ACCT. Ch 6 Multiple Choice(D)
135. The managers of Hong Company receive performance bonuses based on the net income of the firm. Which inventory costing method are they likely to favor in periods of declining prices? a. LIFO b. Average Cost c. FIFO d. Physical inventory method
A
172. The LIFO reserve is a. the difference between the value of the inventory under LIFO and the value under FIFO. b. an amount used to adjust inventory to the lower of cost or market. c. the difference between the value of the inventory under LIFO and the value under average cost. d. the amount used to adjust inventory to history cost.
A
54. The term "FOB" denotes a. free on board. b. freight on board. c. free only (to) buyer. d. freight charge on buyer.
A
125. In periods of rising prices, the inventory method which results in the inventory value on the balance sheet that is closest to current cost is the a. FIFO method. b. LIFO method. c. average-cost method. d. tax method.
A
132. Given equal circumstances and generally rising costs, which inventory method will increase the tax expense the most? a. FIFO b. LIFO c. Average cost d. Income tax expense for the period will be the same under all assumptions.
A
137. Selection of an inventory costing method by management does not usually depend on a. the fiscal year end. b. income statement effects. c. balance sheet effects. d. tax effects.
A
146. When applying the lower of cost or market rule to inventory valuation, market generally means a. current replacement cost. b. original cost. c. resale value. d. original cost, less physical deterioration.
A
147. The situation that requires a departure from the cost basis of accounting to the lower of cost or market basis in valuing inventory is necessitated by a. a decline in the value of the inventory. b. an increase in selling price. c. an increase in the value of the inventory. d. a desire for more profit.
A
166. A low number of days in inventory may indicate all of the following except a. Sales opportunities may be lost because of inventory shortages. b. There is less chance of having obsolete inventory items. c. The company has fewer funds tied up in inventory. d. Management has achieved the best balance between too much and too little inventory levels.
A
45. Manufactured inventory that has begun the production process but is not yet completed is a. work in process. b. raw materials. c. merchandise inventory. d. finished goods.
A
47. If goods in transit are shipped FOB destination a. the seller has legal title to the goods until they are delivered. b. the buyer has legal title to the goods until they are delivered. c. the transportation company has legal title to the goods while the goods are in transit. d. no one has legal title to the goods until they are delivered.
A
50. After the physical inventory is completed, a. quantities are listed on inventory summary sheets. b. quantities are entered into various general ledger inventory accounts. c. the accuracy of the inventory summary sheets is checked by the person listing the quantities on the sheets. d. unit costs are determined by dividing the quantities on the summary sheets by the total inventory costs.
A
52. Which of the following should not be included in the physical inventory of a company? a. Goods held on consignment from another company. b. Goods in transit from another company shipped FOB shipping point. c. Goods shipped on consignment to another company. d. All of these answer choices should be included.
A
55. Goods held on consignment are a. never owned by the consignee. b. included in the consignee's ending inventory. c. kept for sale on the premises of the consignor. d. included as part of no one's ending inventory.
A
57. When a perpetual inventory system is used, which of the following is a purpose of taking a physical inventory? a. To check the accuracy of the perpetual inventory records b. To determine cost of goods sold for the accounting period c. To compute inventory ratios d. All are a purpose of taking a physical inventory when a perpetual inventory system is used.
A
69. Echo Sound Company just began business and made the following four inventory purchases in June: June 1 150 units $ 780 June 10 200 units 1,170 June 15 200 units 1,260 June 28 150 units 990 $4,200 A physical count of merchandise inventory on June 30 reveals that there are 210 units on hand. The inventory method which results in the highest gross profit for June is a. the FIFO method. b. the LIFO method. c. the average cost method. d. not determinable.
A
98. Which of the following statements is true regarding inventory cost flow assumptions? a. A company may use more than one costing method concurrently. b. A company must comply with the method specified by industry standards. c. A company must use the same method for domestic and foreign operations. d. A company may never change its inventory costing method once it has chosen a method.
A
167. Redeker Company had the following records: 2014 2013 2012 Ending inventory $34,580 $32,650 $30,490 Cost of goods sold 182,000 178,000 174,200 What is Redeker's inventory turnover for 2013? (rounded) a. 5.6 times b. 5.5 times c. 0.2 times d. 5.3 times
A Solution: $178,000 ÷ [($32,650 + $30,490) ÷2] = 5.6
179. Use the following information for Boxter, Inc., Clifford Company, Danforth Industries, and Evans Services to answer the question "Using the LIFO adjustment, what is Boxter's inventory turnover ratio for 2014 (to the closest decimal place)?" (amounts in $ millions) Boxter Clifford Danforth Evans Inventory Method for 2013 & 2014 LIFO FIFO LIFO FIFO 2013 Ending inventory assuming LIFO $324 N/A $225 N/A 2013 Ending inventory assuming FIFO $427 $535 $310 $663 2014 Ending inventory assuming LIFO $436 N/A $167 N/A 2014 Ending inventory assuming FIFO $578 $612 $209 $542 2013 Current assets (reported on balance sheet) $1,677 $2,031 $1,308 $2,748 2013 Current liabilities $987 $1,209 $545 $1,200 2014 Current assets (reported on balance sheet) $2,225 $2,605 $1,100 $2,390 2014 Current liabilities $1,306 $1,410 $465 $1,000 2014 Cost of goods sold $4,678 $5,042 $3,000 $7,000 a. 12.3 times b. 9.3 times c. 7.5 times d. 6.4 times
A Solution: $4,678 ÷ [($324 + $436) ÷ 2] = $380
124. Dobler Company uses a periodic inventory system. Details for the inventory account for the month of January 2014 are as follows: Units Per unit price Total Balance, 1/1/2014 200 $5.00 $1,000 Purchase, 1/15/2014 100 5.30 530 Purchase, 1/28/2014 100 5.50 550 An end of the month (1/31/2014) inventory showed that 160 units were on hand. If the company uses FIFO and sells the units for $10 each, what is the gross profit for the month? a. $1,188 b. $1,212 c. $2,400 d. $1,600
A Solution: (200 × $5.00) + [(400 − 160 − 200) × $5.30] = $1,212; [(400 − 160) × $10] − $1,212 = $1.188
119. At May 1, 2014, Heineken Company had beginning inventory consisting of 200 units with a unit cost of $7. During May, the company purchased inventory as follows: 400 units at $7 600 units at $8 The company sold 1,000 units during the month for $12 per unit. Heineken uses the average cost method. Heineken's gross profit for the month of May is a. $4,500 b. $7,500 c. $9,000 d. $12,000
A Solution: [(200 × $7) + (400 × $7) + (600 × $8)] ÷ 1,200 = $7.50; [($12 − $7.50)] × 1,000 = $4,500
80. Peach Pink Inc. has the following inventory data: July 1 Beginning inventory 20 units at $20 $ 400 7 Purchases 70 units at $21 1,470 22 Purchases 10 units at $22 220 $2,090 A physical count of merchandise inventory on July 30 reveals that there are 25 units on hand. Using the FIFO inventory method, the amount allocated to cost of goods sold for July is a. $1,555 b. $1,585 c. $1,505. d. $1,540.
