Question 1

The average days to sell inventory decreases as inventory turnover increases.

Accepted Answer

A) True 
 B)False

Question 2

Dows Company prepared income statements that reflected pretax income of $21,000 for 2013 and $30,000 for 2014. An audit has determined that there were two errors in the inventory amounts as follows:   Required:
Determine the correct pretax income amount for each year (show computations; assume the errors were not corrected):

Accepted Answer

2013: $21,000 - $1,0

Question 3

RJ Corporation has provided the following information about one of its inventory items: $\begin{array}{clrr}\text { Date }&\text { Transaction } &\text { Number of Units }&\text { Cost per Unit }\\hline
1 / 1 & \text { Beginning Inventory } & 400 & \$ 3,200 \
6 / 6 & \text { Purchase } & 800 & \$ 3,600 \
9 / 10 & \text { Purchase } & 1,200 & \$ 4,000 \
11 / 15 & \text { Purchase } & 800 & \$ 4,200
\end{array}$ During the year, RJ sold 3,000 units. What was ending inventory using the FIFO cost flow assumption under a periodic inventory system?

Accepted Answer

A)  $640,000. 
B)  $840,000. 
C) $960,000. 
D) $880,000. 
A)  $640,000. 
B)  $840,000. 
C) $960,000. 
D) $880,000.

Question 4

Given a particular set of facts and assumptions, the following pairs of amounts were computed using FIFO and LIFO. For each pair of amounts, indicate which amount resulted from applying FIFO, and which amount resulted from applying LIFO.

Accepted Answer

A. 1. FIFO 2. LIFO B

Question 5

RJ Corporation has provided the following information about one of its inventory items: $\begin{array}{clrr}\text { Date }&\text { Transaction } &\text { Number of Units }&\text { Cost per Unit }\\hline
1 / 1 & \text { Beginning Inventory } & 400 & \$ 3,200 \
6 / 6 & \text { Purchase } & 800 & \$ 3,600 \
9 / 10 & \text { Purchase } & 1,200 & \$ 4,000 \
11 / 15 & \text { Purchase } & 800 & \$ 4,200
\end{array}$ During the year, RJ sold 3,000 units. What was ending inventory using the LIFO cost flow assumption under a periodic inventory system?

Accepted Answer

A)  $640,000. 
B)  $840,000. 
C) $770,000. 
D) $880,000. 
A)  $640,000. 
B)  $840,000. 
C) $770,000. 
D) $880,000.

Question 6

Goods available for sale are allocated to both ending inventory and cost of goods sold.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following statements is correct when inventory unit costs are increasing?

Accepted Answer

A)  LIFO will result in lower net income and a higher inventory valuation than will FIFO. 
B)  LIFO will result in higher net income and lower inventory valuation than will FIFO. 
C) FIFO will result in lower net income and a lower inventory valuation than will LIFO. 
D) FIFO will result in higher net income and a higher inventory valuation than will LIFO. 
A)  LIFO will result in lower net income and a higher inventory valuation than will FIFO. 
B)  LIFO will result in higher net income and lower inventory valuation than will FIFO. 
C) FIFO will result in lower net income and a lower inventory valuation than will LIFO. 
D) FIFO will result in higher net income and a higher inventory valuation than will LIFO.

Question 8

RJ Corporation has provided the following information about one of its inventory items: $\begin{array}{clrr}\text { Date }&\text { Transaction } &\text { Number of Units }&\text { Cost per Unit }\\hline
1 / 1 & \text { Beginning Inventory } & 400 & \$ 3,200 \
6 / 6 & \text { Purchase } & 800 & \$ 3,600 \
9 / 10 & \text { Purchase } & 1,200 & \$ 4,000 \
11 / 15 & \text { Purchase } & 800 & \$ 4,200
\end{array}$ During the year, RJ sold 3,000 units. What was cost of goods sold using the FIFO cost flow assumption under a periodic inventory system?

