INVENTORIES REVIEWER

Problems.

Morgan 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 Morgan report as inventories in its balance sheet?

a. $72,000.
b. $76,000.
c. $158,000.
d. $162,000

Solution: $27,000 + $59,000 + $72,000 = $158,000.

Lawson 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 Lawson report as inventories in its balance sheet?

a. $92,000.
b. $96,000.
c. $178,000.
d. $182,000

Solution: $27,000 + $59,000 + $92,000 = $178,000.

Elkins Corporation uses the perpetual inventory method. On March 1, it purchased

$10,000 of inventory, terms 2/10, n/30. On March 3, Elkins returned goods that cost
$1,000. On March 9, Elkins paid the supplier. On March 9, Elkins should credit
a. purchase discounts for $200.
b. inventory for $200.
c. purchase discounts for $180.
d. inventory for $180.

Solution: [($10,000 – $1,000) × .02] = $180.

 87. Malone Corporation uses the perpetual inventory method. On March 1, it
purchased $30,000 of inventory, terms 2/10, n/30. On March 3, Malone returned
goods that cost $3,000. On March 9, Malone paid the supplier. On March 9, Malone
should credit
a. purchase discounts for $600.
b. inventory for $600.
c. purchase discounts for $540.
d. inventory for $540.

Solution: [($30,000 – $3,000) × .02] = $540.

88. Bell Inc. took a physical inventory at the end of the year and determined that
$650,000 of goods were on hand. In addition, Bell, Inc. determined that $50,000 of
goods that were in transit that were shipped f.o.b. shipping were actually received two
days after the inventory count and that the company had $75,000 of goods out
on consignment. What amount should Bell report as inventory at the end of the year?
a. $650,000.
b. $700,000.
c. $725,000.
d. $775,000.

$650,000 + $50,000 + $75,000 = $775,000

89. Bell Inc. took a physical inventory at the end of the year and determined that
$475,000 of goods were on hand. In addition, the following items were not included in
the physical count. Bell, Inc. determined that $60,000 of goods were in transit that
were shipped f.o.b. destination (goods were actually received by the company three
days after the inventory count).The company sold $25,000 worth of inventory f.o.b.
destination. What amount should Bell report as inventory at the end of the year?
a. $475,000.
b. $535,000.
c. $500,000.
d. $560,000.

$475,000 + $25,000 = $500,000

90. Risers Inc. reported total assets of $1,200,000 and net income of $135,000 for the
current year. Risers determined that inventory was overstated by $10,000 at the
beginning of the year (this was not corrected). What is the corrected amount for total
assets and net income for the year?
a. $1,200,000 and $135,000.
b. $1,200,000 and $145,000.
c. $1,190,000 and $125,000.
d. $1,210,000 and $145,000.

$1,200,000 and ($135,000 + $10,000) = $145,000.

91. Risers Inc. reported total assets of $1,600,000 and net income of $85,000 for the
current year. Risers determined that inventory was understated by $23,000 at the
beginning of the year and $10,000 at the end of the year. What is the corrected
amount for total assets and net income for the year?
a. $1,610,000 and $95,000.
b. $1,590,000 and $98,000.
c. $1,610,000 and $72,000.
d. $1,600,000 and $85,000.

($1,600,000 + $10,000) and ($85,000 – $23,000 + $10,000) = $72,000

Use the following information for questions 92 through 94.

Hudson, Inc. is a calendar-year corporation. Its financial statements for the years 2011
and 2010 contained errors as follows:
2011 2010
Ending inventory $3,000 overstated $8,000 overstated
Depreciation expense $2,000 understated $6,000 overstated

92. Assume that the proper correcting entries were made at December 31, 2010. By
how much will 2011 income before taxes be overstated or understated?
a. $1,000 understated
b. $1,000 overstated
c. $2,000 overstated $3,000 + $2,000 = $5,000.
d. $5,000 overstated

93. Assume that no correcting entries were made at December 31, 2010.
Ignoring income taxes, by how much will retained earnings at December 31, 2011
be overstated or understated?
a. $1,000 understated
b. $5,000 overstated $6,000 – ($3,000 + $2,000) = $1,000
c. $5,000 understated
d. $9,000 understated

94. Assume that no correcting entries were made at December 31, 2010, or December
31, 2011 and that no additional errors occurred in 2012. Ignoring income taxes, by how
much will working capital at December 31, 2012 be overstated or understated?
a. $0
b. $2,000 overstated
c. $2,000 understated
d. $5,000 understated

The effect of the errors in ending inventories reverse themselves in the

following year.