A, Solution: $400 + [(100 − 25 − 20) × $21] = $1,555
153. Use the following information regarding Black Company and Red Company to answer the question "Which amount is equal to Black Company's "days in inventory" for 2014 (to the closest decimal place)?" Year Inventory Turnover Ending Inventory Black Company 2012 $26,340 2013 10.7 $29,890 2014 10.4 $30,100 Red Company 2012 $25,860 2013 9.0 $24,750 2014 9.5 $22,530 a. 35.1 days b. 34.1 days c. 82.5 days d. 29.5 days
A, Solution: 365 ÷ 10.4 = 35.1
72. A company just began business and made the following four inventory purchases in June: June 1 150 units $ 825 June 10 200 units 1,120 June 15 200 units 1,140 June 28 150 units 885 $3,970 A physical count of merchandise inventory on June 30 reveals that there are 200 units on hand. Using the average-cost method, the amount allocated to the ending inventory on June 30 is a. $1,134. b. $1,180. c. $1,100. d. $1,120.
A, Solution: [($3,970 ÷ 700) × 200] = $1,134
82. Apple-A-Day Company has the following inventory data: July 1 Beginning inventory 20 units at $20 $ 400 7 Purchases 70 units at $21 1,470 22 Purchases 10 units at $22 220 $2,090 A physical count of merchandise inventory on July 30 reveals that there are 25 units on hand. Using the LIFO inventory method, the amount allocated to cost of goods sold for July is a. $1,585 b. $1,540 c. $1,555. d. $1,540.
A, Solution: $220 + [(100 − 25 − 10) × $21] = $1,585
117. A company just starting in business purchased three merchandise inventory items at the following prices. First purchase $80; Second purchase $95; Third purchase $85. If the company sold two units for a total of $290 and used FIFO costing, the gross profit for the period would be a. $115. b. $125. c. $110. d. $100.
A, Solution: $290 − ($80 + $95) = $115
168. Redeker Company had the following records: 2014 2013 2012 Ending inventory $34,580 $32,650 $30,490 Cost of goods sold 182,000 163,500 174,200 What is Redeker's average days in inventory for 2014? (rounded) a. 67.6 days b. 66.4 days c. 68.9 days d. 68.25 days
A, Solution: $365 ÷ 5.5 = 67.6
78. Radical Radials Company has the following inventory data: July 1 Beginning inventory 20 units at $19 $ 380 7 Purchases 70 units at $20 1,400 22 Purchases 10 units at $22 220 $2,000 A physical count of merchandise inventory on July 30 reveals that there are 32 units on hand. Using the LIFO inventory method, the amount allocated to ending inventory for July is a. $620 b. $608 c. $640 d. $704.
A, Solution: $380 + [(32 − 20) × $20] = $620
70. Atom Company just began business and made the following four inventory purchases in June: June 1 150 units $ 825 June 10 200 units 1,120 June 15 200 units 1,140 June 28 150 units 885 $3,970 A physical count of merchandise inventory on June 30 reveals that there are 200 units on hand. Using the LIFO inventory method, the value of the ending inventory on June 30 is a. $1,105. b. $1,100. c. $1,170. d. $1,180.
A, Solution: $825 + [($1,120 ÷ 200) × (200 − 150)] = $1,105
116. Hoover Company had beginning inventory of $15,000 at March 1, 2014. During the month, the company made purchases of $55,000. The inventory at the end of the month is $17,300. What is cost of goods sold for the month of March? a. $52,700 b. $55,000 c. $70,000 d. $72,300
A, Solution: ($15,000 + $55,000) − $17,300 = $52,700
90. Sassy Saxophones has the following inventory data: July 1 Beginning inventory 30 units at $120 5 Purchases 180 units at $112 14 Sale 120 units 21 Purchases 90 units at $115 30 Sale 84 units Assuming that a periodic inventory system is used, what is the amount allocated to ending inventory on a LIFO basis. a. $10,992 b. $11,022 c. $23,088. d. $23,118
A, Solution: (30 + 180 − 120 + 90 − 84) =96; (30 × $120) + (66 × $112) = $10,992
*182. Classic Floors has the following inventory data: July 1 Beginning inventory 15 units at $6.00 5 Purchases 60 units at $6.60 14 Sale 40 units 21 Purchases 30 units at $7.20 30 Sale 28 units Assuming that a perpetual inventory system is used, what is the cost of goods sold on a LIFO basis for July? a. $465.60 b. $236.40 c. $702.00 d. $348.00
A, Solution: (40 × $6.60) + (28 × $7.20) = $465.60
102. Automobile Audio has the following inventory data: Nov. 1 Inventory 30 units @ $4.00 each 8 Purchase 120 units @ $4.30 each 17 Purchase 60 units @ $4.20 each 25 Purchase 90 units @ $4.40 each A physical count of merchandise inventory on November 30 reveals that there are 100 units on hand. Ending inventory under FIFO is a. $438 b. $846 c. $421 d. $863
A, Solution: (90 × $4.40) + [(100 − 90) × $4.20] = $438
170. Barnett Company had the following records: 2014 2013 2012 Ending inventory $34,580 $37,650 $30,490 Cost of goods sold 273,000 255,250 261,300 What is Barnett's average days in inventory for 2013? (rounded) a. 45.1 days b. 48.0 days c. 46.8 days d. 365 days
A, Solution: 365 ÷ 8.1 = 45.1
*186. Snug-As-A-Bug Blankets has the following inventory data: July 1 Beginning inventory 15 units at $60 5 Purchases 90 units at $56 14 Sale 60 units 21 Purchases 45 units at $58 30 Sale 42 units Assuming that a perpetual inventory system is used, what is ending inventory (rounded) under the average cost method for July? a. $2,750 b. $2,784 c. $2,406. d. $2,772
A, Solution: [(15 × $60) + (90 × $56)] ÷ 105 = $56.571; [(45 × $56.571) + (45 × $58)] ÷ 90 = $57.286; 48 × $57.286 = $2,750
86. Which of the following terms best describes the assumption made in applying the four inventory methods? a. Goods flow b. Cost flow c. Asset flow d. Physical flow
B
94. A problem with the specific identification method is that a. inventories can be reported at actual costs. b. management can manipulate income. c. matching is not achieved. d. the lower of cost or market basis cannot be applied.
B
*189. A company uses the periodic inventory method and the beginning inventory is overstated by $4,000 because the ending inventory in the previous period was overstated by $4,000; the ending inventory for this period is correct. The amounts reflected in the current end of the period balance sheet are Asset Stockholders' Equity a. Overstated Overstated b. Correct Correct c. Understated Understated d. Overstated Correct
B
107. In periods of rising prices, which is an advantage of using the LIFO inventory costing method? a. Ending inventory will include latest (most recent) costs and thus be more realistic. b. Cost of goods sold will include latest (most recent) costs and thus will be more realistic. c. Net income will be the highest and thus reflect the prosperity of the company. d. Phantom profits are reported.
