CHAPTER 6 - INVENTORIES

63. The following information was available from the inventory records of Queen Company
for July:
Units Unit Cost Total Cost
Balance at July 1 30,000 £ 4.50 £135,000
Purchases:
July 6 20,000 5.10 102,000
July 26 27,000 5.20 140,400

Sales:
July 7 (25,000)
July 31 (40,000)
Balance at July 31 12,000

What is Queen’s cost of goods available for sale?

a. £38,500.
b. £142,400.
c. £377,400.
d. cannot be determined.
Ans: C, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: None, AICPA PC: None, IMA:
Business Economic

64. The following information was available from the inventory records of Queen Company
for July:
Units Unit Cost Total Cost
Balance at July 1 30,000 £ 4.50 £135,000
Purchases:
July 6 20,000 5.10 102,000
July 26 27,000 5.20 140,400

Sales:
July 7 (25,000)
July 31 (40,000)
Balance at July 31 12,000
What should be the inventory reported on Queen’s July 31 statement of financial position
using the average-cost inventory method (round per unit amounts to two decimal
places)?
a. £54,000.
b. £58,800.
c. £59,220.
d. £63,000.
Ans: B, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: None, AICPA PC: None, IMA:
Business Economic
65. The following information was available from the inventory records of Queen Company
for July:
Units Unit Cost Total Cost
Balance at July 1 30,000 £ 4.50 £135,000
Purchases:
July 6 20,000 5.10 102,000
July 26 27,000 5.20 140,400

Sales:
July 7 (25,000)
July 31 (40,000)
Balance at July 31 12,000

What should be the inventory reported on Queen’s July 31 statement of financial position
using the FIFO inventory method?
a. £54,000.
b. £58,800.
c. £62,400.
d. £63,000.
Ans: C, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: None, AICPA PC: None, IMA:
Business Economic

66. Brocken Co. has the following data related to an item of inventory:
Inventory, May 1 2,000 units @ £4.20
Purchase, May 7 7,000 units @ £4.40
Purchase, May 16 1,400 units @ £4.50
Inventory, May 31 2,600 units

The value assigned to cost of goods sold if Brocken uses average-cost is

a. £34,124.
b. £33,800.
c. £33,922.
d. £35,040.
Ans: A, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: None, AICPA PC: None, IMA:
Business Economic

67. Brocken Co. has the following data related to an item of inventory:
Inventory, May 1 2,000 units @ £4.20
Purchase, May 7 7,000 units @ £4.40
Purchase, May 16 1,400 units @ £4.50
Inventory, May 31 2,600 units

The value assigned to cost of goods sold if Brocken uses FIFO is

a. £33,800.
b. £33,920.
c. £34,138.
d. £34,164.
Ans: B, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: None, AICPA PC: None, IMA:
Business Economic
68. Vestle Company uses the periodic inventory system. For January 2014, the beginning
inventory consisted of 24,000 units that cost CHF12 each. During the month, the
company made two purchases: 10,000 units at CHF13 each and 40,000 units at
CHF13.50 each. Vestle sold 43,000 units during the month for CHF19.50 per unit. Using
the average-cost method, what is the amount of cost of goods sold for the month of
January 2014 (round per unit amount to two decimal places)?
a. CHF556,850.
b. CHF579,000.
c. CHF539,500.
d. CHF559,000.
Ans: A, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: None, AICPA PC: None, IMA:
Business Economic

69. Nolvo Company uses the periodic inventory system. For February 2014, the beginning
inventory consisted of 400 units that cost CHF65 each. During the month, the company
made two purchases: 1,600 units at CHF68 each and 600 units at CHF72 each. Nolvo
sold 2,000 units during the month of February at CHF110 per unit. Using the average
cost method, what is the amount of ending inventory at February 28, 2014?
a. CHF43,200.
b. CHF42,000.
c. CHF41,076.
d. CHF39,000.
Ans: C, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: None, AICPA PC: None, IMA:
Business Economic

70. Kershaw Bookstore had 1,000 units on hand at January 1, costing €18 each. Purchases
and sales during the month of January were as follows:
Date Purchases Sales
Jan. 14 750 @ €28
17 500 @ €20
25 500 @ €22
29 500 @ €32

Kershaw does not maintain perpetual inventory records. According to a physical count,
750 units were on hand at January 31.

