Question 1

In a period of rising prices, the statement of financial position will report a higher inventory amount if FIFO, rather than average-costing, is the cost flow assumption used.

Accepted Answer

A) True 
 B)False

Question 2

Shandy Shutters has the following inventory information. $\begin{array} { r l l } \text { Nov. } 1 & \text { Inventory } & 15 \text { units @ } € 6.00 \ 8 & \text { Purchase } & 60 \text { units @ } € 6.45 \ 17 & \text { Purchase } & 30 \text { units @ } € 6.30 \ 25 & \text { Purchase } & 45 \text { units @ } € 6.60 \end{array}$
A physical count of merchandise inventory on November 30 reveals that there are 50 units on hand. Assume a periodic inventory system is used. Assuming that the specific identification method is used and that ending inventory consists of 15 units from each of the three purchases and 5 units from the November 1 inventory, cost of goods sold is

Accepted Answer

A)  $€ 320$. 
B)  $€ 643$. 
C)  $€ 640$. 
D)  $€ 627$. 
A)  $€ 320$. 
B)  $€ 643$. 
C)  $€ 640$. 
D)  $€ 627$.

Question 3

The manager of Yates Company is given a bonus based on income before income taxes.Net income, after taxes, is $8,400 for FIFO and $7,560 for average-cost.The tax rate is 30%.The bonus rate is 20%.How much higher is the manager's bonus if FIFO is adopted instead of average-cost?

Accepted Answer

A) $300 
B) $450 
C) $240 
D) $840 
A) $300 
B) $450 
C) $240 
D) $840

Question 4

Accountants believe that the write down from cost to net realizable value should not be made in the period in which the price decline occurs.

Accepted Answer

A) True 
 B)False

Question 5

The factor which determines whether or not goods should be included in a physical count of inventory is

Accepted Answer

A) physical possession. 
B) legal title. 
C) management's judgment. 
D) whether or not the purchase price has been paid. 
A) physical possession. 
B) legal title. 
C) management's judgment. 
D) whether or not the purchase price has been paid.

Question 6

Graham Company uses a periodic inventory system.Details for the inventory account for the month of January, 2011 are as follows: $\begin{array}{llrr}&\text { Units } &\text { Per unit price }&\text { Total }\
\text { Balance, } 1 / 1 / 11 & 300 & \$ 5.00 & \$ 1500 \
\text { Purchase, } 1 / 15 / 11 & 150 & 5.30 & 795 \
\text { Purchase, } 1 / 28 / 11 & 150 & 5.50 & 825
\end{array}$

An end of the month (1/31/11) inventory showed that 180 units were on hand.How many units did the company sell during January, 2011?

Accepted Answer

A) 120 
B) 180 
C) 300 
D) 420 
A) 120 
B) 180 
C) 300 
D) 420

Question 7

A company uses the periodic inventory method and the beginning inventory is overstated by $4,000 because the ending inventory in the previous period was overstated by $4,000.The amounts reflected in the current end of the period statement of financial position are 
$\begin{array}{ll}\text {\quad\quad Assets }&\text {\quad\quad Equity }\\end{array}$

Accepted Answer

A) $\begin{array}{ll}\text {  Overstated } & \text { Overstated } \\end{array}$ 
B) $\begin{array}{ll}\text {  Correct } & \text {\quad\quad Correct } \\end{array}$ 
C) $\begin{array}{ll}\text { Understated } & \text { Understated } \\end{array}$ 
D) $\begin{array}{ll}\text {  Overstated } & \text {\quad Correct }
\end{array}$ 
A) $\begin{array}{ll}\text {  Overstated } & \text { Overstated } \\end{array}$ 
B) $\begin{array}{ll}\text {  Correct } & \text {\quad\quad Correct } \\end{array}$ 
C) $\begin{array}{ll}\text { Understated } & \text { Understated } \\end{array}$ 
D) $\begin{array}{ll}\text {  Overstated } & \text {\quad Correct }
\end{array}$

Question 8

One reason a company using a perpetual inventory system must make a physical count of goods is to determine the amount of inventory on hand as of the statement of financial position date.

