Question 1

A change in the method of cost determination for inventory must be disclosed in the financial statements.

Accepted Answer

A) True 
 B)False

Question 2

Inventory that originally cost $10,000 was written down to its net realizable value of $8,500 at the end of 2011. At the end of 2012, the net realizable value is determined to be $10,500. At what amount should the inventory be reported on the December 31, 2012 statement of financial position?

Accepted Answer

A) $10,500 
B) $10,000 
C) $9,500 
D) $8,500 
A) $10,500 
B) $10,000 
C) $9,500 
D) $8,500

Question 3

The lower of cost and net realizable value should be applied to the total inventory, rather than to individual inventory items.

Accepted Answer

A) True 
 B)False

Question 4

A system of internal control is not needed when a company regularly takes a physical inventory.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following should a business consider when choosing between the FIFO and average cost formulas?

Accepted Answer

A) Whether the method closely follows the physical flow of goods 
B) Whether the method reports an inventory cost that approximates recent cost 
C) Using the same method for inventory of similar nature and use 
D) All of the above. 
A) Whether the method closely follows the physical flow of goods 
B) Whether the method reports an inventory cost that approximates recent cost 
C) Using the same method for inventory of similar nature and use 
D) All of the above.

Question 6

In a period of inflation (prices are rising), which inventory cost formula will result in higher profit?

Accepted Answer

A) FIFO 
B) Average cost 
C) Cost of goods sold for the period will be the same under both formulas. 
D) There would be no effect on profit. 
A) FIFO 
B) Average cost 
C) Cost of goods sold for the period will be the same under both formulas. 
D) There would be no effect on profit.

Question 7

XYZ Inc. uses the average cost formula in a perpetual inventory system. Use the following
information for the month of June for questions . (Use unrounded numbers in your calculations but round to the nearest cent for presentation purposes in your answer.)  
-YZ Inc. has an ending inventory on June 30 of

Accepted Answer

A) $1,370.00 
B) $1,418.56. 
C) $1,429.90. 
D) $1,450.15. 
A) $1,370.00 
B) $1,418.56. 
C) $1,429.90. 
D) $1,450.15.

Question 8

Under a perpetual inventory system, the accounting records always show the quantity of inventory that is on hand.

Accepted Answer

A) True 
 B)False

Question 9

Using the average cost formula, the cost of the ending inventory on June 30 is

Accepted Answer

A) $670.00. 
B) $690.45. 
C) $1,645.55. 
D) $1,675.00. 
A) $670.00. 
B) $690.45. 
C) $1,645.55. 
D) $1,675.00.

Question 10

An increase in inventory turnover means days in inventory

Accepted Answer

A) increases. 
B) decreases. 
C) remains the same. 
D) cannot be determined. 
A) increases. 
B) decreases. 
C) remains the same. 
D) cannot be determined.

Question 11

Inventory cost formulas make assumptions about the flow of

Accepted Answer

A) costs. 
B) goods. 
C) resale prices. 
D) fair values. 
A) costs. 
B) goods. 
C) resale prices. 
D) fair values.

Question 12

An error that understates the ending inventory will cause assets to be understated.

Accepted Answer

A) True 
 B)False

Question 13

An overstatement of ending inventory in one period results in

Accepted Answer

A) no effect on profit of the next period. 
B) an overstatement of profit of the next period. 
C) an understatement of profit of the next period. 
D) an overstatement of the ending inventory of the next period. 
A) no effect on profit of the next period. 
B) an overstatement of profit of the next period. 
C) an understatement of profit of the next period. 
D) an overstatement of the ending inventory of the next period.

Question 14

In a period of rising prices, which of the following inventory cost formulas generally results in the lowest profit figure?

Accepted Answer

A) Average cost 
B) FIFO 
C) The inventory cost formula only affects the statement of financial position 
D) Need more information to answer 
A) Average cost 
B) FIFO 
C) The inventory cost formula only affects the statement of financial position 
D) Need more information to answer

Question 15

Inventory cost formulas such as FIFO and average deal more with the flow of costs than with the flow of goods.

Accepted Answer

A) True 
 B)False

Question 16

Days in inventory is calculated by dividing 365 days by

Accepted Answer

A) average inventory. 
B) beginning inventory. 
C) ending inventory. 
D) the inventory turnover ratio. 
A) average inventory. 
B) beginning inventory. 
C) ending inventory. 
D) the inventory turnover ratio.

Question 17

The lower of cost and net realizable value basis of valuing inventories ensures that inventories are

Accepted Answer

A) valued at their current cost. 
B) valued at their selling price. 
C) not under-valued. 
D) not over-valued. 
A) valued at their current cost. 
B) valued at their selling price. 
C) not under-valued. 
D) not over-valued.

Question 18

In order to remove the cost of items sold from inventory, a unit cost must be determined.