95. The following information is available for Naab Company for 2010:
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?
a. $600,000.
b. $890,000.
c. $815,000.
d. $860,000.

$260,000 + (4 × $150,000) = $860,000.

Use the following information for questions 96 and 97.

Winsor Co. records purchases at net amounts. On May 5 Winsor purchased

merchandise on account, $16,000, terms 2/10, n/30. Winsor returned $1,200 of the May
5 purchase and received credit on account. At May 31 the balance had not been
paid.

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

a. $1,080.
b. $1,224. $1,200 – ($1,200 × .02) = $1,176.
c. $1,200.
d. $1,176.

97. By how much should the account payable be adjusted on May 31?
a. $0.
b. $344. ($16,000 – $1,200) × .02 = $296.
c. $320.
d. $296.
Use the following information for questions 98 and 99.

The following information was available from the inventory records of Rich Company for
January:
Units Unit Cost Total Cost
Balance at January 1 3,000 $9.77 $29,310
Purchases:
January 6 2,000 10.30 20,600
January 26 2,700 10.71 28,917

Sales:
January 7 (2,500)
January 31 (4,000)
Balance at January 31 1,200

98. Assuming that Rich 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?
a. $12,606.
b. $12,284.
c. $12,312.
d. $12,432.

($29,310 + $20,600 + $28,917) ÷ (3,000 + 2,000 + 2,700) = $10.237/unit $10.237 ×

1,200 = $12,284.

99. Assuming that Rich maintains perpetual inventory records, what should be the
inventory at January 31, using the moving-average inventory method, rounded to the
nearest dollar?
a. $12,606.
b. $12,284.
c. $12,312.
d. $12,432.
Avg. on 1/6 $49,910 ÷ 5,000 = $9.982/unit
1/26 $53,872 ÷ 5,200 = $10.36/unit
$10.36 × 1,200 = $12,432.

Use the following information for questions 100 and 101.

Niles 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

100. The value assigned to ending inventory if Niles uses LIFO is

a. $579.
b. $552. (100 × $4.20) + (30 × $4.40) = $552
c. $546.
d. $585.

101. The value assigned to cost of goods sold if Niles uses FIFO is
a. $579.
b. $552.
c. $1,723.
d. $1,696.

100 + 350 + 70 – 130 = 390 units

(100 × $4.20) + (290 × $4.40) = $1,696.

102. Emley Company has been using the LIFO method of inventory valuation for 10
years, since it began operations. Its 2010 ending inventory was $40,000, but it would
have been $60,000 if FIFO had been used. Thus, if FIFO had been used, Emley's income
before income taxes would have been
a. $20,000 greater over the 10-year period. ($60,000 – $40,000) = $20,000
b. $20,000 less over the 10-year period.
c. $20,000 greater in 2010.
d. $20,000 less in 2010.

Use the following information for questions 103 through 106. Transactions for the month
of June were:
Purchases 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

103. Assuming that perpetual inventory records are kept in units only, the ending
inventory on a LIFO basis is
a. $4,110.
b. $4,160.
c. $4,290.
d. $4,470.

Available (purchases) = 6,500 units

Sales = 5,200 units
EI = 6,500 – 5,200 = 1,300 units
(800 × $3.20) + (500 × $3.10) = $4,110.

104. Assuming that perpetual inventory records are kept in dollars, the ending inventory
on a LIFO basis is
a. $4,110.
b. $4,160.
c. $4,290.
d. $4,470.

