Question 1

Which one of the following is an advantage of LIFO?

Accepted Answer

A) In periods of rising prices, less income taxes are paid. 
B) In periods of rising prices, more holding gains are reported in net income. 
C) Record keeping and financial statement preparation are easier. 
D) Conservative income statements and balance sheet disclosures result from falling prices. 
A) In periods of rising prices, less income taxes are paid. 
B) In periods of rising prices, more holding gains are reported in net income. 
C) Record keeping and financial statement preparation are easier. 
D) Conservative income statements and balance sheet disclosures result from falling prices. A

Question 2

One of the disadvantages of the LIFO cost flow assumption is the impact of the liquidation of LIFO layers.
Required:
 a. Explain what is meant by invent ory liquidation under the LIFO cost flow assumption.
b. Discuss why this may be a serious problem for LIFO but not for FIFO.

Accepted Answer

The answer of One of the disadvantages of the LIFO...

Question 3

Exhibit 8-4 RK, Inc.had the following activity for an inventory item during June:
$\begin{array}{lll}&&\text { Unit }\&\text { Units }&\text { Cost }\
\text { Beginning inventory } & 50 & \$ 10 \
\text { Purchase (June 5) } & 10 & 16 \
\text { Purchase (June 15) } & 30 & 14 \
\text { Sale (June 20) } & 40 & \
\text { Sale (June 25) } & 20 &\
\text { Purchase (June 30) }&10& 20
\end{array}$
- Refer to Exhibit 8-4.Assuming RK uses a periodic weighted average cost flow assumption, cost of goods sold for June would be

Accepted Answer

A) $512 
B) $560 
C) $768 
D) $720 
A) $512 
B) $560 
C) $768 
D) $720 C

Question 4

Near the end of 2010, Bruce Co.made the following purchases.The months involved in all cases are December 2010 and January 2011. $\begin{array}{llllll}
&&\text { Date } & \text { Date } & \text { Date } & \text { Date } \
&&\text { Goods } & \text { Invoice } & \text { Goods } & \text { Invoice}\
\text { Amount } & \text { FOB } & \text { Shipped } & \text { Mailed } & \text { Rec'd } & \text { Rec'd }\
\$ 1,575 & \text { Destination } & 12 / 29 & 1 / 2 & 1 / 5 & 1 / 4 \
2,430 & \text { Shipping Point } & 1 / 2 & 12 / 29 & 1 / 4 & 12 / 30 \
1,890 & \text { ShippingPoint } & 12 / 28 & 1 / 2 & 1 / 3 & 1 / 4 \
2,700 & \text { Destination } & 12 / 29 & 12 / 27 & 1 / 2 & 12 / 28
\end{array}$
 What amount of the above purchases should be included in inventory at December 31, 2010?

Accepted Answer

A) $1, 575 
B) $1, 890 
C) $4, 320 
D) $4, 575 
A) $1, 575 
B) $1, 890 
C) $4, 320 
D) $4, 575

Question 5

Which one of the following statements is not true?

Accepted Answer

A) Under conditions of rising prices, the LIFO method results in lower income than the FIFO method. 
B) In most cases, the FIFO method approximates the physical flow of items in inventory. 
C) The LIFO method produces a higher ending inventory value than the FIFO method. 
D) The FIFO method includes holding gains in income. 
A) Under conditions of rising prices, the LIFO method results in lower income than the FIFO method. 
B) In most cases, the FIFO method approximates the physical flow of items in inventory. 
C) The LIFO method produces a higher ending inventory value than the FIFO method. 
D) The FIFO method includes holding gains in income.

Question 6

A manufacturing company typically has how many inventory accounts?

