Question 1

The FIFO reserve is a required disclosure for companies that use FIFO.

Accepted Answer

A) True 
 B)False

Question 2

Hogan Industries had the following inventory transactions occur during 2017: $\begin{array}{rlll}&&\text { Units } & \text { Cost/unit } \
\text { Feb. 1,2017 } & \text { Purchase } & 108 & \$ 45 \
\text { Mar. 14,2017 } & \text { Purchase } & 186 & \$ 47 \
\text { May } 1,2017 & \text { Purchase } & 132 & \$ 49
\end{array}$ The company sold 306 units at $63 each and has a tax rate of 30%. Assuming that a periodic inventory system is used, what is the company's gross profit using LIFO? (rounded to whole dollars)

Accepted Answer

A) $14,646 
B) $14,190 
C) $5,088 
D) $4,632 
A) $14,646 
B) $14,190 
C) $5,088 
D) $4,632

Question 3

Piper Pipes has the following inventory data: $$\begin{array} { r l l } 
\text { July } 1 & \text { Beginning inventory } & 50 \text { units at } \$ 120 \
5 & \text { Purchases } & 300 \text { units at } \$ 112 \
14 & \text { Sale } & 200 \text { units } \
21 & \text { Purchases } & 150 \text { units at } \$ 115 \
30 & \text { Sale } & 140 \text { units }
\end{array}$$ Assuming that a periodic inventory system is used, what is the cost of goods sold on a LIFO basis?

Accepted Answer

A) $18,320 
B) $18,370 
C) $34,480 
D) $38,530 
A) $18,320 
B) $18,370 
C) $34,480 
D) $38,530

Question 4

The LIFO inventory method agrees with the actual physical movement of goods in most businesses.

Accepted Answer

A) True 
 B)False

Question 5

In periods of falling prices, LIFO will result in a higher ending inventory valuation than FIFO.

Accepted Answer

A) True 
 B)False

Question 6

Echo Sound Company just began business and made the following four inventory purchases in June: $\begin{array}{lrlr}
\text { June } & 1 & 150 \text { units } & \$ 1,040 \
\text { June } & 10 & 200 \text { units } &1,560  \
\text { June } & 15 & 200 \text { units } & 1,680\
\text { June } & 28 & 150 \text { units } &  1,320 \
& &&\$5,600
\end{array}$ A physical count of merchandise inventory on June 30 reveals that there are 210 units on hand. The inventory method which results in the highest gross profit for June is

Accepted Answer

A) the FIFO method. 
B) the LIFO method. 
C) the average cost method. 
D) not determinable. 
A) the FIFO method. 
B) the LIFO method. 
C) the average cost method. 
D) not determinable.

Question 7

Given equal circumstances and generally rising costs, which inventory method will increase the tax expense the most?

Accepted Answer

A) FIFO 
B) LIFO 
C) Average cost 
D) Income tax expense for the period will be the same under all assumptions. 
A) FIFO 
B) LIFO 
C) Average cost 
D) Income tax expense for the period will be the same under all assumptions.

Question 8

Ace Company is a retailer operating in an industry that experiences inflation (rising prices). Ace wants the most realistic ending inventory. Which inventory costing method should Ace consider using?

Accepted Answer

A) Average because all inventory costs will then represent an average amount. 
B) Specific identification is the most realistic method because it involves the actual costs. 
C) LIFO because ending inventory represents the earliest costs. 
D) FIFO because ending inventory represents the latest costs. 
A) Average because all inventory costs will then represent an average amount. 
B) Specific identification is the most realistic method because it involves the actual costs. 
C) LIFO because ending inventory represents the earliest costs. 
D) FIFO because ending inventory represents the latest costs.

Question 9

Which statement is false?