The cost of the inventory at January 31, under the FIFO method is:
a. €2,000.
b. €13,500.
c. €15,500.
d. €16,000.
Ans: D, LO: 2, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA
PC: Problem Solving, IMA: FSA
71. Colletti Company recorded the following data:

Units Unit
Date Received Sold On Hand Cost
1/1 Inventory 600 $3.00
1/8 Purchased 900 1,500 3.30
1/12 Sold 1,200 300

The weighted average unit cost of the inventory at January 31 is:

a. $3.00.
b. $3.15.
c. $3.18.
d. $3.30.
Ans: C, LO: 2, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA
PC: Problem Solving, IMA: FSA

72. Beginning inventory plus the cost of goods purchased equals

a. cost of goods sold.
b. cost of goods available for sale.
c. net purchases.
d. total goods purchased.
Ans: B, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC:
None, IMA: Business Economic

73. A company just starting in business purchased three inventory items at the following
prices. First purchase $80; Second purchase $95; Third purchase $85. If the company
sold two units for a total of $260 and used FIFO costing, the gross profit for the period
would be
a. $85.
b. $95.
c. $80.
d. $70.
Ans: A, LO: 2, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC:
Problem Solving, IMA: Reporting

74. A company just starting business made the following four inventory purchases in June:
June 1 150 units ¥ 5,200
June 10 200 units 7,800
June 15 200 units 8,400
June 28 150 units 6,600
¥28,000

A physical count of merchandise inventory on June 30 reveals that there are 100 units
on hand. Using the FIFO inventory method, the amount allocated to cost of goods sold
for June is
a. ¥4,400.
b. ¥24,000.
c. ¥23,600.
d. ¥24,533.
Ans: C, LO: 2, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC:
Problem Solving, IMA: Reporting
75. A company just starting business made the following four inventory purchases in June:
June 1 150 units ¥ 5,200
June 10 200 units 7,800
June 15 200 units 8,400
June 28 150 units 6,600
¥28,000

A physical count of merchandise inventory on June 30 reveals that there are 100 units
on hand. Using the average-cost method, the amount allocated to the ending inventory
on June 30 is
a. ¥28,000.
b. ¥24,000.
c. ¥4,400.
d. ¥4,000.
Ans: D, LO: 2, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC:
Problem Solving, IMA: Reporting

76. A company just starting business made the following four inventory purchases in June:
June 1 150 units ¥ 5,200
June 10 200 units 7,800
June 15 200 units 8,400
June 28 150 units 6,600
¥28,000

A physical count of merchandise inventory on June 30 reveals that there are 100 units
on hand. The inventory method which results in the highest gross profit for June is
a. the FIFO method.
b. the specific identification method.
c. the average-cost method.
d. not determinable.
Ans: A, LO: 2, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC:
Problem Solving, IMA: Reporting

77. A company purchased inventory as follows:

200 units at $5
300 units at $6
The average unit cost for inventory is
a. $5.00.
b. $5.50.
c. $5.60.
d. $6.00.
Ans: C, LO: 2, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC:
Problem Solving, IMA: Reporting

78. The cost of goods available for sale is allocated between

a. beginning inventory and ending inventory.
b. beginning inventory and cost of goods on hand.
c. ending inventory and cost of goods sold.
d. beginning inventory and cost of goods purchased.
Ans: C, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None,
IMA: Reporting
79. Ted's Used Cars uses the specific identification method of costing inventory. During
March, Ted purchased three cars for $8,000, $10,000, and $13,000, respectively. During
March, two cars are sold for $11,000 each. Ted determines that at March 31, the
$13,000 car is still on hand. What is Ted’s gross profit for March?
a. $3,000.
b. $4,000.
c. $1,000.
d. $9,000.
Ans: B, LO: 2, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC:
Problem Solving, IMA: Reporting

80. Of the following companies, which one would not likely employ the specific identification
method for inventory costing?
a. Music store specializing in organ sales
b. Farm implement dealership
c. Antique shop
d. Hardware store
Ans: D, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None,
IMA: Reporting

