Question 1

Which of the following is a characteristic of a perpetual inventory system?

Accepted Answer

A)  Inventory purchases are debited to a Purchases account. 
B)  Inventory records are not kept for every item. 
C)  Cost of goods sold is recorded with each sale. 
D)  Cost of goods sold is determined as the amount of purchases less the change in inventory. 
A)  Inventory purchases are debited to a Purchases account. 
B)  Inventory records are not kept for every item. 
C)  Cost of goods sold is recorded with each sale. 
D)  Cost of goods sold is determined as the amount of purchases less the change in inventory.

Question 2

Which of the following is true regarding the use of LIFO for inventory valuation?

Accepted Answer

A)  If LIFO is used for external financial reporting, then it must also be used for internal reports. 
B)  For purposes of external financial reporting, LIFO may not be used with the lower of cost or market approach. 
C)  If LIFO is used for external financial reporting, then it cannot be used for tax purposes. 
D)  None of these answers are correct. 
A)  If LIFO is used for external financial reporting, then it must also be used for internal reports. 
B)  For purposes of external financial reporting, LIFO may not be used with the lower of cost or market approach. 
C)  If LIFO is used for external financial reporting, then it cannot be used for tax purposes. 
D)  None of these answers are correct.

Question 3

Freight charges on goods purchased are considered a period cost and therefore are not part of the cost of the inventory.

Accepted Answer

A) True 
 B)False

Question 4

The change in the LIFO Reserve from one period to the next is recorded as an adjustment to Cost of Goods Sold.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following statements is not true as it relates to the dollar-value LIFO inven?tory method?

Accepted Answer

A)  It is easier to erode LIFO layers using dollar-value LIFO techniques than it is with specific goods pooled LIFO. 
B)  Under the dollar-value LIFO method, it is possible to have the entire inventory in only one pool. 
C)  Several pools are commonly employed in using the dollar-value LIFO inventory method. 
D)  Under dollar-value LIFO, increases and decreases in a pool are determined and measured in terms of total dollar value, not physical quantity. 
A)  It is easier to erode LIFO layers using dollar-value LIFO techniques than it is with specific goods pooled LIFO. 
B)  Under the dollar-value LIFO method, it is possible to have the entire inventory in only one pool. 
C)  Several pools are commonly employed in using the dollar-value LIFO inventory method. 
D)  Under dollar-value LIFO, increases and decreases in a pool are determined and measured in terms of total dollar value, not physical quantity.

Question 6

The failure to record a purchase of mer?chandise on account even though the goods are properly included in the physical inven?tory results in

Accepted Answer

A)  an overstatement of assets and net income. 
B)  an understatement of assets and net income. 
C)  an understatement of cost of goods sold and liabilities and an overstatement of assets. 
D)  an understatement of liabilities and an overstatement of owners' equity. 
A)  an overstatement of assets and net income. 
B)  an understatement of assets and net income. 
C)  an understatement of cost of goods sold and liabilities and an overstatement of assets. 
D)  an understatement of liabilities and an overstatement of owners' equity.

Question 7

Use the following information for 121 and 122
RF Company had January 1 inventory of $200,000 when it adopted dollar-value LIFO. During the year, purchases were $1,200,000 and sales were $2,000,000. December 31 inventory at year-end prices was $286,720, and the price index was 112.
-What is RF Company's ending inventory?

Accepted Answer

A)  $200,000. 
B)  $256,000. 
C)  $262,720. 
D)  $286,720. 
A)  $200,000. 
B)  $256,000. 
C)  $262,720. 
D)  $286,720.

Question 8

Many companies use LIFO for both tax and internal reporting purposes.

Accepted Answer

A) True 
 B)False

Question 9

IFRS does not permit the LIFO method to account for inventories.

Accepted Answer

A) True 
 B)False

Question 10

June Corp. sells one product and uses a perpetual inventory system. The beginning inventory consisted of 40 units that cost $20 per unit. During the current month, the company purchased 240 units at $20 each. Sales during the month totaled 180 units for $43 each. What is the cost of goods sold using the LIFO method?

Accepted Answer

A)  $ 800. 
B)  $3,600. 
C)  $4,800. 
D)  $7,740. 
A)  $ 800. 
B)  $3,600. 
C)  $4,800. 
D)  $7,740.

Question 11

Use the following information for questions 98 and 99.
The following information was available from the inventory records of Rich Company for January:  
-Assuming that Rich does not maintain perpetual inventory records, what should be the inventory at January 31, using the weighted-average inventory method, rounded to the nearest dollar?

Accepted Answer

A)  $15,757. 
B)  $15,356. 
C)  $15,390. 
D)  $15,540. 
A)  $15,757. 
B)  $15,356. 
C)  $15,390. 
D)  $15,540.

Question 12

Which of the following is a product cost as it relates to inventory?

Accepted Answer

A)  Selling costs. 
B)  Interest costs. 
C)  Raw materials. 
D)  Abnormal spoilage. 
A)  Selling costs. 
B)  Interest costs. 
C)  Raw materials. 
D)  Abnormal spoilage.

