Question 1

Costs included in the Merchandise Inventory account can include all of the following except:

Accepted Answer

A) Invoice price minus any discount. 
B) Transportation-in. 
C) Storage. 
D) Insurance. 
E) Damaged inventory that cannot be sold. 
A) Invoice price minus any discount. 
B) Transportation-in. 
C) Storage. 
D) Insurance. 
E) Damaged inventory that cannot be sold.

Question 2

The assignment of costs to the cost of goods sold and to ending inventory using FIFO is the same for both the perpetual and periodic inventory systems.

Accepted Answer

A) True 
 B)False

Question 3

What advantages does a perpetual inventory system have over periodic inventory system?

Accepted Answer

Advances in technology have greatly redu

Question 4

Sandoval needs to determine its year-end inventory. The warehouse contains 20,000 units, of which 3,000 were damaged by flood and are not sellable. Another 2,000 units were purchased from Markor Company, FOB shipping point, and are currently in transit. The company also consigns goods and has 4,000 units at a consignee's location. How many units should Sandoval include in its year-end inventory?

Accepted Answer

A) 29,000 
B) 21,000 
C) 23,000 
D) 19,000 
E) 26,000 
A) 29,000 
B) 21,000 
C) 23,000 
D) 19,000 
E) 26,000

Question 5

A company's total cost of inventory was $329,000 and its current replacement cost is $307,000. Under the lower cost or market, the amount reported should be $329,000.

Accepted Answer

A) True 
 B)False

Question 6

In a period of rising purchase costs, LIFO usually gives a lower taxable income and therefore, yields a tax advantage.

Accepted Answer

A) True 
 B)False

Question 7

On September 1 of the current year, Scots Company experienced a flood that destroyed the company's entire inventory. Because the company had not completed its month end reporting for August, it must estimate the amount of inventory lost using the gross profit method. At the beginning of August, the company reported beginning inventory of $215,450. Inventory purchased during August was $192,530. Sales for the month of August were $542,500. Assuming the company's typical gross profit ratio is 40%, estimate the amount of inventory destroyed in the flood.

Accepted Answer

A) $87,480 
B) $134,520 
C) $109,980 
D) $82,480 
E) $81,480 
A) $87,480 
B) $134,520 
C) $109,980 
D) $82,480 
E) $81,480

Question 8

What specific costs and deductions are used to determine the final cost of merchandise inventory? Identify all costs including the incidental costs.

Accepted Answer

The costs of merchandise inventory inclu

Question 9

The conservatism constraint requires that when more than one estimate of the amounts to be received or paid in the future exists and these estimates are about equally likely, then the most optimistic amount is used.

Accepted Answer

A) True 
 B)False

Question 10

A company has the following per unit original costs and replacement costs for its inventory. LCM is applied to individual items. Part A: 50 units with a cost of $5, and replacement cost of $4.50
Part B: 75 units with a cost of $6, and replacement cost of $6.50
Part C: 160 units with a cost of $3, and replacement cost of $2.50
Under the lower of cost or market method, the total value of this company's ending inventory is:

Accepted Answer

A) $1,180.00. 
B) $1,075.00. 
C) $1,112.50. 
D) $1,217.50. 
E) $1,137.50. 
A) $1,180.00. 
B) $1,075.00. 
C) $1,112.50. 
D) $1,217.50. 
E) $1,137.50.

Question 11

Using the retail inventory method, if the cost to retail ratio is 70% and ending inventory at retail is $145,000, then estimated ending inventory at cost is $207,143.
$145,000 * 0.70 = $101,500

Accepted Answer

A) True 
 B)False

Question 12

An understatement of ending inventory will cause

Accepted Answer

A) An overstatement of assets and equity on the balance sheet. 
B) An understatement of assets and equity on the balance sheet. 
C) An overstatement of assets and an understatement of equity on the balance sheet. 
D) An understatement of assets and an overstatement of equity on the balance sheet. 
E) No effect on the balance sheet. 
A) An overstatement of assets and equity on the balance sheet. 
B) An understatement of assets and equity on the balance sheet. 
C) An overstatement of assets and an understatement of equity on the balance sheet. 
D) An understatement of assets and an overstatement of equity on the balance sheet. 
E) No effect on the balance sheet.

Question 13

Buffalo Company reported a December 31 ending inventory balance of $412,000. The following additional information is also available: • The ending inventory balance of $412,000 did not include goods costing $48,000 that were purchased by Buffalo on December 28 and shipped FOB destination on that date. Buffalo did not receive the goods until January 2 of the following year.
• The ending inventory balance of $412,000 included damaged goods at their original cost of $38,000. The net realizable value of the damaged goods was $10,000.
Based on this information, the correct balance for ending inventory on December 31 is:

Accepted Answer

A) $374,000 
B) $384,000 
C) $460,000 
D) $422,000 
E) $438,000 
A) $374,000 
B) $384,000 
C) $460,000 
D) $422,000 
E) $438,000

Question 14

The inventory turnover ratio:

Accepted Answer

A) Is used to analyze profitability. 
B) Is used to measure solvency. 
C) Reveals how many times a company sells its merchandise inventory during a period. 
D) Reveals how many days a company can sell inventory if no new merchandise is purchased. 
E) Calculation depends on the company's inventory valuation method. 
A) Is used to analyze profitability. 
B) Is used to measure solvency. 
C) Reveals how many times a company sells its merchandise inventory during a period. 
D) Reveals how many days a company can sell inventory if no new merchandise is purchased. 
E) Calculation depends on the company's inventory valuation method.