81. A problem with the specific identification method is that

a. inventories can be reported at actual costs.
b. management can manipulate income.
c. matching is not achieved.
d. the lower-of-cost-or-net realizable value basis cannot be applied.
Ans: B, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Risk Analysis, AICPA PC: None,
IMA: Business Economic

82. The selection of an appropriate inventory cost flow assumption for an individual
company is made by
a. the external auditors.
b. the IASB.
c. the internal auditors.
d. company management.
Ans: D, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Business Economic

83. Which one of the following inventory methods is often impractical to use?
a. Specific identification
b. Average cost
c. FIFO
d. All of these answer choices are practical to use
Ans: A, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: None, AICPA PC: None, IMA:
Business Economic

84. The accounting principle that requires that the cost flow assumption be consistent with
the physical movement of goods is
a. called the matching principle.
b. called the consistency principle.
c. nonexistent; that is, there is no accounting requirement.
d. called the physical flow assumption.
Ans: C, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None,
IMA: Reporting
85. Which of the following statements is correct with respect to inventories?
a. The FIFO method assumes that the costs of the earliest goods acquired are the last
to be sold.
b. It is generally good business management to sell the most recently acquired goods
first.
c. Under FIFO, the ending inventory is based on the latest units purchased.
d. FIFO seldom coincides with the actual physical flow of inventory.
Ans: C, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC:
None, IMA: Business Economic

86. The cost of goods available for sale is allocated to the cost of goods sold and the
a. beginning inventory.
b. ending inventory.
c. cost of goods purchased.
d. gross profit.
Ans: B, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None,
IMA: Reporting

87. At May 1, 2014, Deitrich Company had beginning inventory consisting of 200 units with a
unit cost of €3.50. During May, the company purchased inventory as follows:
400 units at €3.50
600 units at €4.00
The company sold 1,000 units during the month for €6 per unit. Deitrich uses the
average-cost method. The average cost per unit for May is
a. €3.50.
b. €3.75.
c. €3.80.
d. €4.00.
Ans: B, LO: 2, Bloom: AP, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA
PC: Problem Solving, IMA: Quantitative Methods

88. At May 1, 2014, Deitrich Company had beginning inventory consisting of 200 units with a
unit cost of €3.50. During May, the company purchased inventory as follows:
400 units at €3.50
600 units at €4.00
The company sold 1,000 units during the month for €6 per unit. Deitrich uses the
average cost method. The value of Deitrich’s inventory at May 31, 2014 is
a. €700.
b. €750.
c. €800.
d. €4,500.
Ans: B, LO: 2, Bloom: AP, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA
PC: Problem Solving, IMA: Quantitative Methods
89. At May 1, 2014, Deitrich Company had beginning inventory consisting of 200 units with a
unit cost of €3.50. During May, the company purchased inventory as follows:
400 units at €3.50
600 units at €4.00
The company sold 1,000 units during the month for €6 per unit. Deitrich uses the
average cost method. Deitrich’s gross profit for the month of May is
a. €2,250.
b. €3,750.
c. €4,500.
d. €6,000.
Ans: A, LO: 3, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC:
Problem Solving, IMA: Quantitative Methods

90. Graham Company uses a periodic inventory system. Details for the inventory account for
the month of January, 2014 are as follows:
Units Per unit price Total
Balance, 1/1/14 200 $5.00 $1,000
Purchase, 1/15/14 100 5.30 530
Purchase, 1/28/14 100 5.50 550

An end of the month (1/31/14) inventory showed that 120 units were on hand. How many
units did the company sell during January 2014?
a. 80
b. 120
c. 200
d. 280
Ans: D, LO: 2, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA
PC: Problem Solving, IMA: Quantitative Methods

91. Graham Company uses a periodic inventory system. Details for the inventory account for
the month of January, 2014 are as follows:
Units Per unit price Total
Balance, 1/1/14 200 $5.00 $1,000
Purchase, 1/15/14 100 5.30 530
Purchase, 1/28/14 100 5.50 550

