Test bank accounting 25th editon warren chapter 7 inventories

Chapter 7--Inventories
Student: ___________________________________________________________________________
1. One of the two internal control procedures over inventory is to properly report inventory on the financial
statements.
True False

2. A purchase order establishes an initial record of the receipt of the inventory.
True False

3. A perpetual inventory system is an effective means of control over inventory.
True False

4. A subsidiary inventory ledger can be an aid in maintaining inventory levels at their proper levels.
True False

5. Safeguarding inventory and proper reporting of the inventory in the books are the reasons for controlling the
inventory.
True False

6. Inventory controls start when the merchandise is shelved in the store area.
True False

7. A physical inventory should be taken at the end of every month.
True False

8. The specific identification inventory method should be used when the inventory consists of identical, low
cost units that are purchased and sold frequently.
True False


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

True False

10. Of the three widely used inventory costing methods (FIFO, LIFO, and average cost), the LIFO method of
costing inventory assumes costs are charged based on the most recent purchases first.
True False

11. When using the FIFO inventory costing method, the most recent costs are assigned to the cost of goods
sold.
True False

12. FIFO is the inventory costing method that follows the physical flow of the goods.
True False

13. Under the LIFO inventory costing method, the most recent costs are assigned to ending inventory.
True False

14. The average cost inventory method is the rarely used with a perpetual inventory system.
True False

15. If the perpetual inventory system is used, the account entitled Merchandise Inventory is debited for
purchases of merchandise.
True False

16. Under the periodic inventory system, the merchandise inventory account continuously discloses the amount
of inventory on hand.
True False

17. 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 False

18. The three inventory costing methods will normally each yield different amounts of net income.
True False

19. The average cost method will always yield results between FIFO and LIFO.
True False

20. During periods of increasing costs, the use of the FIFO method of costing inventory will result in a greater
amount of net income than would result from the use of the LIFO cost method.
True False

21. 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 False

22. During periods of rapidly rising costs, the use of the LIFO method results in illusory or inventory profits.
True False

23. During periods of decreasing costs the use of the LIFO method of costing inventory will result in a lower
amount of net income than would result from the use of the FIFO method.
True False

24. During periods of increasing costs, an advantage of the LIFO inventory cost method is that it matches more
recent costs against current revenues.
True False

25. In valuing damaged merchandise for inventory purposes, net realizable value is the estimated selling price
less any direct costs of disposal.
True False

26. Unsold consigned merchandise should be included in the consignee's inventory.
True False


27. If ending inventory for the year is understated, net income for the year is overstated.
True False

28. If ending inventory for the year is overstated, owner's equity reported on the balance sheet at the end of the
year is understated.
True False

29. The lower of cost or market is a method of inventory valuation.
True False

30. "Market," as used in the phrase "lower of cost or market" for valuing inventory, refers to the price at which
the inventory is being offered for sale by its owner.
True False

31. 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 False

32. The use of the lower-of-cost-or-market method of inventory valuation increases net income for the period in
which the inventory replacement price declined.
True False

33. 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 False

34. When merchandise inventory is shown on the balance sheet, both the method of determining the cost of the
inventory and the method of valuing the inventory should be shown.
True False

35. Most large companies will use only one inventory costing methods for all of its different segments.
True False


36. Direct disposal costs do not include special advertising or sales commissions.
True False

37. Inventory errors, if not discovered, will self-correct in two years.
True False

38. Generally, the lower the number of days' sales in inventory, the better.
True False

39. One negative effect of carrying too much inventory is risk that customers will change their buying habits.
True False

40. Average inventory is computed by adding the inventory at the beginning of the period to the inventory at the
end of the period and dividing by two.
True False

41. Inventory turnover measures the length of time is takes to acquire, sell and replace the inventory.
True False

42. In the retail inventory method, the cost to retail ratio is equal to the cost of goods sold divided by the retail
price of the good sold.

