21.

When using a perpetual inventory system,

d. all of these.

22. Goods in transit which are shipped f.o.b. shipping point should be
b. included in the inventory of the buyer.

23. Goods in transit which are shipped f.o.b. destination should be

a. included in the inventory of the seller.

24. Which of the following items should be included in a company's inventory at the balance
sheet date?
d. None of these.

Use the following information for questions 25 and 26.

During 2007 Foley Corporation transferred inventory to Kline Corporation and agreed to
repurchase the merchandise early in 2008. Kline then used the inventory as collateral to borrow
from Norwalk Bank, remitting the proceeds to Foley. In 2008 when Foley repurchased the
inventory, Kline used the proceeds to repay its bank loan.

25. This transaction is known as a(n)

d. product financing arrangement.

26. On whose books should the cost of the inventory appear at the December 31, 2007
balance sheet date?
a. Foley Corporation

27.Goods on consignment are

b. recorded in a Consignment Out account which is an inventory account.
S
28. Valuation of inventories requires the determination of all of the following except

c. the cost of goods held on consignment from other companies.

P
29. The accountant for the Orion Sales Company is preparing the income statement for
2007 and the balance sheet at December 31, 2007. Orion uses the periodic inventory
system. The January 1, 2007 merchandise inventory balance will appear
.
b. only in the cost of goods sold section of the income statement.

P
30. If the beginning inventory for 2006 is overstated, the effects of this error on cost of goods
sold for 2006, net income for 2006, and assets at December 31, 2007, respectively, are

b. overstatement, understatement, no effect.

S
31. The failure to record a purchase of merchandise on account even though the goods are
properly included in the physical inventory results in
 d. an understatement of liabilities and an overstatement of owners' equity.

32. Belle Co. received merchandise on consignment. As of March 31, Belle had recorded
the transaction as a purchase and included the goods in inventory. The effect of this on
its financial statements for March 31 would be
b. net income was correct and current assets and current liabilities were overstated.

33. Eller Co. received merchandise on consignment. As of January 31, Eller included the
goods in inventory, but did not record the transaction. The effect of this on its financial
statements for January 31 would be
a. net income, current assets, and retained earnings were overstated.

34. Cross Co. accepted delivery of merchandise which it purchased on account. As of

December 31, Cross had recorded the transaction, but did not include the merchandise
in its inventory. The effect of this on its financial statements for December 31 would be
a. net income, current assets, and retained earnings were understated.

35. On June 15, 2007, Tolon Corporation accepted delivery of merchandise which it pur-
chased on account. As of June 30, Tolon had not recorded the transaction or included
the merchandise in its inventory. The effect of this on its balance sheet for June 30, 2007
would be
d. none of these.

36. Which of the following is correct?

b. Manufacturing overhead costs are product costs.

37. All of the following costs should be charged against revenue in the period in which costs
are incurred except for

d. costs of normal shrinkage and scrap incurred for the manufacture of a product in
ending inventory.

38. Which of the following types of interest cost incurred in connection with the purchase or
manufacture of inventory should be capitalized as a product cost?

b. Interest incurred during the production of discrete projects such as ships or real
estate projects

39. The use of a Discounts Lost account implies that the recorded cost of a purchased
inventory item is its

d. invoice price less the purchase discount allowable whether taken or not.
 40. The use of a Purchase Discounts account implies that the recorded cost of a purchased
inventory item is its
a. invoice price.

During 2007, which was the first year of operations, Luther Company had merchandise
purchases of $985,000 before cash discounts. All purchases were made on terms of 2/10, n/30.
Three-fourths of the items purchased were paid for within 10 days of purchase. All of the goods
available had been sold at year end.

41. Which of the following recording procedures would result in the highest cost of goods
sold for 2007?
1. Recording purchases at gross amounts
2. Recording purchases at net amounts, with the amount of discounts not taken
shown under "other expenses" in the income statement
a. 1

42. Which of the following recording procedures would result in the highest net income for
2007?
1. Recording purchases at gross amounts
2. Recording purchases at net amounts, with the amount of discounts not taken
shown under "other expenses" in the income statement

c. Either 1 or 2 will result in the same net income.

