Chapter 20 Inventory Objective Questions
True/False
Indicate whether the statement is true or false.
____
1. Merchandise inventory on hand is typically the largest asset of a merchandising business.
____
2. The cost of merchandise inventory is reported only on the income statement.
____
3. Many businesses fail because too much or too little merchandise inventory is kept on hand.
____
4. Merchandise inventory that is smaller than needed may decrease net income.
____
5. When a business frequently orders small quantities of an item, the price paid is often more per unit than when
merchandise is ordered in large quantities.
____
6. A perpetual inventory is also known as a book inventory.
____
7. A merchandise inventory determined by counting, weighing, or measuring items of merchandise on hand is a
periodic inventory.
____
8. Merchandise inventory determined by keeping a continuous record of increases, decreases, and balance on
hand is a physical inventory.
____
9. To assure an accurate and complete count, a business will often be closed during the periodic inventory.
____ 10. A periodic inventory is usually taken each week.
____ 11. Businesses frequently establish their fiscal period to end when inventory is at a minimum because it takes less
time to count a smaller inventory.
____ 12. A form used during a periodic inventory to record information about each item of merchandise on hand is an
inventory record.
____ 13. A form used to show kind of merchandise, quantity received, quantity sold, and balance on hand is a stock
record.
____ 14. A file of stock records for all merchandise on hand is a stock ledger.
____ 15. A perpetual inventory system provides only fiscal period information about the quantity of merchandise on
hand.
____ 16. The unit price of an item is included in the UPC code of an inventory item.
____ 17. Lifo is an abbreviation for last-out, first-in.
____ 18. Using the price of merchandise purchased last to calculate the cost of merchandise sold first is the lifo
method.
____ 19. The ending inventory and cost of merchandise sold are calculated using the same unit price under the
weighted-average inventory method.
____ 20. Estimating inventory by using the previous years' percentage of gross profit on operations is the gross profit
method.
____ 21. The cost of merchandise sold can be calculated by subtracting the cost of merchandise available for sale from
the cost of ending inventory.
____ 22. Businesses that need an ending inventory amount for preparing monthly income statements should take a
physical inventory to obtain the amount for each month.
____ 23. The primary reason for using the same inventory costing method each fiscal period is to provide financial
statements that can be compared with statements of other fiscal periods.
____ 24. In a year in which merchandise prices have increased but retail selling prices have been cut because of
increased competition, the previous year's gross profit percentage should probably be adjusted before using it
in the gross profit method of estimating inventory.
____ 25. A perpetual inventory system provides day-to-day information about the quality of merchandise on hand.
____ 26. Some cash registers use optical scanners to read the UPC codes marked on products.
____ 27. First in, first-out is a method used to determine the quantity of each type of merchandise on hand.
____ 28. The gross profit method makes it possible to prepare monthly income statements without taking a periodic
inventory.
____ 29. Net income of a business can be decreased by maintaining a merchandise inventory that is larger than needed.
____ 30. A minimum inventory balance is the amount of merchandise that will typically last until ordered merchandise
can be received from vendors.
Multiple Choice
Identify the choice that best completes the statement or answers the question.
____ 31. Merchandise inventory that is smaller than needed ____.
a. may increase net income
c. may decrease net income
b. will not have an effect on net income
d. none of the above
____ 32. A merchandise inventory determined by counting, weighing, or measuring items of merchandise on hand is a
____.
a. periodic inventory
b. perpetual inventory
c. gross profit method of estimating inventory
d. weighted-average inventory costing method
____ 33. A merchandise inventory determined by keeping a continuous record of increases, decreases, and balance on
hand is a ____.
