Q 1: Under a periodic inventory
system ending inventory and cost
of goods sold are determined
A.
B.
C.
D.
After each sale
After each purchase and sale
At the end of the accounting period
Don’t know
Q 2: Which of the following is not an
advantage of the perpetual system?
A.
B.
C.
D.
Useful to determine shrinkage
Cheap to use in a manual as well as a
computerized system
Useful to determine reorder needs
Timely updates of inventory balances
and cost of goods sold
Shrinkage
A.
B.
C.
D.
Is not a problem in a perpetual system
Must be reported as a separate loss
on the income statement
May be treated as part of cost of
goods sold expense
Can be deducted as an expense only
if it has been reported to the police
Beg. inventory: 20 units @ $5 = $100
Purchases:
60 units @ $20 = $1,200
Purchases:
10 units @ $30 = $300
Sales: 70 units. FIFO ending inventory is
A.
B.
C.
D.
E.
$ 100
$ 200
$ 300
$ 250
$ 500
Beg. inventory: 20 units @ $5 = $100
Purchases: 60 units @ $20 = $1,200
Purchases: 10 units @ 30 = $300
Sales:
70 units
Using LIFO ending inventory will be
A. $ 100
B. $ 200
C. $ 300
D. $ 250
Beg. inventory: 20 units @ $5 = $100
Purchases: 60 units @ $20 = $1,200
Purchases: 10 units @ 30 = $300
Sales:
70 units
Under LIFO cost of goods sold will be
A. $ 1,200
B. $ 1,244
C. $ 1,400
D. $ 1,500
Q 6: LIFO
A.
B.
C.
D.
Always results in lower income taxes
than FIFO
Is used to show higher net income
Is not permitted unless the actual flow of
inventory is last in, first out
Results in higher cost of goods sold
during inflation
Which of the following statements
is false? LIFO
A.
B.
C.
D.
E.
Must be used for financial reporting
purposes, if it is used for tax purposes
May result in income manipulation
Is a method of cheating on income taxes
Requires extensive record keeping
Is not permitted in all countries
LIFO Liquidation
A.
B.
C.
D.
Occurs because management does not
purchase enough inventory
May be involuntary
May be deliberate to manipulate
earnings
All of the above
Exercise 15
A.
B.
C.
Determine ending inventory using FIFO
Determine ending inventory using LIFO
Determine ending inventory using
Average Cost
Dollar Value LIFO
A.
B.
C.
D.
Is used to manipulate earnings
Requires the use of inventory specific
pools
Eliminates the need to determine if there
have been increases or decreases in
total inventory
Requires the use of price level indexes
W Co. uses $ value LIFO. Base year inventory
(index 100) cost $ 500,000. On 12/31/06,
inventory on hand had a current cost $ 577,500
and base year cost of $ 525,000. The price level
index on 12/31/06 is
A.
B.
C.
D.
.909
1
1.1
1.155
W Co. uses $ value LIFO. Base year inventory
(index 100) cost $ 500,000. On 12/31/06,
inventory on hand had a current cost $ 577,500
and base year cost of $ 525,000. The price level
index on 12/31/06 is 1.1. $value LIFO ending
inventory on 12/31/06 is
A.
B.
C.
D.
525,000
527,500
552,500
577,500
Exercise 25
Determine ending $ value LIFO inventory for
2002
 Determine ending $ value LIFO inventory
for 2003
 Determine ending $ value LIFO inventory
for 2004
Answers
1.
2.
3.
4.
5.
6.
7.
8.
9.
C
B
C
E
A
D
D
C
D
10.
A. 18,000(FIFO)
1.
2.
11.
12.
13.
14.
B. 13,800 (LIFO)
C. 15,858 (Average)
D
C
B
$111,500
1.
2.
$90,500
95,700