An end of the month (1/31/14) inventory showed that 120 units were on hand. If the
company uses FIFO, what is the value of the ending inventory?
a. $520
b. $600
c. $656
d. $1,424
Ans: C, LO: 2, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA
PC: Problem Solving, IMA: Quantitative Methods
92. Graham Company uses a periodic inventory system. Details for the inventory account for
the month of January 2014 are as follows:
Units Per unit price Total
Balance, 1/1/14 200 $5.00 $1,000
Purchase, 1/15/14 100 5.30 530
Purchase, 1/28/14 100 5.50 550

An end of the month (1/31/14) inventory showed that 120 units were on hand. If the
company uses FIFO and sells the units for $10 each, what is the gross profit for the
month?
a. $1,376
b. $1,424
c. $2,800
d. $3,000
Ans: A, LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA
PC: Problem Solving, IMA: Quantitative Methods

93. Holliday Company's inventory records show the following data:

Units Unit Cost
Inventory, January 1 5,000 ₤2.25
Purchases: June 18 4,500 2.00
November 8 3,000 1.75

A physical inventory on December 31 shows 2,000 units on hand. Holliday sells the units
for ₤3 each. The company has an effective tax rate of 20%. Holliday uses the periodic
inventory method.
Under the FIFO method, the December 31 inventory is valued at
a. ₤3,500.
b. ₤3,625.
c. ₤3,750.
d. ₤4,500.
Ans: A, LO: 2, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA
PC: Problem Solving, IMA: Quantitative Methods

94. Holliday Company's inventory records show the following data:

Units Unit Cost
Inventory, January 1 5,000 ₤2.25
Purchases: June 18 4,500 2.00
November 8 3,000 1.75

A physical inventory on December 31 shows 2,000 units on hand. Holliday sells the units
for ₤3 each. The company has an effective tax rate of 20%. Holliday uses the periodic
inventory method. What is the cost of goods available for sale?
a. ₤5,250
b. ₤9,000
c. ₤11,250
d. ₤25,500
Ans: D, LO: 2, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA
PC: Problem Solving, IMA: Quantitative Methods
95. Holliday Company's inventory records show the following data:
Units Unit Cost
Inventory, January 1 5,000 ₤2.25
Purchases: June 18 4,500 2.00
November 8 3,000 1.75

A physical inventory on December 31 shows 2,000 units on hand. Holliday sells the units
for ₤3 each. The company has an effective tax rate of 20%. Holliday uses the periodic
inventory method. The weighted-average cost per unit is
a. ₤1.88.
b. ₤2.00.
c. ₤2.04.
d. ₤2.19.
Ans: C, LO: 2, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC:
Problem Solving, IMA: Quantitative Methods

96. Holliday Company's inventory records show the following data:

Units Unit Cost
Inventory, January 1 5,000 ₤2.25
Purchases: June 18 4,500 2.00
November 8 3,000 1.75

A physical inventory on December 31 shows 2,000 units on hand. Holliday sells the units
for ₤3 each. The company has an effective tax rate of 20%. Holliday uses the periodic
inventory method. If the company uses FIFO, what is the gross profit for the period?
a. ₤500
b. ₤2,500
c. ₤5,250
d. ₤9,500
Ans: D, LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA
PC: Problem Solving, IMA: Quantitative Methods

97. Unitech has the following inventory information.

July 1 Beginning Inventory 50 units at $19 $ 950
7 Purchases 175 units at $20 3,500
22 Purchases 25 units at $22 550
$5,000

A physical count of merchandise inventory on July 31 reveals that there are 75 units on
hand. Using the average-cost method, the value of ending inventory is
a. $1,450.
b. $1,500.
c. $1,525.
d. $1,550.
Ans: B, LO: 2, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC:
Problem Solving, IMA: Quantitative Methods
98. Unitech has the following inventory information.
July 1 Beginning Inventory 50 units at $19 $ 950
7 Purchases 175 units at $20 3,500
22 Purchases 25 units at $22 550
$5,000

A physical count of merchandise inventory on July 31 reveals that there are 75 units on
hand. Using the FIFO inventory method, the amount allocated to cost of goods sold for
July is
a. $1,450.
b. $1,550.
c. $3,450.
d. $3,550.
Ans: C, LO: 2, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA
PC: Problem Solving, IMA: Quantitative Methods

