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CHAPTER 8: VALUATION OF INVENTORY-EXERCISE
21. Which of the following inventories carried by a manufacturer is similar to the merchandise
inventory of a retailer?
a. Raw materials.
b. Work-in-process.
c. Finished goods.
d. Supplies.
22. Where should raw materials be classified on the balance sheet?
a. Prepaid expenses.
b. Inventory.
c. Equipment.
d. Not on the balance sheet.
23. Which of the following accounts is not reported in inventory?
a. Raw materials.
b. Equipment.
c. Finished goods.
d. Supplies.
24. Why are inventories included in the computation of net income?
a. To determine the cost of goods sold.
b. To determine sales revenue.
c. To determine merchandise returns.
d. Inventories are not included in the computation of net income.
25. Which of the following is a characteristic of a perpetual inventory system?
a. Inventory purchases are debited to a Purchases account.
b. Inventory records are not kept for every item.
c. Cost of goods sold is recorded with each sale.
d. Cost of goods sold is determined as the amount of purchases less the change in
inventory.
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26. How is a significant amount of consignment inventory reported in the balance sheet?
a. The inventory is reported separately on the consignor's balance sheet.
b. The inventory is combined with other inventory on the consignor's balance sheet.
c. The inventory is reported separately on the consignee's balance sheet.
d. The inventory is combined with other inventory on the consignee's balance sheet.
27. Where should goods in transit that were recently purchased f.o.b. destination be included
on the balance sheet?
a. Accounts payable.
b. Inventory.
c. Equipment.
d. Not on the balance sheet.
28. If a company uses the periodic inventory system, what is the impact on net income of
including goods in transit FOB shipping point in purchases, but not ending inventory?
a. Overstate net income.
b. Understate net income. (record in purchase makes COGS increase => NI decrease)
c. No effect on net income.
d. Not sufficient information to determine effect on net income.
38. Valuation of inventories requires the determination of all of the following except
a. the costs to be included in inventory.
b. the physical goods to be included in inventory.
c. the cost of goods held on consignment from other companies.
d. the cost flow assumption to be adopted.
P39. The accountant for the Pryor Sales Company is preparing the income statement for 2012
and the balance sheet at December 31, 2012. Pryor uses the periodic inventory system.
The January 1, 2012 merchandise inventory balance will appear
a. only as an asset on the balance sheet.
b. only in the cost of goods sold section of the income statement.
c. as a deduction in the cost of goods sold section of the income statement and as a
current asset on the balance sheet.
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d. as an addition in the cost of goods sold section of the income statement and as a
current asset on the balance sheet.
45. On June 15, 2012, Wynne Corporation accepted delivery of merchandise which it purchased on
account. As of June 30, Wynne had not recorded the transaction or included the merchandise in its
inventory. The effect of this on its balance sheet for June 30, 2012 would be
a. assets and stockholders' equity were overstated but liabilities were not affected.
b. stockholders' equity was the only item affected by the omission.
c. assets, liabilities, and stockholders' equity were understated.
d. none of these.
** Assets and liabilities were understated but stockholders’ equity was not affected
84. 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
$ 82,000
Prepaid insurance
$ 6,000
What amount should Morgan report as inventories in its balance sheet?
a. $82,000.
b. $86,000.
c. $168,000.
d. $172,000.
85. 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
97,000
Prepaid insurance
6,000
What amount should Lawson report as inventories in its balance sheet?
a. $97,000.
b. $101,000.
c. $183,000.
d. $187,000.
86. Elkins Corporation uses the perpetual inventory method. On March 1, it purchased $20,000 of
inventory, terms 2/10, n/30. On March 3, Elkins returned goods that cost $2,000. On March 9, Elkins paid
the supplier. On March 9, Elkins should credit
a. purchase discounts for $400.
b. inventory for $400.
c. purchase discounts for $360.
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d. inventory for $360.
88. Bell Inc. took a physical inventory at the end of the year and determined that $780,000 of goods were
on hand. In addition, Bell, Inc. determined that $60,000 of goods that were in transit that were shipped
f.o.b. shipping point were actually received two days after the inventory count and that the company had
$90,000 of goods out on consignment. What amount should Bell report as inventory at the end of the
year?
a. $780,000.
b. $840,000.
c. $870,000.
d. $930,000.
112. Chess Top uses the periodic inventory system. For the current month, the beginning inventory
consisted of 300 units that cost $65 each. During the month, the company made two purchases: 450 units
at $68 each and 225 units at $70 each. Chess Top also sold 750 units during the month. Using the average
cost method, what is the amount of ending inventory?
a. $15,750.
b. $50,655.
c. $50,100.
d. $15,197.
113. Checkers uses the periodic inventory system. For the current month, the beginning inventory consisted
of 2,400 units that cost $12 each. During the month, the company made two purchases: 1,000 units at $13
each and 4,000 units at $13.50 each. Checkers also sold 4,300 units during the month. Using the FIFO
method, what is the ending inventory?
a. $40,146.
b. $37,200.
c. $41,850.
d. $37,900.
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 2012 was $100,000. The balance
in the same account at the end of 2013 is $150,000. Black’s Cost of Goods Sold account has a balance of
$750,000 from sales transactions recorded during the year. What amount should Black report as Cost of
Goods Sold in the 2013 income statement?
a. $700,000.
b. $750,000.
c. $800,000.
d. $900,000.
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Problem 1:
On January 1, 20X1, Premium Publishing Co. (PPC) shipped and sold 100 intermediate accounting
textbook to EIU’s bookstore for $90. The cost of each is $60. PPC gave the bookstore the right to return an
unsold books for full credit. PPC expect 10% of the book to be return unsold. During the year, the bookstore
returned 3 textbooks. Prepare the entry in the year and adjustment at the end of the year.
Ex. 8-150—Comparison of FIFO and LIFO.
During periods of rising prices, the use of FIFO (as compared with LIFO) will result in what effect on the
financial statements?
Ex. 8-151—FIFO and LIFO inventory methods.
During June, the following changes in inventory item 27 took place:
June 1 Balance
1,400 units @ $24
14 Purchased
800 units @ $36
24 Purchased
700 units @ $30
8 Sold
400 units @ $50
10 Sold
1,000 units @ $40
29 Sold
600 units @ $44
Perpetual inventories are maintained.
Instructions
What is the cost of the ending inventory and COGS for item 27 under the following methods? (Show
calculations.)
(a) FIFO.
(b) LIFO.
(c) Weighted Average Cost
Ex. 8-152—FIFO and LIFO periodic inventory methods.
The Rock Shop shows the following data related to an item of inventory:
Inventory, January 1
Purchase, January 9
Purchase, January 19
Inventory, January 31
100 units @ $5.00
300 units @ $5.40
70 units @ $6.00
100 units
Instructions
(a) What value should be assigned to the ending inventory using FIFO?
(b) What value should be assigned to cost of goods sold using LIFO?