Question 1

Manufacturers usually classify inventory into all the following general categories except:

Accepted Answer

A)  work in process 
B)  finished goods 
C)  merchandise inventory 
D)  raw materials 
A)  work in process 
B)  finished goods 
C)  merchandise inventory 
D)  raw materials

Question 2

Which of the following is not a common cost flow assumption used in costing inventory?

Accepted Answer

A)  First-in, first-out 
B)  Middle-in, first-out 
C)  Last-in, first-out 
D)  Average cost 
A)  First-in, first-out 
B)  Middle-in, first-out 
C)  Last-in, first-out 
D)  Average cost

Question 3

The LIFO inventory method tends to smooth out the peaks and valleys of a business cycle.

Accepted Answer

A) True 
 B)False

Question 4

Inventory written down under lower-of-cost-or market may be written back up to original cost in a subsequent period under

Accepted Answer

The answer of Inventory written down under lower-of-cost-or market may...

Question 5

The management of Otto Corp. is considering the effects of various inventory costing methods on its financial statements and its income tax expense. Assuming that the price the company pays for inventory is increasing, which method will:
1. result in the lowest income tax expense?
2. provide the highest net income?
3. provide the highest ending inventory?
4. result in the most stable earnings over a number of years?

Accepted Answer

1. In times of rising costs, the LIFO me

Question 6

Goods that have been purchased FOB destination but are in transit, should be excluded from a physical count of goods by the buyer.

Accepted Answer

A) True 
 B)False

Question 7

The specific identification method of inventory valuation is desirable when a company sells a large number of low-unit cost items.

Accepted Answer

A) True 
 B)False

Question 8

The LIFO inventory method assumes that the cost of the latest units purchased are

Accepted Answer

A)  the last to be allocated to cost of goods sold. 
B)  the first to be allocated to ending inventory. 
C)  the first to be allocated to cost of goods sold. 
D)  not allocated to cost of goods sold or ending inventory. 
A)  the last to be allocated to cost of goods sold. 
B)  the first to be allocated to ending inventory. 
C)  the first to be allocated to cost of goods sold. 
D)  not allocated to cost of goods sold or ending inventory.

Question 9

Use of the LIFO inventory valuation method enables a company to report paper or phantom profits.

Accepted Answer

A) True 
 B)False

Question 10

Dennis Lee, an auditor with Knapp CPAs, is performing a review of Dobson Company's inventory account. Dobson did not have a good year, and top management is under pressure to boost reported income. According to its records, the inventory balance at year-end was $640,000. However, the following information was not considered when determining that amount.
1. Included in the company's count were goods with a cost of $200,000 that the company is holding on consignment. The goods belong to Agler Corporation.
2. The physical count did not include goods purchased by Dobson with a cost of $40,000 that were shipped FOB shipping point on December 28 and did not arrive at Dobson's warehouse until January 3.
3. Included in the inventory account was $22,000 of office supplies that were stored in the warehouse and were to be used by the company's supervisors and managers during the coming year.
4. The company received an order on December 29 that was boxed and was sitting on the loading dock awaiting pick-up on December 31. The shipper picked up the goods on January 1 and delivered them on January 6. The shipping terms were FOB shipping point. The goods had a selling price of $40,000 and a cost of $30,000. The goods were not included in the count because they were sitting on the dock.
5. On December 29, Dobson shipped goods with a selling price of $90,000 and a cost of $70,000 to Central Sales Corporation FOB shipping point. The goods arrived on January 3. Central Sales had only ordered goods with a selling price of $10,000 and a cost of $8,000. However, a sales manager at Dobson had authorized the shipment and said that if Central wanted to ship the goods back next week, it could.
6. Included in the count was $50,000 of goods that were parts for a machine that the company no longer made. Given the high-tech nature of Dobson's products, it was unlikely that these obsolete parts had any other use. However, management would prefer to keep them on the books at cost, "since that is what we paid for them, after all."
Instructions
Prepare a schedule to determine the correct inventory amount. Provide explanations for each item above, saying why you did or did not make an adjustment for each item.