99. Neighborly Industries has the following inventory information.

July 1 Beginning Inventory 30 units at $120
5 Purchases 180 units at $112
14 Sale 120 units
21 Purchases 90 units at $115
30 Sale 84 units

Assuming that a periodic inventory system is used, what is the amount allocated to
ending inventory on a FIFO basis?
a. $10,992
b. $11,022
c. $23,088
d. $23,118
Ans: B, LO: 2, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA
PC: Problem Solving, IMA: Quantitative Methods

100. Shandy Shutters has the following inventory information.

Nov. 1 Inventory 30 units @ €6.00
8 Purchase 120 units @ €6.45
17 Purchase 60 units @ €6.30
25 Purchase 90 units @ €6.60

A physical count of merchandise inventory on November 30 reveals that there are 100
units on hand. Assume a periodic inventory system is used. Cost of goods sold under
the average-cost method is
a. €1,292.
b. €1,284.
c. €1,268.
d. €1,200.
Ans: B, LO: 2, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC:
Problem Solving, IMA: Quantitative Methods
101. Shandy Shutters has the following inventory information.
Nov. 1 Inventory 30 units @ €6.00
8 Purchase 120 units @ €6.45
17 Purchase 60 units @ €6.30
25 Purchase 90 units @ €6.60

A physical count of merchandise inventory on November 30 reveals that there are 100
units on hand. Assume a periodic inventory system is used. Ending inventory under
FIFO is
a. €657.
b. €1,268.
c. €632.
d. €1,294.
Ans: A, LO: 2, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA
PC: Problem Solving, IMA: Quantitative Methods

102. Shandy Shutters has the following inventory information.

Nov. 1 Inventory 30 units @ €6.00

8 Purchase 120 units @ €6.45
17 Purchase 60 units @ €6.30
25 Purchase 90 units @ €6.60

A physical count of merchandise inventory on November 30 reveals that there are 100
units on hand. Assume a periodic inventory system is used. Assuming that the specific
identification method is used and that ending inventory consists of 30 units from each of
the three purchases and 10 units from the November 1 inventory, cost of goods sold is
a. €640.
b. €1,286.
c. €1,280.
d. €1,254.
Ans: B, LO: 2, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC:
Problem Solving, IMA: Quantitative Methods

103. Lee Industries had the following inventory transactions occur during 2014:
Units Cost/unit
2/1/14 Purchase 72 $45
3/14/14 Purchase 124 $47
5/1/14 Purchase 88 $49

The company sold 204 units at $63 each and has a tax rate of 30%. Assuming that a
periodic inventory system is used, what is the company’s gross profit using FIFO?
(rounded to whole dollars)
a. $9,764
b. $9,460
c. $3,392
d. $3,088
Ans: C, LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA
PC: Problem Solving, IMA: Quantitative Methods
104. Lee Industries had the following inventory transactions occur during 2014:
Units Cost/unit
2/1/14 Purchase 72 $45
3/14/14 Purchase 124 $47
5/1/14 Purchase 88 $49

The company sold 204 units at $63 each and has a tax rate of 30%. Assuming that a
periodic inventory system is used, what is the company’s after-tax income using FIFO?
(rounded to whole dollars)
a. $3,088
b. $3,392
c. $2,374
d. $2,160
Ans: C, LO: 3, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC:
Problem Solving, IMA: Quantitative Methods

105. Companies adopt different cost flow methods for each of the following reasons except
a. statement of financial position effects.
b. cash flow effects.
c. income statements effects.
d. tax effects.
Ans: B, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None,
IMA: Business Economic

106. In periods of rising prices, the inventory method which results in the inventory value on
the statement of financial position that is closest to current cost is the
a. FIFO method.
b. specific identification method.
c. average-cost method.
d. tax method.
Ans: A, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None,
IMA: Reporting

107. If companies have identical inventory costs but use different inventory flow assumptions
when the price of goods have not been constant, then the
a. cost of goods sold of the companies will be identical.
b. cost of goods available for sale of the companies will be identical.
c. ending inventory of the companies will be identical.
d. net income of the companies will be identical.
Ans: B, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None,
IMA: Business Economic