43. When using the periodic inventory system, which of the following generally would not be
separately accounted for in the computation of cost of goods sold?
a. Trade discounts applicable to purchases during the period

S
44. Costs which are inventoriable include all of the following except

d. selling costs of a sales department.

P
45. 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 LIFO
c. LIFO FIFO
d. LIFO LIFO

46. In situations where there is a rapid turnover, an inventory method which produces a
balance sheet valuation similar to the first-in, first-out method is
a. average cost.
47. The pricing of issues from inventory must be deferred until the end of the accounting
period under the following method of inventory valuation:

b. weighted-average.

48. An inventory pricing procedure in which the oldest costs incurred rarely have an effect
on the ending inventory valuation is
a. FIFO.

49. Which method of inventory pricing best approximates specific identification of the actual
flow of costs and units in most manufacturing situations?

b. First-in, first-out

50. Assuming no beginning inventory, what can be said about the trend of inventory prices if
cost of goods sold computed when inventory is valued using the FIFO method exceeds
cost of goods sold when inventory is valued using the LIFO method?
a. Prices decreased.

51. In a period of rising prices, the inventory method which tends to give the highest
reported net income is

b. first-in, first-out.

52. In a period of rising prices, the inventory method which tends to give the highest
reported inventory is
a. FIFO.

53. Quayle Corporation's inventory cost on its balance sheet was lower using first-in, first-out
than it would have been using last-in, first-out. Assuming no beginning inventory, in
what direction did the cost of purchases move during the period?

b. Down

54. In a period of rising prices, the inventory method which tends to give the highest
reported cost of goods sold is

c. LIFO.

55. Which of the following statements is not valid as it applies to inventory costing methods?
 d. The use of FIFO permits some control by management over the amount of net
income for a period through controlled purchases, which is not true with LIFO.

56.The acquisition cost of a certain raw material changes frequently. The book value of the
inventory of this material at year end will be the same if perpetual records are kept as it would
be under a periodic inventory method only if the book value is computed under the
.
d. FIFO method.

57.When a company uses LIFO for external reporting purposes and FIFO for internal reporting
purposes, an Allowance to Reduce Inventory to LIFO account is used. This account
should be reported

d. on the balance sheet in the Current Assets section.

S
58. Which of the following statements is not true as it relates to the dollar-value LIFO
inventory method?
a. It is easier to erode LIFO layers using dollar-value LIFO techniques than it is with
specific goods pooled LIFO.
S
59. Which of the following is not considered an advantage of LIFO when prices are rising?
a. The inventory will be overstated.

60. Which of the following is true regarding the use of LIFO for inventory valuation?

d. None of these.

61. If inventory levels are stable or increasing, an argument which is not an advantage of the
LIFO method as compared to FIFO is

c. cost assignments typically parallel the physical flow of goods.

62. TJones Manufacturing Company has the following account balances at year end:
Office supplies $ 4,000
Raw materials 27,000
Work-in-process 59,000
Finished goods 72,000
Prepaid insurance 6,000
What amount should TJones report as inventories in its balance sheet?

c. $158,000.

63. JSmith Manufacturing Company has the following account balances at year end:
 Office supplies $ 4,000
Raw materials 27,000
Work-in-process 59,000
Finished goods 92,000
Prepaid insurance 6,000
What amount should JSmith report as inventories in its balance sheet?

c. $178,000.

64.Briggs Corporation uses the perpetual inventory method. On March 1, it purchased $10,000
of inventory, terms 2/10, n/30. On March 3, Briggs returned goods that cost $1,000. On March
9, Briggs paid the supplier. On March 9, Briggs should credit

d. inventory for $180.

65. Harder Corporation uses the perpetual inventory method. On March 1, it purchased
$30,000 of inventory, terms 2/10, n/30. On March 3, Harder returned goods that cost
$3,000. On March 9, Harder paid the supplier. On March 9, Harder should credit

d. inventory for $540.

Use the following information for questions 66 through 68.

