1. In a perpetual average cost system:
A. A new weighted-average unit cost is calculated each time additional units are
purchased.
B. The cost allocated to ending inventory is generally the same as it would be in a
periodic inventory system.
C. The moving-average unit cost is determined following each sale.
D. The average is determined by dividing the total number of units sold by the cost of
units purchased during the period.
2. In a period when costs are rising and inventory quantities are stable, the inventory
method that would result in the highest ending inventory is:
A. Weighted average.
B. Moving average.
C. FIFO.
D. LIFO.
3. Walker TV and Appliance reported the following in its 2016 financial statements:

Sales
Cost of goods sold:
Inventory, January 1
Net purchases
Goods available for sale
Inventory, December 31
Cost of goods sold
Gross profit

2016
$420,000
82,000
340,000
422,000
86,000
336,000
$ 84,000

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Walker’s 2016 gross profit ratio is:
A. 25%
B. 19%
C. 20%
D. None of
these is
correct

4. Gains on the cash sales of fixed assets:
A.
B.
C.
D.

Are the excess of the book value over the cash proceeds.
Are part of cash flows from operations.
Are reported on a net-of-tax basis if material.
Are the excess of the cash proceeds over the book value of the assets sold.

5. A change from the straight-line method to the sum-of-years’-digits method of depreciation is
handled as:
A. A retrospective change back to the date of acquisition as though the current estimated life
had been used all along.
B. A cumulative adjustment to income in the current year for the difference in depreciation
under the new versus old useful life estimate.
C. A prospective change from the current year through the remainder of its useful life.
D. None of these answer choices are correct.
6. Cunningham Enterprises purchased equipment for $72,000 on January 1, 2016. The
equipment is expected to have a five-year life and a residual value of $6,000.
Using the straight-line method, the book value at December 31, 2016, would be:
A.
B.
C.
D.

$13,200.
$51,600.
$58,800.
$52,800.

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Problems / Essay Questions
1.

The Lewis Company’s inventory at December 31, 2016, was $325,000 based on a
physical count priced at cost, and before any necessary adjustment for the following:
• Merchandise costing $30,000, shipped f.o.b. shipping point from a vendor on
December 30, 2016, was received on January 5, 2017.
• Merchandise costing $22,000, shipped f.o.b. destination from a vendor on December
28, 2016, was received on January 3, 2017.
• Merchandise costing $38,000 was shipped to a customer f.o.b. destination on
December 28, arrived at the customer’s location on January 6, 2017.
• Merchandise costing $12,000 was being held on consignment by Taylor Company.
What amount should Lewis Company report as inventory in its December 31, 2016,
balance sheet?

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2.

Demich Clock Co. started 2016 with $94,000 of merchandise inventory on hand. During
2016, $400,000 in merchandise was purchased on account with credit terms of 1/15,
n/45. All discounts were taken. Purchases were all made f.o.b. shipping point. Demich
paid freight charges of $7,500. Merchandise with an invoice amount of $5,000 was
returned for credit. Cost of goods sold for the year was $380,000. Demich uses a
perpetual inventory system.
Assuming Demich uses the gross method to record purchases, what is the cost of goods
available for sale?

3, 4, 5 – Moore Corp. uses the periodic inventory system. During its first year of operations,
Moore made the following purchases (listed in chronological order of acquisition **):
• 40 units at $100 (** purchased first)
• 70 units at $80 (** purchased second)
• 170 units at $60 (** purchased third)
3. Sales for the year totaled 270 units, leaving 10 units on hand at the end of the year.
P3: Ending inventory using the average cost method (rounded) is:

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4.
4.

Moore uses the periodic inventory system. During its first year of operations, Moore
made the following purchases (listed in chronological order of acquisition):
• 40 units at $100
• 70 units at $80
• 170 units at $60
Sales for the year totaled 270 units, leaving 10 units on hand at the end of the year.
P4. Ending inventory using the FIFO method is:

5.

Moore uses the periodic inventory system. During its first year of
operations, Moore made the following purchases (listed in
chronological order of acquisition):
• 40 units at $100
• 70 units at $80
• 170 units at $60
Sales for the year totaled 270 units, leaving 10 units on hand at the
end of the year.
P5. Ending inventory using the LIFO method is:

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6. Inventory records for Parker’s Chemicals revealed the following:
March 1, 2016, inventory: 1,000 gallons @ $7.20 = $7,200
Purchases:
Mar. 10
600 gals @ $7.25
Mar. 16
800 gals @ $7.30
Mar. 23
600 gals @ $7.35

Sales:
Mar. 5
Mar. 14
Mar. 20
Mar. 26

400 gals
700 gals
500 gals
700 gals

P6. Ending inventory assuming LIFO in a perpetual inventory system would be:

7. Cutter Enterprises purchased equipment for $72,000 on January 1, 2016. The
equipment is expected to have a five-year life and a residual value of $6,000.
Using the sum-of-the-years’-digits method, depreciation for 2016 and book value at
December 31, 2016, would be:

8. Cutter Enterprises purchased equipment for $72,000 on January 1, 2016. The equipment is
expected to have a five-year life and a residual value of $6,000.
Using the sum-of-the-years’-digits method, depreciation for 2017 and book value at December
31, 2017, would be:

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9. On June 30, 2016, Presto Equipment purchased a precision laser-guided steel punch that has
an expected capacity of 300,000 units and no residual value. The cost of the machine was
$450,000 and is to be depreciated using the units-of-production method. During the six months
of 2016, 24,000 units of product were produced. At the beginning of 2017, engineers estimated
that the machine can realistically be used to produce only another 230,000 units. During 2017,
70,000 units were produced.
Presto would report depreciation in 2016 of:

10. DiMarco Corporation purchased equipment on January 1, 2014, for $200,000. The
company estimated the equipment would have a useful life of 10 years with a $20,000 residual
value. DiMarco uses the straight-line depreciation method. Early in 2016, DiMarco reassessed
the equipment’s condition and determined that its total useful life would be only six years in
total and that it would have no salvage value. How much would DiMarco report as
depreciation on this equipment for 2016?

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