Inventory Valuation Quiz

27 multiple-choice questions with answers and explanations · 3 easy, 18 medium, 6 hard

FIFO and weighted-average cost, the costs included in inventory, net realisable value, lower of cost or market, and estimating inventory.

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  1. 1FIFO — Basic ConceptUnder the FIFO (first-in, first-out) inventory method, the units assumed to be sold first are:easy
  2. 2US GAAP: Reversing an Inventory Write-DownInventory was written down last year. This year its value recovers. Under US GAAP the company should:easy
  3. 3FIFO Ending InventoryA company had these purchases: Jan 1, 100 units @ $10; Jan 15, 150 units @ $12; Jan 25, 100 units @ $13. It sold 200 units during January. Under FIFO, the cost of the 150 units remaining in ending inventory is:medium
  4. 4Weighted-Average CostBeginning inventory: 200 units at $8 = $1,600. Purchases: 300 units at $10 = $3,000. Under the periodic weighted-average method, the cost assigned to the 350 units sold is:medium
  5. 5Lower of Cost or Net Realizable ValueA company values inventory using weighted-average cost, arriving at $45,000. The inventory's net realizable value is $41,000. Under IAS 2, the inventory should be reported at:medium
  6. 6US GAAP: The LIFO Conformity RuleA US company uses LIFO on its tax return. The LIFO conformity rule requires that it:medium
  7. 7US GAAP: Lower of Cost or Market When LIFO Is UsedFor inventory measured under LIFO, US GAAP applies "lower of cost or market", where MARKET means:medium
  8. 8Goods in Transit: FOB Shipping Point and Year-End InventoryA supplier ships goods FOB shipping point on 30 December; they arrive on 3 January. At 31 December the goods are included in the inventory of:medium
  9. 9Consignment Inventory: Who Includes It in Inventory?Goods held on consignment are included in the inventory of:medium
  10. 10Inventory Count: Goods Sold but Not Yet Collected by the CustomerDuring the year-end count, goods costing $2,000 are on the premises but have already been sold and invoiced to a customer, who will collect them next week. These goods should be:medium
  11. 11Inventory Write-Down: The Journal EntryInventory must be written down by $1,500 because its value has fallen below cost. The entry is:medium
  12. 12Specific Identification Method: When Is It Appropriate?The specific identification method of inventory costing is most appropriate for:medium
  13. 13Gross Profit Method: Estimating Inventory Lost in a FireA fire destroys all inventory. Records show opening inventory of $20,000, purchases of $90,000 and sales of $120,000 to the date of the fire. The normal gross profit margin is 30% of sales. What is the estimated cost of inventory lost?medium
  14. 14LIFO vs FIFO in a Period of Rising PricesDuring a period of steadily RISING prices, compared to FIFO, a company using LIFO will report:hard
  15. 15US GAAP: LIFO Liquidation and Gross ProfitIn a period of rising prices, a company using LIFO sells more units than it purchases, dipping into old inventory layers. The effect is to:hard
  16. 16US GAAP: Computing Market Under the Ceiling and FloorLIFO inventory has cost $50,000. Replacement cost is $44,000, net realizable value is $46,000, and NRV less a normal profit margin is $41,000. Under lower of cost or market, the inventory is carried at:hard
  17. 17Retail Inventory Method: Estimating Ending Inventory at CostGoods available for sale are $60,000 at cost and $100,000 at retail. Sales for the period are $70,000. Using the retail inventory method, what is ending inventory at cost?hard
  18. 18Costs Included in Inventory: Which Cost Is Part of Inventory?Which of the following is included in the cost of inventory?easy
  19. 19IAS 2 — Inventory Cost FormulaUnder IAS 2, which inventory cost formula is NOT permitted?medium
  20. 20IAS 2 — Inventory MeasurementUnder IAS 2, inventories are measured at:medium
  21. 21Costs Included in Inventory: Computing the Cost of a PurchaseGoods have a list price of $20,000 less a 10% trade discount. Freight inwards is $1,200, import duty is $800, and storing the goods after arrival while awaiting sale costs $500. What is the cost of the inventory?medium
  22. 22Costs Excluded from Inventory: Abnormal WasteWhich of the following is NOT included in the cost of manufactured inventory?medium
  23. 23Lower of Cost or Market Rule: The Basic IdeaUnder the lower of cost or market rule, inventory with a cost of $9,000 and a market value of $7,500 is reported at:medium
  24. 24Lower of Cost or Market: Which Accounting Concept Lies Behind It?The lower of cost or market rule for inventory is an application of which accounting concept?medium
  25. 25Lower of Cost or Market Applied Item by ItemThree inventory items have: A — cost $500, market $450; B — cost $300, market $340; C — cost $200, market $180. Applying lower of cost or market item by item, total inventory is:medium
  26. 26IAS 2 — Reversing an Inventory Write-DownIn Year 1, a company wrote inventory costing $40,000 down to its net realizable value of $34,000. By Year 2 (before this inventory is sold), its net realizable value has recovered to $38,000. Under IAS 2, the company should:hard
  27. 27IAS 2 — NRV with Costs to Complete1,000 units of work-in-progress cost $50 each. Estimated selling price is $58, costs to complete are $6 per unit, and selling costs $4 per unit. The inventory write-down is:hard

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