108. The specific identification method of inventory costing

a. always maximizes a company's net income.
b. always minimizes a company's net income.
c. has no effect on a company's net income.
d. may enable management to manipulate net income.
Ans: D, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None,
IMA: Business Economic
109. The accountant at Paige Company is figuring out the difference in income taxes the
company will pay depending on the choice of either FIFO or average-cost as an
inventory costing method. The tax rate is 30% and the FIFO method will result in income
before taxes of $18,200. The average-cost method will result in income before taxes of
$16,450. What is the difference in tax that would be paid between the two methods?
a. $1,750.
b. $750.
c. $525.
d. Cannot be determined from the information provided.
Ans: C, LO: 3, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC:
Problem Solving, IMA: Quantitative Methods

110. The accountant at Reber Company has determined that income before income taxes
amounted to $6,750 using the FIFO costing assumption. If the income tax rate is 30%
and the amount of income taxes paid would be $315 greater if the average-cost
assumption were used, what would be the amount of income before taxes under the
average-cost assumption?
a. $7,065
b. $7,800
c. $6,015
d. $6,435
Ans: B, LO: 3, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC:
Problem Solving, IMA: Quantitative Methods

111. The manager of Yates Company is given a bonus based on income before income
taxes. Net income, after taxes, is $10,500 for FIFO and $9,450 for average-cost. The tax
rate is 30%. The bonus rate is 20%. How much higher is the manager's bonus if FIFO is
adopted instead of average-cost?
a. $375
b. $563
c. $300
d. $1,050
Ans: C, LO: 3, Bloom: AN, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC:
Problem Solving, IMA: Quantitative Methods

112. The consistent application of an inventory costing method is essential for

a. prudence.
b. accuracy.
c. comparability.
d. efficiency.
Ans: C, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None,
IMA: Reporting

113. Which inventory costing method most closely approximates current cost for each of the
following?
Ending Inventory Cost of Goods Sold
a. FIFO FIFO
b. FIFO Average-cost
c. Average-cost FIFO
d. Average-cost Average-cost
Ans: B, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None,
IMA: Reporting
114. In a period of rising prices, the inventory method which tends to report the lowest
inventory is
a. FIFO.
b. LISH.
c. Specific identification.
d. Average-cost.
Ans: D, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None,
IMA: Reporting

115. In a period of rising prices which inventory method generally provides the greatest
amount of net income?
a. Average-cost.
b. FIFO.
c. LISH.
d. Cannot be determined.
Ans: B, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None,
IMA: Reporting

116. In a period of falling prices, which inventory method would result in the lowest tax
burden?
a. Average-cost.
b. FIFO.
c. No difference.
d. Cannot be determined.
Ans: B, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None,
IMA: Reporting

117. Henri Company uses the average-cost inventory method. Its 2014 ending inventory was
€40,000, but it would have been €60,000 if FIFO had been used. Thus, if FIFO had been
used, Henri’s income before income taxes would have been
a. €20,000 greater.
b. €20,000 less.
c. the same.
d. not determinable without the tax rate.
Ans: A, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None,
IMA: Reporting

118. Franco Company uses the FIFO inventory method. Its 2014, the company reported net
income of €820,000. Had average-cost been used, the company would have reported
net income of €760,000. Assuming a 40% tax rate, what is the impact of the inventory
cost flow assumption on Franco's taxes for 2014?
a. Franco would pay €24,000 more in taxes for 2014 as a result of using FIFO inventory
method rather than average-cost.
b. Franco would pay €36,000 less in taxes for 2014 as a result of using FIFO inventory
method rather than average-cost.
c. The inventory method does not impact the amount of income tax paid.
d. Not determinable without income before taxes.
Ans: A, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None,
IMA: Reporting
119. Breguet Company uses the FIFO inventory method. The company reported inventory of
CHF2,270,000 on its December 31, 2014 statement of financial position. Had average-
cost been used, the company would have reported inventory of CHF1,860,000. The
company's tax rate is 30%. What is the impact of the inventory cost flow assumption on
Breguet's 2014 financial statements?
a. Income before taxes reported by Breguet would be CHF410,000 lower as a result of
using the FIFO cost flow assumption.
b. Breguet would pay CHF123,000 less in taxes for 2014 as a result of using the FIFO
cost flow assumption.
c. Income after taxes reported by Breguet would be CHF287,000 higher as a result of
using the FIFO cost flow assumption.
d. The only financial statement affected by the cost flow assumption is the statement of
financial position, which would report CHF410,000 more in inventory as a result of
using the FIFO cost flow assumption.
Ans: C, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None,
IMA: Reporting