Dexter, Inc. is a calendar-year corporation. Its financial statements for the years 2007 and 2006
contained errors as follows:
2007 2006
Ending inventory $3,000 overstated $8,000 overstated
Depreciation expense $2,000 understated $6,000 overstated

66. Assume that the proper correcting entries were made at December 31, 2006. By how
much will 2007 income before taxes be overstated or understated?

d. $5,000 overstated

67. Assume that no correcting entries were made at December 31, 2006. Ignoring income
taxes, by how much will retained earnings at December 31, 2007 be overstated or
understated?
a. $1,000 understated

68. Assume that no correcting entries were made at December 31, 2006, or December 31,
2007 and that no additional errors occurred in 2008. Ignoring income taxes, by how
much will working capital at December 31, 2008 be overstated or understated?
a. $0
 69. The following information is available for Kerr Company for 2007:
Freight-in $ 30,000
Purchase returns 75,000
Selling expenses 150,000
Ending inventory 260,000
The cost of goods sold is equal to 400% of selling expenses. What is the cost of goods
available for sale?
.
d. $860,000.

Use the following information for questions 70 and 71.

Richey Co. records purchases at net amounts. On May 5 Richey purchased merchandise on
account, $16,000, terms 2/10, n/30. Richey returned $1,200 of the May 5 purchase and
received credit on account. At May 31 the balance had not been paid.

70. The amount to be recorded as a purchase return is

d. $1,176.

71. By how much should the account payable be adjusted on May 31?

d. $296.

72. Assuming that Neer does not maintain perpetual inventory records, what should be the
inventory at January 31, using the weighted-average inventory method, rounded to the
nearest dollar?

b. $12,284.

73. Assuming that Neer maintains perpetual inventory records, what should be the inventory
at January 31, using the moving-average inventory method, rounded to the nearest
dollar?

d. $12,432.

Use the following information for questions 74 and 75.

Kiner Co. has the following data related to an item of inventory:

Inventory, March 1 100 units @ $4.20
Purchase, March 7 350 units @ $4.40
Purchase, March 16 70 units @ $4.50
Inventory, March 31 130 units

74. The value assigned to ending inventory if Kiner uses LIFO is

b. $552.

75. The value assigned to cost of goods sold if Kiner uses FIFO is
 d. $1,696.

76. Baker Company has been using the LIFO method of inventory valuation for 10 years,
since it began operations. Its 2007 ending inventory was $40,000, but it would have
been $60,000 if FIFO had been used. Thus, if FIFO had been used, Baker's income
before income taxes would have been
a. $20,000 greater over the 10-year period.
Sales
June 1 (balance) 800 @ $3.20 June 2 600 @ $5.50
3 2,200 @ 3.10 6 1,600 @ 5.50
7 1,200 @ 3.30 9 1,000 @ 5.50
15 1,800 @ 3.40 10 400 @ 6.00
22 500 @ 3.50 18 1,400 @ 6.00
25 200 @ 6.00

77. Assuming that perpetual inventory records are kept in units only, the ending inventory on
a LIFO basis is
a. $4,110.

78. Assuming that perpetual inventory records are kept in dollars, the ending inventory on a
LIFO basis is
.
c. $4,290.

79. Assuming that perpetual inventory records are kept in dollars, the ending inventory on a
FIFO basis is

d. $4,470.

80. Assuming that perpetual inventory records are kept in units only, the ending inventory on
an average-cost basis, rounded to the nearest dollar, is

b. $4,238.

81. Johnson Company had 500 units of “Tank” in its inventory at a cost of $4 each. It
purchased, for $2,800, 300 more units of “Tank”. Johnson then sold 400 units at a selling
price of $10 each, resulting in a gross profit of $1,600. The cost flow assumption used by
Johnson

c. is weighted average.

82. Kingman Company had 500 units of “Dink” in its inventory at a cost of $5 each. It
purchased, for $2,400, 300 more units of “Dink”. Kingman then sold 600 units at a selling
price of $10 each, resulting in a gross profit of $2,100. The cost flow assumption used by
Kingman
b. is LIFO.
 .

83. Brown Corporation uses the FIFO method for internal reporting purposes and LIFO for
external reporting purposes. The balance in the LIFO Reserve account at the end of 2007 was
$60,000. The balance in the same account at the end of 2008 is $90,000. Brown’s Cost of
Goods Sold account has a balance of $450,000 from sales transactions recorded during the
year. What amount should Brown report as Cost of Goods Sold in the 2008 income statement?

c. $480,000.