Accepted Answer

A) 1 
B) 2 
C) 3 
D) 4 
A) 1 
B) 2 
C) 3 
D) 4

Question 7

Typically, the impact of the "LIFO reserve" is to

Accepted Answer

A) increase cost of goods sold and decrease ending inventory 
B) decrease cost of goods sold and decrease ending inventory 
C) increase cost of goods sold and increase ending inventory 
D) have no effect on cost of goods sold and ending inventory 
A) increase cost of goods sold and decrease ending inventory 
B) decrease cost of goods sold and decrease ending inventory 
C) increase cost of goods sold and increase ending inventory 
D) have no effect on cost of goods sold and ending inventory

Question 8

On July 1, the Lavaca Company began business with the purchase of 250 units of inventory for $21, 625.During the month, Lavaca had the following inventory transactions:
 $\begin{array}{ll}
\text { Date }\
\text { July } 6 & \text { Purchased } 100 \text { units @ } \$ 75 \text { per unit. } \
11 & \text { Sold } 200 \text { units. } \
17 & \text { Sold 85 urits. } \
24 & \text { Purchased } 100 \text { units } @ \$ 125 \text { per unit } \
28 & \text { Purchased } 50 \text { units } @ \$ 110 \text { per unit. } \
30 & \text { Sold } 100 \text { unite }
\end{array}$ Required:
Compute the cost of the inventory at the end of July under the following alternatives:
 a. $ \quad $ FlFO periodic
b. $ \quad $FIFO perpetual
c. $ \quad $LIFO periodic
d.$ \quad $ LIFO perpetual
e. $ \quad $ Weighted average (round unit costs to 2 decimal placess
f. $ \quad $ Moving average (round unit costs to 2 decimal places)

Accepted Answer

The answer of On July 1, the Lavaca Company began...

Question 9

Revolution Hardware reported $300, 000 of inventory on December 31, 2010, based on a physical count.
Additional information is as follows:
   Required:
Compute the correct amount of December 31, 2010, ending inventory for Revolution Hardware.

Accepted Answer

$300, 000 + $35, 000

Question 10

Titan Company changed its inventory cost flow assumption from FIFO to LIFO in a period of rising prices.What was the result of the change on ending inventory in the year of the change?

Accepted Answer

A) increased ending inventory 
B) decreased ending inventory 
C) no change in ending inventory 
D) cannot determine from the information given 
A) increased ending inventory 
B) decreased ending inventory 
C) no change in ending inventory 
D) cannot determine from the information given

Question 11

A company uses a "LIFO reserve" because

Accepted Answer

A) internal reporting and GAAP reporting is not the same as tax reporting 
B) internal reporting and GAAP reporting is the same as tax reporting 
C) internal reporting is the same as GAAP reporting and tax reporting 
D) internal reporting is not the same as GAAP reporting and tax reporting 
A) internal reporting and GAAP reporting is not the same as tax reporting 
B) internal reporting and GAAP reporting is the same as tax reporting 
C) internal reporting is the same as GAAP reporting and tax reporting 
D) internal reporting is not the same as GAAP reporting and tax reporting

Question 12

Right Images Printing uses perpetual LIFO in valuing its inventory.The January 1 inventory amounted to 36 units at $6 each.Purchases and sales during January were as follows: $\begin{array}{llll}
&\text { Purchases }&&\text { Sales }\ 
\text { Jan. } 10 & 20 \text { units } @ \$ 8 & \text { Jan. } 5 & 10 \text { unit } \
17 & 24 \text { units } @ \$ 10 & 15 & 22 \text { unit }
\end{array}$
 The cost of the ending inventory was

Accepted Answer

A) $424 
B) $312 
C) $384 
D) $336 
A) $424 
B) $312 
C) $384 
D) $336

Question 13

There are many different methods available for costing inventory.Therefore, the decision on which method to select should involve some serious thought as to the consequences involved.
Required:
 a. Discuss the objectives of inventory costing in terms of accounting principles.
b. Explain the consequences of the method selected.

Accepted Answer

The answer of There are many different methods available for...

Question 14

Which one of the following statements is true?

Accepted Answer

A) Income manipulation is difficult under LIFO. 
B) Accounting principles do not require that the inventory cost flow approximate the physical flow of goods. 
C) Companies may use LIFO for tax purposes and FIFO in the financial statements. 
D) In periods of declining prices, LIFO will result in the payment of lower income taxes. 
A) Income manipulation is difficult under LIFO. 
B) Accounting principles do not require that the inventory cost flow approximate the physical flow of goods. 
C) Companies may use LIFO for tax purposes and FIFO in the financial statements. 
D) In periods of declining prices, LIFO will result in the payment of lower income taxes.

