Instruction: Encircle the letter of the correct answer in each of the given question.

1. The understatement of the ending inventory balance causes:

a. Cost of goods sold to be understated and net income to be overstated.
b. Cost of goods sold to be overstated and net income to be overstated.
c. Cost of goods sold to be understated and net income to be understated.
d. Cost of goods sold to be overstated and net income to be correct.
e. Cost of goods sold to be overstated and net income to be understated.

2. Buffalo Company reported a December 31 ending inventory balance of $412,000. The following additional information is also available:
• The ending inventory balance of $412,000 did not include goods costing $48,000 that were purchased by Buffalo on December 28 and
shipped FOB destination on that date. Buffalo did not receive the goods until January 2 of the following year.
• The ending inventory balance of $412,000 included damaged goods at their original cost of $38,000. The net realizable value of the damaged
goods was $10,000.
Based on this information, the correct balance for ending inventory on December 31 is:
a. $460,000
b.$384,000
c. $374,000
d. $422,000
e. $438,000

3. Sandoval needs to determine its year-end inventory. The warehouse contains 20,000 units, of which 3,000 were damaged by flood and are
not sellable. Another 2,000 units were purchased from Markor Company, FOB shipping point, and are currently in transit. The company also
consigns goods and has 4,000 units at a consignee's location. How many units should Sandoval include in its year-end inventory?
a. 26,000
b. 23,000
c. 21,000
d. 19,000
e. 29,000

4. A company that uses the net method of recording purchases made a purchase of $400 with terms of 2/10, n/30. The entry to record the
purchase would be:
a. Debit Accounts Payable $400; credit Discounts Lost $8; credit Cash $392.
b. Debit Merchandise Inventory $392; debit Discounts Lost $8; credit Accounts Payable $400.
c. Debit Merchandise Inventory $400; credit Discounts Lost $8; credit Accounts Payable $392.
d. Debit Merchandise Inventory $392; credit Accounts Payable $392.
e. Debit Merchandise Inventory $392; credit Cash for $392.

5. On December 31 of the current year, Plunkett Company reported an ending inventory balance of $215,000. The following additional
information is also available:
• Plunkett sold and shipped goods costing $38,000 to Savannah Enterprises on December 28 with shipping terms of FOB shipping point. The
goods were not included in the ending inventory amount of $215,000.
• Plunkett purchased goods costing $44,000 on December 29. The goods were shipped FOB destination and were received by Plunkett on
January 2 of the following year. The shipment was a rush order that was supposed to arrive by December 31. These goods were included in the
ending inventory balance of $215,000.
• Plunkett's ending inventory balance of $215,000 included $15,000 of goods being held on consignment from Carole Company. (Plunkett
Company is the consignee.)
• Plunkett's ending inventory balance of $215,000 did not include goods costing $95,000 that were shipped to Plunkett on December 27 with
shipping terms of FOB destination and were still in transit at year-end.
Based on the above information, the amount that Plunkett should report in ending inventory on December 31 is:
a. $209,000
b. $171,000
c. $194,000
d. $200,000
e. $156,000

6. Since an error in the period-end inventory causes an offsetting error in the next period:
a. Is immaterial for managerial decision making.
b. If affects only balance sheet accounts.
c. It affects only income statement accounts.
d. Managers can ignore the error.
e. It is said to be self-correcting.

7. Salmone Company reported the following purchases and sales for its only product. Salmone uses a perpetual inventory system. Determine
the cost assigned to cost of goods sold using LIFO.

Date Activities Units Acquired at Cost Units Sold at Retail

May 1 Beginning Inventory 150 units @ $10.00
5 Purchase 220 units @ $12.00
10 Sales 140 units @ $20.00
15 Purchase 100 units @ $13.00
24 Sales 150 units @ $21.00
a. $3,580
b. $3,180
c. $2,100
d. $2,260
e. $1,860

8. Lopez Company reported the following current-year data for its only product. The company uses a periodic inventory system, and its ending
inventory consists of 150 units—50 from each of the last three purchases.

Jan. 1 Beginning inventory 96 units @ $2.00 = $192

Mar. 7 Purchase 220 units @ $2.25 = 495
July 28 Purchase 544 units @ $2.50 = 1,360
Oct. 3 Purchase 480 units @ $2.80 = 1,344
Dec. 19 Purchase 160 units @ $2.90 = 464

Totals 1,500 units $ 3,855

Required:
Determine the cost assigned to ending inventory and to cost of goods sold for the following. (Do not round intermediate calculations and
round your answers to 2 decimal places.)

Ending Inventory Cost of Goods Sold

a. specific identification ______________ ______________
b. weighted average ______________ ______________
c. FIFO ______________ ______________
d. LIFO ______________ ______________

Which method yields the highest net income? _______________

9.
Laker Company reported the following January purchases and sales data for its only product.
 
Laker Company reported the following January purchases and sales data for its only product.
 
Date Activities Units Acquired at Cost Units Sold at Retail
Beginning  @
 Jan. 1    140 units = $ 840       
inventory $6.00
@
 Jan.10 Sales               100 units  
$15
 @
 Jan.20 Purchase   60 units =   300       
$5.00
 @
 Jan.25 Sales               80 units  
$15
 @
 Jan.30 Purchase   180 units =   810       
$4.50
                  
        Totals   380 units     $ 1,950  180 units   
                  

Required:
The Company uses a periodic inventory system. For specific identification, ending inventory consists
of 200 units, where 180 are from the January 30 purchase, 5 are from the January 20 purchase, and
15 are from beginning inventory. Determine the cost assigned to ending inventory and to cost of
goods sold using (a) specific identification, (b) weighted average, (c) FIFO, and (d) LIFO. (Round
cost per unit to 3 decimal places.)

Ending Inventory Cost of Goods Sold

a. specific identification ______________ ______________
b. weighted average ______________ ______________
c. FIFO ______________ ______________
d. LIFO ______________ ______________

10.
Hemming Co. reported the following current-year purchases and sales for its only product.
 
Date Activities Units Acquired at Cost Units Sold at Retail
Beginning  @
 Jan. 1    200 units = $ 2,000       
inventory $10
 Jan.10 Sales               150 units  @$40 
 Mar.14 Purchase   350 units  @ =   5,250       
 $15
 Mar.15 Sales               300 units  @$40 
 @
  July 30 Purchase   450 units =   9,000       
$20
 Oct. 5 Sales               430 units  @$40 
 @
 Oct.26 Purchase   100 units =   2,500       
$25
                  
        Totals   1,100 units     $ 18,750  880 units   
               
Required:
Hemming uses a perpetual inventory system.
Determine the costs assigned to ending inventory and to cost of goods sold using FIFO and LIFO.

Ending Inventory Cost of Goods Sold

a. FIFO ______________ ______________
b. LIFO ______________ ______________