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In a perpetual inventory system, the cost of purchases is debited to:

C. Inventory.

In a periodic inventory system, the cost of purchases is debited to:

A. Purchases.

In a perpetual inventory system, the cost of inventory sold is:

C. Debited to cost of goods sold.

In a periodic inventory system, the cost of inventories sold is:

D. Not recorded at the time of sale.

The inventory method that will always produce the same amount for cost of goods sold in a periodic inventory system as in a perpetual inventory system would be:

A. FIFO.

The Mateo Corporation's inventory at December 31, 2011, was $325,000 based on a physical count priced at cost, and before any necessary adjustment for the following:
▪ Merchandise costing $30,000, shipped F.o.b. shipping point from a vendor on December 30, 2011, was received on January 5, 2012.
▪ Merchandise costing $22,000, shipped F.o.b. destination from a vendor on December 28, 2011, was received on January 3, 2012.
▪ Merchandise costing $38,000 was shipped to a customer F.o.b. destination on December 28, arrived at the customer's location on January 6, 2012.
▪ Merchandise costing $12,000 was being held on consignment by Traynor Company.
What amount should Mateo Corporation report as inventory in its December 31, 2011, balance sheet?

C. $405,000.

Ending inventory is equal to the cost of items on hand plus:

C. Items in transit sold f.o.b. destination.

Purchases equal the invoice amount:

C. Plus freight-in, less purchase discounts.

Using the gross method, purchase discounts lost are:

A. Included in purchases.

Under the net method, purchase discounts lost are:

C. Included in interest expense.

Inventory does not include:

C. Equipment used in the manufacturing of assets for sale.

Under the gross method, purchase discounts taken are:

D. Deducted from purchases.

Alison's dress shop buys dresses from McGuire Manufacturing. Alison purchased dresses from McGuire on July 17, and received an invoice with a list price amount of $6,000 and payment terms of 2/10, n/30. Alison uses the net method to record purchases. Alison should record the purchase at:

B. $5,880.

Northwest Fur Co. started 2011 with $94,000 of merchandise inventory on hand. During 2011, $400,000 in merchandise was purchased on account with credit terms of 1/15, n/45. All discounts were taken. Purchases were all made f.o.b. shipping point. Northwest paid freight charges of $7,500. Merchandise with an invoice amount of $5,000 was returned for credit. Cost of goods sold for the year was $380,000. Northwest uses a perpetual inventory system.

What is ending inventory assuming Northwest uses the gross method to record purchases?

B. $112,550.

Northwest Fur Co. started 2011 with $94,000 of merchandise inventory on hand. During 2011, $400,000 in merchandise was purchased on account with credit terms of 1/15, n/45. All discounts were taken. Purchases were all made f.o.b. shipping point. Northwest paid freight charges of $7,500. Merchandise with an invoice amount of $5,000 was returned for credit. Cost of goods sold for the year was $380,000. Northwest uses a perpetual inventory system.

Assuming Northwest uses the gross method to record purchases, what is the cost of goods available for sale?

D. $492,550.

Cinnamon Buns Co. (CBC) started 2011 with $52,000 of merchandise on hand. During 2011, $280,000 in merchandise was purchased on account with credit terms of 2/10 n/30. All discounts were taken. Purchases were all made f.o.b. shipping point. CBC paid freight charges of $9,000. Merchandise with an invoice amount of $4,000 was returned for credit. Cost of goods sold for the year was $316,000. CBC uses a perpetual inventory system.

Assuming CBC uses the gross method to record purchases, ending inventory would be:

C. $15,480.

Cinnamon Buns Co. (CBC) started 2011 with $52,000 of merchandise on hand. During 2011, $280,000 in merchandise was purchased on account with credit terms of 2/10 n/30. All discounts were taken. Purchases were all made f.o.b. shipping point. CBC paid freight charges of $9,000. Merchandise with an invoice amount of $4,000 was returned for credit. Cost of goods sold for the year was $316,000. CBC uses a perpetual inventory system.

What is cost of goods available for sale, assuming CBC uses the gross method?