B
127. In a period of rising prices, which of the following inventory methods generally results in the lowest net income figure? a. Average cost method b. LIFO method c. FIFO method d. Need more information to answer
B
128. Which inventory method generally results in costs allocated to ending inventory that will approximate their current cost? a. LIFO b. FIFO c. Average cost method d. Whichever method that produces the highest ending inventory figure
B
130. If companies have identical inventoriable costs but use different inventory flow assumptions when the price of goods have not been constant, then the a. cost of goods sold of the companies will be identical. b. cost of goods purchased during the year will be identical. c. ending inventory of the companies will be identical. d. net income of the companies will be identical.
B
131. In a period of increasing prices, which inventory flow assumption will result in the lowest amount of income tax expense? a. FIFO b. LIFO c. Average cost method d. Income tax expense for the period will be the same under all assumptions.
B
136. In periods of inflation, phantom or paper profits may be reported as a result of using the a. perpetual inventory method. b. FIFO costing assumption. c. LIFO costing assumption. d. periodic inventory method.
B
148. Which statement concerning lower of cost or market (LCM) is incorrect? a. LCM is an example of a company choosing the accounting method that will be least likely to overstate assets and income. b. Under the LCM basis, market does not apply because assets are always recorded and maintained at cost. c. The LCM basis uses current replacement cost because a decline in this cost usually leads to a decline in the selling price of the inventory item. d. LCM is applied after one of the cost flow assumptions has been applied.
B
152. Johnson Company has a high inventory turnover that has increased over the last year. All of the following statements are true regarding this situation except Johnson County: a. is minimizing funds tied up in inventory. b. is increasing the amount of inventory on hand relative to sales. c. may be losing sales due to inventory shortages. d. has a cost of goods sold that is increasing relative to its average inventory.
B
176. All of the following statements are true regarding the LIFO reserve except: a. Companies using LIFO are required to report the LIFO reserve. b. The equation (LIFO inventory - LIFO reserve = FIFO inventory) adjusts the inventory balance from LIFO to FIFO. c. The financial statement differences of using LIFO normally increase the longer a company uses LIFO. d. Current ratios and the inventory turnover can be significantly affected if a company has material LIFO reserves.
B
180. Use the following information for Boxter, Inc., Clifford Company, Danforth Industries, and Evans Services to answer the question "Using the LIFO adjustment, which company shows the greatest improvement in its current ratio from 2013 to 2014?" (amounts in $ millions) Boxter Clifford Danforth Evans Inventory Method for 2013 & 2014 LIFO FIFO LIFO FIFO 2013 Ending inventory assuming LIFO $324 N/A $225 N/A 2013 Ending inventory assuming FIFO $427 $535 $310 $663 2014 Ending inventory assuming LIFO $436 N/A $167 N/A 2014 Ending inventory assuming FIFO $578 $612 $209 $542 2013 Current assets (reported on balance sheet) $1,677 $2,031 $1,308 $2,748 2013 Current liabilities $987 $1,209 $545 $1,200 2014 Current assets (reported on balance sheet) $2,225 $2,605 $1,100 $2,390 2014 Current liabilities $1,306 $1,410 $465 $1,000 2014 Cost of goods sold $4,678 $5,042 $3,000 $7,000 a. Boxter b. Clifford c. Danforth d. Evans
B
46. The factor which determines whether or not goods should be included in a physical count of inventory is a. physical possession. b. legal title. c. management's judgment. d. whether or not the purchase price has been paid.
B
53. Tidwell Company's goods in transit at December 31 include sales made (1) FOB destination (2) FOB shipping point and purchases made (3) FOB destination (4) FOB shipping point. Which items should be included in Tidwell's inventory at December 31? a. Sales made FOB shipping point and purchase made FOB destination b. (1) and (4) c. (1) and (3) d. (2) and (4)
B
56. Many companies use just-in-time inventory methods. Which of the following is not an advantage of this method? a. It limits the risk of having obsolete items in inventory. b. Companies may not have quantities to meet customer demand. c. It lowers inventory levels and costs. d. Companies can respond to individual customer requests.
B
64. Inventory costing methods place primary reliance on assumptions about the flow of a. goods. b. costs. c. resale prices. d. values.
B
84. Which of the following is an inventory costing method? a. Periodic b. Specific identification c. Perpetual d. Lower of cost or market
B
85. Inventory costing methods place primary reliance on assumptions about the flow of a. good. b. costs. c. resale prices. d. values.
B
96. Which of the following is not a common cost flow assumption used in costing inventory? a. First-in, first-out b. Middle-in, first-out c. Last-in, first-out d. Average cost
B
66. Alpha First Company just began business and made the following four inventory purchases in June: June 1 150 units $ 780 June 10 200 units 1,170 June 15 200 units 1,260 June 28 150 units 990 $4,200 A physical count of merchandise inventory on June 30 reveals that there are 210 units on hand. Using the LIFO inventory method, the value of the ending inventory on June 30 is a. $1,092 b. $1,131 c. $1,386 d. $1,368
B Solution: $780 + [($1,170 ÷ 200) × (210 − 150)] = $1,131
105. Laser Listening has the following inventory data: Nov. 1 Inventory 30 units @ $4.00 each 8 Purchase 120 units @ $4.30 each 17 Purchase 60 units @ $4.20 each 25 Purchase 90 units @ $4.40 each A physical count of merchandise inventory on November 30 reveals that there are 100 units on hand. Assuming that the specific identification method is used and that ending inventory consists of 30 units from each of the three purchases and 10 units from the November 1 inventory, cost of goods sold is a. $427. b. $857. c. $854. d. $836.
B Solution: (20 × $4.00) + (90 × $4.30) + (30 × $4.20) + (60 ×$4.40) = $857
139. The accountant at Patton Company has determined that income before income taxes amounted to $11,000 using the FIFO costing assumption. If the income tax rate is 30% and the amount of income taxes paid would be $600 greater if the LIFO assumption were used, what would be the amount of income before taxes under the LIFO assumption? a. $11,600 b. $13,000 c. $9,000 d. $10,400
B Solution: [($600 ÷ 30) + $11,000] = $13,000
76. Pop-up Party Favors Inc has the following inventory data: July 1 Beginning inventory 20 units at $19 $ 380 7 Purchases 70 units at $20 1,400 22 Purchases 10 units at $22 220 $2,000 A physical count of merchandise inventory on July 30 reveals that there are 32 units on hand. Using the FIFO inventory method, the amount allocated to ending inventory for July is a. $620. b. $660. c. $640. d. $704.
