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Exam 7: Inventories

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Question 51

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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

E) A) and B)
F) A) and C)

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Question 52

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

A) True
B) False

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Question 53

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

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

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.

Beginning inventory, purchases and sales data for tennis rackets are as follows: Complete the inventory cost card assuming the business maintains a perpetual inventory system and calculates the cost of merchandise sold and ending inventory using FIFO.

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.

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.

Assume that three identical units of merchandise are purchased during October, as follows: Assume one unit is sold on October 31 for $28. Determine Cost of Merchandise Sold, Gross profit, and Ending Inventory under the FIFO method.

The following units of an inventory item were available for sale during the year: 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:

Cost flow is in the order in which costs were incurred when using

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

Under a periodic inventory system

On the basis of the following data, determine the value of the inventory at the lower of cost or market. Apply lower of cost or market to each inventory item. Show your work.

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

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

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

While taking a physical inventory, a company counts their inventory as less than the actual amount on hand. How will this error affect the income statement?

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

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