C. $331,480.

Cost of goods sold is given by:

D. Net Purchases + beginning inventory - ending inventory.

The LIFO Conformity Rule states that if LIFO is used for:

B. Tax purposes, it must be used for financial reporting.

The largest expense on a retailer's income statement is typically:

B. Cost of goods sold.

In a perpetual average cost system:

A. A new weighted-average unit cost is calculated each time additional units are purchased.

In a period when costs are rising and inventory quantities are stable, the inventory method that would result in the highest ending inventory is:

C. FIFO.

During periods when costs are rising and inventory quantities are stable, cost of goods sold will be:

C. Lower under average cost than LIFO.

During periods when costs are rising and inventory quantities are stable, ending inventory will be:

D. Higher under FIFO than LIFO.

In periods when costs are rising, LIFO liquidations:

D. Distort the net income.

The use of LIFO during a long inflationary period can result in:

C. Significant cash flow advantages over FIFO.

Company A is identical to Company B in every regard except that Company A uses FIFO and Company B uses LIFO. In an extended period of rising inventory costs, Company A's gross profit and inventory turnover ratio, compared to Company B's, would be:

C. Option C (Gross Profit: higher / Inventory turnover: Lower)

Gross Profit

total Revenue - COGS

Inventory Turnover

COGS/ Avg Inventory

Company C is identical to Company D in every respect except that Company C uses LIFO and Company D uses average costs. In an extended period of rising inventory costs, Company C's gross profit and inventory turnover ratio, compared to Company D's, would be:

D. Option d (Gross Profit: lower/ Inventory turnover: higher)

Fulbright Corp. uses the periodic inventory system. During its first year of operations, Fulbright made the following purchases (listed in chronological order of acquisition):
• 40 units at $100
• 70 units at $80
• 170 units at $60
Sales for the year totaled 270 units, leaving 10 units on hand at the end of the year.

Ending inventory using the average cost method (rounded) is:

C. $707.

Fulbright Corp. uses the periodic inventory system. During its first year of operations, Fulbright made the following purchases (listed in chronological order of acquisition):
• 40 units at $100
• 70 units at $80
• 170 units at $60
Sales for the year totaled 270 units, leaving 10 units on hand at the end of the year.

Ending inventory using the FIFO method is:

D. $600.

Fulbright Corp. uses the periodic inventory system. During its first year of operations, Fulbright made the following purchases (listed in chronological order of acquisition):
• 40 units at $100
• 70 units at $80
• 170 units at $60
Sales for the year totaled 270 units, leaving 10 units on hand at the end of the year.

Ending inventory using the LIFO method is:

B. $1,000.

Nu Company reported the following pretax data for its first year of operations.
Net Sales 2,800
COGS 2,500
Op. Exp 880
Effective tax rate 40%
Ending inventory (LIFO: 820)
Ending inventory (FIFO: 1,060)

What is Nu's net income if it elects FIFO?

B. $288.

Nu Company reported the following pretax data for its first year of operations.
Net Sales 2,800
COGS 2,500
Op. Exp 880
Effective tax rate 40%
Ending inventory (LIFO: 820)
Ending inventory (FIFO: 1,060)

What is Nu's net income if it elects LIFO?

B. $144.

Nu Company reported the following pretax data for its first year of operations.
Net Sales 2,800
COGS 2,500
Op. Exp 880
Effective tax rate 40%
Ending inventory (LIFO: 820)
Ending inventory (FIFO: 1,060)

What is Nu's gross profit ratio if it elects LIFO?

C. 40%.

Nueva Company reported the following pretax data for its first year of operations.
Net Sales 7,340
COGS 5,790
Op. Exp 1,728
Effective tax rate 40%
Ending inventory (LIFO: 618)
Ending inventory (FIFO: 798)

What is Nueva's gross profit ratio (rounded) if it elects FIFO?

B. 32%.

Nueva Company reported the following pretax data for its first year of operations.
Net Sales 7,340
COGS 5,790
Op. Exp 1,728
Effective tax rate 40%
Ending inventory (LIFO: 618)
Ending inventory (FIFO: 798)

What is Nueva's net income if it elects FIFO?

D. $372.

Nueva Company reported the following pretax data for its first year of operations.
Net Sales 7,340
COGS 5,790
Op. Exp 1,728
Effective tax rate 40%
Ending inventory (LIFO: 618)
Ending inventory (FIFO: 798)

What is Nueva's net income if it elects LIFO?