84. Green Corporation uses the FIFO method for internal reporting purposes and LIFO for
external reporting purposes. The balance in the LIFO Reserve account at the end of
2007 was $80,000. The balance in the same account at the end of 2008 is $120,000.
Green’s Cost of Goods Sold account has a balance of $600,000 from sales transactions
recorded during the year. What amount should Green report as Cost of Goods Sold in
the 2008 income statement?

c. $640,000.

85. Johnson Company had 400 units of “Tank” in its inventory at a cost of $4 each. It
purchased 600 more units of “Tank” at a cost of $6 each. Johnson then sold 700 units at
a selling price of $10 each. The LIFO liquidation overstated normal gross profit by

b. $200.

86. Kingman Company had 400 units of “Dink” in its inventory at a cost of $6 each. It
purchased 600 more units of “Dink” at a cost of $9 each. Kingman then sold 700 units at
a selling price of $15 each. The LIFO liquidation overstated normal gross profit by

b. $300.

AJ Company had January 1 inventory of $100,000 when it adopted dollar-value LIFO. During
the year, purchases were $600,000 and sales were $1,000,000. December 31 inventory at year-
end prices was $143,360, and the price index was 112.

87. What is AJ Company’s ending inventory?

c. $131,360.

88.What is AJ Company’s gross profit?

b. $431,360.
 .
Ely Company had January 1 inventory of $100,000 when it adopted dollar-value LIFO. During
the year, purchases were $600,000 and sales were $1,000,000. December 31 inventory at year-
end prices was $126,500, and the price index was 110.

89. What is Ely Company’s ending inventory?

c. $116,500.

90. What is Ely Company’s gross profit?

b. $416,500.

Dolan Corporation adopted the dollar-value LIFO method of inventory valuation on December
31, 2005. Its inventory at that date was $220,000 and the relevant price index was 100.
Information regarding inventory for subsequent years is as follows:
Inventory at Current
Date Current Prices Price Index
December 31, 2006 $256,800 107
December 31, 2007 290,000 125
December 31, 2008 325,000 130

91. What is the cost of the ending inventory at December 31, 2006 under dollar-value LIFO?
c. $241,400.

92. What is the cost of the ending inventory at December 31, 2007 under dollar-value LIFO?
c. $232,840.

93. What is the cost of the ending inventory at December 31, 2008 under dollar-value LIFO?
a. $256,240.

94. Tate Company adopted the dollar-value LIFO method on January 1, 2007, at which time
its inventory consisted of 6,000 units of Item A @ $5.00 each and 3,000 units of Item B
@ $16.00 each. The inventory at December 31, 2007 consisted of 12,000 units of Item A
and 7,000 units of Item B. The most recent actual purchases related to these items were
as follows:
Quantity
Items Purchase Date Purchased Cost Per Unit
A 12/7/07 2,000 $ 6.00
A 12/11/07 10,000 5.75
B 12/15/07 10,000 17.00
Using the double-extension method, what is the price index for 2007 that should be
computed by Tate Company?
b. 109.59%

95. How should the following costs affect a retailer's inventory valuation?
 Freight-in Interest on Inventory Loan
a. Increase No effect

96. The following information applied to Grey, Inc. for 2007:

Merchandise purchased for resale $300,000
Freight-in 8,000
Freight-out 5,000
Purchase returns 2,000
Grey's 2007 inventoriable cost was

c. $306,000.

97. The following information was derived from the 2007 accounting records of Logan Co.:
Logan 's Goods
Logan 's Central Warehouse Held by Consignees
Beginning inventory $130,000 $ 14,000
Purchases 575,000 70,000
Freight-in 10,000
Transportation to consignees 5,000
Freight-out 30,000 8,000
Ending inventory 145,000 20,000
Logan 's 2007 cost of sales was

d. $639,000.

