Question 1

An inventory error is sometimes said to be self-correcting because it yields an offsetting error in the next period.

Accepted Answer

A) True 
 B)False

Question 2

The Inventory account is a controlling account for the inventory subsidiary ledger that contains a separate record for each separate product.

Accepted Answer

A) True 
 B)False

Question 3

During a period of steadily rising costs, the inventory valuation method that yields the highest reported net income is:

Accepted Answer

A) Specific identification method. 
B) Average cost method. 
C) Weighted-average method. 
D) FIFO method. 
E) LIFO method. 
A) Specific identification method. 
B) Average cost method. 
C) Weighted-average method. 
D) FIFO method. 
E) LIFO method.

Question 4

If a period-end inventory amount is reported in error, it can cause a misstatement in all of the following except:

Accepted Answer

A) Cost of goods sold. 
B) Gross profit. 
C) Net sales. 
D) Current assets. 
E) Net income. 
A) Cost of goods sold. 
B) Gross profit. 
C) Net sales. 
D) Current assets. 
E) Net income.

Question 5

A company has inventory with a selling price of $451,000, a market value of $223,000 and a cost of $241,000. According to the lower of cost or market, the inventory should be written down to $223,000.

Accepted Answer

A) True 
 B)False

Question 6

The reliability of the gross profit method depends on a good estimate of the gross profit ratio.

Accepted Answer

A) True 
 B)False

Question 7

When costs to purchase inventory regularly decline, which method of inventory costing will yield the lowest cost of goods sold?

Accepted Answer

A) FIFO. 
B) LIFO. 
C) Weighted average. 
D) Specific identification. 
E) Gross margin. 
A) FIFO. 
B) LIFO. 
C) Weighted average. 
D) Specific identification. 
E) Gross margin.

Question 8

Explain the reason a company might use the retail inventory method for valuing inventory.

Accepted Answer

The retail method is generally used to p

Question 9

Describe the internal controls that must be applied when taking a physical count of inventory.

Accepted Answer

The internal controls should include (1)

Question 10

Internal controls that should be applied when a business takes a physical count of inventory should include all of the following except:

Accepted Answer

A) Prenumbered inventory tickets. 
B) A manager confirms that all inventories are ticketed only once. 
C) Counters confirm the validity of inventory existence, amounts, and quality. 
D) Second counts by a different counter. 
E) Counters of inventory should be those who are responsible for the inventory. 
A) Prenumbered inventory tickets. 
B) A manager confirms that all inventories are ticketed only once. 
C) Counters confirm the validity of inventory existence, amounts, and quality. 
D) Second counts by a different counter. 
E) Counters of inventory should be those who are responsible for the inventory.

Question 11

In applying the lower of cost or market method to inventory valuation, market is defined as the current selling price.

Accepted Answer

A) True 
 B)False

Question 12

Goods in transit are included in a purchaser's inventory:

Accepted Answer

A) At any time during transit. 
B) When the purchaser is responsible for paying freight charges. 
C) When the supplier is responsible for freight charges. 
D) If the goods are shipped FOB destination. 
E) After the half-way point between the buyer and seller. 
A) At any time during transit. 
B) When the purchaser is responsible for paying freight charges. 
C) When the supplier is responsible for freight charges. 
D) If the goods are shipped FOB destination. 
E) After the half-way point between the buyer and seller.

Question 13

An advantage of FIFO is that it assigns the most recent costs to cost of goods sold, and does a better job of matching current costs with revenues on the income statement.

Accepted Answer

A) True 
 B)False

Question 14

Identify and describe the four inventory valuation methods.

Accepted Answer

The specific identification method assig

Question 15

IFRS reporting currently does not allow which method of inventory costing?

Accepted Answer

A) Specific identification. 
B) FIFO. 
C) LIFO. 
D) Weighted average. 
E) Lower of cost or market. 
A) Specific identification. 
B) FIFO. 
C) LIFO. 
D) Weighted average. 
E) Lower of cost or market.

Question 16

A company's current inventory consists of 5,000 units purchased at $6 per unit. Replacement cost has now fallen to $5 per unit. What is the entry the company must record to adjust inventory to market?

Accepted Answer

A) Debit Merchandise Inventory $25,000; credit Cost of Goods Sold $25,000. 
B) Debit Cost of Goods Sold $30,000; credit Merchandise Inventory $30,000. 
C) Debit Cost of Goods Sold $5,000; credit Merchandise Inventory $5,000. 
D) Debit Loss on Inventory $5,000; credit Cost of Goods Sold $5,000. 
E) Debit Merchandise Inventory $30,000; credit Cost of Goods Sold $25,000. 
A) Debit Merchandise Inventory $25,000; credit Cost of Goods Sold $25,000. 
B) Debit Cost of Goods Sold $30,000; credit Merchandise Inventory $30,000. 
C) Debit Cost of Goods Sold $5,000; credit Merchandise Inventory $5,000. 
D) Debit Loss on Inventory $5,000; credit Cost of Goods Sold $5,000. 
E) Debit Merchandise Inventory $30,000; credit Cost of Goods Sold $25,000.

Question 17

Interim financial statements:

Accepted Answer

A) Are required by the Congress. 
B) Are necessary to achieve full disclosure about a business's operations. 
C) Are statements prepared for periods of less than one year. 
D) Require the use of the perpetual method for inventories. 
E) Cannot be prepared if the company follows the conservatism principle. 
A) Are required by the Congress. 
B) Are necessary to achieve full disclosure about a business's operations. 
C) Are statements prepared for periods of less than one year. 
D) Require the use of the perpetual method for inventories. 
E) Cannot be prepared if the company follows the conservatism principle.

