ACC101 Merchandise Inventory Quiz

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Questions and Answers

Merchandise inventory includes:

Only damaged goods

All goods in transit

All goods in the stores of company

All goods owned by a company and held for sale (correct)

All goods on consignment

Costs included in the Merchandise Inventory account can include:

Storage

Transportation-in

Invoice price minus any discount

Insurance

All of these (correct)

During a period of steadily rising costs, the inventory valuation method that yields the lowest reported net income is:

Weighted-average method

Specific identification method

FIFO method

LIFO method (correct)

Average cost method

The inventory valuation method that results in the lowest taxable income in a period of inflation is:

LIFO method Signup and view all the answers

Which of the following inventory costing methods will always result in the same values for ending inventory and cost of goods sold regardless of whether a perpetual or periodic inventory system is used?

Specific identification and FIFO Signup and view all the answers

An overstatement of ending inventory will cause:

An overstatement of assets and equity on the balance sheet Signup and view all the answers

Acceptable inventory methods include:

All of these Signup and view all the answers

A company had the following purchases during the current year: Jan: 10 units at $120, Feb: 20 units at $130, May: 15 units at $140, Sep: 12 units at $150, Nov: 10 units at $160. On December 31, there were 26 units remaining in ending inventory. Using the specific identification method, what is the cost of the ending inventory?

$3,800 Signup and view all the answers

Using the LIFO perpetual inventory method, what was the value of the inventory on November 8 after the sale?

$296 Signup and view all the answers

Acme-Jones Corporation uses a weighted-average perpetual inventory system. What was the amount of the cost of goods sold for the sale on August 29?

$158.40 Signup and view all the answers

What is the cost of the 12 units sold on June 5 using the FIFO perpetual inventory method?

$124 Signup and view all the answers

What is the value of the inventory at August 15 after the sale using the FIFO perpetual inventory method?

$80 Signup and view all the answers

Which of the following is not considered a subcategory of owner's equity?

Assets Signup and view all the answers

The properties used in operational activities of a business are called:

Assets Signup and view all the answers

Which of the following is a liability?

Accounts payable Signup and view all the answers

Study Notes

Merchandise Inventory

Includes all goods owned by a company and held for sale, including goods in transit and on consignment.
Does not include only damaged goods.

Costs in Merchandise Inventory

Costs may consist of invoice price minus any discounts, transportation-in costs, storage, and insurance.
All these costs are included in the Merchandise Inventory account.

Inventory Valuation Methods

LIFO method yields the lowest reported net income during periods of steadily rising costs.
In inflationary periods, LIFO results in the lowest taxable income.
Specific identification and FIFO methods will give identical values for ending inventory and cost of goods sold regardless of the inventory system (perpetual or periodic).

Ending Inventory Impact

An overstatement of ending inventory causes an overstatement of assets and equity on the balance sheet.

Acceptable Inventory Costing Methods

Methods include LIFO, FIFO, specific identification, and weighted average.

Specific Identification Method

Cost of ending inventory for a company with varied unit costs can be calculated by identifying the actual cost of specific units remaining in inventory.

LIFO and FIFO Methods

LIFO leads to a different valuation approach than FIFO, especially in terms of cost of goods sold and inventory value.
The LIFO perpetual method is important for calculating the correct COGS after sales, especially after multiple purchases.

Journal Entries

Proper journal entries must reflect cash sales, the received income, and the corresponding COGS while adhering to the method used (FIFO or LIFO) for inventory valuation.

Owner's Equity

Revenue, withdrawals, expenses, and contributed capital are key subcategories, while assets are not considered part of owner's equity.

Business Operations Assets

Operating properties of a business are classified as assets, which include facilities and equipment used for business activities.

Liability Identification

Liabilities include accounts payable, whereas assets include accounts receivable, cash, and inventory.

General Principles

Understanding how various inventory valuation methods affect financial statements is crucial for accurate accounting.
Recognition of costs and proper categorization of expenses and revenues is essential for the overall financial health of the business.

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Description

Test your knowledge on merchandise inventory concepts with this ACC101 quiz. The flashcards cover key definitions and principles related to inventory management. Perfect for students looking to enhance their understanding of accounting fundamentals.