a. periodic inventory
b. perpetual inventory
c. gross profit method of estimating inventory
d. weighted-average inventory costing method
____ 34. "Taking an inventory" is characteristic of the ____.
a. periodic method
c. gross profit method
b. perpetual method
d. weighted-average method
____ 35. A periodic inventory normally is taken ____.
a. at the end of every month
b. quarterly
c. at the end of a fiscal period
d. only when a stock shortage is suspected
____ 36. A form used to show the kind of merchandise, quantity received, quantity sold, and balance on hand is ____.
a. an inventory record
c. a stock ledger
b. a stock record
d. none of the above
____ 37. A separate stock record is prepared ____.
a. for each shipment received
c. for each kind of merchandise on hand
b. for each sale of merchandise
d. when prices increase or decrease
____ 38. A file of stock records for all merchandise on hand is a ____.
a. periodic inventory
c. stock record
b. perpetual inventory
d. stock ledger
____ 39. Stock records do not reflect ____.
a. the cost of the merchandise
b. increases in quantity on hand
c. decreases in quantity on hand
d. the balance on hand after each increase or decrease is recorded
____ 40. When using the perpetual inventory method, ____.
a. periodic inventories are never taken
b. day-to-day information about the quantity of merchandise on hand is not available
c. it is not necessary to show the minimum balance on stock records
d. it is customary to take a periodic inventory at least once a fiscal period
____ 41. Using the price of merchandise purchased first to calculate the cost of merchandise sold first is the ____.
a. fifo method
c. gross profit method
b. lifo method
d. weighted-average method
____ 42. The value of ending inventory using the fifo method for merchandise that has a beginning inventory of 20
units @ $5.00 each, purchases during the year of ten units @ $6.00 each, and ending inventory of 12 units is
____.
a. $60.00
c. $70.00
b. $62.00
d. $72.00
____ 43. Using the price of merchandise purchased last to calculate the cost of merchandise sold first is the ____.
a. fifo method
c. gross profit method
b. lifo method
d. weighted-average method
____ 44. The value of ending inventory using the lifo method for merchandise that has a beginning inventory of 20
units @ $5.00 each, purchases during the year of 10 units @ $6.00 each, and ending inventory of 12 units is
____.
a. $60.00
c. $70.00
b. $62.00
d. $72.00
____ 45. Using the average cost of beginning inventory plus merchandise purchased during a fiscal period to calculate
the cost of merchandise sold is the ____.
a. fifo method
c. gross profit method
b. lifo method
d. weighted-average method
____ 46. The value of ending inventory using the weighted-average method for an inventory of total purchases of
$1,000.00 for 100 units and ending inventory of 12 units is ____.
a. $60.00
c. $70.00
b. $62.00
d. $120.00
____ 47. During a period of rising prices, the cost of merchandise sold will be ____.
a. lowest using the lifo method
b. lowest using the fifo method
c. lowest using the weighted-average method
d. the same using either fifo or lifo method
____ 48. Using the same inventory method for all fiscal periods is an application of the accounting concept ____.
a. Historical Cost
c. Consistent Reporting
b. Accounting Cycle
d. Objective Evidence
____ 49. Estimating inventory by using the previous years' percentage of gross profit on operations is the ____ method
of estimating inventory.
a. fifo
c. gross profit
b. lifo
d. weighted-average
____ 50. Using the gross profit method to estimate merchandise inventory is ____.
a. the most accurate method of valuing inventory
b. not completely accurate
c. not accurate enough to be used on a monthly income statement
d. none of the above
____ 51. Calculating an accurate inventory cost to assure that gross profit and net income are reported correctly on the
income statement is an application of the accounting concept ____.
a. Consistent Reporting
c. Adequate Disclosure
b. Perpetual Inventory
d. none of the above
____ 52. When the fifo method is used, cost of merchandise sold is valued at ____.
a. the average price
c. the earliest price
b. the most recent price
d. none of the above
____ 53. When the fifo method is used, ending inventory units are priced at ____.
a. the average price
c. the most recent price
b. the earliest price
d. none of the above
____ 54. When the lifo method is used, cost of merchandise sold is priced at ____.
a. the average price
c. the most recent price
b. the earliest price
d. none of the above
____ 55. The weighted-average method is based on the assumption that the cost of merchandise sold should be
calculated using the ____.
a. average price per unit of beginning inventory
b. average price of ending inventory
c. average price of beginning inventory plus purchases during the fiscal period
d. average price of ending inventory plus purchases during the fiscal period
Chapter 19 Objective Questions
Answer Section
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MULTIPLE CHOICE
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