True False

43. Use of the retail inventory method requires taking a physical count of inventory.
True False

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


45. If a company uses the periodic inventory system to cost its inventory, the gross profit method is a method
that can be used to check on theft when the actual inventory is taken by the company.
True False

46. Match the following documents used for inventory control:
1. last document in the chain, use to compare all three
for accuracy
2. establishes an initial record of the receipt of
inventory
3. authorizes the purchase of inventory from an
approved vendor

Vendor’s
Invoice ____
Purchase Order ____
Receiving
Report ____

47. Match the following cost flow assumption to their inventory costing method:
1. Cost flow matches the unit sold to the unit

purchased.
2. Cost flow is in the reverse order in which the
cost were incurred.
3. Cost flow is an average of the costs.
4. Cost flow is in the order in which the costs were
incurred.

Average Cost
Last-in, Last-out
(LIFO)
Specific
Identification
First-in, First-out
(FIFO)

____
____
____
____

48. Under a perpetual inventory system, the amount of each type of merchandise on hand is available in the
A. customer's ledger
B. creditor's ledger
C. inventory ledger
D. purchase ledger

49. Taking a physical count of inventory
A. is not necessary when a periodic inventory system is used
B. should be done near year-end
C. has no internal control relevance

D. is not necessary when a perpetual inventory system is used


50. Control of inventory should begin as soon as the inventory is received. Which of the following internal
control steps is not done to meet this goal?
A. check the invoice to the receiving report
B. check the invoice to the purchase order
C. check the invoice with the person who specifically purchased the item
D. check the invoice extensions and totals

51. Which of the following is not an example for safeguarding inventory?
A. Storing inventory in restricted areas.
B. Physical devices such as two-way mirrors, cameras, and alarms.
C. Matching receiving documents, purchase orders, and vendor’s invoice.
D. Returning inventory that is defective or broken.

52. Which of the following methods is appropriate for a business whose inventory consists of a relatively small
number of unique, high-cost items?
A. FIFO
B. LIFO
C. average
D. specific identification

53. Ending inventory is made up of the oldest purchases when a company uses
A. first-in, first-out
B. last-in, first-out
C. average cost
D. retail method

54. When merchandise sold is assumed to be in the order in which the purchases were made, the company is

using
A. first-in, last-out
B. last-in, first-out
C. first-in, first-out
D. average cost

55. The two most widely used methods for determining the cost of inventory are
A. FIFO and LIFO
B. FIFO and average
C. LIFO and average
D. gross profit and average


56. Cost flow is in the order in which costs were incurred when using
A. average cost
B. last-in, first-out
C. first-in, first-out
D. weighted average

57. Cost flow is in the reverse order in which costs were incurred when using
A. weighted average
B. last-in, first-out
C. first-in, first-out
D. average cost

58. The inventory method that assigns the most recent costs to cost of goods sold is
A. FIFO
B. LIFO
C. average
D. specific identification

59. Inventory costing methods place primary emphasis on assumptions about
A. flow of goods
B. flow of costs
C. flow of goods or flow of costs depending on the method
D. neither flow of goods or flow of costs

60. The inventory costing method that reports the most current prices in ending inventory is
A. FIFO
B. Specific identification
C. LIFO
D. Average cost

61. The inventory costing method that reports the earliest costs in ending inventory is
A. FIFO
B. LIFO
C. Average cost
D. Specific identification


62. Which of the following companies would be more likely to use the specific identification inventory costing
method?
A. Gordon’s Jewelers
B. Lowe’s
C. Best Buy
D. Wal-Mart

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

Sep. 1
4
10
17
30

Inventory
Sold
Purchased
Sold
Purchased

20 units at $20
10 units
30 units at $25
20 units
10 units at $30

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

A. $800
B. $650
C. $750
D. $700
64. Addison, Inc. uses a perpetual inventory system. The following is information about one inventory item for
the month of September:

Sep. 1
4
10

17
30

Inventory
Sold
Purchased
Sold
Purchased

20 units at $20
10 units
30 units at $25
20 units
10 units at $30

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

A. $800
B. $650
C. $750
D. $700
65. When using a perpetual inventory system, the journal entry to record the cost of merchandise sold is:
A. debit Cost of Merchandise Sold; credit Sales
B. debit Cost of Merchandise Sold; credit Merchandise Inventory
C. debit Merchandise Inventory; credit Cost of Merchandise Sold
D. No journal entry is made to record the cost of merchandise sold.