B, Solution: $220 + [(32 − 10) × $20] = $660
*185. Snug-As-A-Bug Blankets has the following inventory data: July 1 Beginning inventory 15 units at $60 5 Purchases 90 units at $56 14 Sale 60 units 21 Purchases 45 units at $58 30 Sale 42 units Assuming that a perpetual inventory system is used, what is the ending inventory on a LIFO basis for July? a. $2,748 b. $2,754 c. $2,772. d. $5,796
B, Solution: (15 × $60) + (30 × $56) + (3 × $58) = $2,754
91. Clear Clarinets has the following inventory data: July 1 Beginning inventory 30 units at $120 5 Purchases 180 units at $112 14 Sale 120 units 21 Purchases 90 units at $115 30 Sale 84 units Assuming that a periodic inventory system is used, what is the amount allocated to ending inventory on a FIFO basis. a. $10,932 b. $11,022 c. $23,088. d. $23,118
B, Solution: (30 + 180 − 120 + 90 − 84) = 96; (90 × $115) + (6 × $112) = $11,022
104. Delightful Discs has the following inventory data: Nov. 1 Inventory 30 units @ $4.00 each 8 Purchase 120 units @ $4.30 each 17 Purchase 60 units @ $4.20 each 25 Purchase 90 units @ $4.40 each A physical count of merchandise inventory on November 30 reveals that there are 100 units on hand. Ending inventory under LIFO is a. $438 b. $421 c. $846 d. $863
B, Solution: (30 × $4.00) + [(100 − 30) × $4.30] = $421
151. Whitman Corporation sells six different products. The following information is available on December 31: Inventory Item Units Cost per unit Market value per unit Estimated Selling Price Tin 30 $ 500 $ 505 $ 515 Titanium 10 5,000 4,950 5,100 Stainless Steel 40 2,000 1,910 1,985 Aluminum 40 350 285 290 Iron 20 400 410 425 Fiberglass 20 300 295 310 When applying the lower of cost or market rule to each item, what will Whitman's total ending inventory balance be? a. $173,000 b. $166,200 c. $166,550 d. $166,400
B, Solution: (30 × $500) + (10 × $4,950] + (40 × $1,910) + (40 + $285) + (20 × $400) + (20 × 295) = $166,200
74. Noise Makers Inc has the following inventory data: July 1 Beginning inventory 20 units at $19 $ 380 7 Purchases 70 units at $20 1,400 22 Purchases 10 units at $22 220 $2,000 A physical count of merchandise inventory on July 30 reveals that there are 32 units on hand. Using the average cost method, the value of ending inventory is a. $620. b. $640. c. $651. d. $660.
B, Solution: [($2,000 ÷ 100) × 32] = $640
79. Orange-Aide Company has the following inventory data: July 1 Beginning inventory 20 units at $20 $ 400 7 Purchases 70 units at $21 1,470 22 Purchases 10 units at $22 220 $2,090 A physical count of merchandise inventory on July 30 reveals that there are 25 units on hand. Using the average cost method, the value of ending inventory is a. $535 b. $523 c $525 d $550
B, Solution: [($2,090 ÷ 100) × $25] = $523
118. At May 1, 2014, Heineken Company had beginning inventory consisting of 200 units with a unit cost of $7. During May, the company purchased inventory as follows: 400 units at $7 600 units at $8 The company sold 1,000 units during the month for $12 per unit. Heineken uses the average cost method. The average cost per unit for May is a. $7.00. b. $7.50. c. $7.60. d. $8.00.
B, Solution: [(200 + $7) + (400 × $7) + (600 × $8)] ÷ 1,200 = $7.50
120. At May 1, 2014, Heineken Company had beginning inventory consisting of 200 units with a unit cost of $7. During May, the company purchased inventory as follows: 400 units at $7 600 units at $8 The company sold 1,000 units during the month for $12 per unit. Heineken uses the average cost method. The value of Heineken's inventory at May 31, 2014 is a. $1,400 b. $1,500 c. $1,600 d. $9,000
B, Solution: [(200 × $7) + (400 × $7) + (600 × $8)] ÷ 1,200 = $7.50; [($1,200 − $1,000) × $7.50] = $1,500
169. Barnett Company had the following records: 2014 2013 2012 Ending inventory $34,580 $32,650 $30,490 Cost of goods sold 273,000 255,250 261,300 What is Barnett's inventory turnover for 2013? (rounded) a. 7.6 times b. 8.1 times c. 0.1 times d. 7.8 times
B, Solution: $255,250 ÷ [($32,650 + $30,490) ÷2] = 8.1
177. Use the following information for Boxter, Inc., Clifford Company, Danforth Industries, and Evans Services to answer the question "What is Danforth's LIFO reserve for 2013?" (amounts in $ millions) Boxter Clifford Danforth Evans Inventory Method for 2013 & 2014 LIFO FIFO LIFO FIFO 2013 Ending inventory assuming LIFO $324 N/A $225 N/A 2013 Ending inventory assuming FIFO $427 $535 $310 $663 2014 Ending inventory assuming LIFO $436 N/A $167 N/A 2014 Ending inventory assuming FIFO $578 $612 $209 $542 2013 Current assets (reported on balance sheet) $1,677 $2,031 $1,308 $2,748 2013 Current liabilities $987 $1,209 $545 $1,200 2014 Current assets (reported on balance sheet) $2,225 $2,605 $1,100 $2,390 2014 Current liabilities $1,306 $1,410 $465 $1,000 2014 Cost of goods sold $4,678 $5,042 $3,000 $7,000 a. $535 b. $85 c. $42 d. $58
B, Solution: $310 − $225 = $85
83. Bonkers Bananas has the following inventory data: July 1 Beginning inventory 20 units at $20 $ 400 7 Purchases 70 units at $21 1,470 22 Purchases 10 units at $22 220 $2,090 A physical count of merchandise inventory on July 30 reveals that there are 25 units on hand. Using the LIFO inventory method, the amount allocated to ending inventory for July is a. $550 b. $505 c. $535 d. $500.
B, Solution: $400 + [(25 − 20) × $21] = $505
164. The following information was available for Bowyer Company at December 31, 2014: beginning inventory $90,000; ending inventory $70,000; cost of goods sold $880,000; and sales $1,200,000. Bowyer's inventory turnover in 2014 was a. 15.0 times. b. 11.0 times. c. 12.6 times. d. 9.8 times.
B, Solution: $880,000 ÷ [($90,000 + $70,000) ÷2] = 11
150. Nelson Corporation sells three different products. The following information is available on December 31: Inventory Item Units Cost per unit Market value per unit X 150 $4.00 $3.50 Y 300 $2.00 $1.50 Z 750 $3.00 $4.00 When applying the lower of cost or market rule to each item, what will Nelson's total ending inventory balance be? a. $3,450 b. $3,225 c. $3,975 d. $3,300
B, Solution: (150 × $3.50) + (300 × $1.50] + (750 × $3.00) = $3,325
123. Dobler Company uses a periodic inventory system. Details for the inventory account for the month of January 2014 are as follows: Units Per unit price Total Balance, 1/1/2014 200 $5.00 $1,000 Purchase, 1/15/2014 100 5.30 530 Purchase, 1/28/2014 100 5.50 550 An end of the month (1/31/2014) inventory showed that 160 units were on hand. If the company uses LIFO, what is the value of the ending inventory? a. $843 b. $800 c. $868 d. $1,280
B, Solution: (160 × $5.00) = $800
101. Serene Stereos has the following inventory data: Nov. 1 Inventory 30 units @ $4.00 each 8 Purchase 120 units @ $4.30 each 17 Purchase 60 units @ $4.20 each 25 Purchase 90 units @ $4.40 each A physical count of merchandise inventory on November 30 reveals that there are 100 units on hand. Cost of goods sold under FIFO is a. $438 b. $846 c. $421 d. $863
B, Solution: (30 × $4.00) + (120 × $4.30) + [(300 − 100 − 30 − 120) × $4.20] = $846
165. The following information was available for Bowyer Company at December 31, 2014: beginning inventory $90,000; ending inventory $70,000; cost of goods sold $880,000; and sales $1,200,000. Bowyer's days in inventory in 2014 was a. 24.3 days. b. 33.2 days. c. 29 days. d. 37.2 days.
