2. Complete the following sentences

1. Inventory is reported as a _________ asset.

2. Inventory is often reported at the _______ of cost or market.

3. FIFO and LIFO are examples of cost flow ________________.

4. Under this inventory system the balance in the Inventory account changes with each sale. ______

5. Under this inventory system the balance in the Inventory account does not change with each sale. ______

6. A ___________ will report raw materials, work-in-process, and finished goods inventory.

7. The annual cost of goods sold divided by the average inventory balances is the inventory ______________ ratio.

8. The normal selling price minus the estimated cost to complete and sell is the net ___________ value.

9. Net Purchases is Gross Purchases minus Purchase Returns and Allowances and__________  ___________.

10. The difference between the Cost of Goods Available and the Cost of Goods Sold is__________  ___________.

3. Choose the correct answer

1. The inventory cost flow assumption where the cost of the most recent purchase is matched first against sales revenues is

a) FIFO;

b) LIFO;

c) Average.

2. The inventory cost flow assumption where the cost of the most recent purchases are likely to remain in inventory

a) FIFO;

b) LIFO;

c) Average.

3. The inventory cost flow assumption where the oldest cost of inventory items is likely to remain on the balance sheet is

a) FIFO;

b) LIFO;

c) Average.

4. The account Inventory will appear on the balance sheet as a current asset at an amount that often reflects the __________ of the merchandise on hand.

a) cost;

b) sales value.

5. The inventory system that does NOT update the Inventory account automatically at the time of each purchase or sales is the _______________ method/system.

a) periodic;

b) perpetual.

6. If a company is experiencing continuous cost increases for the merchandise that it purchases, which cost flow assumption will result in the least amount of profit and the least amount of income tax expense?

a) FIFO;

b) LIFO;

c) Average.

7. A company in the computer industry is experiencing continuously lower costs. Which cost flow assumption will result in less income tax expense for this company?

a) FIFO;

b) LIFO;

c) Average.

8. A company purchased items for inventory during 2011 at continuously higher costs. Its last two purchases of 2011 were 20 units on December 20 at a cost of $14 per unit and 30 units on December 30 at a cost of $15 per unit. On December 28, 2011 the company made its last sale for the year when it sold 10 units. Which inventory cost flow assumption will cause the $15 cost per unit to be expensed as part of the year 2011's cost of goods sold?

a) LIFO periodic;

b) LIFO perpetual;

c) Neither.

Use the following information for questions 9 through 14:

A company purchased merchandise to be resold at increasing costs during the year 2012. The purchases were made at the following costs... 

January 1, 2012 (carried over from 2010)	20 units at $10
January 25, 2012 purchase	40 units at $11
June 20, 2012 purchase	40 units at $12
October 10, 2012 purchase	50 units at $13

The company sold 10 items at the end of each month.

9. What are the number of units and the cost of the goods available for sale? _____ units     $________ cost of goods available for sale

10. Assuming the LIFO periodic cost flow assumption, what will be the company's cost of goods sold for the 120 items sold in 2012?

a) $1,380;

b) $1,386;

c) $1,400;

d) $1,460.

11. Assuming the FIFO periodic cost flow assumption, what will be the company's cost of goods sold for the 120 items sold in 2012?

a) $1,380;

b) $1,386;

c) $1,410;

d) $1,460.

12. Assuming the periodic weighted-average cost flow assumption, what is the company'scost of goods sold for the 120 items sold in 2012?

a) $1,386;

b) $1,410;

c) $1,416;

d) $1,460.

13. Assuming the perpetual moving-average cost flow assumption, what is the company'scost of goods sold for the 120 items sold in 2012?

a) $1,386;

b) $1,410;

c) $1,416;

d) $1,460.

14. A company's inventory was destroyed in a fire on January 28, 2012. The company's December 31, 2011 inventory had a cost of $40,000. The company's gross profit has consistently been 30% of sales. During January the company purchased merchandise costing $36,000 and sales of $50,000 at regular selling prices. What is the estimated cost of the inventory that was destroyed on January 28, 2012?

a) $26,000;

b) $35,000;

c) $41,000.

15. A company has properly recorded all of its purchases of merchandise inventory, but made an error when counting its ending inventory. As a result of the error the company's Inventory account is overstated by $24,000. (This means that the amount in the Inventory account is too high by $24,000.) What is the impact of this error on the company's income statement? Specifically, the company's reported profit (ignoring income tax expense) in the period of the error is....

a) Too High;

b) Too Low;

c) Not Affected.