Accepted Answer

A) True 
 B)False

Question 9

Holliday Company's inventory records show the following data:
 $\begin{array}{lrr}&\text { Units }&\text { Unit Cost }\
\text { Inventory, January } 1 & 5,000 & £ 4.50 \
\text { Purchases: June 18 } & 4,500 & 4.00 \
\text { November } 8 & 3,000 & 3.50
\end{array}$

A physical inventory on December 31 shows 2,000 units on hand. Holliday sells the units for $ £ 6 $ each. The company has an effective tax rate of $ 20 \% $. Holliday uses the periodic inventory method. What is the cost of goods available for sale?

Accepted Answer

A)  $ £ 10,500 $ 
B)  $ £ 18,000 $ 
C)  $ £ 22,500 $ 
D)  $ £ 51,000 $ 
A)  $ £ 10,500 $ 
B)  $ £ 18,000 $ 
C)  $ £ 22,500 $ 
D)  $ £ 51,000 $

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

Bellingham Inc. took a physical inventory at the end of the year and calculated that $£ 1,650,000$ of goods were on hand. Bellingham determined that $£ 25,000$ of goods were in transit. The goods were shipped f.o.b. shipping point and were received two days after the inventory count. The company also had $£ 275,000$ of goods out on consignment. What amount should Bellingham report for inventory on its statement of financial position?

Accepted Answer

A)  $£ 1,350,000$. 
B)  $£ 1,650,000$. 
C)  $£ 1,925,000$. 
D)  $ £ 1,950,000$. 
A)  $£ 1,350,000$. 
B)  $£ 1,650,000$. 
C)  $£ 1,925,000$. 
D)  $ £ 1,950,000$.

Question 12

Under the FIFO method, the costs of the earliest units purchased are the first charged to cost of goods sold.

Accepted Answer

A) True 
 B)False

Question 13

Of the following companies, which one would not likely employ the specific identification method for inventory costing?

Accepted Answer

A) Music store specializing in organ sales 
B) Farm implement dealership 
C) Antique shop 
D) Hardware store 
A) Music store specializing in organ sales 
B) Farm implement dealership 
C) Antique shop 
D) Hardware store

Question 14

At May 1, 2011, Deitrich Company had beginning inventory consisting of 100 units with a unit cost of $€ 3.50$. During May, the company purchased inventory as follows:.

200 units at $€ 3.50$
300 units at $€ 4.00$

The company sold 500 units during the month for $ € 6 $ per unit. Deitrich uses the average-cost method. The average cost per unit for May is

Accepted Answer

A) € 3.50 . 
B)  € 3.75 . 
C)  € 3.80 . 
D) € 4.00 . 
A) € 3.50 . 
B)  € 3.75 . 
C)  € 3.80 . 
D) € 4.00 .

Question 15

If a company changes its inventory valuation method, the effect of the change on net income should be disclosed in the financial statements.

Accepted Answer

A) True 
 B)False

Question 16

The expense recognition principle requires that the cost of goods sold be matched against the ending merchandise inventory in order to determine income.

Accepted Answer

A) True 
 B)False

Question 17

The moving-average cost flow assumption for a perpetual inventory system and the average-cost cost flow assumption for a periodic inventory system will allocate the same amounts to ending inventory and cost of goods sold.

Accepted Answer

A) True 
 B)False

Question 18

The cost of goods available for sale is allocated between

Accepted Answer

A) beginning inventory and ending inventory. 
B) beginning inventory and cost of goods on hand. 
C) ending inventory and cost of goods sold. 
D) beginning inventory and cost of goods purchased. 
A) beginning inventory and ending inventory. 
B) beginning inventory and cost of goods on hand. 
C) ending inventory and cost of goods sold. 
D) beginning inventory and cost of goods purchased.

Question 19

Graham Company uses a periodic inventory system.Details for the inventory account for the month of January, 2011 are as follows: 
$\begin{array}{llrr}&\text { Units } &\text { Per unit price }&\text { Total }\
\text { Balance, } 1 / 1 / 11 & 300 & \$ 5.00 & \$ 1500 \
\text { Purchase, } 1 / 15 / 11 & 150 & 5.30 & 795 \
\text { Purchase, } 1 / 28 / 11 & 150 & 5.50 & 825
\end{array}$

An end of the month (1/31/11) inventory showed that 180 units were on hand.If the company uses FIFO, what is the value of the ending inventory?