Accepted Answer

A)  $11,680,000. 
B)  $11,590,000. 
C) $11,480,000. 
D) $11,550,000. 
A)  $11,680,000. 
B)  $11,590,000. 
C) $11,480,000. 
D) $11,550,000.

Question 9

Under the FIFO cost flow assumption during a period of rising costs, which of the following is false?

Accepted Answer

A)  Income tax expense will be higher under FIFO than under LIFO. 
B)  Net income will be higher under FIFO than under LIFO. 
C) Ending inventory will be lower under FIFO than under LIFO. 
D) Cost of goods sold will be lower under FIFO than under LIFO. 
A)  Income tax expense will be higher under FIFO than under LIFO. 
B)  Net income will be higher under FIFO than under LIFO. 
C) Ending inventory will be lower under FIFO than under LIFO. 
D) Cost of goods sold will be lower under FIFO than under LIFO.

Question 10

How much were inventory purchases when cost of goods sold was $250,000, beginning inventory was $20,000, and ending inventory was $25,000?

Accepted Answer

Beginning inventory, $20,000 +

Question 11

Which of the following statements is incorrect?

Accepted Answer

A)  Ending inventory exceeds beginning inventory when purchases are greater than cost of goods sold. 
B)  Cost of goods sold exceeds purchases when ending inventory is less than beginning inventory. 
C) Cost of goods available for sale will always be equal to or greater than cost of goods sold. 
D) Ending inventory is greater than beginning inventory when purchases are less than cost of goods solD.Ending inventory exceeds beginning inventory when purchases are greater than cost of goods sold. 
A)  Ending inventory exceeds beginning inventory when purchases are greater than cost of goods sold. 
B)  Cost of goods sold exceeds purchases when ending inventory is less than beginning inventory. 
C) Cost of goods available for sale will always be equal to or greater than cost of goods sold. 
D) Ending inventory is greater than beginning inventory when purchases are less than cost of goods solD.Ending inventory exceeds beginning inventory when purchases are greater than cost of goods sold.

Question 12

A $25,000 overstatement of the 2013 ending inventory was discovered after the financial statements for 2013 were prepared. Which of the following describes the effect of the inventory error on the 2014 financial statements?

Accepted Answer

A)  Net income and stockholders' equity are both understated. 
B)  Net income is understated and stockholders' equity is correct. 
C) Net income and stockholders' equity are both overstated. 
D) Net income and stockholders' equity are both unaffecteD.The overstatement of the 2013 ending inventory causes the 2013 net income to be overstated and the 2014 net income to be understated. Stockholders' equity at the end of 2014 is correct because inventory errors are counter-balancing. 
A)  Net income and stockholders' equity are both understated. 
B)  Net income is understated and stockholders' equity is correct. 
C) Net income and stockholders' equity are both overstated. 
D) Net income and stockholders' equity are both unaffecteD.The overstatement of the 2013 ending inventory causes the 2013 net income to be overstated and the 2014 net income to be understated. Stockholders' equity at the end of 2014 is correct because inventory errors are counter-balancing.

Question 13

During the audit of Montane Company's 2014 financial statements, the auditors discovered that the 2014 ending inventory had been overstated by $8,000 and that the 2014 beginning inventory was overstated by $5,000. Before the effect of these errors, 2014 pretax income had been computed as $100,000. What should be reported as the correct 2014 pretax income before taxes?

Accepted Answer

A)  $113,000. 
B)  $87,000. 
C) $105,000. 
D) $97,000. 
A)  $113,000. 
B)  $87,000. 
C) $105,000. 
D) $97,000.

Question 14

Which of the following statements does not accurately describe the lower of cost or market (LCM) valuation method?

