Finance Quiz 6

The choice of an inventory costing method has no significant impact on the financial statements.

True

False

When using the FIFO inventory costing method, the most recent costs are assigned to the cost of merchandise sold.

True

False

Under the periodic inventory system, a physical inventory is taken to determine the cost of the inventory on hand and the cost of the merchandise sold.

True

During periods of increasing costs, the use of the FIFO method of costing inventory will yield an inventory amount for the balance sheet that is higher than LIFO would produce.

True

A consignor who has goods out on consignment with an agent should include the goods in ending inventory even though they are not in the possession of the consignor.

True

The lower-of-cost-or-market method of determining the value of ending inventory can be applied on an item by item, by major classification of inventory, or by the total inventory.

True

If a fire destroys the merchandise inventory, the gross profit method can be used to estimate the cost of merchandise destroyed.

True

All of the following are documents used for inventory control except

a receiving report

a petty cash voucher

a vendor's invoice

a purchase order

Ending inventory is made up of the oldest purchases when a company uses

average cost

last-in, first-out

first-in, first-out

retail method

Addison, Inc. uses a perpetual inventory system. The following is information about one inventory item for the month of September:

Sep. 1

Inventory

20 units at $20

4

Sold

10 units

10

Purchased

30 units at $25

17

Sold

20 units

30

Purchased

10 units at $30

If Addison uses FIFO, the cost of the ending merchandise inventory on September 30 is

a.$750

b.$800

c.$650

d.$700

The inventory data for an item for November are:

Nov. 1

Inventory

20 units at $19

4

Sold

10 units

10

Purchased

30 units at $20

17

Sold

20 units

30

Purchased

10 units at $21

Using a perpetual system, what is the cost of the merchandise sold for November if the company uses LIFO?

a.$600

b.$610

c.$580

d.$590

Use the information below to answer the following question.

The Boxwood Company sells blankets for $60 each. The following was taken from the inventory records during May. The company had no beginning inventory on May 1.

Date

Blankets

Units

Cost

May 3

Purchase

5

$20

10

Sale

3

17

Purchase

10

$24

20

Sale

6

23

Sale

3

30

Purchase

10

$30

Assuming that the company uses the perpetual inventory system, determine the ending inventory for the month of May using the LIFO inventory cost method.

a.$364

b.$372

c.$320

d.$324

The following lots of a particular commodity were available for sale during the year:

Beginning inventory

10 units at $30

First purchase

25 units at $32

Second purchase

30 units at $34

Third purchase

10 units at $35

The firm uses the periodic system and there are 20 units of the commodity on hand at the end of the year. What is the amount of inventory at the end of the year according to the LIFO method?

a.$620

b.$655

c.$659

d.$690

During a period of consistently rising prices, the method of inventory that will result in reporting the greatest cost of merchandise sold is

FIFO

weighted average

average cost

LIFO

Damaged merchandise that can be sold only at prices below cost should be valued at

LIFO

average cost

net realizable value

FIFO

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