Accepted Answer

A) $780 
B) $900 
C) $984 
D) $2,136 
A) $780 
B) $900 
C) $984 
D) $2,136

Question 20

Raw materials inventories are the goods that a manufacturer has completed and are ready to be sold to customers.

Accepted Answer

A) True 
 B)False

In a period of rising prices, the statement of financial position will report a higher inventory amount if FIFO, rather than average-costing, is the cost flow assumption used.

The manager of Yates Company is given a bonus based on income before income taxes.Net income, after taxes, is $8,400 for FIFO and $7,560 for average-cost.The tax rate is 30%.The bonus rate is 20%.How much higher is the manager's bonus if FIFO is adopted instead of average-cost?

Accountants believe that the write down from cost to net realizable value should not be made in the period in which the price decline occurs.

The factor which determines whether or not goods should be included in a physical count of inventory is

A company uses the periodic inventory method and the beginning inventory is overstated by $4,000 because the ending inventory in the previous period was overstated by $4,000.The amounts reflected in the current end of the period statement of financial position are Assets Equity

One reason a company using a perpetual inventory system must make a physical count of goods is to determine the amount of inventory on hand as of the statement of financial position date.

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

Under the FIFO method, the costs of the earliest units purchased are the first charged to cost of goods sold.

Of the following companies, which one would not likely employ the specific identification method for inventory costing?

If a company changes its inventory valuation method, the effect of the change on net income should be disclosed in the financial statements.

The expense recognition principle requires that the cost of goods sold be matched against the ending merchandise inventory in order to determine income.

The moving-average cost flow assumption for a perpetual inventory system and the average-cost cost flow assumption for a periodic inventory system will allocate the same amounts to ending inventory and cost of goods sold.

The cost of goods available for sale is allocated between

Raw materials inventories are the goods that a manufacturer has completed and are ready to be sold to customers.

Accounting in Action

The Recording Process

Adjusting the Accounts

Completing the Accounting Cycle

Accounting for Merchandising Operations

Fraud, Internal Control, and Cash

Accounting for Receivables

Plant Assets, Natural Resources, and Intangible Assets

Liabilities

Corporations: Organization, Share Transactions, Dividends,and Retained Earnings

Investments

Statement of Cash Flows

Financial Statement Analysis

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Exam 6: Inventories

In a period of rising prices, the statement of financial position will report a higher inventory amount if FIFO, rather than average-costing, is the cost flow assumption used.

The manager of Yates Company is given a bonus based on income before income taxes.Net income, after taxes, is $8,400 for FIFO and $7,560 for average-cost.The tax rate is 30%.The bonus rate is 20%.How much higher is the manager's bonus if FIFO is adopted instead of average-cost?

Accountants believe that the write down from cost to net realizable value should not be made in the period in which the price decline occurs.

The factor which determines whether or not goods should be included in a physical count of inventory is

A company uses the periodic inventory method and the beginning inventory is overstated by $4,000 because the ending inventory in the previous period was overstated by $4,000.The amounts reflected in the current end of the period statement of financial position are Assets Equity

One reason a company using a perpetual inventory system must make a physical count of goods is to determine the amount of inventory on hand as of the statement of financial position date.

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

Under the FIFO method, the costs of the earliest units purchased are the first charged to cost of goods sold.

Of the following companies, which one would not likely employ the specific identification method for inventory costing?

If a company changes its inventory valuation method, the effect of the change on net income should be disclosed in the financial statements.

The expense recognition principle requires that the cost of goods sold be matched against the ending merchandise inventory in order to determine income.

The moving-average cost flow assumption for a perpetual inventory system and the average-cost cost flow assumption for a periodic inventory system will allocate the same amounts to ending inventory and cost of goods sold.

The cost of goods available for sale is allocated between

Raw materials inventories are the goods that a manufacturer has completed and are ready to be sold to customers.

Accounting in Action

The Recording Process

Adjusting the Accounts

Completing the Accounting Cycle

Accounting for Merchandising Operations

Fraud, Internal Control, and Cash

Accounting for Receivables

Plant Assets, Natural Resources, and Intangible Assets

Liabilities

Corporations: Organization, Share Transactions, Dividends,and Retained Earnings

Investments

Statement of Cash Flows

Financial Statement Analysis

Filters