Inventory systems, cost methods, merchandise, practice set

1. Taking a physical count of inventory

Is not necessary when a periodic inventory system is used
Is a detective control
Has no internal control relevance
Is not necessary when a perpetual inventory system is used

2. Which of the following is NOT true about taking physical inventories?

Large variances may require investigations and implementation of corrective actions.
Physical inventories are taken when inventory levels are at their lowest.
Physical inventories deter employee thefts and inventory misuses.
Physical inventories are taken when inventory levels are at their highest.

3. Which of the following inventory cost methods is appropriate for a business who has inventory with a relatively small number of unique items and a high cost per item?

FIFO
LIFO
Average
Specific identification

4. Under which method of inventory cost flows is the cost flow assumed to be in the reverse order in which the expenditures were made?

Weighted average
Last-in, first-out
First-in, first-out
Average cost

5. Inventory costing methods place primary emphasis on assumptions about

Flow of goods
Flow of costs
Flow of goods or costs depending on the method
Flow of values

6. (Use the data found in the table below) Using the perpetual system, costing by the first-in, first-out method, what is the cost of the merchandise inventory of 30 units on September 30?

$800
$650
$750
$700

7. Under a perpetual inventory system, when a shortage is discovered

Merchandise Inventory is debited
Cost of Merchandise Sold is credited
Inventory Shortages is credited
Merchandise Inventory is credited

8. The following lots of a particular commodity were available for sale during the year
The firm uses the periodic system and there are 20 units of the commodity on hand at the end of the year. What is the amount of inventory at the end of the year according to the first-in, first-out method?

$1,250
$1,150
$1,275
$1,050

9. Under a periodic inventory system

Accounting records continuously disclose the amount of inventory
A separate account for each type of merchandise is maintained in a subsidiary ledger
A physical inventory is taken at the end of the period
Merchandise inventory is debited when goods are returned to vendors

10. During a period of consistently rising prices, the method of inventory that will result in reporting the greatest cost of merchandise sold is

FIFO
LIFO
Average cost
Weighted average

11. Damaged merchandise that can be sold only at prices below cost should be valued at

Net realizable value
LIFO
FIFO
Average

12. Merchandise inventory at the end of the year was inadvertently overstated. Which of the following statements correctly states the effect of the error on net income, assets, and owner's equity?
Net income is overstated, assets are overstated, owner's equity is understated
Net income is overstated, assets are overstated, owner's equity is overstated
Net income is understated, assets are understated, owner's equity is understated
Net income is understated, assets are understated, owner's equity is overstated

13. If a company mistakenly counts less items during a physical inventory than actually exist, how will the error affect the cost of merchandise sold?

Understated
Overstated
Only inventory is affected.
No change.