Question 15

All of the following statements related to goods on consignment are true except:

Accepted Answer

A) Goods on consignment are goods provided by the owner, call the consignor. 
B) A consignee sells goods for the owner. 
C) The consignor continues to own the consigned goods. 
D) The consignee reports the goods in its inventory until sold. 
E) The consignor reports the goods in its inventory until sold. 
A) Goods on consignment are goods provided by the owner, call the consignor. 
B) A consignee sells goods for the owner. 
C) The consignor continues to own the consigned goods. 
D) The consignee reports the goods in its inventory until sold. 
E) The consignor reports the goods in its inventory until sold.

Question 16

All of the following statements regarding U.S. GAAP and IFRS are true except:

Accepted Answer

A) Both U.S. GAAP and IFRS include broad and similar guidance for the items and costs making up merchandise inventory. 
B) For both U.S. GAAP and IFRS, merchandise inventory includes all items that a company owns and holds for sale. 
C) Both U.S. GAAP and IFRS require companies to write down inventory when its value falls below the cost presently recorded. 
D) Both U.S. GAAP and IFRS allow reversals of write downs up to the original acquisition cost. 
E) With limited exceptions, neither U.S. GAAP nor IFRS allow inventory to be adjusted upward beyond the original cost. 
A) Both U.S. GAAP and IFRS include broad and similar guidance for the items and costs making up merchandise inventory. 
B) For both U.S. GAAP and IFRS, merchandise inventory includes all items that a company owns and holds for sale. 
C) Both U.S. GAAP and IFRS require companies to write down inventory when its value falls below the cost presently recorded. 
D) Both U.S. GAAP and IFRS allow reversals of write downs up to the original acquisition cost. 
E) With limited exceptions, neither U.S. GAAP nor IFRS allow inventory to be adjusted upward beyond the original cost.

Question 17

Discuss the important accounting features of a periodic inventory system including accounts and procedures used.

Accepted Answer

Each purchase of merchandise is debited

Question 18

Some companies choose to avoid assigning incidental costs of acquiring merchandise to inventory by recording them as cost of goods sold when incurred. The principle that supports this is called:

Accepted Answer

A) The matching principle. 
B) The materiality constraint. 
C) The cost principle. 
D) The conservation constraint principle. 
E) The lower of cost or market principle. 
A) The matching principle. 
B) The materiality constraint. 
C) The cost principle. 
D) The conservation constraint principle. 
E) The lower of cost or market principle.

Question 19

A merchandiser's ability to pay its short-term obligations depends on many factors including how quickly it sells its merchandise inventory.

Accepted Answer

A) True 
 B)False

Question 20

Errors in the period-end inventory balance only affect the current period's records and financial statements.

Accepted Answer

A) True 
 B)False

Costs included in the Merchandise Inventory account can include all of the following except:

The assignment of costs to the cost of goods sold and to ending inventory using FIFO is the same for both the perpetual and periodic inventory systems.

What advantages does a perpetual inventory system have over periodic inventory system?

A company's total cost of inventory was $329,000 and its current replacement cost is $307,000. Under the lower cost or market, the amount reported should be $329,000.

In a period of rising purchase costs, LIFO usually gives a lower taxable income and therefore, yields a tax advantage.

What specific costs and deductions are used to determine the final cost of merchandise inventory? Identify all costs including the incidental costs.

The conservatism constraint requires that when more than one estimate of the amounts to be received or paid in the future exists and these estimates are about equally likely, then the most optimistic amount is used.

Using the retail inventory method, if the cost to retail ratio is 70% and ending inventory at retail is $145,000, then estimated ending inventory at cost is $207,143. $145,000 * 0.70 = $101,500

An understatement of ending inventory will cause

The inventory turnover ratio:

All of the following statements related to goods on consignment are true except:

All of the following statements regarding U.S. GAAP and IFRS are true except:

Discuss the important accounting features of a periodic inventory system including accounts and procedures used.

Some companies choose to avoid assigning incidental costs of acquiring merchandise to inventory by recording them as cost of goods sold when incurred. The principle that supports this is called:

A merchandiser's ability to pay its short-term obligations depends on many factors including how quickly it sells its merchandise inventory.

Errors in the period-end inventory balance only affect the current period's records and financial statements.

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

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Exam 5: Inventories and Cost of Sales

Costs included in the Merchandise Inventory account can include all of the following except:

The assignment of costs to the cost of goods sold and to ending inventory using FIFO is the same for both the perpetual and periodic inventory systems.

What advantages does a perpetual inventory system have over periodic inventory system?

A company's total cost of inventory was $329,000 and its current replacement cost is $307,000. Under the lower cost or market, the amount reported should be $329,000.

In a period of rising purchase costs, LIFO usually gives a lower taxable income and therefore, yields a tax advantage.

What specific costs and deductions are used to determine the final cost of merchandise inventory? Identify all costs including the incidental costs.

The conservatism constraint requires that when more than one estimate of the amounts to be received or paid in the future exists and these estimates are about equally likely, then the most optimistic amount is used.

Using the retail inventory method, if the cost to retail ratio is 70% and ending inventory at retail is $145,000, then estimated ending inventory at cost is $207,143. $145,000 * 0.70 = $101,500

An understatement of ending inventory will cause

The inventory turnover ratio:

All of the following statements related to goods on consignment are true except:

All of the following statements regarding U.S. GAAP and IFRS are true except:

Discuss the important accounting features of a periodic inventory system including accounts and procedures used.

Some companies choose to avoid assigning incidental costs of acquiring merchandise to inventory by recording them as cost of goods sold when incurred. The principle that supports this is called:

A merchandiser's ability to pay its short-term obligations depends on many factors including how quickly it sells its merchandise inventory.

Errors in the period-end inventory balance only affect the current period's records and financial statements.

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