66. Under the _________ inventory method, accounting records maintain a continuously updated inventory
value.

A. retail
B. periodic
C. physical
D. perpetual

67. The inventory data for an item for November are:

Nov. 1
4
10
17
30

Inventory
Sold
Purchased
Sold
Purchased

20 units at $19
10 units
30 units at $20
20 units
10 units at $21

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

A. $610
B. $600
C. $590

D. $580
68. The inventory data for an item for November are:

Nov. 1
4
10
17
30

Inventory
Sold
Purchased
Sold
Purchased

20 units at $19
10 units
30 units at $20
20 units
10 units at $21

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

A. $610
B. $600
C. $590
D. $580


69. Use the following information to answer the following questions.

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
May 3
May 10
May 17
May 20
May 23
May 30

Product Z
Purchase
Sale
Purchase
Sale
Sale
Purchase

Units
5
3
10
6
3
10

Cost
$20
$24

$30

Assuming that the company uses the perpetual inventory system, determine the cost of merchandise sold for the sale of May 20 using the LIFO
inventory cost method.

A. $136
B. $144
C. $180
D. $120
70. Use the following information to answer the following questions.
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
May 3
May 10
May 17
May 20
May 23
May 30

Product Z
Purchase
Sale
Purchase
Sale
Sale
Purchase

Units
5
3
10
6
3
10

Cost
$20
$24

$30

Assuming that the company uses the perpetual inventory system, determine the cost of merchandise sold for the sale of May 20 using the FIFO
inventory cost method.

A. $120
B. $180
C. $136
D. $144


71. Use the following information to answer the following questions.
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
May 3
May 10

May 17
May 20
May 23
May 30

Product Z
Purchase
Sale
Purchase
Sale
Sale
Purchase

Units
5
3
10
6
3
10

Cost
$20
$24

$30

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

A. $364
B. $372
C. $324
D. $320
72. Use the following information to answer the following questions.
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
May 3
May 10
May 17
May 20
May 23
May 30

Product Z
Purchase
Sale
Purchase
Sale
Sale
Purchase

Units
5
3
10
6
3

10

Cost
$20
$24

$30

Assuming that the company uses the perpetual inventory system, determine the gross profit for the sale of May 23 using the FIFO inventory cost
method.

A. $108
B. $120
C. $72
D. $180


73. Use the following information to answer the following questions.
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
May 3
May 10
May 17
May 20
May 23
May 30

Product Z

Purchase
Sale
Purchase
Sale
Sale
Purchase

Units
5
3
10
6
3
10

Cost
$20
$24

$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. $324
B. $372
C. $320
D. $364
74. Use the following information to answer the following questions.
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
May 3
May 10
May 17
May 20
May 23
May 30

Product Z
Purchase
Sale
Purchase
Sale
Sale
Purchase

Units
5
3
10
6
3
10

Cost
$20
$24

$30

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

A. $348
B. $452
C. $444
D. $356
75. The following units of an inventory item were available for sale during the year:

Beginning inventory
First purchase
Second purchase
Third purchase

10 units at $55
25 units at $60
30 units at $65
15 units at $70


The firm uses the periodic inventory system. During the year, 60 units of the item were sold.
The value of ending inventory using FIFO is:

A. $1,250
B. $1,350
C. $1,375
D. $1,150
76. The following units of an inventory item were available for sale during the year:

Beginning inventory
First purchase
Second purchase
Third purchase

10 units at $55
25 units at $60
30 units at $65
15 units at $70

The firm uses the periodic inventory system. During the year, 60 units of the item were sold.
The value of ending inventory using LIFO is:

A. $1,250
B. $1,350
C. $1,375
D. $1,150
77. The following units of an inventory item were available for sale during the year:

Beginning inventory
First purchase
Second purchase
Third purchase

10 units at $55
25 units at $60
30 units at $65
15 units at $70

The firm uses the periodic inventory system. During the year, 60 units of the item were sold.

The value of ending inventory using average cost is:

A. $1,353
B. $1,263
C. $1,375
D. $1,150
78. The following lots of a particular commodity were available for sale during the year:

Beginning inventory
First purchase
Second purchase
Third purchase

10 units at $30
25 units at $32
30 units at $34
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. $655
B. $620
C. $690
D. $659
79. The following lots of a particular commodity were available for sale during the year:

Beginning inventory
First purchase

Second purchase
Third purchase

10 units at $30
25 units at $32
30 units at $34
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 FIFO method?

