Inventory Valuation Quiz

What is the primary purpose of inventory valuation?

• To determine sales revenue

• To compute cost of goods sold (COGS)

• To increase profits

• To calculate employee wages

Which of the following is included in the classification of inventory?

• Office equipment

• Intangible assets

• Finished goods held for sale

• Investments in stocks

Under the periodic inventory system, inventory records are:

• Continuously updated

• Updated at the end of the period

• Updated after every sale

• Updated every week

If ending inventory is understated, what is the effect on net income?

• Overstated

• No effect

• Understated

• Cannot be determined

Which of the following costs should not be included in the inventory cost?

• Purchase price

• Freight charges

• Sales commissions

• Storage costs for purchased inventory

The First-In, First-Out (FIFO) inventory method assumes:

• The latest units purchased are sold first

• The earliest units purchased are sold first

• Inventory is sold in random order

• Goods are sold based on highest cost first

Using the following data, compute the cost of goods sold under FIFO: Purchases: 100 units @ $10, 200 units @ $11, 120 units @ $15; Sold: 400 units

• $4,500

• $4,700

• $4,800

• $5,000

The Last-In, First-Out (LIFO) method would generally lead to:

• Lower cost of goods sold in rising prices

• Higher cost of goods sold in rising prices

• Higher ending inventory value

• Lower net income in falling prices

What is the LIFO reserve?

• Amount to adjust from FIFO to LIFO

• Inventory held for emergencies

• Inventory losses due to obsolescence

• Difference between book and market value of inventory

If prices are rising, the use of LIFO would result in:

• Lower net income

• Higher net income

• Same net income as FIFO

• No effect on net income