# Inventory Valuation Method

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• Published : November 29, 2011

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AC 201 Principles of Accounting I Name Park UniversityVersion A Quiz 4A-Chapter 6 Multiple Choice Questions ( 10 points each ) Select the ONE, BEST Answer

1.Goods in transit are included in a purchaser's inventory: B
A.At any time during transit.
B.When the purchaser is responsible for paying freight charges. C.When the supplier is responsible for freight charges.
D.If the goods are shipped FOB destination.
E.After the half-way point between the buyer and seller.

2.Costs included in the Merchandise Inventory account can include: E
A.Invoice price minus any discount.
B.Transportation-in.
C.Storage.
D.Insurance.
E.All of the above.

3.The inventory valuation method that tends to smooth out erratic changes in costs is: B
A.FIFO.
B.Weighted average.
C.LIFO.
D.Specific identification.
E.WIFO

4.Generally accepted accounting principles require that the inventory of a company be reported at: C
A.Market value.
B.Historical cost.
C.Lower of cost or market.
D.Replacement cost.
E.Retail value.

Problem ( 60 points ) SHOW ALL WORK!!!!!
A company made the following merchandise purchases and sales during the month of May:

There was no beginning inventory. If the company uses the weighted-average inventory valuation method and the perpetual inventory system, what would be the cost of its ending inventory?

May 1 - purchased 380 units at \$15 each - \$5,700
May 5 - purchased 270 units at \$17 each - \$4,590
(average cost \$10,290/650 units = \$15.83 each)
May 10 – sold 400 units at \$50 each (COGS 400 x \$15.83 = \$6,332; ending inventory 250 units \$3,958 May 20 – purchased 300 units at \$22 each - \$6,600
(average cost...