98. Cole Corp.'s accounts payable at December 31, 2007, totaled $800,000 before any
necessary year-end adjustments relating to the following transactions:
• On December 27, 2007, Cole wrote and recorded checks to creditors totaling
$350,000 causing an overdraft of $100,000 in Cole 's bank account at December 31,
2007. The checks were mailed out on January 10, 2008.
• On December 28, 2007, Cole purchased and received goods for $150,000, terms
2/10, n/30. Cole records purchases and accounts payable at net amounts. The
invoice was recorded and paid January 3, 2008.
• Goods shipped f.o.b. destination on December 20, 2007 from a vendor to Cole
were received January 2, 2008. The invoice cost was $65,000.
At December 31, 2007, what amount should Cole report as total accounts payable?

b. $1,297,000.
 99. The balance in Hill Co.'s accounts payable account at December 31, 2007 was $700,000
before any necessary year-end adjustments relating to the following:
• Goods were in transit to Hill from a vendor on December 31, 2007. The invoice
cost was $40,000. The goods were shipped f.o.b. shipping point on December 29,
2007 and were received on January 4, 2008.
• Goods shipped f.o.b. destination on December 21, 2007 from a vendor to Hill
were received on January 6, 2008. The invoice cost was $25,000.
• On December 27, 2007, Hill wrote and recorded checks to creditors totaling
$30,000 that were mailed on January 10, 2008.
In Hill's December 31, 2007 balance sheet, the accounts payable should be

d. $770,000.

100. Gear Co.'s accounts payable balance at December 31, 2007 was $1,500,000 before
considering the following transactions:
• Goods were in transit from a vendor to Gear on December 31, 2007. The invoice
price was $70,000, and the goods were shipped f.o.b. shipping point on December
29, 2007. The goods were received on January 4, 2008.
• Goods shipped to Gear, f.o.b. shipping point on December 20, 2007, from a
vendor were lost in transit. The invoice price was $50,000. On January 5, 2008, Gear
filed a $50,000 claim against the common carrier.
In its December 31, 2007 balance sheet, Gear should report accounts payable of
a. $1,620,000.

101. Tysen Retailers purchased merchandise with a list price of $50,000, subject to trade
discounts of 20% and 10%, with no cash discounts allowable. Tysen should record the
cost of this merchandise as

b. $36,000.

102. On June 1, 2007, Mills Corp. sold merchandise with a list price of $20,000 to Linn on
account. Mills allowed trade discounts of 30% and 20%. Credit terms were 2/15, n/40
and the sale was made f.o.b. shipping point. Mills prepaid $400 of delivery costs for Linn
as an accommodation. On June 12, 2007, Mills received from Linn a remittance in full
payment amounting to

c. $11,376.

103. Dark Co. recorded the following data pertaining to raw material X during January 2007:
Units
Date Received Cost Issued On Hand
1/1/07 Inventory $8.00 3,200
1/11/07 Issue 1,600 1,600
1/22/07 Purchase 4,000 $9.40 5,600
The moving-average unit cost of X inventory at January 31, 2007 is
 c. $9.00.

104. During periods of rising prices, a perpetual inventory system would result in the same
dollar amount of ending inventory as a periodic inventory system under which of the following
inventory cost flow methods?
FIFO LIFO
a. Yes No

105. Earl Co. was formed on January 2, 2007, to sell a single product. Over a two-year
period, Earl's acquisition costs have increased steadily. Physical quantities held in
inventory were equal to three months' sales at December 31, 2007, and zero at
December 31, 2008. Assuming the periodic inventory system, the inventory cost method
which reports the highest amount of each of the following is
Inventory Cost of Sales
December 31, 2007 2008

c. FIFO FIFO

106. Noll Co. had 450 units of product A on hand at January 1, 2007, costing $42 each.
Purchases of product A during January were as follows:
Date Units Unit Cost
Jan. 10 600 $44
18 750 46
28 300 48
A physical count on January 31, 2007 shows 600 units of product A on hand. The cost of
the inventory at January 31, 2007 under the LIFO method is

c. $25,500.

107. When the double extension approach to the dollar-value LIFO inventory cost flow
method is used, the inventory layer added in the current year is multiplied by an index
number. How would the following be used in the calculation of this index number?
Ending inventory Ending inventory
at current year cost at base year cost
a. Numerator Denominator

108. Carr Co. adopted the dollar-value LIFO inventory method on December 31, 2007. Carr's
entire inventory constitutes a single pool. On December 31, 2007, the inventory was $320,000
under the dollar-value LIFO method. Inventory data for 2008 are as follows:
12/31/08 inventory at year-end prices $440,000
Relevant price index at year end (base year 2007) 110
Using dollar value LIFO, Carr's inventory at December 31, 2008 is

b. $408,000.