105. Assuming that perpetual inventory records are kept in dollars, the ending inventory
on a FIFO basis is
a. $4,110.
b. $4,160.
c. $4,290.
d. $4,470. (500 × $3.5) + (800 × $3.4) = $4,470.

106. Assuming that perpetual inventory records are kept in units only, the ending
inventory on an average-cost basis, rounded to the nearest dollar, is
a. $4,096.
b. $4,238.
c. $4,290.
d. $4,322.

$21,210 ÷ 6,500 units = $3.26

$3.26 × 1,300 = $4,238
107. Milford 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” . Milford 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
a. is FIFO.
b. is LIFO.
c. is weighted average.
d. cannot be determined from the information given.

(400 × $10) – $1,600 = $2,400 COGS

[(500 × $4) + $2,800] – $2,400 = $2,400 E.I.
($4,800 ÷ 800) × 400 units = $2,400 E.I. under weighted avg.

108. Nichols 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” . Nichols 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
a. is FIFO.
b. is LIFO.
c. is weighted average.
d. cannot be determined from the information given.

(600 $10) – $2,100 = $3,900 COGS

[(500 $5) + $2,400] – $3,900 = $1,000 E.I.
200 × $5 = $1,000 E.I. under LIFO.

109. June Corp. sells one product and uses a perpetual inventory system. The
beginning inventory consisted of 10 units that cost $20 per unit. During the current
month, the company purchased 60 units at $20 each. Sales during the month totaled
45 units for $43 each. What is the number of units in the ending inventory?
a. 10 units.
b. 15 units.
c. 25 units. 10 + 60 – 45 = 25 units.
d. 70 units.

110. June Corp. sells one product and uses a perpetual inventory system. The
beginning inventory consisted of 10 units that cost $20 per unit. During the current
month, the company purchased 60 units at $20 each. Sales during the month totaled
45 units for $43 each. What is the cost of goods sold using the LIFO method?
a. $200.
b. $900. 45 × $20/unit = $900
c. $1,200.
d. $1,935.

111. Checkers uses the periodic inventory system. For the current month, the
beginning inventory consisted of 1,200 units that cost $12 each. During the month, the
company made two purchases: 500 units at $13 each and 2,000 units at $13.50 each.
Checkers also sold 2,150 units during the month. Using the average cost method, what
is the amount of cost of goods sold for the month?
a. $27,843.
b. $28,950.
c. $26,975.
d. $27,950.

[(1,200 × $12) + (500 × $13) + (2,000 × $13.50]  (1,200 + 500 + 2,000) =

$12.95; $12.95 × 2,150 = $27,843

112. Chess Top uses the periodic inventory system. For the current month, the
beginning inventory consisted of 200 units that cost $65 each. During the month, the
company made two purchases: 300 units at $68 each and 150 units at $70 each. Chess
Top also sold 500 units during the month. Using the average cost method, what is
the amount of ending inventory?
a. $10,500.
b. $33,770.
c. $33,400.
d. $10,131.

[(200 × $65) + (300 × $68) + (150 × $70)]  (200 + 300 + 150) = $67.54;
$67.54 × (650 – 500) = $10,131.

113. Checkers uses the periodic inventory system. For the current month, the
beginning inventory consisted of 1,200 units that cost $12 each. During the month, the
company made two purchases: 500 units at $13 each and 2,000 units at $13.50 each.
Checkers also sold 2,150 units during the month. Using the FIFO method, what is the
ending inventory?
a. $20,073.
b. $18,600.
c. $20,925. (1,200 + 500 + 2,000) – 2,150 = 1,550; 1,550 × $13.50 = $20,925.
d. $18,950.
114. Chess Top uses the periodic inventory system. For the current month, the
beginning inventory consisted of 200 units that cost $65 each. During the month, the
company made two purchases: 300 units at $68 each and 150 units at $70 each. Chess
Top also sold 500 units during the month. Using the FIFO method, what is the amount of
cost of goods sold for the month?
a. $33,770.
b. $32,500.
c. $34,150.
d. $33,400. (200 × $65) + [(500 – 200) × $68] = $33,400

115. Checkers uses the periodic inventory system. For the current month, the
beginning inventory consisted of 1,200 units that cost $12 each. During the month, the
company made two purchases: 500 units at $13 each and 2,000 units at $13.50 each.
Checkers also sold 2,150 units during the month. Using the LIFO method, what is the
ending inventory?
a. $20,073.
b. $18,600.
c. $20,925.
d. $18,950. (1,200 + 500 + 2,000) – 2,150 = 1,550;
(1,200 × $12) + [(1,550 – 1,200) × $13] = $18,950.