Accepted Answer

A)  The journal entry to write-down inventory decreases gross profit. 
B)  The journal entry to write-down inventory decreases current assets. 
C) The journal entry to write-down inventory does not affect pretax income. 
D) The journal entry to write-down inventory increases cost of goods solD.The journal entry increases cost of goods sold and therefore decreases gross profit and pretax income. The journal entry also decreases inventory. 
A)  The journal entry to write-down inventory decreases gross profit. 
B)  The journal entry to write-down inventory decreases current assets. 
C) The journal entry to write-down inventory does not affect pretax income. 
D) The journal entry to write-down inventory increases cost of goods solD.The journal entry increases cost of goods sold and therefore decreases gross profit and pretax income. The journal entry also decreases inventory.

Question 15

During periods of increasing unit costs, the LIFO inventory method will result in a higher inventory amount on the balance sheet and a lower net income than will the FIFO inventory method.

Accepted Answer

A) True 
 B)False

Question 16

Lauer Corporation uses the periodic inventory system and has provided the following information about one of its laptop computers: $\begin{array}{clrr}\text { Date }&\text { Transaction } &\text { Number of Units }&\text { Cost per Unit }\\hline
1 / 1 & \text { Beginning Inventory } & 100 & \$ 800 \
5 / 5 & \text { Purchase } & 200 & \$ 900 \
8 / 10 & \text { Purchase } & 300 & \$ 1,000 \
10 / 15 & \text { Purchase } & 200 & \$ 1,100
\end{array}$ During the year, Lauer sold 750 laptop computers. What was ending inventory using the FIFO cost flow assumption?

Accepted Answer

A)  $60,000. 
B)  $55,000. 
C) $45,000. 
D) $40,000. 
A)  $60,000. 
B)  $55,000. 
C) $45,000. 
D) $40,000.

Question 17

Prepare the journal entries for the transactions listed below under each of the two inventory systems.
A. Purchased merchandise for cash, $1,000.
B. Sold merchandise for $600 cash that had cost $480 (cost is 80% of the sales price.
C. Accepted a sales return from a customer: sales price $30. A cash refund was given to the customer. The goods were returned to regular inventory.
D. Returned goods to the vendor because they did not meet our specification; $50 cash refund was received.

Accepted Answer

The answer of Prepare the journal entries for the transactions...

Question 18

Inventory inspection costs are reported as operating expenses on the income statement.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following statements is correct when inventory unit costs are decreasing?

Accepted Answer

A)  Inventory turnover will be the greatest when the average cost inventory method is used. 
B)  FIFO's gross profit will be the highest among the inventory costing methods. 
C) Inventory turnover will be the largest when the LIFO inventory method is used. 
D) Use of the LIFO method will result in higher cash flows due to a decreased cost of goods solD.LIFO has the lowest cost of goods sold, the highest gross profit and taxable income. LIFO will therefore result in a higher tax burden and lower cash flows. 
A)  Inventory turnover will be the greatest when the average cost inventory method is used. 
B)  FIFO's gross profit will be the highest among the inventory costing methods. 
C) Inventory turnover will be the largest when the LIFO inventory method is used. 
D) Use of the LIFO method will result in higher cash flows due to a decreased cost of goods solD.LIFO has the lowest cost of goods sold, the highest gross profit and taxable income. LIFO will therefore result in a higher tax burden and lower cash flows.

Question 20

Which of the following statements is false?

Accepted Answer

A)  Companies do not have to use the same inventory method for all items of inventory. 
B)  Companies do not have to consistently use the same inventory costing methods. 
C) Use of the LIFO inventory method during a period of increasing unit costs may create a conflict of interest between the owners and managers. 
D) A company choosing to maximize stockholders' equity during a period of increasing unit costs should use the FIFO inventory methoD.GAAP requires companies to consistently apply their inventory costing methods. 
A)  Companies do not have to use the same inventory method for all items of inventory. 
B)  Companies do not have to consistently use the same inventory costing methods. 
C) Use of the LIFO inventory method during a period of increasing unit costs may create a conflict of interest between the owners and managers. 
D) A company choosing to maximize stockholders' equity during a period of increasing unit costs should use the FIFO inventory methoD.GAAP requires companies to consistently apply their inventory costing methods.