120. Aiwa Inc. uses the average-cost inventory method. In 2014, the company reported net
income of ¥59,600,000. Had average-cost been used, the company would have reported
net income of ¥58,900,000. Assuming a 25% tax rate, what is the impact of the inventory
cost flow assumption on Aiwa's taxes for 2014?
a. Aiwa would pay ¥175,000 less in taxes for 2014 as a result of using the average-cost
inventory method rather than FIFO.
b. Aiwa would pay ¥525,000 less in taxes for 2014 as a result of using the average-cost
inventory method rather than FIFO.
c. The inventory method does not impact the amount of income tax paid.
d. Not determinable without income before taxes.
Ans: A, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None,
IMA: Reporting

121. For the current month, the beginning inventory of Elipresse Inc. consisted of 3 units that
cost CHF5,500 each. During the month, the company made two purchases: 4 units at
CHF5,800 each and 1 units at CHF5,750. Elipresse sold 5 units during the month. If
Elipresse uses specific identification and wishes to maximize net income, the units costs
allocated to cost of goods sold will be:
a. 5 units@CHF5,500.
b. 4 units@CHF5,800 and 1 unit @CHF5,750
c. 3 units@CHF5,500 and 1 unit @CHF5,800
d. 3 units@CHF5,500, 1 unit @CHF5,750and 1 unit @CHF5,800
Ans: D, LO: 3, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC:
Problem Solving, IMA: Reporting
122. At year-end, Dana Corporation has 3,000 units of Lolland, 3,000 units of Falster, and
4,500 units of Jultand in its ending inventory. Specific data with respect to each product
follows:
Lolland Falster Jutland
Historical cost €55 €70 €98
Net realizable value 48 77 94

What amount will Dana report for ending inventory using lower-of-cost-or-net realizable
value?
a. €777,000.
b. €792,000.
c. €816,000.
d. €837,000.
Ans: A, LO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC:
Problem Solving, IMA: Reporting

123. Carlsberg Corporation has 2,000 units of product#1and 4,000 units of product#2 in its
inventory at December 31, 2014. Specific data with respect to each product follows:

Product#1 Product#2
Historical cost CHF40 CHF70
Net realizable value 45 54

What amount will be reported on the company statement of financial position at

December 31, 2014 for ending inventory using lower-of-cost-or-net realizable value?
a. CHF220,000.
b. CHF288,000.
c. CHF296,000.
d. CHF306,000.
Ans: C, LO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC:
Problem Solving, IMA: Reporting

124. At December 31, 2014, Bosan Corporation has 4,900 units of model 63 and 3,500 units
of model 64 in its ending inventory. Specific data with respect to each product follows:

Model 63 Model 64
Historical cost W7800 W8700
Net realizable value 7700 8800

What amount will be reported for inventory on Boson's statement of financial position
after the company applies LCNRV?
a. W75,950,000.
b. W69,020,000.
c. W68,530,000.
d. W68,180,000.
Ans: D, LO: 4, Bloom: C, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC:
Problem Solving, IMA: Reporting
125. Net realizable value is
a. original cost plus costs to complete and sell.
b. selling price.
c. original cost less costs to complete and sell.
d. selling cost less costs to complete and sell.
Ans: D, LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None,
IMA: Reporting

126. Net realizable value refers to

a. the net amount the company expects to realize from the sale.
b. the selling price.
c. the cost to replace the item.
d. the gross profit realized from the sale.
Ans: A, LO: 4, Bloom: AN, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None,
IMA: Reporting