A. $655
B. $620
C. $690
D. $659
80. The following lots of a particular commodity were available for sale during the year:

Beginning inventory
First purchase
Second purchase
Third purchase

10 units at $30
25 units at $32
30 units at $34
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 average cost method?

A. $655
B. $620
C. $690
D. $659
81. The following lots of a particular commodity were available for sale during the year:

Beginning inventory
First purchase
Second purchase
Third purchase

5 units at $61
15 units at $63
10 units at $74
10 units at $77


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 cost of good sold for the year according to the average cost method?

A. $1,380
B. $1,375
C. $1,510
D. $1,250
82. The following lots of a particular commodity were available for sale during the year:

Beginning inventory
First purchase
Second purchase
Third purchase

5 units at $61
15 units at $63
10 units at $74
10 units at $77

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 cost of goods sold for the year according to the FIFO method?

A. $1,380
B. $1,375
C. $1,510
D. $1,250
83. The following lots of a particular commodity were available for sale during the year:

Beginning inventory
First purchase
Second purchase
Third purchase

5 units at $61
15 units at $63
10 units at $74
10 units at $77

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 cost of goods sold for the year according to the LIFO method?

A. $1,380
B. $1,375

C. $1,510
D. $1,250
84. Under a periodic inventory system
A. accounting records continuously disclose the amount of inventory
B. a separate account for each type of merchandise is maintained in a subsidiary ledger
C. a physical inventory is taken at the end of the period
D. merchandise inventory is debited when goods are returned to vendors


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

Beginning inventory
First purchase
Second purchase
Third purchase

10 units at $60
25 units at $65
30 units at $68
15 units at $75

The firm uses the periodic system and there are 25 units of the commodity on hand at the end of the year.
What is the amount of the inventory at the end of the year using the FIFO method?

A. $1,685
B. $1,575
C. $1,805
D. $3,585
86. The following lots of a particular commodity were available for sale during the year:

Beginning inventory
First purchase
Second purchase
Third purchase

10 units at $60
25 units at $65
30 units at $68
15 units at $75

The firm uses the periodic system and there are 25 units of the commodity on hand at the end of the year.
What is the amount of the inventory at the end of the year using the LIFO method?

A. $1,685
B. $1,575
C. $1,805
D. $3,815
87. The following lots of a particular commodity were available for sale during the year:

Beginning inventory
First purchase
Second purchase
Third purchase

10 units at $60
25 units at $65
30 units at $68
15 units at $75

The firm uses the periodic system and there are 25 units of the commodity on hand at the end of the year.

What is the amount of the inventory at the end of the year using the average cost method?

A. $1,685
B. $1,575
C. $1,805
D. $3,705


88. If Beginning Inventory (BI) + Purchases (P) - Ending Inventory (EI) = Cost of Goods Sold (COGS), an
equivalent equation can be written as?
A. BI + P = COGS - EI
B. BI - P = COGS + EI
C. BI + P = COGS + EI
D. EI + P = COGS - BI

89. During a period of consistently rising prices, the method of inventory that will result in reporting the
greatest cost of merchandise sold is
A. FIFO
B. LIFO
C. average cost
D. weighted average

90. During times of rising prices, which of the following is not an accurate statement?
A. Average costing will yield results that are between those of FIFO and LIFO.
B. LIFO will result in a higher cost of goods sold than FIFO.
C. FIFO will result in a higher net income than LIFO.
D. LIFO will result in higher income taxes than FIFO.

91. If the revenues are correctly reported and the Gross Profit of a company is understated, what is the effect on
Owner’s Equity?

