Measuring and Reporting Inventories Practice Problems

Complete the practice problems. Check your answers after you finish.

Self-test

True-false

Indicate whether each of the following statements is true or false.

1. Overstated ending inventory results in an overstatement of cost of goods sold and an understatement of gross margin and net income.

2. In a period of rising prices, FIFO results in the lowest cost of goods sold.

3. Under LCM, inventory is written down to market value when the market value is less than the cost, and inventory is written up to market value when the market value is greater than the cost.

4. Under the gross margin method, an estimate must be made of gross margin to determine estimated cost of goods sold and estimated ending inventory.

5. To use the retail inventory method, both cost and retail prices must be known for the goods available for sale.

6. Under perpetual procedure, cost of goods sold is determined as a result of the closing entries made at the end of the period.

 

Multiple-choice

Select the best answer for each of the following questions.

Jack Company began the accounting period with inventory of 3,000 units at USD 30 each. During the period, the company purchased an additional 5,000 units at USD 36 each and sold 4,600 units.

Assume the use of periodic inventory procedure for the following six questions.

1. Cost of ending inventory using FIFO is:

  1. USD 104,400.
  2. USD 122,400.
  3. USD 120,000.
  4. USD 147,600.
  5. None of the above.

2. Cost of goods sold using FIFO is:

  1. USD 165,600.
  2. USD 150,000.
  3. USD 147,600.
  4. USD 122,400.
  5. None of the above.

3. Cost of ending inventory using LIFO is:

  1. USD 104,400.
  2. USD 114,750.
  3. USD 156,000.
  4. USD 122,400.
  5. None of the above.

4. Cost of goods sold using LIFO is:

  1. USD 155,250.
  2. USD 114,000.
  3. USD 147,600.
  4. USD 165,600.
  5. None of the above.

5. Cost of ending inventory using weighted-average is:

  1. USD 114,750.
  2. USD 157,600.
  3. USD 122,400.
  4. USD 109,650.
  5. None of the above.

6. Cost of goods sold using weighted-average is:

  1. USD 147,200.
  2. USD 160,350.
  3. USD 155,250.
  4. USD 114,000.
  5. None of the above.

7. During a period of rising prices, which inventory method might be expected to give the highest net income?

a. Weighted-average.

b. FIFO.

c. LIFO.

d. Specific identification.

e. Cannot determine.