The average days to sell inventory decreases as inventory turnover increases.

Given a particular set of facts and assumptions, the following pairs of amounts were computed using FIFO and LIFO. For each pair of amounts, indicate which amount resulted from applying FIFO, and which amount resulted from applying LIFO.

Goods available for sale are allocated to both ending inventory and cost of goods sold.

Which of the following statements is correct when inventory unit costs are increasing?

Under the FIFO cost flow assumption during a period of rising costs, which of the following is false?

How much were inventory purchases when cost of goods sold was $250,000, beginning inventory was $20,000, and ending inventory was $25,000?

Which of the following statements is incorrect?

A $25,000 overstatement of the 2013 ending inventory was discovered after the financial statements for 2013 were prepared. Which of the following describes the effect of the inventory error on the 2014 financial statements?

Which of the following statements does not accurately describe the lower of cost or market (LCM) valuation method?

During periods of increasing unit costs, the LIFO inventory method will result in a higher inventory amount on the balance sheet and a lower net income than will the FIFO inventory method.

Inventory inspection costs are reported as operating expenses on the income statement.

Which of the following statements is correct when inventory unit costs are decreasing?

Which of the following statements is false?

Financial Statements and Business Decisions

Investing and Financing Decisions and the Accounting System

Operating Decisions and the Accounting System

Adjustments, Financial Statements, and the Quality of Earnings

Communicating and Interpreting Accounting Information

Reporting and Interpreting Sales Revenue, Receivables, and Cash

Reporting and Interpreting Property, Plant, and Equipment; Intangibles; and Natural Resources

Reporting and Interpreting Liabilities

Reporting and Interpreting Bonds

Reporting and Interpreting Owners Equity

Statement of Cash Flows

Analyzing Financial Statements

Reporting and Interpreting Investments in Other Corporations

Filters

Exam 7: Reporting and Interpreting Cost of Goods Sold and Inventory

The average days to sell inventory decreases as inventory turnover increases.

Given a particular set of facts and assumptions, the following pairs of amounts were computed using FIFO and LIFO. For each pair of amounts, indicate which amount resulted from applying FIFO, and which amount resulted from applying LIFO.

Goods available for sale are allocated to both ending inventory and cost of goods sold.

Which of the following statements is correct when inventory unit costs are increasing?

Under the FIFO cost flow assumption during a period of rising costs, which of the following is false?

How much were inventory purchases when cost of goods sold was $250,000, beginning inventory was $20,000, and ending inventory was $25,000?

Which of the following statements is incorrect?

A $25,000 overstatement of the 2013 ending inventory was discovered after the financial statements for 2013 were prepared. Which of the following describes the effect of the inventory error on the 2014 financial statements?

Which of the following statements does not accurately describe the lower of cost or market (LCM) valuation method?

During periods of increasing unit costs, the LIFO inventory method will result in a higher inventory amount on the balance sheet and a lower net income than will the FIFO inventory method.

Inventory inspection costs are reported as operating expenses on the income statement.

Which of the following statements is correct when inventory unit costs are decreasing?

Which of the following statements is false?

Financial Statements and Business Decisions

Investing and Financing Decisions and the Accounting System

Operating Decisions and the Accounting System

Adjustments, Financial Statements, and the Quality of Earnings

Communicating and Interpreting Accounting Information

Reporting and Interpreting Sales Revenue, Receivables, and Cash

Reporting and Interpreting Property, Plant, and Equipment; Intangibles; and Natural Resources

Reporting and Interpreting Liabilities

Reporting and Interpreting Bonds

Reporting and Interpreting Owners Equity

Statement of Cash Flows

Analyzing Financial Statements

Reporting and Interpreting Investments in Other Corporations

Filters