Accepted Answer

A) Taking a physical inventory involves actually counting, weighing, or measuring each kind of inventory on hand. 
B) No matter whether a periodic or perpetual inventory system is used, all companies need to determine inventory quantities at the end of each accounting period. 
C) An inventory count is generally more accurate when goods are not being sold or received during the counting. 
D) Companies that use a perpetual inventory system must take a physical inventory to determine inventory on hand on the balance sheet date and to determine cost of goods sold for the accounting period. 
A) Taking a physical inventory involves actually counting, weighing, or measuring each kind of inventory on hand. 
B) No matter whether a periodic or perpetual inventory system is used, all companies need to determine inventory quantities at the end of each accounting period. 
C) An inventory count is generally more accurate when goods are not being sold or received during the counting. 
D) Companies that use a perpetual inventory system must take a physical inventory to determine inventory on hand on the balance sheet date and to determine cost of goods sold for the accounting period.

Question 10

Use the following information for Boxter, Inc., Clifford Company, Danforth Industries, and Evans Services to answer the question "What is Danforth's LIFO reserve for 2016?" \(\begin{array}{|l|c|c|c|c|}
\hline {\text { (amounts in \$ millions) }} & \text { Boxter } & \text { Clifford } & \text { Danforth } & \text { Evans } \
\hline \text { Inventory Method for 2016 \& 2017 } & \text { LIFO } & \text { FIFO } & \text { LIFO } & \text { FIFO } \
\hline 2016 \text { Ending inventory assuming LIFO } & \$ 324 & \text { N/A } & \$ 225 & \text { N/A } \\hline 2016 \text { Ending inventory assuming FIFO } & \$ 427 & \$ 535 & \$ 310 & \$ 663 \
\hline 2017 \text { Ending inventory assuming LIFO } & \$ 436 & \text { N/A } & \$ 167 & \text { N/A } \
\hline 2017 \text { Ending inventory assuming FIFO } & \$ 578 & \$ 612 & \$ 209 & \$ 542 \\hline \begin{array}{c}
2016 \text { Current assets } \
\text { (reported on balance sheet) }
\end{array} & \$ 1,677 & \$ 2,031 & \$ 1,308 & \$ 2,748 \
\hline 2016 \text { Current liabilities } & \$ 987 & \$ 1,209 & \$ 545 & \$ 1,200 \\hline \begin{array}{l}
2017 \text { Current assets } \
\text { (reported on balance sheet) }
\end{array} & \$ 2,225 & \$ 2,605 & \$ 1,100 & \$ 2,390 \
\hline 2017 \text { Current liabilities } & \$ 1,306 & \$ 1,410 & \$ 465 & \$ 1,000 \\hline 2017 \text { Cost of goods sold } & \$ 4,678 & \$ 1,410 & \$ 465 & \$ 1,000 \
\hline
\end{array}\)

Accepted Answer

A) $535 
B) $85 
C) $42 
D) $58 
A) $535 
B) $85 
C) $42 
D) $58

Question 11

Use the following information regarding Black Company and Red Company to answer the question "Which amount is equal to Black Company's "days in inventory" for 2017 (to the closest decimal place)?" $\begin{array}{|l|c|c|c|} 
\hline& \text { Year } & \begin{array}{c}
\text { Inventory } \
\text { Turnover }
\end{array} & \text { Ending Inventory } \
\hline \text { Black Company } & 2015 & & \$ 26,340 \
\hline & 2016 & 8.7 & \$ 29,890 \
\hline & 2017 & 8.4 & \$ 30,100 \
\hline
\end{array}$

$\begin{array}{|l|l|l|l|}
\hline \text { Red Company } & 2015 & & \$ 25,860 \
\hline & 2016 & 7.0 & \$ 24,750 \
\hline & 2017 & 7.5 & \$ 22,530 \
\hline
\end{array}$

Accepted Answer

A) 43.5 days 
B) 52.1 days 
C) 48.7 days 
D) 42.0 days 
A) 43.5 days 
B) 52.1 days 
C) 48.7 days 
D) 42.0 days

Question 12

Which inventory costing method should a gasoline retailer use?