Accepted Answer

The answer of Dennis Lee, an auditor with Knapp CPAs,...

Question 11

If goods in transit are shipped FOB destination

Accepted Answer

A)  the seller has legal title to the goods until they are delivered. 
B)  the buyer has legal title to the goods until they are delivered. 
C)  the transportation company has legal title to the goods while the goods are in transit. 
D)  no one has legal title to the goods until they are delivered. 
A)  the seller has legal title to the goods until they are delivered. 
B)  the buyer has legal title to the goods until they are delivered. 
C)  the transportation company has legal title to the goods while the goods are in transit. 
D)  no one has legal title to the goods until they are delivered.

Question 12

Hansen Company uses the periodic inventory method and had the following inventory information available:   A physical count of inventory on December 31 revealed that there were 380 units on hand.
Instructions
Answer the following independent questions and show computations supporting your answers.
1. Assume that the company uses the FIFO method. The value of the ending inventory at December 31 is $__________.
2. Assume that the company uses the average cost method. The value of the ending inventory on December 31 is $__________.
3. Assume that the company uses the LIFO method. The value of the ending inventory on December 31 is $__________.
4. Determine the difference in the amount of income that the company would have reported if it had used the FIFO method instead of the LIFO method. Would income have been greater or less?

Accepted Answer

@#IMG-DLM& Income would have b

Question 13

The specific identification method of costing inventories tracks the actual physical flow of the goods available for sale.

Accepted Answer

A) True 
 B)False

Question 14

Carter Company reported these income statement data for a 2-year period.   Carter Company uses a periodic inventory system. The inventories at January 1, 2013, and December 31, 2014, are correct. However, the ending inventory at December 31, 2013, is overstated by $4,000.
Instructions
(a) Prepare correct income statement data for the 2 years.
(b) What is the cumulative effect of the inventory error on total gross profit for the 2 years?

Accepted Answer

The answer of Carter Company reported these income statement data...

Question 15

Bonkers Bananas has the following inventory data:   A physical count of merchandise inventory on July 30 reveals that there are 25 units on hand. Using the LIFO inventory method, the amount allocated to ending inventory for July is

Accepted Answer

A)  $550 
B)  $505 
C)  $535 
D)  $500. 
A)  $550 
B)  $505 
C)  $535 
D)  $500.

Question 16

Independent internal verification of the physical inventory process occurs when

Accepted Answer

A)  the employee is required to count all items twice for sake of verification. 
B)  the items counted are compared to the inventory account balance. 
C)  a second employee counts the inventory and compares the result to the count made by the first employee. 
D)  all prenumbered inventory tags are accounted for. 
A)  the employee is required to count all items twice for sake of verification. 
B)  the items counted are compared to the inventory account balance. 
C)  a second employee counts the inventory and compares the result to the count made by the first employee. 
D)  all prenumbered inventory tags are accounted for.

Question 17

Hogan Industries had the following inventory transactions occur during 2014:   The company sold 102 units at $63 each and has a tax rate of 30%. Assuming that a periodic inventory system is used and operating expenses of $600, what is the company's after-tax income using FIFO? (rounded to whole dollars)

Accepted Answer

A)  $944 
B)  $1,096 
C)  $767 
D)  $661 
A)  $944 
B)  $1,096 
C)  $767 
D)  $661

Question 18

Pop-up Party Favors Inc has the following inventory data:   A physical count of merchandise inventory on July 30 reveals that there are 32 units on hand. Using the FIFO inventory method, the amount allocated to ending inventory for July is

Accepted Answer

A)  $620. 
B)  $660. 
C)  $640. 
D)  $704. 
A)  $620. 
B)  $660. 
C)  $640. 
D)  $704.