B, Solution: 365 ÷ 11 = 33.2
*187. An error in the physical count of goods on hand at the end of a period resulted in a $10,000 overstatement of the ending inventory. The effect of this error in the current period is Cost of Goods Sold Net Income a. Understated Understated b. Overstated Overstated c. Understated Overstated d. Overstated Understated
C
129. Two companies report the same cost of goods available for sale but each employs a different inventory costing method. If the price of goods has increased during the period, then the company using a. LIFO will have the highest ending inventory. b. FIFO will have the highest cost of goods sold. c. FIFO will have the highest ending inventory. d. LIFO will have the lowest cost of goods sold.
C
145. The lower of cost or market basis of valuing inventories is an example of a. comparability. b. the historical cost principle. c. conservatism. d. consistency.
C
49. An employee assigned to counting computer monitors in boxes should a. estimate the number if there is a large quantity to be counted. b. read each box and rely on the box description for the contents. c. determine that the box contains a monitor. d. rely on the warehouse records of the number of computer monitors.
C
*188. If beginning inventory is understated by $10,000, the effect of this error in the current period is Cost of Goods Sold Net Income a. Understated Understated b. Overstated Overstated c. Understated Overstated d. Overstated Understated
C
*190. An overstatement of the beginning inventory results in a. no effect on the period's net income. b. an overstatement of net income. c. an understatement of net income. d. a need to adjust purchases.
C
*191. An overstatement of ending inventory in one period results in a. no effect on net income of the next period. b. an overstatement of net income of the next period. c. an understatement of net income of the next period. d. an overstatement of the ending inventory of the next period.
C
126. In a period of declining prices, which of the following inventory methods generally results in the lowest balance sheet figure for inventory? a. Average cost method b. LIFO method c. FIFO method d. Need more information to answer
C
141. The consistent application of an inventory costing method enhances a. conservatism. b. accuracy. c. comparability. d. efficiency.
C
142. Ace Company is a retailer operating in an industry that experiences inflation (rising prices). Ace wants to maintain a high current ratio. Which inventory costing method should Ace consider using? a. LIFO b. Average c. FIFO d. No inventory costing method directly affects the current ratio.
C
143. Ace Company is a retailer operating in an industry that experiences inflation (rising prices). Ace wants the most realistic cost of goods sold. Which inventory costing method should Ace consider using? a. Average because all inventory costs will then represent an average amount. b. Specific identification is the most realistic method because it involves the actual costs. c. LIFO because cost of goods sold represents the latest costs. d. FIFO because cost of goods sold represents the earliest costs.
C
159. The inventory turnover is calculated by dividing cost of goods sold by a. beginning inventory. b. ending inventory. c. average inventory. d. 365 days.
C
171. The difference between ending inventory using LIFO and ending inventory using FIFO is referred to as the a. FIFO reserve. b. inventory reserve. c. LIFO reserve. d. periodic reserve.
C
173. Reporting which one of the following allows analysts to make adjustments to compare companies using different cost flow methods? a. FIFO reserve b. Inventory turnover c. LIFO reserve d. Current replacement cost
C
178. Use the following information for Boxter, Inc., Clifford Company, Danforth Industries, and Evans Services to answer the question "Using the LIFO reserve adjustment, which company would has the strongest liquidity position for 2014 as expressed by the current ratio?" (amounts in $ millions) Boxter Clifford Danforth Evans Inventory Method for 2013 & 2014 LIFO FIFO LIFO FIFO 2013 Ending inventory assuming LIFO $324 N/A $225 N/A 2013 Ending inventory assuming FIFO $427 $535 $310 $663 2014 Ending inventory assuming LIFO $436 N/A $167 N/A 2014 Ending inventory assuming FIFO $578 $612 $209 $542 2013 Current assets (reported on balance sheet) $1,677 $2,031 $1,308 $2,748 2013 Current liabilities $987 $1,209 $545 $1,200 2014 Current assets (reported on balance sheet) $2,225 $2,605 $1,100 $2,390 2014 Current liabilities $1,306 $1,410 $465 $1,000 2014 Cost of goods sold $4,678 $5,042 $3,000 $7,000 a. Boxter b. Clifford c. Danforth d. Evans
C
48. Independent internal verification of the physical inventory process occurs when a. the employee is required to count all items twice for sake of verification. b. the items counted are compared to the inventory account balance. c. a second employee counts the inventory and compares the result to the count made by the first employee. d. all prenumbered inventory tags are accounted for.
C
51. When is a physical inventory usually taken? a. When goods are not being sold or received. b. When the company has its greatest amount of inventory. c. At the end of the company's fiscal year. d. When the company has its greatest amount of inventory and at the end of the company's fiscal year.
C
62. Manufacturers usually classify inventory into all the following general categories except: a. work in process b. finished goods c. merchandise inventory d. raw materials
C
65. The LIFO inventory method assumes that the cost of the latest units purchased are a. the last to be allocated to cost of goods sold. b. the first to be allocated to ending inventory. c. the first to be allocated to cost of goods sold. d. not allocated to cost of goods sold or ending inventory.
C
97. The accounting principle that requires that the cost flow assumption be consistent with the physical movement of goods is a. called the matching principle. b. called the consistency principle. c. nonexistent; that is, there is no such accounting requirement. d. called the physical flow assumption.
C
99. Which of the following statements is correct with respect to inventories? a. The FIFO method assumes that the costs of the earliest goods acquired are the last to be sold. b. It is generally good business management to sell the most recently acquired goods first. c. Under FIFO, the ending inventory is based on the latest units purchased. d. FIFO seldom coincides with the actual physical flow of inventory.
