? A) Boxes of brass 4-inch drywall screws at Home Depot B) Bottles of suntan lotion in Wal-Mart's central warehouse C) Sets of tires at the Goodyear plant D) Diamond necklaces at a Tiffany & Co. jewelry store

Q: Thompson Company updates its inventory records perpetually. The companys records showed a beginning inventory of $600, cost of goods sold of $1,400, and ending inventory of $800. How much inventory was purchased during the year? A) $1,200 B) $1,000 C) $900 D) $1,600

Q: Lock Security Company updates its inventory perpetually. The company reported a beginning inventory of $1,500. During the year, the company recorded inventory purchases of $4,500 and cost of goods sold of $5,000. What was the amount of its ending inventory? A) $1,000 B) $2,500 C) $2,600 D) $2,700

Q: Axle Inc. updates its inventory perpetually. Its beginning inventory is $35,000, goods purchased during the period cost $120,000, and the cost of goods sold for the period is $140,000. What is the amount of the ending inventory? A) $45,000 B) $20,000 C) $25,000 D) $15,000

Q: If inventory is updated perpetually, which of the equations is correct? A) Cost of goods sold = Beginning inventory Purchases Ending inventory B) Cost of goods sold = Beginning inventory + Purchases + Ending inventory C) Ending inventory = Beginning inventory + Purchases Cost of goods sold D) Ending inventory = Beginning inventory + Purchases + Cost of goods sold

Q: Langston Company updates its inventory periodically. The companys cost of goods sold was $2,700 and purchases were $5,600 during the year. The companys ending inventory count was $5,000. What was the amount of beginning inventory? A) $3,300 B) $13,300 C) $7,900 D) $2,100

Q: Lexington Company updates its inventory periodically. The companys beginning inventory was $1,000 and purchases were $5,000 during the year. The companys ending inventory count was $2,000. What was the amount of its cost of goods sold? A) $6,000 B) $4,000 C) $8,000 D) $2,000

Q: Manning Company updates its inventory periodically. The companys beginning inventory was $2,700 and purchases were $5,600 during the year. The companys ending inventory count was $5,000. What was the amount of its cost of goods sold? A) $3,300 B) $8,300 C) $13,300 D) $2,100

Q: If inventory is updated periodically, which of the equations is correct? A) Cost of goods sold = Beginning inventory + Purchases Ending inventory B) Cost of goods sold = Beginning inventory + Purchases + Ending inventory C) Beginning inventory + Purchases = Ending inventory D) Ending inventory = Beginning inventory + Purchases + Cost of goods sold.

Q: Which of the following statements about inventory classifications is not correct? A) Inventory may include materials used in producing goods for sale. B) Manufacturers hold three types of inventory that are referred to as raw materials inventory, work in process inventory, and finished goods inventory. C) Inventory is classified as a long-term asset on the balance sheet. D) Merchandisers buy inventory in finished form ready for resale.

Q: When a company sells goods, it removes their cost from the balance sheet and reports the cost on the income statement as: A) Selling Expenses. B) Cost of Goods Sold. C) Finished Goods Inventory. D) Inventory.

Q: Goods placed in inventory are initially recorded at: A) market value. B) the amount paid to acquire the asset. C) the amount paid to prepare the asset for sale to customers. D) the amount paid to acquire the asset and prepare it for sale.

Q: Inventory shipped FOB destination and in transit on the last day of the year should be included in: A) the inventory balance of the seller. B) the inventory balance of the buyer. C) neither the inventory balance of the buyer or the seller. D) both the inventory balance of the buyer and the seller.

Q: Inventory shipped FOB shipping point and in transit on the last day of the year should be included in: A) the inventory balance of the seller. B) the inventory balance of the buyer. C) neither the inventory balance of the buyer or the seller. D) both the inventory balance of the buyer and the seller.

Q: Which of the following statements about an auto manufacturer's inventory is not correct? A) Tires, batteries, glass, paint, headlamp bulbs, and electric wiring would be included in raw materials inventory. B) Incomplete cars that are still being processed would be included in work in process inventory. C) Finished cars ready to be shipped to dealers would be included in finished goods inventory. D) Cars that have been sold to dealers would be included in finished goods inventory.

Q: Which of the following would be in the finished goods inventory of a company making cheese? A) Milk and cream used to make the cheese B) Cheese that has been made but is curing before being ready to sell C) Cured cheese that is waiting to be shipped to customers D) Cured cheese that has been sold to customers

Q: Which of the following would be in the work in process inventory of a company making cheese? A) Milk and cream used to make the cheese B) Cheese that has been made but is curing before being ready to sell C) Cured cheese that is waiting to be shipped to retailers D) Cured cheese that has been sold to retailers

Q: Which of the following would be in the raw materials inventory of a company making cheese? A) Milk and cream used to make the cheese B) Cheese that has been made but is curing before being ready to sell C) Cured cheese that is waiting to be shipped to retailers D) Partially processed cheese

Q: Inventory levels increase by 10% at your company during the fourth quarter. Based on this increase, which of the following statements must be correct? A) This must be good news because inventories are an asset to the company. B) This could be good news if the company is ordering more goods because sales appear to be rising. C) This could be bad news if the company is ordering more goods because unit costs are falling. D) This must be bad news because higher inventories mean higher costs.

Q: Which of the following is not one of the primary goals of inventory management? A) Maintain a sufficient quantity of inventory to meet customer needs. B) Ensure inventory quality meets customers expectations and company standards C) Minimize the cost of acquiring and carrying inventory (including costs related to purchasing, production, storage, spoilage, theft, obsolescence, and financing). D) Minimize the quantity of ending inventory.

Q: Carrying insufficient quantities of inventory on hand: A) would not affect the companys profitability. B) may result in lost sales. C) has little effect on customer satisfaction. D) will increase the costs of carrying inventory.

Q: An understatement of beginning inventory causes net income to be understated.

Q: An overstatement of ending inventory will cause an overstatement of assets and an understatement of stockholders equity on the balance sheet.

Q: The assignment of costs to cost of goods sold and to inventory using the weighted average method usually yields different results depending on whether a perpetual or a periodic system is used.

Q: The cost assigned to cost of goods sold and to inventory under the FIFO method will be the same whether the perpetual or the periodic inventory system is used.

Q: LIFO and weighted average results will be the same using either a perpetual or periodic system.