Question 19

At May 1, 2014, Heineken Company had beginning inventory consisting of 200 units with a unit cost of $7. During May, the company purchased inventory as follows: 400 units at $7
600 units at $8
The company sold 1,000 units during the month for $12 per unit. Heineken uses the average cost method. Heineken's gross profit for the month of May is

Accepted Answer

A)  $4,500 
B)  $7,500 
C)  $9,000 
D)  $12,000 
A)  $4,500 
B)  $7,500 
C)  $9,000 
D)  $12,000

Question 20

Two companies report the same cost of goods available for sale but each employs a different inventory costing method. If the price of goods has increased during the period, then the company using

Accepted Answer

A)  LIFO will have the highest ending inventory. 
B)  FIFO will have the highest cost of goods sold. 
C)  FIFO will have the highest ending inventory. 
D)  LIFO will have the lowest cost of goods sold. 
A)  LIFO will have the highest ending inventory. 
B)  FIFO will have the highest cost of goods sold. 
C)  FIFO will have the highest ending inventory. 
D)  LIFO will have the lowest cost of goods sold.

Manufacturers usually classify inventory into all the following general categories except:

Which of the following is not a common cost flow assumption used in costing inventory?

The LIFO inventory method tends to smooth out the peaks and valleys of a business cycle.

Inventory written down under lower-of-cost-or market may be written back up to original cost in a subsequent period under

Goods that have been purchased FOB destination but are in transit, should be excluded from a physical count of goods by the buyer.

The specific identification method of inventory valuation is desirable when a company sells a large number of low-unit cost items.

The LIFO inventory method assumes that the cost of the latest units purchased are

Use of the LIFO inventory valuation method enables a company to report paper or phantom profits.

If goods in transit are shipped FOB destination

The specific identification method of costing inventories tracks the actual physical flow of the goods available for sale.

Bonkers Bananas has the following inventory data: A physical count of merchandise inventory on July 30 reveals that there are 25 units on hand. Using the LIFO inventory method, the amount allocated to ending inventory for July is

Independent internal verification of the physical inventory process occurs when

Pop-up Party Favors Inc has the following inventory data: A physical count of merchandise inventory on July 30 reveals that there are 32 units on hand. Using the FIFO inventory method, the amount allocated to ending inventory for July is

Two companies report the same cost of goods available for sale but each employs a different inventory costing method. If the price of goods has increased during the period, then the company using

Introduction to Financial Statements

A Further Look at Financial Statements

The Accounting Information System

Accrual Accounting Concepts

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

Time Value of Money

Filters

Exam 6: Reporting and Analyzing Inventory

Manufacturers usually classify inventory into all the following general categories except:

Which of the following is not a common cost flow assumption used in costing inventory?

The LIFO inventory method tends to smooth out the peaks and valleys of a business cycle.

Inventory written down under lower-of-cost-or market may be written back up to original cost in a subsequent period under

Goods that have been purchased FOB destination but are in transit, should be excluded from a physical count of goods by the buyer.

The specific identification method of inventory valuation is desirable when a company sells a large number of low-unit cost items.

The LIFO inventory method assumes that the cost of the latest units purchased are

Use of the LIFO inventory valuation method enables a company to report paper or phantom profits.

If goods in transit are shipped FOB destination

The specific identification method of costing inventories tracks the actual physical flow of the goods available for sale.

Bonkers Bananas has the following inventory data: A physical count of merchandise inventory on July 30 reveals that there are 25 units on hand. Using the LIFO inventory method, the amount allocated to ending inventory for July is

Independent internal verification of the physical inventory process occurs when

Pop-up Party Favors Inc has the following inventory data: A physical count of merchandise inventory on July 30 reveals that there are 32 units on hand. Using the FIFO inventory method, the amount allocated to ending inventory for July is

Two companies report the same cost of goods available for sale but each employs a different inventory costing method. If the price of goods has increased during the period, then the company using

Introduction to Financial Statements

A Further Look at Financial Statements

The Accounting Information System

Accrual Accounting Concepts

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

Time Value of Money

Filters