Question 13

Hite Co. was formed on January 2, 2014, to sell a single product. Over a two-year period, Hite's acquisition costs have increased steadily. Physical quantities held in inventory were equal to three months' sales at December 31, 2014, and zero at December 31, 2015. Assuming the periodic inventory system, the inventory cost method which reports the highest amount of each of the following is

Accepted Answer

The answer of Hite Co. was formed on January 2,...

Question 14

LIFO is inappropriate where unit costs tend to decrease as production increases.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following statements is not valid as it applies to inventory costing methods?

Accepted Answer

A)  If inventory quantities are to be maintained, part of the earnings must be invested (plowed back) in inventories when FIFO is used during a period of rising prices. 
B)  LIFO tends to smooth out the net income pattern by matching current cost of goods sold with current revenue, when inventories remain at constant quantities. 
C)  When a firm using the LIFO method fails to maintain its usual inventory position (reduces stock on hand below customary levels), there may be a matching of old costs with current revenue. 
D)  The use of FIFO permits some control by management over the amount of net income for a period through controlled purchases, which is not true with LIFO. 
A)  If inventory quantities are to be maintained, part of the earnings must be invested (plowed back) in inventories when FIFO is used during a period of rising prices. 
B)  LIFO tends to smooth out the net income pattern by matching current cost of goods sold with current revenue, when inventories remain at constant quantities. 
C)  When a firm using the LIFO method fails to maintain its usual inventory position (reduces stock on hand below customary levels), there may be a matching of old costs with current revenue. 
D)  The use of FIFO permits some control by management over the amount of net income for a period through controlled purchases, which is not true with LIFO.

Question 16

The tax benefit that the LIFO method provides might get nullified when:

Accepted Answer

A)  unit costs tend to decrease as production increases. 
B)  unit costs tend to increase as production increases. 
C)  revenues are increasing faster than costs. 
D)  a fairly constant "base stock" is present. 
A)  unit costs tend to decrease as production increases. 
B)  unit costs tend to increase as production increases. 
C)  revenues are increasing faster than costs. 
D)  a fairly constant "base stock" is present.

Question 17

If a supplier ships goods f.o.b. destination, title passes to the buyer when the supplier delivers the goods to the common carrier.

Accepted Answer

A) True 
 B)False

Question 18

Opera Corp. uses dollar-value LIFO method of computing its inventory cost. Data for the past three years is as follows:   What is the 2014 inventory balance using dollar-value LIFO?

Accepted Answer

A)  $756,000. 
B)  $771,000. 
C)  $736,500. 
D)  $754,500. 
A)  $756,000. 
B)  $771,000. 
C)  $736,500. 
D)  $754,500.

Question 19

A modified perpetual inventory system provides detailed inventory records of increases and decreases in quantities only-not dollar amounts.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following is included in inventory costs?

Accepted Answer

A)  Product costs. 
B)  Period costs. 
C)  Product and period costs. 
D)  Neither product or period costs. 
A)  Product costs. 
B)  Period costs. 
C)  Product and period costs. 
D)  Neither product or period costs.

Exam 8: Valuation of Inventories: a Cost-Basis Approach

Which of the following is a characteristic of a perpetual inventory system?

Which of the following is true regarding the use of LIFO for inventory valuation?

Freight charges on goods purchased are considered a period cost and therefore are not part of the cost of the inventory.

The change in the LIFO Reserve from one period to the next is recorded as an adjustment to Cost of Goods Sold.

Which of the following statements is not true as it relates to the dollar-value LIFO inven?tory method?

The failure to record a purchase of mer?chandise on account even though the goods are properly included in the physical inven?tory results in

Many companies use LIFO for both tax and internal reporting purposes.

IFRS does not permit the LIFO method to account for inventories.

Which of the following is a product cost as it relates to inventory?

LIFO is inappropriate where unit costs tend to decrease as production increases.

Which of the following statements is not valid as it applies to inventory costing methods?

The tax benefit that the LIFO method provides might get nullified when:

If a supplier ships goods f.o.b. destination, title passes to the buyer when the supplier delivers the goods to the common carrier.

Opera Corp. uses dollar-value LIFO method of computing its inventory cost. Data for the past three years is as follows: What is the 2014 inventory balance using dollar-value LIFO?

A modified perpetual inventory system provides detailed inventory records of increases and decreases in quantities only-not dollar amounts.

Which of the following is included in inventory costs?

Financial Accounting and Accounting Standards

Conceptual Framework for Financial Reporting

The Accounting Information System

Income Statement and Related Information

Balance Sheet and Statement of Cash Flows

Accounting and the Time Value of Money

Cash and Receivables

Inventories: Additional Valuation Issues

Acquisition and Disposition of Property, Plant, and Equipment

Depreciation, Impairments, and Depletion

Intangible Assets

Current Liabilities and Contingencies

Long-Term Liabilities

Stockholders Equity

Dilutive Securities and Earnings Per Share

Investments

Revenue Recognition

Accounting for Income Taxes

Accounting for Pensions and Postretirement Benefits

Accounting for Leases

Accounting Changes and Error Analysis

Statement of Cash Flows

Full Disclosure in Financial Reporting

Appendix

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