116. Chess Top uses the periodic inventory system. For the current month, the
beginning inventory consisted of 200 units that cost $65 each. During the month, the
company made two purchases: 300 units at $68 each and 150 units at $70 each. Chess
Top also sold 500 units during the month. Using the LIFO method, what is the amount of
cost of goods sold for the month?
a. $33,770.
b. $32,500.
c. $34,150. (150 × $70) + (300 × $68) + (50 × $65) = $34,150.
d. $33,400.

117. Black 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 2010 was $60,000. The balance in the same account at the end of 2011 is
$90,000. Black’s Cost of Goods Sold account has a balance of $450,000 from sales
transactions recorded during the year. What amount should Black report as Cost of
Goods Sold in the 2011 income statement?
a. $420,000.
b. $450,000.
c. $480,000. $450,000 + ($90,000 – $60,000) = $480,000
d. $540,000.
118. White 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 2010 was $80,000. The balance in the same account at the end of 2011 is
$120,000. White’s Cost of Goods Sold account has a balance of $600,000 from sales
transactions recorded during the year. What amount should White report as Cost
of Goods Sold in the 2011 income statement?
a. $560,000.
b. $600,000.
c. $640,000. $600,000 + ($120,000 – $80,000) = $640,000
d. $720,000.

119. Milford 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. Milford then sold 700 units at a
selling price of $10 each. The LIFO liquidation overstated normal gross profit by
a. $ -0-
b. $200. [(700 – 600) × ($6 – $4)] = $200
c. $400.
d. $600.

120. Nichols 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. Nichols then sold 700 units at a
selling price of $15 each. The LIFO liquidation overstated normal gross profit by
a. $ -0-
b. $300. [(700 – 600) × ($9 – $6)] = $300
c. $600.
d. $900.

Use the following information for 121 and 122

RF 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.

121. What is RF Company’ s ending inventory?

a. $100,000.
b. $128,000.
c. $131,360. $143,360 ÷ 1.12 = $128,000 – $100,000 = $28,000.
$100,000 + ($28,000 × 1.12) = $131,360
d. $143,360.
122. What is RF Company’ s gross profit?
a. $428,000.
b. $431,360. $100,000 + $600,000 – $131,360 = $568,640 COGS
$1,000,000 – $568,640 = $431,360.
c. $443,460.
d. $868,640.

Use the following information for 123 and 124

Hay 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.

123. What is Hay Company’ s ending inventory?

a. $110,000.
b. $115,000.
c. $116,500. $126,500 ÷ 1.10 = $115,000 – $100,000 = $15,000.
$100,000 + ($15,000 ÷ 1.10) = $116,500.
d. $126,500.

124. What is Hay Company’ s gross profit?

a. $415,000.
b. $416,500. $100,000 + $600,000 – $116,500 = $583,500 COGS
$1,000,000 – $583,500 = $416,500.
c. $426,500.
d. $883,500.

Use the following information for questions 125 through 126.

Gross Corporation adopted the dollar-value LIFO method of inventory valuation on

December 31, 2009. 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, 2010 $256,800 107
December 31, 2011 290,000 125
December 31, 2012 325,000 130

125. What is the cost of the ending inventory at December 31, 2010 under dollar-value
LIFO?
a. $240,000.
b. $256,800.
c. $241,400. $256,800 ÷ 1.07 = $240,000
$220,000 + [(240,000 – $220,000) × 1.07] = $241,400.
d. $235,400.