Question 18

McCarthy Company has inventory of 8 units at a cost of $200 each on October 1. On October 2, it purchased 20 units at $205 each. 11 units are sold on October 4. Using the FIFO perpetual inventory method, what amount will be reported in cost of goods sold for the 11 units that were sold?

Accepted Answer

A) $2,239. 
B) $2,255. 
C) $2,200. 
D) $2,228. 
E) $2,215. 
A) $2,239. 
B) $2,255. 
C) $2,200. 
D) $2,228. 
E) $2,215.

Question 19

Physical counts of inventory:

Accepted Answer

A) Are not necessary under the perpetual system. 
B) Are necessary to adjust the Inventory account to the actual inventory available. 
C) Must be taken at least once a month. 
D) Requires the use of hand-held portable computers. 
E) Are not necessary under the cost-to-benefit constraint. 
A) Are not necessary under the perpetual system. 
B) Are necessary to adjust the Inventory account to the actual inventory available. 
C) Must be taken at least once a month. 
D) Requires the use of hand-held portable computers. 
E) Are not necessary under the cost-to-benefit constraint.

Question 20

An error in the period-end inventory balance will cause an error in the calculation of cost of goods sold.

Accepted Answer

A) True 
 B)False

An inventory error is sometimes said to be self-correcting because it yields an offsetting error in the next period.

The Inventory account is a controlling account for the inventory subsidiary ledger that contains a separate record for each separate product.

During a period of steadily rising costs, the inventory valuation method that yields the highest reported net income is:

If a period-end inventory amount is reported in error, it can cause a misstatement in all of the following except:

A company has inventory with a selling price of $451,000, a market value of $223,000 and a cost of $241,000. According to the lower of cost or market, the inventory should be written down to $223,000.

The reliability of the gross profit method depends on a good estimate of the gross profit ratio.

When costs to purchase inventory regularly decline, which method of inventory costing will yield the lowest cost of goods sold?

Explain the reason a company might use the retail inventory method for valuing inventory.

Describe the internal controls that must be applied when taking a physical count of inventory.

Internal controls that should be applied when a business takes a physical count of inventory should include all of the following except:

In applying the lower of cost or market method to inventory valuation, market is defined as the current selling price.

Goods in transit are included in a purchaser's inventory:

An advantage of FIFO is that it assigns the most recent costs to cost of goods sold, and does a better job of matching current costs with revenues on the income statement.

Identify and describe the four inventory valuation methods.

IFRS reporting currently does not allow which method of inventory costing?

A company's current inventory consists of 5,000 units purchased at $6 per unit. Replacement cost has now fallen to $5 per unit. What is the entry the company must record to adjust inventory to market?

Interim financial statements:

McCarthy Company has inventory of 8 units at a cost of $200 each on October 1. On October 2, it purchased 20 units at $205 each. 11 units are sold on October 4. Using the FIFO perpetual inventory method, what amount will be reported in cost of goods sold for the 11 units that were sold?

Physical counts of inventory:

An error in the period-end inventory balance will cause an error in the calculation of cost of goods sold.

Accounting in Business

Accounting for Business Transactions

Adjusting Accounts for Financial Statements

Accounting for Merchandising Operations

Cash and Internal Controls

Accounting for Receivables

Accounting for Long-Term Assets

Accounting for Current Liabilities

Accounting for Long-Term Liabilities

Corporate Reporting and Analysis

Filters

Exam 5: Inventories and Cost of Sales

An inventory error is sometimes said to be self-correcting because it yields an offsetting error in the next period.

The Inventory account is a controlling account for the inventory subsidiary ledger that contains a separate record for each separate product.

During a period of steadily rising costs, the inventory valuation method that yields the highest reported net income is:

If a period-end inventory amount is reported in error, it can cause a misstatement in all of the following except:

A company has inventory with a selling price of $451,000, a market value of $223,000 and a cost of $241,000. According to the lower of cost or market, the inventory should be written down to $223,000.

The reliability of the gross profit method depends on a good estimate of the gross profit ratio.

When costs to purchase inventory regularly decline, which method of inventory costing will yield the lowest cost of goods sold?

Explain the reason a company might use the retail inventory method for valuing inventory.

Describe the internal controls that must be applied when taking a physical count of inventory.

Internal controls that should be applied when a business takes a physical count of inventory should include all of the following except:

In applying the lower of cost or market method to inventory valuation, market is defined as the current selling price.

Goods in transit are included in a purchaser's inventory:

An advantage of FIFO is that it assigns the most recent costs to cost of goods sold, and does a better job of matching current costs with revenues on the income statement.

Identify and describe the four inventory valuation methods.

IFRS reporting currently does not allow which method of inventory costing?

A company's current inventory consists of 5,000 units purchased at $6 per unit. Replacement cost has now fallen to $5 per unit. What is the entry the company must record to adjust inventory to market?

Interim financial statements:

McCarthy Company has inventory of 8 units at a cost of $200 each on October 1. On October 2, it purchased 20 units at $205 each. 11 units are sold on October 4. Using the FIFO perpetual inventory method, what amount will be reported in cost of goods sold for the 11 units that were sold?

Physical counts of inventory:

An error in the period-end inventory balance will cause an error in the calculation of cost of goods sold.

Accounting in Business

Accounting for Business Transactions

Adjusting Accounts for Financial Statements

Accounting for Merchandising Operations

Cash and Internal Controls

Accounting for Receivables

Accounting for Long-Term Assets

Accounting for Current Liabilities

Accounting for Long-Term Liabilities

Corporate Reporting and Analysis

Filters