A. Understated
B. Overstated
C. Correctly Stated
D. None of the above

92. If merchandise inventory is being valued at cost and the price level is steadily rising, the method of costing
that will yield the highest net income is
A. periodic
B. LIFO
C. FIFO
D. average


93. If merchandise inventory is being valued at cost and the purchase price is steadily falling, which method of
costing will yield the largest net income?
A. average cost
B. LIFO
C. FIFO
D. weighted average

94. During a period of falling prices, which of the following inventory methods generally results in the lowest
balance sheet amount for inventory.
A. average method
B. LIFO method
C. FIFO method
D. can not tell without more information

95. Damaged merchandise that can be sold only at prices below cost should be valued at
A. net realizable value
B. LIFO

C. FIFO
D. average

96. If a manufacturer ships merchandise to a retailer on consignment, the unsold merchandise should be
included in the inventory of the
A. consignee
B. retailer
C. manufacturer
D. shipper

97. Merchandise inventory at the end of the year was inadvertently overstated. Which of the following
statements correctly states the effect of the error on net income, assets, and owner's equity?
A. net income is overstated, assets are overstated, owner's equity is understated
B. net income is overstated, assets are overstated, owner's equity is overstated
C. net income is understated, assets are understated, owner's equity is understated
D. net income is understated, assets are understated, owner's equity is overstated


98. Merchandise inventory at the end of the year was understated. Which of the following statements correctly
states the effect of the error?
A. net income is understated
B. net income is overstated
C. cost of merchandise sold is understated
D. merchandise inventory reported on the balance sheet is overstated

99. Merchandise inventory at the end of the year is overstated. Which of the following statements correctly
states the effect of the error?
A. owner's equity is overstated
B. cost of merchandise sold is overstated
C. gross profit is understated

D. net income is understated

100. If the cost of an item of inventory is $60 and the current replacement cost is $75, the amount included in
inventory according to the lower of cost or market is
A. $15
B. $60
C. $75
D. $135

101. Kristin’s Boutiques has identified the following items for possible inclusion in its December 31, 2010
inventory. Which of the following would not be included in the year end inventory?
A. Merchandise purchased FOB shipping point was picked up by the freight company but had still not arrived at
Kristin’s Boutique as of December 31, 2010.
B. Kristin has in its warehouse merchandise on consignment from Abby Co.
C. Kristin has sent merchandise to various retailers on a consignment basis.
D. Kristin has merchandise on hand which has been returned by customers because of wrong size.

102. During the taking of its physical inventory on December 31, 2014, Barry’s Bike Shop incorrectly counted
its inventory as $350,000 instead of the correct amount of $280,000. The effect on the balance sheet and
income statement would be as follows:
A. assets overstated by $70,000;retained earnings understated by $70,000; net income statement understated by
$70,000.
B. assets overstated by $70,000;retained earnings understated by $70,000; no effect on the income statement.
C. assets and retained earnings overstated by $70,000; net income overstated by $70,000.
D. assets and retained earnings overstated by $70,000; net income understated by $70,000.


103. If a company mistakenly counts more items during a physical inventory than actually exist, how will the
error affect their bottom line?
A. No change to net income.

B. Net income will be overstated
C. Net income will be understated.
D. Only gross profit will be affected.

104. If a company mistakenly counts less items during a physical inventory than actually exist, how will the
error affect the cost of merchandise sold?
A. Understated
B. Overstated
C. No change.
D. Only inventory is affected.

105. Too much inventory on hand
A. reduces solvency
B. increases the cost to safeguard the assets
C. increases the losses due to price declines
D. all of the above

106. Which of the following is used to analyze the efficiency and effectiveness of inventory management?
A. inventory turnover only
B. number of days’ sales in inventory only
C. both inventory turnover and number of days’ sales in inventory
D. neither inventory turnover or number of days’ sales in inventory

107. Which of the following measures the relationship between cost of merchandise sold and the amount of
inventory carried during the period?
A. inventory turnover
B. Fixed asset turnover
C. retail method of inventory costing
D. gross profit method of inventory costing

108. Which of the following measures the length of time it takes to acquire, sell and replace inventory?
A. inventory turnover
B. number of days’ sales in inventory
C. retail method of inventory costing
D. gross profit method of inventory costing


109. For the year ended December 31, 2014 Depot Max’s cost of merchandise sold was $56,900. Inventory at
the beginning of the year was $6,540. Ending inventory was $7,250. Compute Depot Max’s inventory
turnover for the year.
A. 8.7
B. 7.8
C. 8.3
D. 44

110. For the year ended December 31, 2014 Depot Max’s cost of merchandise sold was $56,900. Inventory at
the beginning of the year was $6,540. Ending inventory was $7,250. Depot Max’s number of days sales in
inventory is closest to
A. 42
B. 46
C. 8
D. 44

111. The method of computing inventory that uses records of the selling prices of the merchandise is called
A. retail method
B. last-in, first-out
C. first-in, first-out
D. average cost

112. On the basis of the following data, what is the estimated cost of the merchandise inventory on May 31

using the retail method?

