Measuring and Reporting Inventories Practice Problems

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

Self-test

Self-test - Answers

True-false

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

2. True. The cost of goods sold consists of the earliest purchases at the lowest costs in a period of rising prices.

3. False. Under LCM, inventory is adjusted to market value only when the market (replacement) value is less than the cost.

4. True. The first step in the gross margin method is to estimate gross margin using the gross margin rate experienced in the past.

5. True. The cost/retail ratio is computed by dividing the cost of goods available for sale by the retail price of the goods available for sale.

6. False. Under perpetual procedure, the Cost of Goods Sold account is updated as sales occur.


Multiple-choice

1. b. The cost of ending inventory using FIFO consists of the most recent purchase:

2. c. The cost of goods sold using FIFO is:

3. a. The cost of ending inventory using LIFO is:


4. c. The cost of goods sold using weighted-average cost is:

5. d. The cost of goods sold using LIFO is:

6. a. The cost of ending inventory using weighted-average cost is computed:


7. b. During a period of rising prices, FIFO results in the lowest cost of goods sold, thus the highest net income.