Accepted Answer

A) Average cost 
B) LIFO 
C) FIFO 
D) Either LIFO or FIFO. 
A) Average cost 
B) LIFO 
C) FIFO 
D) Either LIFO or FIFO.

Question 13

IFRS defines market for lower-of-cost-or market as

Accepted Answer

A) net realizable value. 
B) estimated selling price in the ordinary course of business. 
C) replacement cost. 
D) replacement cost less costs of disposal. 
A) net realizable value. 
B) estimated selling price in the ordinary course of business. 
C) replacement cost. 
D) replacement cost less costs of disposal.

Question 14

Of the following companies, which one would not likely employ the specific identification method for inventory costing?

Accepted Answer

A) Music store specializing in organ sales 
B) Farm implement dealership 
C) Antique shop 
D) Hardware store 
A) Music store specializing in organ sales 
B) Farm implement dealership 
C) Antique shop 
D) Hardware store

Question 15

Hogan Industries had the following inventory transactions occur during 2017: $\begin{array}{rlll}&&\text { Units } & \text { Cost/unit } \
\text { Feb. 1,2017 } & \text { Purchase } & 108 & \$ 45 \
\text { Mar. 14,2017 } & \text { Purchase } & 186 & \$ 47 \
\text { May } 1,2017 & \text { Purchase } & 132 & \$ 49
\end{array}$ The company sold 306 units at $63 each and has a tax rate of 30%. Assuming that a periodic inventory system is used, and operating expenses of $1,800, what is the company's after-tax income using LIFO? (rounded to whole dollars)

Accepted Answer

A) $2,832 
B) $3,288 
C) $2,302 
D) $1,982 
A) $2,832 
B) $3,288 
C) $2,302 
D) $1,982

Question 16

A manufacturer's inventory consists of raw materials, work in process, and finished goods.

Accepted Answer

A) True 
 B)False

Question 17

The only acceptable cost flow assumptions under IFRS are

Accepted Answer

A) FIFO and LIFO. 
B) FIFO and average. 
C) LIFO and average. 
D) FIFO, LIFO and average. 
A) FIFO and LIFO. 
B) FIFO and average. 
C) LIFO and average. 
D) FIFO, LIFO and average.

Question 18

The lower-of-cost-or-market rule implies that it is unrealistic to carry inventory at a cost that is in excess of its market value.

Accepted Answer

A) True 
 B)False

Question 19

At December 31, 2017 Howell Company's inventory records indicated a balance of $878,000. Upon further investigation it was determined that this amount included the following:
-$168,000 in inventory purchases made by Howell shipped from the seller 12/27/17 terms FOB destination, but not due to be received until January 2nd
-$111,000 in goods sold by Howell with terms FOB destination on December 27th. The goods are not expected to reach their destination until January 6th.
-$9,000 of goods received on consignment from Westwood Company
What is Howell's correct ending inventory balance at December 31, 2017?

Accepted Answer

A) $710,000 
B) $869,000 
C) $590,000 
D) $701,000 
A) $710,000 
B) $869,000 
C) $590,000 
D) $701,000

Question 20

An error in the physical count of goods on hand at the end of a period resulted in a $10,000 overstatement of the ending inventory. The effect of this error in the current period is $$\begin{array} { l c c } 
& \text { Cost of Goods Sold } & \text { Net Income } \
\text { a. } & \text { Understated } & \text { Understated } \
\text { b. } & \text { Overstated } & \text { Overstated } \
\text { c. } & \text { Understated } & \text { Overstated } \
\text { d. } & \text { Overstated } & \text { Understated }
\end{array}$$

Accepted Answer

The answer of An error in the physical count of...

The FIFO reserve is a required disclosure for companies that use FIFO.