C
110. Hogan Industries had the following inventory transactions occur during 2014: Units Cost/unit Feb. 1, 2014 Purchase 36 $45 Mar. 14, 2014 Purchase 62 $47 May 1, 2014 Purchase 44 $49 The company sold 102 units at $63 each and has a tax rate of 30%. Assuming that a periodic inventory system is used, what is the company's gross profit using FIFO? (rounded to whole dollars) a. $4,882 b. $4,730 c. $1,696 d. $1,544
C Solution: (36 × $45) + (62 × $47) + [(102 − 98) × $49] = $4,730; [(102 × $63) − $4,730] = $1,696
114. Dole Industries had the following inventory transactions occur during 2014: Units Cost/unit Feb. 1, 2014 Purchase 72 $90 Mar. 14, 2014 Purchase 124 $94 May 1, 2014 Purchase 88 $98 The company sold 204 units at $126 each and has a tax rate of 30%. Assuming that a periodic inventory system is used, what is the company's gross profit using FIFO? (rounded to whole dollars) a. $19,528 b. $18,920 c. $6,784 d. $6,176
C Solution: (72 × $90) + (124 × $94) + [(204 − 196) × $98] = $18,920; [(204 × $126) − $18,920] = $6,784
138. The accountant at Landry Company is figuring out the difference in income taxes the company will pay depending on the choice of either FIFO or LIFO as an inventory costing method. The tax rate is 30% and the FIFO method will result in income before taxes of $8,740. The LIFO method will result in income before taxes of $8,100. What is the difference in tax that would be paid between the two methods? a. $640 b. $448 c. $192 d. Cannot be determined from the information provided.
C Solution: [($8,740 − $8,100) × .30] = 192
81. Grape Gratuities Company has the following inventory data: July 1 Beginning inventory 20 units at $20 $ 400 7 Purchases 70 units at $21 1,470 22 Purchases 10 units at $22 220 $2,090 A physical count of merchandise inventory on July 30 reveals that there are 25 units on hand. Using the FIFO inventory method, the amount allocated to ending inventory for July is a. $585. b. $505. c. $535. d. $550.
C, Solution: $220 + [(25 − 10) × $21] = $535
75. Olympus Climbers Company has the following inventory data: July 1 Beginning inventory 20 units at $19 $ 380 7 Purchases 70 units at $20 1,400 22 Purchases 10 units at $22 220 $2,000 A physical count of merchandise inventory on July 30 reveals that there are 32 units on hand. Using the FIFO inventory method, the amount allocated to cost of goods sold for July is a. $620. b. $660. c. $1,340. d. $1,380.
C, Solution: $380 + [(100 − 32 − 20) × $20] = $1,340
67. Baker Bakery Company just began business and made the following four inventory purchases in June: June 1 150 units $ 780 June 10 200 units 1,170 June 15 200 units 1,260 June 28 150 units 990 $4,200 A physical count of merchandise inventory on June 30 reveals that there are 210 units on hand. Using the FIFO inventory method, the amount allocated to ending inventory for June is a. $1,092 b. $1,131 c. $1,368 d. $1,386
C, Solution: $990 + [($1,260 ÷ 200) × (210 − 150)] = $1,368
89. Trumpeting Trumpets has the following inventory data: July 1 Beginning inventory 30 units at $120 5 Purchases 180 units at $112 14 Sale 120 units 21 Purchases 90 units at $115 30 Sale 84 units Assuming that a periodic inventory system is used, what is the cost of goods sold on a FIFO basis. a. $10,992 b. $11,022 c. $23,088. d. $23,118
C, Solution: (30 × $120) + [(120 + 84 − 30) × $112] = $23,088
111. Hogan Industries had the following inventory transactions occur during 2014: Units Cost/unit Feb. 1, 2014 Purchase 36 $45 Mar. 14, 2014 Purchase 62 $47 May 1, 2014 Purchase 44 $49 The company sold 102 units at $63 each and has a tax rate of 30%. Assuming that a periodic inventory system is used and operating expenses of $600, what is the company's after-tax income using FIFO? (rounded to whole dollars) a. $944 b. $1,096 c. $767 d. $661
C, Solution: (36 × $45) + (62 × $47) + [(102 − 98) × $49] = $4,730; [(102 × $63) − $4,730] = $1,696; ($1,696 − $600) × .70 = $767
115 Dole Industries had the following inventory transactions occur during 2014: Units Cost/unit Feb. 1, 2014 Purchase 72 $90 Mar. 14, 2014 Purchase 124 $94 May 1, 2014 Purchase 88 $98 The company sold 204 units at $126 each and has a tax rate of 30%. Assuming that a periodic inventory system is used and operating expenses of $2,000, what is the company's after-tax income using FIFO? (rounded to whole dollars) a. $4,176 b. $4,784 c. $3,349 d. $2,923
C, Solution: (72 × $90) + (124 × $94) + [(204 − 196) × $98] = $18,920; [(204 × $126) − $18,920] = $6,784; ($6,784 − $2,000) × .70 = $3,349
163. The following information was available for Camara Company at December 31, 2014: beginning inventory $80,000; ending inventory $120,000; cost of goods sold $560,000; and sales $800,000. Camara's days in inventory in 2014 was a. 45.6 days. b. 54.5 days. c. 65.2 days. d. 77.7 days.
C, Solution: 365 ÷ 5.6 = 65.2
174. Butler Company reported ending inventory at December 31, 2014 of $1,200,000 under LIFO. It also reported a LIFO reserve of $210,000 at January 1, 2014, and $300,000 at December 31, 2014. Cost of goods sold for 2014 was $4,600,000. If Butler Company had used FIFO during 2014, its cost of goods sold for 2014 would have been a. $4,900,000. b. $4,690,000. c. $4,510,000. d. $4,300,000.
C, Solution: [$4,600,000 − ($300,000 − $210,000)] = 4,510,000
73. A company purchased inventory as follows: 200 units at $5.00 300 units at $5.50 The average unit cost for inventory is a. $5.00. b. $5.25. c. $5.30. d. $5.50.
C, Solution: [($200 × $5.00) + (300 × $5.50)] ÷ (200 + 300) = $5.30
140. The manager of Weiser is given a bonus based on net income before taxes. The net income after taxes is $35,700 for FIFO and $29,400 for LIFO. The tax rate is 30%. The bonus rate is 20%. How much higher is the manager's bonus if FIFO is adopted instead of LIFO? a. $9,000 b. $12,600 c. $1,800 d. $6,300
C, Solution: [($35,700 − $29,400) ÷.70] = $9,000; $9,000 × .20 = $1,800
122. Dobler Company uses a periodic inventory system. Details for the inventory account for the month of January 2014 are as follows: Units Per unit price Total Balance, 1/1/2014 200 $5.00 $1,000 Purchase, 1/15/2014 100 5.30 530 Purchase, 1/28/2014 100 5.50 550 An end of the month (1/31/2014) inventory showed that 160 units were on hand. If the company uses FIFO, what is the value of the ending inventory? a. $880 b. $800 c. $868 d. $1,212
C, Solution: $550 + [(160 − 100) × $5.30] = $868
162. The following information was available for Camara Company at December 31, 2014: beginning inventory $80,000; ending inventory $120,000; cost of goods sold $560,000; and sales $800,000. Camara's inventory turnover in 2014 was a. 8.0 times. b. 6.7 times. c. 5.6 times. d. 4.7 times.