Question 15

Exhibit 8-1 Walters Co.purchased raw materials with a catalog price of $70, 000 on March 2, 2010.Credit terms of 4/20, n/60 applied.If Walters pays for the purchase on March 18, 2010, calculate what amount is recorded for inventory on March 2, 2010, using the method given.
-
Refer to Exhibit 8-1.Walters uses a perpetual inventory system and the net price method.

Accepted Answer

A) $42, 000 
B) $56, 000 
C) $67, 200 
D) $70, 000 
A) $42, 000 
B) $56, 000 
C) $67, 200 
D) $70, 000

Question 16

Wilson Inc.purchased merchandise on account from a French supplier on December 1, 2010.This transaction was for 75, 000 euros.Wilson's accounting year ends December 31.Payment was made on January 31, 2011.The exchange rates during this period were as follows:
 $\begin{array}{ll}
\text { December } 1 & \$ 1.10 / \text { euro } \
\text { December } 31 & 1.16 / \text { euro } \
\text { J quuary } 31 & 1.14 / \text { euro }
\end{array}$ Required:
Prepare the necessary journal entries to record this purchase and subsequent payment.

Accepted Answer

The answer of Wilson Inc.purchased merchandise on account from a...

Question 17

On March 1, Sabine Electric bought $4, 400 of goods with terms of 3/15, n/45.
Required:
Fill in the blanks below with dollar amounts, if any are appropriate.
(Use the net method for items a.and b.below.)
 a. If payment was made on March 15, you would debit Accounts Payable for $ \$ $$\underline{\quad\quad}$

b. If payment was made on April 3, you would debit Purchase Discounts Lost for $ \$ $$\underline{\quad\quad}$ (Use the gross method for c.and d.below.)
 c.If payment is made on March 15 , you would credit Cash for $ \$ $$\underline{\quad\quad}$

d.Assuming no payment had yet been made, you would debit Purchase Discounts Lost for $ \$ $ $\underline{\quad\quad}$in the adjusting entry at April 30 (fiscal vearench)

Accepted Answer

The answer of On March 1, Sabine Electric bought $4,...

Question 18

At December 31, 2010, Johnson, Inc.had inventory on hand amounting to $270, 000.The following items were not included in this inventory:
   Johnson sells at a gross profit of 25% on cost.
Required:
Compute the cost of ending inventory to be reported on the December 31, 2010, balance sheet.

Accepted Answer

$270, 000 + $9, 600*

Question 19

An exchange gain occurs when the exchange rate

Accepted Answer

A) increases between the date a company records a payable from a purchase of inventory and the date of the cash payment 
B) declines after the date a company pays its payable from a purchase of inventory 
C) increases between the date a company records a receivable from a sale of inventory and the date of the cash payment 
D) declines between the date a company records a receivable from a sale of inventory and date of the cash payment 
A) increases between the date a company records a payable from a purchase of inventory and the date of the cash payment 
B) declines after the date a company pays its payable from a purchase of inventory 
C) increases between the date a company records a receivable from a sale of inventory and the date of the cash payment 
D) declines between the date a company records a receivable from a sale of inventory and date of the cash payment

Question 20

Which one of the following is not a disadvantage of the LIFO inventory cost flow assumption?

Accepted Answer

A) the impact of LIFO liquidation profits 
B) failure to match the most recent costs with revenue 
C) the possibility of income manipulation by management 
D) impaired comparability between companies using LIFO 
A) the impact of LIFO liquidation profits 
B) failure to match the most recent costs with revenue 
C) the possibility of income manipulation by management 
D) impaired comparability between companies using LIFO

Which one of the following is an advantage of LIFO?

One of the disadvantages of the LIFO cost flow assumption is the impact of the liquidation of LIFO layers. Required: a. Explain what is meant by invent ory liquidation under the LIFO cost flow assumption. b. Discuss why this may be a serious problem for LIFO but not for FIFO.

Which one of the following statements is not true?

A manufacturing company typically has how many inventory accounts?

Typically, the impact of the "LIFO reserve" is to

Revolution Hardware reported $300, 000 of inventory on December 31, 2010, based on a physical count. Additional information is as follows: Required: Compute the correct amount of December 31, 2010, ending inventory for Revolution Hardware.

