Q: A company has the following inventory data: Beginning Inventory: 1,000 units at $$20; Purchase 1: 500 units at 22.40$$; Purchase 2: 600 units at $23.30. If 800 units remain at month-end, what is the formula for calculating the average cost per unit?

$$\frac{\text{Total Cost}}{\text{Total Quantity}}$$

Q: If a company uses the periodic inventory system and makes a physical count at year-end, which formula correctly calculates ending inventory?

$$\text{Beginning Inventory} + \text{Purchases} - \text{COGS} = \text{Ending Inventory}$$

Question 1

Which of the following best describes the difference between a merchandising company and a manufacturing company in terms of inventory accounts?

Accepted Answer

A merchandising company has one inventory account, while a manufacturing company has three inventory accounts: Raw Materials, Work-in-Process, and Finished Goods.

Question 2

XYZ Company purchases goods from its supplier for $10,000 on account. What is the correct journal entry for this transaction?

Accepted Answer

Debit Inventory $$10,000; Credit Accounts Payable 10$$,000

Question 3

Under the perpetual inventory system, what should the physical inventory count at the end of the period do?

Accepted Answer

Match the inventory balance from the records

Question 4

Goods shipped FOB Shipping Point are in transit at year-end. Who owns these goods?

Accepted Answer

The buyer

Question 5

Jan’s Boutique sells Sophie’s dresses on consignment. At the end of the month, Jan has three unsold dresses in the store. How should Jan report these dresses in her inventory?

Accepted Answer

They should not be included in Jan’s inventory.

Question 6

Which inventory costing method assumes the oldest units are sold first?

Accepted Answer

First In, First Out (FIFO)

Question 7

A company has the following inventory data: Beginning Inventory: 1,000 units at $$20; Purchase 1: 500 units at 22.40$$; Purchase 2: 600 units at $23.30. If 800 units remain at month-end, what is the formula for calculating the average cost per unit?

Accepted Answer

$$\frac{	ext{Total Cost}}{	ext{Total Quantity}}$$

Question 8

In a rising price environment, which inventory costing method will result in the highest net income?

Accepted Answer

FIFO

Question 9

Obsocorp purchased inventory for $$84,000. The estimated selling price is 86$$,000 and selling expenses are $7,000. According to the lower of cost or market rule, at what value should the inventory be reported?

Accepted Answer

$$77,000$$

Question 10

A company’s ending inventory is overstated by $5,000. What is the effect on assets and equity in the balance sheet at the end of the period?

Accepted Answer

Assets: Overstated; Equity: Overstated

Question 11

Which of the following is true regarding the specific identification method?

Accepted Answer

It is most appropriate for high-value, easily distinguishable items.

Question 12

If a company uses the periodic inventory system and makes a physical count at year-end, which formula correctly calculates ending inventory?

Accepted Answer

$$	ext{Beginning Inventory} + 	ext{Purchases} - 	ext{COGS} = 	ext{Ending Inventory}$$

Question 13

Under the perpetual inventory system, when is the average cost per unit updated?

Accepted Answer

After each purchase

Question 14

Which of the following statements about consigned goods is correct?

Accepted Answer

They are not included in the consignee’s inventory.

Question 15

A company had a beginning inventory that was understated by $4,000. What is the effect on assets and equity in the current end of period balance sheet?

Accepted Answer

Assets: Correct; Equity: Correct

Question 16

Which of the following best describes the effect of an ending inventory understatement in Period 1 on the financial statements?

Accepted Answer

COGS is overstated in Period 1 and understated in Period 2.

Question 17

If a company applies the lower of cost or market rule, which value is used for inventory on the balance sheet?

Accepted Answer

The lower of historical cost or net realizable value

Question 18

Which of the following is the correct formula for net realizable value?

Accepted Answer

$$	ext{Net Realizable Value} = 	ext{Estimated Selling Price} - 	ext{Disposal Costs}$$

Question 19

Which inventory costing method will result in the lowest ending inventory value in a period of rising prices?

Accepted Answer

LIFO

Question 20

A company’s inventory was marked down to market value, which was lower than cost. What is the accounting effect?

Accepted Answer

A loss is recognized in the period of the write-down.

Accounting Inventories: Concepts, Methods, and Financial Implications

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