Piper Pipes has the following inventory data: July 1 Beginning inventory 50 units at \ 120 5 Purchases 300 units at \ 112 14 Sale 200 units 21 Purchases 150 units at \ 115 30 Sale 140 units Assuming that a periodic inventory system is used, what is the cost of goods sold on a LIFO basis?

The LIFO inventory method agrees with the actual physical movement of goods in most businesses.

In periods of falling prices, LIFO will result in a higher ending inventory valuation than FIFO.

Given equal circumstances and generally rising costs, which inventory method will increase the tax expense the most?

Ace Company is a retailer operating in an industry that experiences inflation (rising prices). Ace wants the most realistic ending inventory. Which inventory costing method should Ace consider using?

Which statement is false?

Which inventory costing method should a gasoline retailer use?

IFRS defines market for lower-of-cost-or market as

Of the following companies, which one would not likely employ the specific identification method for inventory costing?

A manufacturer's inventory consists of raw materials, work in process, and finished goods.

The only acceptable cost flow assumptions under IFRS are

The lower-of-cost-or-market rule implies that it is unrealistic to carry inventory at a cost that is in excess of its market value.

Introduction to Financial Statements

A Further Look at Financial Statements

The Accounting Information System

Merchandising Operations and the Multiple-Step Income Statement

Fraud, Internal Control, and Cash

Reporting and Analyzing Receivables

Reporting and Analyzing Long-Lived Assets

Reporting and Analyzing Liabilities

Reporting and Analyzing Stockholders Equity

Statement of Cash Flows

Financial Analysis: The Big Picture

Managerial Accounting

Job Order Costing

Process Costing

Activity-Based Costing

Cost-Volume-Profit

Cost-Volume-Profit Analysis: Additional Issues

Incremental Analysis

Budgetary Planning

Budgetary Control and Responsibility Accounting

Standard Costs and Balanced Scorecard

Planning for Capital Investments

Filters

Exam 5: Reporting and Analyzing Inventory

The FIFO reserve is a required disclosure for companies that use FIFO.

Piper Pipes has the following inventory data: July 1 Beginning inventory 50 units at \ 120 5 Purchases 300 units at \ 112 14 Sale 200 units 21 Purchases 150 units at \ 115 30 Sale 140 units Assuming that a periodic inventory system is used, what is the cost of goods sold on a LIFO basis?

The LIFO inventory method agrees with the actual physical movement of goods in most businesses.

In periods of falling prices, LIFO will result in a higher ending inventory valuation than FIFO.

Given equal circumstances and generally rising costs, which inventory method will increase the tax expense the most?

Ace Company is a retailer operating in an industry that experiences inflation (rising prices). Ace wants the most realistic ending inventory. Which inventory costing method should Ace consider using?

Which statement is false?

Which inventory costing method should a gasoline retailer use?

IFRS defines market for lower-of-cost-or market as

Of the following companies, which one would not likely employ the specific identification method for inventory costing?

A manufacturer's inventory consists of raw materials, work in process, and finished goods.

The only acceptable cost flow assumptions under IFRS are

The lower-of-cost-or-market rule implies that it is unrealistic to carry inventory at a cost that is in excess of its market value.

Introduction to Financial Statements

A Further Look at Financial Statements

The Accounting Information System

Merchandising Operations and the Multiple-Step Income Statement

Fraud, Internal Control, and Cash

Reporting and Analyzing Receivables

Reporting and Analyzing Long-Lived Assets

Reporting and Analyzing Liabilities

Reporting and Analyzing Stockholders Equity

Statement of Cash Flows

Financial Analysis: The Big Picture

Managerial Accounting

Job Order Costing

Process Costing

Activity-Based Costing

Cost-Volume-Profit

Cost-Volume-Profit Analysis: Additional Issues

Incremental Analysis

Budgetary Planning

Budgetary Control and Responsibility Accounting

Standard Costs and Balanced Scorecard

Planning for Capital Investments

Filters