Accepted Answer

A) True 
 B)False

Question 19

The managers of Winning Ways Ltd. receive performance bonuses based on the company's profit. Which inventory cost formula are they likely to favour in periods of declining prices?

Accepted Answer

A) FIFO 
B) Average cost 
C) They would have no preference. 
D) Need more information to answer. 
A) FIFO 
B) Average cost 
C) They would have no preference. 
D) Need more information to answer.

Question 20

The specific identification method of inventory cost determination must be used

Accepted Answer

A) for goods that are produced and segregated for specific projects. 
B) when goods are not ordinarily interchangeable. 
C) when high priced goods are purchased. 
D) for goods that are produced and segregated for specific projects, and/or when goods are not ordinarily interchangeable. 
A) for goods that are produced and segregated for specific projects. 
B) when goods are not ordinarily interchangeable. 
C) when high priced goods are purchased. 
D) for goods that are produced and segregated for specific projects, and/or when goods are not ordinarily interchangeable.

A change in the method of cost determination for inventory must be disclosed in the financial statements.

Inventory that originally cost $10,000 was written down to its net realizable value of $8,500 at the end of 2011. At the end of 2012, the net realizable value is determined to be $10,500. At what amount should the inventory be reported on the December 31, 2012 statement of financial position?

The lower of cost and net realizable value should be applied to the total inventory, rather than to individual inventory items.

A system of internal control is not needed when a company regularly takes a physical inventory.

Which of the following should a business consider when choosing between the FIFO and average cost formulas?

In a period of inflation (prices are rising), which inventory cost formula will result in higher profit?

Under a perpetual inventory system, the accounting records always show the quantity of inventory that is on hand.

Using the average cost formula, the cost of the ending inventory on June 30 is

An increase in inventory turnover means days in inventory

Inventory cost formulas make assumptions about the flow of

An error that understates the ending inventory will cause assets to be understated.

An overstatement of ending inventory in one period results in

In a period of rising prices, which of the following inventory cost formulas generally results in the lowest profit figure?

Inventory cost formulas such as FIFO and average deal more with the flow of costs than with the flow of goods.

Days in inventory is calculated by dividing 365 days by

The lower of cost and net realizable value basis of valuing inventories ensures that inventories are

In order to remove the cost of items sold from inventory, a unit cost must be determined.

The managers of Winning Ways Ltd. receive performance bonuses based on the company's profit. Which inventory cost formula are they likely to favour in periods of declining prices?

The specific identification method of inventory cost determination must be used

The Purpose and Use of Financial Statements

A Further Look at Financial Statements

The Accounting Information System

Accrual Accounting Concepts

Merchandising Operations

Internal Control and Cash

Reporting and Analyzing Receivables

Reporting and Analyzing Long-Lived Assets

Reporting and Analyzing Liabilities

Reporting and Analyzing Shareholders Equity

Reporting and Analyzing Investments

Statement of Cash Flows

Performance Measurement

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Exam 6: Reporting and Analyzing Inventory

A change in the method of cost determination for inventory must be disclosed in the financial statements.

Inventory that originally cost $10,000 was written down to its net realizable value of $8,500 at the end of 2011. At the end of 2012, the net realizable value is determined to be $10,500. At what amount should the inventory be reported on the December 31, 2012 statement of financial position?

The lower of cost and net realizable value should be applied to the total inventory, rather than to individual inventory items.

A system of internal control is not needed when a company regularly takes a physical inventory.

Which of the following should a business consider when choosing between the FIFO and average cost formulas?

In a period of inflation (prices are rising), which inventory cost formula will result in higher profit?

Under a perpetual inventory system, the accounting records always show the quantity of inventory that is on hand.

Using the average cost formula, the cost of the ending inventory on June 30 is

An increase in inventory turnover means days in inventory

Inventory cost formulas make assumptions about the flow of

An error that understates the ending inventory will cause assets to be understated.

An overstatement of ending inventory in one period results in

In a period of rising prices, which of the following inventory cost formulas generally results in the lowest profit figure?

Inventory cost formulas such as FIFO and average deal more with the flow of costs than with the flow of goods.

Days in inventory is calculated by dividing 365 days by

The lower of cost and net realizable value basis of valuing inventories ensures that inventories are

In order to remove the cost of items sold from inventory, a unit cost must be determined.

The managers of Winning Ways Ltd. receive performance bonuses based on the company's profit. Which inventory cost formula are they likely to favour in periods of declining prices?

The specific identification method of inventory cost determination must be used

The Purpose and Use of Financial Statements

A Further Look at Financial Statements

The Accounting Information System

Accrual Accounting Concepts

Merchandising Operations

Internal Control and Cash

Reporting and Analyzing Receivables

Reporting and Analyzing Long-Lived Assets

Reporting and Analyzing Liabilities

Reporting and Analyzing Shareholders Equity

Reporting and Analyzing Investments

Statement of Cash Flows

Performance Measurement

Filters