126. What is the cost of the ending inventory at December 31, 2011 under dollar-value
LIFO?
a. $232,000.
b. $231,400.
c. $232,840. $290,000 ÷ 1.25 = $232,000
($220,000 × 1) + ($12,000 × 1.07) = $232,840
d. $240,000.

127. What is the cost of the ending inventory at December 31, 2012 under dollar-value
LIFO?
a. $256,240. $325,000 ÷ 1.30 = $250,000
($220,000 × 1) + ($12,000 × 1.07) + ($18,000 × 1.3) = $256,240.
b. $254,800.
c. $250,000.
d. $263,400.

128. Wise Company adopted the dollar-value LIFO method on January 1, 2010, 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, 2010 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 12/7/10 2,000 $ 6.00
A 12/11/10 10,000 5.75
B 12/15/10 7,000 17.00

Using the double-extension method, what is the price index for 2010 that should
be computed by Wise Company?
a. 108.33%
b. 109.59% [(2,000 × $6) + (10,000 × $5.75) + (7,000 × $17)] ÷ [(12,000 × $5) +
(7,000 × $16)] = 1.0959 = 109.59%.
c. 111.05%
d. 220.51%
129. Web World began using dollar-value LIFO for costing its inventory last year. The
base year layer consists of $250,000. Assuming the current inventory at end of year
prices equals $345,000 and the index for the current year is 1.10, what is the
ending inventory using dollar-value LIFO?
a. $345,000.
b. $320,000. $345,000 ÷ 1.10 = $313,636; $313,636 – $250,000 = $63,636;
$250,000 + ($63,636 × 1.10) = $320,000
c. $313,636.
d. $379,500.

130. Willy World began using dollar-value LIFO for costing its inventory two years
ago. The ending inventory for the past two years in end-of-year dollars was $100,000
and $150,000 and the year-end price indices were 1.0 and 1.2, respectively. Assuming
the current inventory at end of year prices equals $215,000 and the index for the current
year is 1.25, what is the ending inventory using dollar-value LIFO?
a. $177,500.
b. $186,400.
c. $190,000.
d. $188,750. $215,000 ÷ 1.25 = $172,000; $172,000 – ($150,000 ÷ 1.20) = $47,000;
$100,000 + [($150,000 ÷ 1.20) – $100,000) × 1.2] = $130,000
$130,000 + ($47,000 × 1.25) = $188,750.

131. Opera Corp. uses the dollar-value LIFO method of computing its inventory cost.
Data for the past four years is as follows:

Year ended Inventory at Price

December 31. End-of-year Prices Index
2009 $ 65,000 1.00
2010 126,000 1.05
2011 135,000 1.10

What is the 2009 inventory balance using dollar-value LIFO?

a. $65,000. $65,000 × 1.00 = $65,000
b. $61,904.
c. $122,727.
d. $135,000.

132. Opera Corp. uses dollar-value LIFO method of computing its inventory cost. Data
for the past four years is as follows:

Year ended Inventory at Price

December 31. End-of-year Prices Index
 2009 $ 65,000 1.00
2010 126,000 1.05
2011 135,000 1.10

What is the 2010 inventory balance using dollar-value LIFO?

a. $126,000.
b. $128,500.
c. $122,750. $126,000 ÷ 1.05 = $120,000; $120,000 – $65,000 = $55,000.
$65,000 + ($55,000 × 1.05) = $122,750
d. $125,750.

133. Opera Corp. uses dollar-value LIFO method of computing its inventory cost. Data
for the past four years is as follows:

Year ended Inventory at Price

December 31. End-of-year Prices Index
2009 $ 65,000 1.00
2010 126,000 1.05
2011 135,000 1.10

What is the 2011 inventory balance using dollar-value LIFO?

a. $135,000.
b. $128,500.
c. $122,750.
d. $125,750. 35,000 ÷ 1.10 = $122,727; $122,727 – ($126,000 ÷ 1.05) = $2,727;
$126,000 ÷ 1.05 = $120,000; $120,000 – $65,000 = $55,000;
$65,000 + ($55,000 × 1.05) + ($2,727 × 1.10) = $125,750.