C, Solution: $560,000 ÷ [($80,000 + $120,000) ÷2] = 5.6
149. Jenks Company developed the following information about its inventories in applying the lower of cost or market (LCM) basis in valuing inventories: Product Cost _ Market _ A $57,000 $60,000 B 40,000 38,000 C 80,000 81,000 If Jenks applies the LCM basis, the value of the inventory reported on the balance sheet would be a. $177,000. b. $179,000. c. $175,000. d. $181,000.
C, Solution: $57,000 + $38,000 + $80,000] = $175,000
71. Quark Inc. just began business and made the following four inventory purchases in June: June 1 150 units $ 825 June 10 200 units 1,120 June 15 200 units 1,140 June 28 150 units 885 $3,970 A physical count of merchandise inventory on June 30 reveals that there are 200 units on hand. Using the FIFO inventory method, the amount allocated to ending inventory for June is a. $1,105. b. $1,100. c. $1,170. d. $1,180.
C, Solution: $885 + [($1,140 ÷ 200) × (200 − 150)] = $1,170
*184. Snug-As-A-Bug Blankets has the following inventory data: July 1 Beginning inventory 15 units at $60 5 Purchases 90 units at $56 14 Sale 60 units 21 Purchases 45 units at $58 30 Sale 42 units Assuming that a perpetual inventory system is used, what is the cost of goods sold on a LIFO basis for July? a. $5,802 b. $5,772 c. $5,796. d. $5,916
C, Solution: (60 × $56) + (42 × $58) = $5,796
155. Use the following information regarding Black Company and Red Company to answer the question "Which of the following is Black Company's "cost of goods sold" for 2013 (to the closest dollar)?" Year Inventory Turnover Ending Inventory Black Company 2012 $26,340 2013 10.7 $29,890 2014 10.4 $30,100 Red Company 2012 $25,860 2013 8.8 $24,750 2014 9.5 $22,530 a. $300,830 b. $281,838 c. $319,823 d. $320,946
C, Solution: 10.7 × $29,890 = $319,823
*181. In a perpetual inventory system, a. LIFO cost of goods sold will be the same as in a periodic inventory system. b. average costs are based entirely on unit cost simple averages. c. a new average is computed under the average cost method after each sale. d. FIFO cost of goods sold will be the same as in a periodic inventory system.
D
100. Given equal circumstances, which inventory method would probably be the most time consuming? a. FIFO b. LIFO c. Average cost d. Specific identification.
D
158. An aircraft company would most likely have a a. high inventory turnover. b. low profit margin. c. high volume. d. low inventory turnover.
D
59. Reeves Company is taking a physical inventory on March 31, the last day of its fiscal year. Which of the following must be included in this inventory count? a. Goods in transit to Reeves, FOB destination b. Goods that Reeves is holding on consignment for Parker Company c. Goods in transit that Reeves has sold to Smith Company, FOB shipping point d. Goods that Reeves is holding in inventory on March 31 for which the related Accounts Payable is 15 days past due
D
63. For companies that use a perpetual inventory system, all of the following are purposes for taking a physical inventory except to: a. check the accuracy of the records. b. determine the amount of wasted raw materials. c. determine losses due to employee theft. d. determine ownership of the goods.
D
106. Which inventory costing method should a gasoline retailer use? a. Average cost b. LIFO c. FIFO d. Either LIFO or FIFO.
D
133. The specific identification method of costing inventories is used when the a. physical flow of units cannot be determined. b. company sells large quantities of relatively low cost homogeneous items. c. company sells large quantities of relatively low cost heterogeneous items. d. company sells a limited quantity of high-unit cost items.
D
134. The specific identification method of inventory costing a. always maximizes a company's net income. b. always minimizes a company's net income. c. has no effect on a company's net income. d. may enable management to manipulate net income.
D
144. Ace Company is a retailer operating in an industry that experiences inflation (rising prices). Ace wants the most realistic ending inventory. Which inventory costing method should Ace consider using? a. Average because all inventory costs will then represent an average amount. b. Specific identification is the most realistic method because it involves the actual costs. c. LIFO because ending inventory represents the earliest costs. d. FIFO because ending inventory represents the latest costs.
D
157. Which of the following companies would most likely have the highest inventory turnover? a. An art gallery. b. An automobile manufacturer. c. A piano manufacturer. d. A bakery.
D
160. Days in inventory is calculated by dividing 365 days by a. average inventory. b. beginning inventory. c. ending inventory. d. the inventory turnover.
D
161. Which of these would cause the inventory turnover ratio to increase the most? a. Increasing the amount of inventory on hand. b. Keeping the amount of inventory on hand constant but increasing sales. c. Keeping the amount of inventory on hand constant but decreasing sales. d. Decreasing the amount of inventory on hand and increasing sales.
D
175. To adjust a company's LIFO cost of goods sold to FIFO cost of goods sold a. the ending LIFO reserve is added to LIFO cost of goods sold. b. the ending LIFO reserve is subtracted from LIFO cost of goods sold. c. an increase in the LIFO reserve is subtracted from LIFO cost of goods sold. d. a decrease in the LIFO reserve is subtracted from LIFO cost of goods sold.
D
58. Which statement is false? a. Taking a physical inventory involves actually counting, weighing, or measuring each kind of inventory on hand. b. No matter whether a periodic or perpetual inventory system is used, all companies need to determine inventory quantities at the end of each accounting period. c. An inventory count is generally more accurate when goods are not being sold or received during the counting. d. Companies that use a perpetual inventory system must take a physical inventory to determine inventory on hand on the balance sheet date and to determine cost of goods sold for the accounting period.
D
87. An assumption about cost flow is necessary a. because it is required by the income tax regulation. b. even when there is no change in the purchase price on inventory. c. only when the flow of goods cannot be determined. d. because prices usually change, and tracking which units have been sold is difficult.
D
92. Which of the following items will increase inventoriable costs for the buyer of goods? a. Purchase returns and allowances granted by the seller b. Purchase discounts taken by the purchaser c. Freight charges paid by the seller d. Freight charges paid by the purchaser
D
93. Of the following companies, which one would not likely employ the specific identification method for inventory costing? a. Music store specializing in organ sales b. Farm implement dealership c. Antique shop d. Hardware store
D
95. The selection of an appropriate inventory cost flow assumption for an individual company is made by a. the external auditors. b. the SEC. c. the internal auditors. d. management.
