Question 1: In an inflationary environment, which inventory cost flow method will produce the lowest amount of cost of goods sold?
a. LIFO
b. FIFO
c. Weighted Average.
d. All methods will produce the same amount of cost of goods sold.
Question 2: Williams Company uses the perpetual inventory method. Williams purchased 500 units of inventory that cost $4.00 each. At a later date the company purchased an additional 600 units of inventory that cost $4.50 each. If Williams uses a LIFO cost flow method, and sells 800 units of inventory, the amount of ending inventory appearing on the balance sheet will be:
a. $1,450.
b. $1,400.
c. $1,350.
d. $1,200.
Question 3. Martin Company uses the perpetual inventory method. Martin purchased 400 units of inventory that cost $4.00 each. At a later date the company purchased an additional 500 units of inventory that cost $5.00 each. Martin sold 700 units of inventory for $7.00. If Martin uses a FIFO cost flow method, the amount of gross margin appearing on the income statement will be:
a. $1,800.
b. $2,400.
c. $3,100.
d. $4,900.
Question 4. Which of the following statements is true?
a. Under the periodic inventory method, any loss is automatically included in cost of goods sold.
b. The lower of cost or market rule does not apply to inventory that is maintained under the periodic method.
c. When the lower of cost or market rule is applied, the amount of net income will be higher under the periodic method than it would have been under the perpetual method.
d. b and c.
Question 5. Under the periodic inventory method, if ending inventory is understated, then:
a. net income will be understated.
b. retained earning will be overstated.
c. assets will be overstated.
d. a and c.
Question 6. Dent Company uses the perpetual inventory method. In the year-end physical count of inventory, the company's employees counted $20,000 of inventory that was on consignment from Risch Company. As a result of this error:
a. assets and liabilities are overstated.
b. assets and liabilities are understated.
c. assets and equity are overstated.
d. assets and equity are understated.
Question 7. Morris Co. had beginning inventory of $200 and ending inventory of $300. Morris Co. had cost of goods sold amounting to $800. Based on this information, Morris Co. must have purchased inventory amounting to:
a. $800
b. $900
c. $700
d. $1,100
Question 8. Kelly Enterprises started the period with 150 units in beginning inventory that cost $2 each. During the period the company purchased inventory items as follows:
Kelly Enterprises Inventory. Purchase No. of Items Cost
1 200 $3.00
2 150 $3.10
3 50 $3.50
Ending inventory consisted of 200 items.
Using the periodic inventory method, cost of goods sold under FIFO would be:
a. $980.
b. $900.
c. $1,090.
d. $1,240.
Question 9. Kelly Enterprises started the period with 150 units in beginning inventory that cost $2 each. During the period the company purchased inventory items as follows:
Kelly Enterprises Inventory. Purchase No. of Items Cost
1 200 $3.00
2 150 $3.10
3 50 $3.50
Ending inventory consisted of 200 items.
Using the periodic inventory method, ending inventory under LIFO would be:
a. $300.
b. $450.
c. $560.
d. $640
Question 10. Kelly Enterprises started the period with 150 units in beginning inventory that cost $2 each. During the period the company purchased inventory items as follows:
Kelly Enterprises Inventory. Purchase No. of Items Cost
1 200 $3.00
2 150 $3.10
3 50 $3.50
Ending inventory consisted of 200 items.
Using the periodic inventory method, ending inventory under weighted average would be approximately:
a. $300.
b. $450.
c. $640.
d. $560.