1. Which inventory cost method offers income tax savings during periods of rising prices?

a. FIFO inventory cost method

b. LIFO inventory cost method

c. Specific identification inventory cost method

d. Weighted average inventory cost method

2. Gordon Company uses the retail method of inventory costing. The retail value of the ending inventory is $325,000. If the ratio of cost to retail price is 66%, what is the amount of the ending inventory to be reported on the financial statements?

a. $214,500

b. $325,000

c. $107,250

d. $110,500

3. Determine the cost of goods sold for the transaction on October 25 using the perpetual inventory system and the FIFO method.

Date	Item	Units	Cost	Total
	Beginning inventory	5	$10	$50
October 4	Purchase	8	11	88
October 8	Sale	6
October 20	Purchase	15	12	180
October 25	Sale	12

a. $180

b. $137

c. $144

d. $138

4. Inventory should be reported as follows except

a. as a current asset on the balance sheet.

b. at lower of cost or market.

c. according to the chosen cost flow assumption.

d. as a long-term asset on the balance sheet.

5. The specific identification inventory method cannot be used.

a. when each inventory unit can be specifically identified.

b. by an automobile dealer where automobiles have unique serial numbers.

c. when all units sold are alike.

d. when the unit sold is identified with a specific purchase.

6. Determine the gross profit using the periodic inventory system and the FIFO inventory method, assuming that 18 units were sold at a sales price of $14.

Date	Item	Units	Cost	Total
January 1	Beginning inventory	5	$3	$15
January 12	Purchase	10	4	40
January 18	Purchase	8	5	40
	Totals	23		$95

a. $252

b. $95

c. $80

d. $182

7. When using the periodic LIFO inventory cost method, which of the following statements is true?

a. The cost of inventory on hand is made up of the most recent purchases.

b. The cost of goods sold is made up of the earlier purchases.

c. The cost of goods sold is made up by averaging the end-of-period and beginning-of-period purchases.

d. The physical count determines the inventory on hand.

8. The three most common inventory cost flow assumptions are:

a. FIFO, LIFO, and weighted average cost.

b. FIFO, LIFO, and specific identification.

c. FIFO, retail, and specific identification

d. FIFO, retail, and weighted average cost.

9. When identical units of an item are purchased at different costs:

a. an inventory cost flow method must be used under a perpetual inventory system only.

b. an inventory cost flow method must be used under a periodic inventory system only.

c. an inventory cost flow method must be used under both a perpetual and a periodic inventory system.

d. an inventory cost flow method is not used under either a perpetual or a periodic inventory system.

10. Estimating inventory may be needed for all of the following reasons except:

a. when it is impractical to take a physical inventory.

b. when a fire has destroyed the inventory and inventory records.

c. when the periodic method is used instead of taking a physical inventory.

d. when monthly or quarterly financial statements are needed, but a physical inventory is taken only once a year.

11. Inventory turnover measures:

a. the efficiency and effectiveness of costing management.

b. the relationship between cost of goods sold and the amount of inventory carried during the period.

c. the average amount of inventory sold.

d. the times purchases are turned into inventory during the period.

12. When using the periodic FIFO inventory cost method, which of the following statements is false?

a. The cost of goods sold is made up of the earliest purchases.

b. The cost of inventory on hand is made up of the most recent costs.

c. The cost of inventory on hand is made up of the earliest costs.

d. The physical count determines the inventory on hand.

13. Which of the following is true regarding the perpetual LIFO inventory costing method?

a. Costs are included in the cost of goods sold in the order in which units were purchased.

b. The cost of the units sold is the cost of the most recent purchases.

c. The LIFO inventory costing method must be used with the weighted average cost method.

d. Unit costs for each item are averaged each time a purchase is made.

14. Inventory turnover is computed as:

a. Average Inventory divided by Average Daily Cost of Goods Sold.

b. Cost of Goods Sold divided by Average Inventory.

c. Average Inventory divided by Sales.

d. Sales divided by Cost of Goods Sold.

15. Which of the following is true regarding consigned inventory?

a. The manufacturer is the consignor.

b. The retailer is the consignor.

c. The unsold merchandise is part of the consignee's records at year-end.

d. The consignee retains the title to the inventory.

16. What is not considered an advantage of using the retail method of inventory costing?

a. The retail method provides inventory figures for preparing monthly and quarterly financial statements when the periodic system is used.

b. The retail method may be used as an aid in taking a physical inventory.

c. The retail method uses specific costs to compute inventory.

d. The retail method allows management to monitor operations more closely.

17. Financial statement data at December 31 for Alpine Company are as follows:

Cost of goods sold	$1,050,000
Inventories:
Beginning of year	380,000
End of year	320,000

Determine inventory turnover for the year.

a. 3.3

b. 1.5

c. 3.0

d. 2.8

18. Determine the gross profit using the FIFO cost flow method, assuming that only one item was sold on May 24 for $14.

Date	Item	Units	Cost	Total
May 3	Purchase	1	$6	$6
May 8	Purchase	1	7	7
May 22	Purchase	1	8	8
	Total	3		$21

a. $7

b. $14

c. $8

d. $6

19. A physical inventory is not used to

a. compare actual inventory to book inventory.

b. help prevent employee theft or misuse of inventory.

c. journalize the daily transactions in the inventory account.

d. investigate major errors.

20. The inventory cost method that will yield a higher ending inventory during times of inflation will be the:

a. FIFO inventory cost method.

b. weighted average inventory cost method.

c. LIFO inventory cost method.

d. specific identification inventory cost method.

21. The inventory is added to the inventory records after three documents are reconciled. One of those documents is the:

a. sales receipt.

b. company check.

c. general journal.

d. receiving report.

22. When taking a physical inventory, the company inadvertently counted its inventory as $34,000 instead of the correct amount of $43,000. Indicate the effect of the misstatement on the balance sheet of the current year.

a. Assets are understated by $9,000.

b. Assets are overstated by $9,000.

c. Stockholders' equity is overstated by $9,000.

d. Liabilities are overstated by $9,000.