D
60. At December 31, 2014 Mohling Company's inventory records indicated a balance of $602,000. Upon further investigation it was determined that this amount included the following: $112,000 in inventory purchases made by Mohling shipped from the seller 12/27/14 terms FOB destination, but not due to be received until January 2nd $74,000 in goods sold by Mohling with terms FOB destination on December 27th. The goods are not expected to reach their destination until January 6th. $6,000 of goods received on consignment from Dollywood Company What is Mohling's correct ending inventory balance at December 31, 2014? a. $490,000 b. $596,000 c. $410,000 d. $484,000
D Solution: $602,000 − $112,000 − $6,000 = $484,000
61. At December 31, 2014 Howell Company's inventory records indicated a balance of $858,000. Upon further investigation it was determined that this amount included the following: $168,000 in inventory purchases made by Howell shipped from the seller 12/27/14 terms FOB destination, but not due to be received until January 2nd $111,000 in goods sold by Howell with terms FOB destination on December 27th. The goods are not expected to reach their destination until January 6th. $9,000 of goods received on consignment from Westwood Company What is Howell's correct ending inventory balance at December 31, 2014? a. $690,000 b. $849,000 c. $570,000 d. $681,000
D Solution: $858,000 − $168,000 − $9,000 = $681,000
68. Charlene Cosmetics Company just began business and made the following four inventory purchases in June: June 1 150 units $ 780 June 10 200 units 1,170 June 15 200 units 1,260 June 28 150 units 990 $4,200 A physical count of merchandise inventory on June 30 reveals that there are 210 units on hand. Using the average cost method, the amount allocated to the ending inventory on June 30 is a. $1,229. b. $1,368. c. $1,323. d. $1,260.
D Solution: ($4,200 ÷ 700) × 210 = $1,260
108. Hogan Industries had the following inventory transactions occur during 2014: Units Cost/unit Feb. 1, 2014 Purchase 36 $45 Mar. 14, 2014 Purchase 62 $47 May 1, 2014 Purchase 44 $49 The company sold 102 units at $63 each and has a tax rate of 30%. Assuming that a periodic inventory system is used, what is the company's gross profit using LIFO? (rounded to whole dollars) a. $4,882 b. $4,730 c. $1,696 d. $1,544
D Solution: (44 × $49) + [(102 − $44) × $47] = $4,882; [(102 × $63) − $4,882] = $1,544
113. Dole Industries had the following inventory transactions occur during 2014: Units Cost/unit Feb. 1, 2014 Purchase 72 $90 Mar. 14, 2014 Purchase 124 $94 May 1, 2014 Purchase 88 $98 The company sold 204 units at $126 each and has a tax rate of 30%. Assuming that a periodic inventory system is used, and operating expenses of $2,000, what is the company's after-tax income using LIFO? (rounded to whole dollars) a. $4,176 b. $4,323 c. $3,349 d. $2,923
D Solution: (88 × $98) + [(204 − 88) × $94] = $19,528; [(204 × $126) − $19,528] = $6,176; ($6,176 − $2,000) × .70 = $2,923
88. Piper Pipes has the following inventory data: July 1 Beginning inventory 30 units at $120 5 Purchases 180 units at $112 14 Sale 120 units 21 Purchases 90 units at $115 30 Sale 84 units Assuming that a periodic inventory system is used, what is the cost of goods sold on a LIFO basis. a. $10,992 b. $11,022 c. $23,088. d. $23,118
D, Solution: (90 × $115) + [(120 + 84 − 90) × $112] = $23,118
77. Quiet Phones Company has the following inventory data: July 1 Beginning inventory 20 units at $19 $ 380 7 Purchases 70 units at $20 1,400 22 Purchases 10 units at $22 220 $2,000 A physical count of merchandise inventory on July 30 reveals that there are 32 units on hand. Using the LIFO inventory method, the amount allocated to cost of goods sold for July is a. $620. b. $660. c. $1,340. d. $1,380.
D, Solution: $220 + [(100 − 32 − 10) × $20] = $1,380
*183. Classic Floors has the following inventory data: July 1 Beginning inventory 15 units at $6.00 5 Purchases 60 units at $6.60 14 Sale 40 units 21 Purchases 30 units at $7.20 30 Sale 28 units Assuming that a perpetual inventory system is used, what is the value of ending inventory on a LIFO basis for July? a. $465.60 b. $702.00 c. $354.00 d. $236.40
D, Solution: (15 × $6.00) + (20 × $6.60) + (2 × $7.20)= $236.40
109. Hogan Industries had the following inventory transactions occur during 2014: Units Cost/unit Feb. 1, 2014 Purchase 36 $45 Mar. 14, 2014 Purchase 62 $47 May 1, 2014 Purchase 44 $49 The company sold 102 units at $63 each and has a tax rate of 30%. Assuming that a periodic inventory system is used, and operating expenses of $600, what is the company's after-tax income using LIFO? (rounded to whole dollars) a. $944 b. $1,096 c. $767 d. $661
D, Solution: (44 × $49) + [(102 − $44) × $47] = $4,882; [(102 × $63) − $4,882] = $1,544; ($1,544 − $600) × .70 $661
112. Dole Industries had the following inventory transactions occur during 2014: Units Cost/unit Feb. 1, 2014 Purchase 72 $90 Mar. 14, 2014 Purchase 124 $94 May 1, 2014 Purchase 88 $98 The company sold 204 units at $126 each and has a tax rate of 30%. Assuming that a periodic inventory system is used, what is the company's gross profit using LIFO? (rounded to whole dollars) a. $19,528 b. $18,920 c. $6,784 d. $6,176
D, Solution: (88 × $98) + [(204 − 88) × $94] = $19,528; [(204 × $126) − $19,528] = $6,176
103. Carryable CDs has the following inventory data: Nov. 1 Inventory 30 units @ $4.00 each 8 Purchase 120 units @ $4.30 each 17 Purchase 60 units @ $4.20 each 25 Purchase 90 units @ $4.40 each A physical count of merchandise inventory on November 30 reveals that there are 100 units on hand. Cost of goods sold under LIFO is a. $438 b. $846 c. $421 d. $863
D, Solution: (90 × $4.40) + (60 × $4.20) + [(200 − 150) × $4.30] = $863
154. Use the following information regarding Black Company and Red Company to answer the question "Which amount is equal to Red Company's "days in inventory" for 2013 (to the closest decimal place)?" Year Inventory Turnover Ending Inventory Black Company 2012 $26,340 2013 10.7 $29,890 2014 10.4 $30,100 Red Company 2012 $25,860 2013 9.0 $24,750 2014 9.5 $22,530 a. 67.8 days b. 38.4 days c. 28.1 days d. 40.6 days
D, Solution: 365 ÷ 9 = 40.6
156. Use the following information regarding Black Company and Red Company to answer the question "Which of the following is Red Company's "cost of goods sold" for 2014 (to the closest dollar)?" Year Inventory Turnover Ratio Ending Inventory Black Company 2012 $26,340 2013 10.7 $29,890 2014 10.2 $30,100 Red Company 2012 $25,860 2013 9.0 $24,750 2014 9.5 $22,530 a. $222,684 b. $235,125 c. $224,580 d. $214,035
D, Solution: 9.5 × $22,530 = $214,035
121. Dobler Company uses a periodic inventory system. Details for the inventory account for the month of January 2014 are as follows: Units Per unit price Total Balance, 1/1/2014 200 $5.00 $1,000 Purchase, 1/15/2014 100 5.30 530 Purchase, 1/28/2014 100 5.50 550 An end of the month (1/31/2014) inventory showed that 160 units were on hand. How many units did the company sell during January 2014? a. 60 b. 160 c. 200 d. 240
D, Solution: [(200 + 100 + 100) − 160] = 240
