Chapter 6 & 7 Unit Review

On a scale of 1-5, with 1 being unconfident and 5 being extremely confident, how confident do you feel in your understanding of the current unit's content?

• 1 (unconfident)

• 2 (somewhat confident)

• 3 (confident)

• 4 (very confident)

• 5 (extremely confident)

Imagine a small bookstore that tallies its inventory of books only at the end of the financial year. Which inventory system is it using?

• Periodic System

• Perpetual System

• Weighted Average System

• FIFO System

Answer explanation

The small bookstore tallies its inventory only at the end of the financial year, indicating the use of a Periodic System where inventory is counted periodically rather than continuously. Think of PERIODic System being at the end of the ACCOUNTING PERIOD.

Charlotte's bakery updates its inventory system on April 30. It records the goods purchased on April 15 as sold before the goods purchased on April 1. Which inventory costing method is the bakery using?

• FIFO

• LIFO

• Weighted Average

• Perpetual

Answer explanation

The bakery is using LIFO (Last In, First Out) method as it records goods purchased on April 15 as sold before goods purchased on April 1.

Which inventory valuation method assigns a cost to inventory on the basis of the average cost of all similar goods available during the period?

• FIFO

• LIFO

• Weighted Average

• Specific Identification

In a perpetual inventory system, how often is the inventory account updated?

• Annually

• Monthly

• At each sale or purchase

• Bi-annually

For a company using the LIFO inventory method, which goods are considered to be sold first?

• The most recently purchased goods

• The oldest goods in inventory

• The goods with the highest cost

• The goods with the lowest cost

Why might a company choose to use a perpetual system over a periodic system?

• Greater insight & more accurate accounting

• Easier to use & least time-consuming

• Requires little maintenance & effort

• Affordable & less demanding on company funds

Answer explanation

A perpetual system accounts for changes in inventory after each purchase or sale, allowing for a more accurate count of what has come and gone, while a periodic system only accounts for changes at the end of the accounting period.

Which of the following business might choose to use a periodic inventory system? Check all that apply.

• Staks!

• Toomer´s Drugstore

• Lowe's

• Kroger

Answer explanation

Small/local businesses are more likely to use a periodic system because it requires less time, investment, and resources. Bigger companies, like corporations, are more likely to use a perpetual system because of the accuracy and automation.

What is the primary advantage of using the FIFO inventory method during periods of inflation?

• Lower cost of goods sold and higher net income

• Higher cost of goods sold and lower net income

• More stable inventory costs

• Reduced tax liabilities

Answer explanation

As inventory becomes more expensive to purchase, FIFO will show a greater net income and lower COGS as the lower-costing inventory is sold.

Which inventory system provides real-time updates and allows for better tracking of inventory levels?

• Periodic System

• Perpetual System

• Weighted Average System

• FIFO System

Answer explanation

Perpetual systems are updated after each purchase or sale, often by automated means.