B. $264.

Inventory records for Herb's Chemicals revealed the following:
March 1, 2011, inventory: 1,000 gallons @ $7.20 = $7,200
Purchases Sales
Mar 10 600@7.25 Mar 5 400
Mar 16 800 @ 7.30 Mar 14 700
Mar 23 600 @7.35 Mar 20 500
Mar 26 700
Ending inventory assuming LIFO in a periodic inventory system would be:

A. $5,040.

Inventory records for Herb's Chemicals revealed the following:
March 1, 2011, inventory: 1,000 gallons @ $7.20 = $7,200
Purchases Sales
Mar 10 600@7.25 Mar 5 400
Mar 16 800 @ 7.30 Mar 14 700
Mar 23 600 @7.35 Mar 20 500
Mar 26 700
Ending inventory assuming LIFO in a perpetual inventory system would be:

B. $5,060.

Inventory records for Herb's Chemicals revealed the following:
March 1, 2011, inventory: 1,000 gallons @ $7.20 = $7,200
Purchases Sales
Mar 10 600@7.25 Mar 5 400
Mar 16 800 @ 7.30 Mar 14 700
Mar 23 600 @7.35 Mar 20 500
Mar 26 700
The ending inventory assuming FIFO is:

A. $5,140.

Inventory records for Herb's Chemicals revealed the following:
March 1, 2011, inventory: 1,000 gallons @ $7.20 = $7,200
Purchases Sales
Mar 10 600@7.25 Mar 5 400
Mar 16 800 @ 7.30 Mar 14 700
Mar 23 600 @7.35 Mar 20 500
Mar 26 700
The ending inventory under a periodic inventory system assuming average cost (rounding unit cost to three decimal places) is:

A. $5,087.

Texas Petrochemical reported the following April activity for its VC-30 lubricant, which had a balance of 300 qts. @ $2.40 on April 1.
Purchases Sales
Apr 10 500@2.50 Ap 3 200
Apr14 400 @ 2.60 Apr 12 500
Apr 20 400 @2.65 Apr 26 300
The ending inventory assuming LIFO and a periodic inventory system is:

D. $1,470.

Texas Petrochemical reported the following April activity for its VC-30 lubricant, which had a balance of 300 qts. @ $2.40 on April 1.
Purchases Sales
Apr 10 500@2.50 Ap 3 200
Apr14 400 @ 2.60 Apr 12 500
Apr 20 400 @2.65 Apr 26 300
The ending inventory assuming LIFO and a perpetual inventory system is:

A. $1,545.

The use of LIFO in accounting for a firm's inventory:

C. Usually provides a better match of expenses with revenues.

In a period when costs are falling and inventory quantities are stable, the lowest taxable income would be reported by using the inventory method of:

D. FIFO.

The primary reason for the popularity of LIFO is that it:

B. Saves income taxes currently.

When reported in financial statements, a LIFO allowance account usually:

B. Is added to LIFO cost to indicate what the inventory would cost on a FIFO basis.

. If a company uses LIFO, a LIFO liquidation is problematic for a company's income taxes:

A. When inventory purchase costs are rising.

GG Inc. uses LIFO. GG disclosed that if FIFO had been used, inventory at the end of 2011 would have been $15 million higher than the difference between LIFO and FIFO at the end of 2010. Assuming GG has a 40% income tax rate:

C. Its reported net income for 2011 would have been $9 million higher if it had used FIFO rather than LIFO for its financial statements.

HH Company uses LIFO. HH disclosed that if FIFO had been used, inventory at the end of 2011 would have been $20 million lower than the difference between LIFO and FIFO at the end of 2010. Assuming HH has a 30% income tax rate:

D. Its reported cost of goods sold for 2011 would have been $20 million higher if it had used FIFO rather than LIFO for its financial statements.

During 2011, WW Inc. reduced its LIFO eligible inventory quantities due to a problem with its major supplier. The effect of this liquidation was to increase its cost of goods sold by approximately $50 million. WW has a 40% income tax rate. If WW had not experienced these supplier problems and the resulting liquidation,

D. Its 2011 net income would have been $30 million higher because inventory purchase prices were declining.

Thompson TV and Appliance reported the following in its 2011 financial statements:
Sales 420,000
COGS
Inventory 1/1 82,000
Net Purchases 340,000
Goods Avail for Sale 422,000
Inventory 12/31 86,00
COGS 336,000
Gross Profit 84,000
Thompson's 2011 gross profit ratio is:

C. 20%.

Gross Profit Ratio

Gross Profit / Sales

Thompson TV and Appliance reported the following in its 2011 financial statements:
Sales 420,000
COGS
Inventory 1/1 82,000
Net Purchases 340,000
Goods Avail for Sale 422,000
Inventory 12/31 86,00
COGS 336,000
Gross Profit 84,000

Thompson's 2011 inventory turnover ratio is

B. 4.00.

Robertson Corporation's inventory balance was $22,000 at the beginning of the year and $20,000 at the end. The inventory turnover ratio for the year was 6.0 and the gross profit ratio 40%. What were net sales for the year?

D. $210,000

Average Days inventory

365/ Inventory Turnover

Dollar-value LIFO:

A. Starts with ending inventory measured at current costs and recreates LIFO layers for measuring inventory costs.

Compared to dollar-value LIFO, unit LIFO is:

C. More costly to implement.

Bond Company adopted the dollar-value LIFO inventory method on January 1, 2011. In applying the LIFO method, Bond uses internal cost indexes and the multiple-pools approach. The following data were available for Inventory Pool No. 3 for the two years following the adoption of LIFO:
Yr Cost Base yr cost index
1/1/11 300k 300k 1.00
12/31/11 345600 320k 1.08
12/31/12 420k 350k 1.2

Under the dollar-value LIFO method the inventory at December 31, 2012, should be

A. $357,600.

On January 1, 2011, Badger Inc. adopted the dollar-value LIFO method. The inventory cost on this date was $100,000. The 2011 ending inventory, valued at year-end costs, was $126,000. The relative cost index for this inventory in 2011 was 1.05.

What inventory balance should Badger report on its 12/31/11 balance sheet?

B. $121,000

On January 1, 2011, Badger Inc. adopted the dollar-value LIFO method. The inventory cost on this date was $100,000. The 2011 ending inventory, valued at year-end costs, was $126,000. The relative cost index for this inventory in 2011 was 1.05.

Suppose that Badger's 2012 ending inventory, valued at year-end costs, was $143,000 and that the relative cost index for this inventory in 2012 was 1.10. In determining the inventory balance should Badger report in its 12/31/12 balance sheet:

C. An additional layer of $11,000 is added to the 1/1/12 balance.

On January 1, 2011, Badger Inc. adopted the dollar-value LIFO method. The inventory cost on this date was $100,000. The 2011 ending inventory, valued at year-end costs, was $126,000. The relative cost index for this inventory in 2011 was 1.05.

Suppose that Badger's 2013 ending inventory, valued at year-end costs, was $153,600 and that the relative cost index for this inventory in 2013 was 1.20. What inventory balance would Badger report on its 12/31/13 balance sheet?

B. $129,800

Ramen Inc. adopted dollar-value LIFO (DVL) as of January 1, 2011, when it had a cost inventory of $600,000. Its inventory as of December 31, 2011, was $667,800 at year-end costs and the cost index was 1.06. What was DVL inventory on December 31, 2011?

B. $631,800.

Udon Inc. adopted dollar-value LIFO (DVL) as of January 1, 2011, when it had an inventory of $700,000. Its inventory as of December 31, 2011, was $777, 000 at year-end costs and the cost index was 1.05. What was DVL inventory on December 31, 2011?

C. $742,000.

Linguini Inc. adopted dollar-value LIFO (DVL) as of January 1, 2011, when it had an inventory of $800,000. Its inventory as of December 31, 2011, was $811,200 at year-end costs and the cost index was 1.04. What was DVL inventory on December 31, 2011?

A. $780,000

Buckeye Corporation adopted dollar-value LIFO on January 1, 2011, when the inventory value was $500,000 and the cost index was 1.0. On December 31, 2011, the inventory value at year-end costs was $535,000 and the cost index was 1.06. Buckeye would report a LIFO inventory of:

C. $505,000.

Tiger Inc. adopted dollar-value LIFO on January 1, 2011, when the inventory value was $360,000 and the cost index was 1.25. On December 31, 2011, the inventory was valued at year-end cost of $395,000 and the cost index was 1.30. Tiger would report a LIFO inventory of:

D. $380,600.

A company that prepares its financial statements according to International Financial Reporting Standards can use each of the following inventory valuation methods except:

C. LIFO.

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