Q: Under the periodic inventory system, which formula correctly calculates Cost of Goods Sold (COGS)?

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

Q: ZenLife Inc. has 6,000 units of ending inventory consisting of 1,000 units from the March 2 purchase at $$10/unit, 3,000 from March 15 at 12/$$unit, and 2,000 from March 30 at $14/unit. What is the ending inventory value under the specific identification method?

$$(1,000 \times 10) + (3,000 \times 12) + (2,000 \times 14) = 62$$,000$

Q: If a company uses the periodic inventory system and the weighted-average method, how is the average cost per unit calculated?

$$\text{Total cost of goods available for sale} \div \text{Total units available for sale}$$

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: raw materials, work in process, and finished goods.

Question 2

Procter and Gamble Company reports the following inventories: materials and supplies $$1,414 million, work in process 674 $$million, and finished goods $3,410 million. What is the total value of inventories reported?

Accepted Answer

$5,498 million

Question 3

Under the periodic inventory system, which formula correctly calculates Cost of Goods Sold (COGS)?

Accepted Answer

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

Question 4

A company purchases goods f.o.b. shipping point. When should the company recognize the goods in its inventory?

Accepted Answer

When the goods are shipped by the seller.

Question 5

Which of the following costs should NOT be included in the cost of inventory?

Accepted Answer

Marketing expense

Question 6

Goods held on consignment should be included in whose inventory?

Accepted Answer

The consignor's inventory

Question 7

Which inventory cost flow assumption most closely matches the physical flow of goods for perishable items?

Accepted Answer

FIFO (First-In, First-Out)

Question 8

A company uses FIFO for internal reporting and LIFO for external reporting. The difference between the two inventory methods is called:

Accepted Answer

LIFO reserve

Question 9

If a company experiences a LIFO liquidation, what is the likely effect on net income and taxes?

Accepted Answer

Net income increases and taxes increase

Question 10

Under the dollar-value LIFO method, how are increases and decreases in inventory measured?

Accepted Answer

By the total dollar value of the inventory pool

Question 11

ZenLife Inc. has 6,000 units of ending inventory consisting of 1,000 units from the March 2 purchase at $$10/unit, 3,000 from March 15 at 12/$$unit, and 2,000 from March 30 at $14/unit. What is the ending inventory value under the specific identification method?

Accepted Answer

$$(1,000 	imes 10) + (3,000 	imes 12) + (2,000 	imes 14) = 62$$,000$

Question 12

Which of the following is a disadvantage of the LIFO inventory method?

Accepted Answer

It may result in lower current assets and net income.

Question 13

A company’s beginning inventory is $$50,000, purchases are 120$$,000, and ending inventory is $40,000. What is the cost of goods sold?

Accepted Answer

$$50,000 + 120$$,000 - $$40,000 = 130$$,000$

Question 14

Which cost flow assumption is least likely to allow income manipulation by management?

Accepted Answer

Average Cost

Question 15

If a company uses the periodic inventory system and the weighted-average method, how is the average cost per unit calculated?

Accepted Answer

$$	ext{Total cost of goods available for sale} \div 	ext{Total units available for sale}$$

Question 16

A company’s inventory at current prices is $26,400 at year-end. If prices increased by 20% during the year, what is the ending inventory at base-year prices?

Accepted Answer

$$26,400 \div 1.20 = 22$$,000$

Question 17

Which of the following statements about the LIFO conformity rule is correct?

Accepted Answer

If a company uses LIFO for tax purposes, it must also use LIFO for financial reporting.

Question 18

Which of the following is a product cost that should be included in inventory valuation?

Accepted Answer

Freight-in on purchased goods

Question 19

If a company purchases inventory f.o.b. destination, when does it recognize the inventory?

Accepted Answer

When the goods are delivered to the buyer

Question 20

Which of the following is a reason companies may use different inventory methods for internal and external reporting?

Accepted Answer

To facilitate pricing decisions and easier recordkeeping

Valuation of Inventories: A Cost-Basis Approach (Intermediate Accounting, Chapter 7)

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