May 1
May 1-31
May 1-31

Merchandise Inventory
Purchases (net)
Sales (net)

Cost
$125,000
235,000

Retail
$166,667
313,333
230,000

A. $250,000
B. $360,000
C. $172,500
D. $187,500
113. If the estimated rate of gross profit is 30%, what is the estimated cost of the merchandise inventory on
September 30, based on the following data?

Sep. 1
Sep. 1-30
Sep. 1-30

Merchandise inventory
Purchases (net)
Sales (net)

$ 125,000
300,000
150,000


A. $320,000
B. $192,500
C. $275,000
D. $105,000
114. All of the following are reasons to use an estimated method of costing inventory except:
A. Perpetual inventory records are not maintained.
B. Purchase records are not maintained.
C. A disaster has destroyed the inventory records and the inventory.
D. Interim financial statements are required but physical inventory is only taken at the end of the financial
accounting period.

115. Garrison Company uses the retail method of inventory costing. They started the year with an inventory
that had a retail cost of $45,000. During the year they purchased an inventory with a retail cost of
$300,000. After performing a physical inventory, they calculated their inventory cost at retail to be
$80,000. The mark up is 100% of cost. Determine the ending inventory at its estimated cost.
A. $160,000
B. $80,000
C. $40,000
D. $45,000

116. A company will most likely use an estimated method of determining inventory when

A. the company decides not to do a physical inventory.
B. a natural disaster has destroyed most of their inventory.
C. the company has not kept up with their inventory records.
D. the company is preparing annual financial statements.

117. Stevens Company started the year with an inventory cost of $145,000. During the month of January they
purchased inventory that cost of $53,000. January sales totaled $140,000. Estimated gross profit is 35%. The
estimated ending inventory as of January 31 is
A. $58,000
B. $91,000
C. $107,000
D. $69,300


118. Determine the total value of the merchandise using Net Realizable Value:

Item
Doll
Horse

Quantity
10
5

Selling Price
$7
9

Commission
$2

3

A. $35
B. $80
C. $115
D. $25
119. If a company values inventory at the lower of cost or market, which of the following is the value of
merchandise inventory on the balance sheet? Apply the lower-of-cost-or-market method to inventory as a
whole.

Item
Product C
Product D

Inventory Quantity
420
370

Unit Cost Price
$6
12

Unit Market Price
$5
14

A. $6,960
B. $7,700
C. $6,540
D. $7,280

120. Safeguarding inventory from damage or theft is a primary objective for the control of inventory. If you
were running a clothing store, name three specific controls you would implement to guard inventory from theft.

121. List three different security measures taken by stores to safeguard inventory.


122. Three identical units of Item Steele Plate are purchased during March, as shown below.
Item Steele Plate
Purchase
Purchase
Purchase

Mar. 3
Mar. 10
Mar. 19
Total

Units
1
1
1
3

Cost
$830
840
880
$2,550

Assume that one unit is sold on March 23 for $1,125. Determine the gross profit for March and ending inventory on March 31 using (a) FIFO, (b)

LIFO, and (c) average cost methods.

123. Three identical units of Item Magnesium XP are purchased during May, as shown below.
Item Magnesium XP
Purchase
Purchase
Purchase

May 3
May 10
May 19
Total

Units
1
1
1
3

Cost
$130
136
142
$408

Assume that two units are sold on May 23 for $313. Determine the gross profit for May and ending inventory on May 31 using (a) FIFO, (b) LIFO,
and (c) average cost methods.

124. Assume that three identical units of merchandise are purchased during October, as follows:

October

Total

5
12
28

Purchase
Purchase
Purchase

Units
1
1
1
3

Cost
$5
13
15
$33