Titan Company changed its inventory cost flow assumption from FIFO to LIFO in a period of rising prices.What was the result of the change on ending inventory in the year of the change?

A company uses a "LIFO reserve" because

Right Images Printing uses perpetual LIFO in valuing its inventory.The January 1 inventory amounted to 36 units at $6 each.Purchases and sales during January were as follows: Purchases Sales Jan. 10 20 units @\ 8 Jan. 5 10 unit 17 24 units @\ 10 15 22 unit The cost of the ending inventory was

Which one of the following statements is true?

At December 31, 2010, Johnson, Inc.had inventory on hand amounting to $270, 000.The following items were not included in this inventory: Johnson sells at a gross profit of 25% on cost. Required: Compute the cost of ending inventory to be reported on the December 31, 2010, balance sheet.

An exchange gain occurs when the exchange rate

Which one of the following is not a disadvantage of the LIFO inventory cost flow assumption?

The Environment of Financial Reporting

Financial Reporting: Its Conceptual Framework

Review of a Companys Accounting System

The Balance Sheet and the Statement of Changes in Stockholders Equity

The Income Statement and the Statement of Cash Flows

Additional Aspects of Financial Reporting and Financial Analysis

Cash and Receivables

Inventories: Special Valuation Issues

Property, Plant, and Equipment: Acquisition and Disposal

Depreciation and Depletion

Intangibles

Current Liabilities and Contingencies

Long-Term Liabilities and Receivables

Investments

Contributed Capital

Earnings Per Share and Retained Earnings

Income Recognition and Measurement of Net Assets

Accounting for Income Taxes

Accounting for Postemployment Benefits

Accounting for Leases

The Statement of Cash Flows

Accounting for Changes and Errors

Time Value of Money Module

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Exam 8: Inventories: Cost Measurement and Flow Assumptions

Which one of the following is an advantage of LIFO?

One of the disadvantages of the LIFO cost flow assumption is the impact of the liquidation of LIFO layers. Required: a. Explain what is meant by invent ory liquidation under the LIFO cost flow assumption. b. Discuss why this may be a serious problem for LIFO but not for FIFO.

Which one of the following statements is not true?

A manufacturing company typically has how many inventory accounts?

Typically, the impact of the "LIFO reserve" is to

Revolution Hardware reported $300, 000 of inventory on December 31, 2010, based on a physical count. Additional information is as follows: Required: Compute the correct amount of December 31, 2010, ending inventory for Revolution Hardware.

Titan Company changed its inventory cost flow assumption from FIFO to LIFO in a period of rising prices.What was the result of the change on ending inventory in the year of the change?

A company uses a "LIFO reserve" because

Right Images Printing uses perpetual LIFO in valuing its inventory.The January 1 inventory amounted to 36 units at $6 each.Purchases and sales during January were as follows: Purchases Sales Jan. 10 20 units @\ 8 Jan. 5 10 unit 17 24 units @\ 10 15 22 unit The cost of the ending inventory was

Which one of the following statements is true?

At December 31, 2010, Johnson, Inc.had inventory on hand amounting to $270, 000.The following items were not included in this inventory: Johnson sells at a gross profit of 25% on cost. Required: Compute the cost of ending inventory to be reported on the December 31, 2010, balance sheet.

An exchange gain occurs when the exchange rate

Which one of the following is not a disadvantage of the LIFO inventory cost flow assumption?

The Environment of Financial Reporting

Financial Reporting: Its Conceptual Framework

Review of a Companys Accounting System

The Balance Sheet and the Statement of Changes in Stockholders Equity

The Income Statement and the Statement of Cash Flows

Additional Aspects of Financial Reporting and Financial Analysis

Cash and Receivables

Inventories: Special Valuation Issues

Property, Plant, and Equipment: Acquisition and Disposal

Depreciation and Depletion

Intangibles

Current Liabilities and Contingencies

Long-Term Liabilities and Receivables

Investments

Contributed Capital

Earnings Per Share and Retained Earnings

Income Recognition and Measurement of Net Assets

Accounting for Income Taxes

Accounting for Postemployment Benefits

Accounting for Leases

The Statement of Cash Flows

Accounting for Changes and Errors

Time Value of Money Module

Filters