127. Which costing method cannot be used to determine the cost of inventory items before
lower-of-cost-or-net realizable value market is applied?
a. Specific identification
b. FIFO
c. Average-cost
d. All of these methods can be used.
Ans: D, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None,
IMA: Reporting

128. Inventory is reported in the financial statements at

a. cost.
b. net realizable value.
c. the higher-of-cost-or-net realizable value.
d. the lower-of-cost-or-net realizable value.
Ans: D, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None,
IMA: Reporting

129. The lower-of-cost-or-net realizable value basis of valuing inventories is an example of

a. comparability.
b. the cost principle.
c. prudence.
d. consistency.
Ans: C, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None,
IMA: Reporting

130. Never Company developed the following information about its inventories in applying the
lower-of-cost-or-net realizable value (LCNRV) basis in valuing inventories:
Product Cost NRV
A $171,000 $180,000
B 120,000 114,000
C 240,000 243,000
If Never applies the LCNRV basis, the value of the inventory reported on the statement
of financial position would be
a. $531,000.
b. $537,000.
c. $525,000.
d. $543,000.
Ans: C, LO: 4, Bloom: AP, Difficulty: Hard, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC:
Problem Solving, IMA: Reporting
131. Paulson, Inc. has 8 computers which have been part of the inventory for over two years.
Each computer cost ₤600 and originally retailed for ₤825. At the statement date, each
computer has a net realizable value of ₤350. What value should Paulson, Inc., have for the
computers at the end of the year?
a. ₤2,000.
b. ₤2,800.
c. ₤4,800.
d. ₤6,600.
Ans: B, LO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC:
Problem Solving, IMA: Reporting

132. Paulson, Inc. has 8 computers which have been part of the inventory for over two years.
Each computer cost ₤600 and originally retailed for ₤825. At the statement date, each
computer has a net realizable value of ₤350. How much loss should Paulson, Inc.,
record for the year?
a. ₤1,800.
b. ₤2,000.
c. ₤2,400.
d. ₤2,800.
Ans: B, LO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC:
Problem Solving, IMA: Reporting

133. Widner Company understated its inventory by $10,000 at December 31, 2013. It did not
correct the error in 2013 or 2014. As a result, Widner's equity was:
a. understated at December 31, 2013, and overstated at December 31, 2014.
b. understated at December 31, 2013, and properly stated at December 31, 2014.
c. overstated at December 31, 2013, and overstated at December 31, 2014.
d. understated at December 31, 2013, and understated at December 31, 2014.
Ans: B, LO: 5, Bloom: C, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC:
Problem Solving, IMA: Reporting

134. Understating beginning inventory will understate

a. assets.
b. cost of goods sold.
c. net income.
d. equity.
Ans: B, LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None,
IMA: Reporting

135. An error in the physical count of goods on hand at the end of a period resulted in a
$10,000 overstatement of the ending inventory. The effect of this error in the current
period is
Cost of Goods Sold Net Income
a. Understated Understated
b. Overstated Overstated
c. Understated Overstated
d. Overstated Understated
Ans: C, LO: 5, Bloom: AN, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None,
IMA: Reporting
136. If beginning inventory is understated by $10,000, the effect of this error in the current
period is
Cost of Goods Sold Net Income
a. Understated Understated
b. Overstated Overstated
c. Understated Overstated
d. Overstated Understated
Ans: C, LO: 5, Bloom: AN, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None,
IMA: Reporting

137. A company uses the periodic inventory method and the beginning inventory is
overstated by $4,000 because the ending inventory in the previous period was
overstated by $4,000. The amounts reflected in the current end of the period statement
of financial position are
Assets Equity
a. Overstated Overstated
b. Correct Correct
c. Understated Understated
d. Overstated Correct
Ans: B, LO: 5, Bloom: AN, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None,
IMA: Reporting

138. Overstating ending inventory will overstate all of the following except
a. assets.
b. cost of goods sold.
c. net income.
d. equity.
Ans: B, LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None,
IMA: Reporting

139. The inventory reported on Lazzard Company’s statement of financial position is

understated by £1,250,000. The company’s reported net income for the period will be
a. understated by £1,250,000.
b. overstated by £1,250,000.
c. correct.
d. need more information to determine.