Question 1

Which of the following statements is not correct regarding the importance of inventory turnover to a company's profitability?

Accepted Answer

A) Companies will prefer to have a low inventory turnover rather than a high inventory turnover. 
B) It is sometimes more desirable to sell a large amount of merchandise with a small amount of gross margin than a small amount of merchandise with a large amount of gross margin. 
C) A company's profitability is affected by how rapidly inventory sells. 
D) A company's profitability is affected by the spread between cost and selling price. 
A) Companies will prefer to have a low inventory turnover rather than a high inventory turnover. 
B) It is sometimes more desirable to sell a large amount of merchandise with a small amount of gross margin than a small amount of merchandise with a large amount of gross margin. 
C) A company's profitability is affected by how rapidly inventory sells. 
D) A company's profitability is affected by the spread between cost and selling price.

Question 2

If a company overstates its Inventory balance at the end of Year 1 due to an error, its Retained Earnings will also be overstated on the Year 1 balance sheet.

Accepted Answer

A) True 
 B)False

Question 3

Chase Company uses the perpetual inventory method. The inventory records for Chase reflected the following information:   Assuming Chase uses a first-in, first-out (FIFO)cost flow method, what is the cost of goods sold for the sales transaction on January 31?

Accepted Answer

A) $1,020 
B) $1,005 
C) $1,045 
D) $340 
A) $1,020 
B) $1,005 
C) $1,045 
D) $340

Question 4

Glasgow Enterprises started the period with 80 units in beginning inventory that cost $7.50 each. During the period, the company purchased inventory items as follows:   Glasgow sold 220 units after purchase 3 for $17.00 each.
What is Glasgow's ending inventory under LIFO?

Accepted Answer

A) $2,730 
B) $2,460 
C) $2,220 
D) $1,950 
A) $2,730 
B) $2,460 
C) $2,220 
D) $1,950

Question 5

What happens when a company is operating in an inflationary environment?

Accepted Answer

A) The company's net income will be higher if it uses LIFO than if it uses FIFO. 
B) The company's cost of goods sold will be lower if it uses LIFO as opposed to FIFO. 
C) The company's net income will be the same regardless of whether LIFO or FIFO is used. 
D) The company's assets will be lower if it uses LIFO as opposed to FIFO cost flow. 
A) The company's net income will be higher if it uses LIFO than if it uses FIFO. 
B) The company's cost of goods sold will be lower if it uses LIFO as opposed to FIFO. 
C) The company's net income will be the same regardless of whether LIFO or FIFO is used. 
D) The company's assets will be lower if it uses LIFO as opposed to FIFO cost flow.

Question 6

The Internal Revenue Service allows a company to use LIFO for income tax purposes only if it also uses LIFO for financial reporting.

Accepted Answer

A) True 
 B)False

Question 7

What is meant by "market" in the lower-of-cost-or-market rule?

Accepted Answer

A) The amount of gross margin earned by selling merchandise. 
B) The amount the goods were sold for during the period. 
C) The amount that would have to be paid to replace the merchandise. 
D) The amount originally paid for the merchandise. 
A) The amount of gross margin earned by selling merchandise. 
B) The amount the goods were sold for during the period. 
C) The amount that would have to be paid to replace the merchandise. 
D) The amount originally paid for the merchandise.

Question 8

Discuss the significance of the average number of days to sell inventory.

Accepted Answer

Average number of days to sell

Question 9

During December Year 2, Crowe Company sold 125 units @ $225 each. Cash selling and administrative expenses for the year were $11,000. All transactions were cash transactions. The following information is also available:
   The company's income tax rate is 30%.
Required:a)Prepare an income statement for Crowe Company for Year 2 assuming:1)FIFO inventory cost flow2)LIFO inventory cost flowb)Prepare the operating activities section of the statement of cash flows for Year 2 assuming:1)FIFO inventory cost flow 2)LIFO inventory cost flow

Accepted Answer

a)1)
 @#IMG-DLM& 2)

Question 10

Landis Company is preparing its financial statements. Gross margin is normally 40% of sales. Information taken from the company's records revealed sales of $25,000; beginning inventory of $2,500 and purchases of $17,500. What is the estimated amount of ending inventory at the end of the period?

Accepted Answer

A) $15,000 
B) $5,000 
C) $8,000 
D) $10,000 
A) $15,000 
B) $5,000 
C) $8,000 
D) $10,000

Question 11

Blake Company purchased two identical inventory items. The item purchased first cost $16.00, and the item purchased second cost $18.00. Blake sold one of the items for $24.00. Which of the following statements is true?

Accepted Answer

A) Ending inventory will be lower if Blake uses the weighted-average rather than the FIFO inventory cost flow method. 
B) Cost of goods sold will be higher if Blake uses the FIFO rather than the weighted-average inventory cost flow method. 
C) The dollar amount assigned to ending inventory will be the same no matter which inventory cost flow method is used. 
D) Gross margin will be higher if Blake uses LIFO rather than the FIFO inventory cost flow method. 
A) Ending inventory will be lower if Blake uses the weighted-average rather than the FIFO inventory cost flow method. 
B) Cost of goods sold will be higher if Blake uses the FIFO rather than the weighted-average inventory cost flow method. 
C) The dollar amount assigned to ending inventory will be the same no matter which inventory cost flow method is used. 
D) Gross margin will be higher if Blake uses LIFO rather than the FIFO inventory cost flow method.

Question 12

Carson Company has an inventory turnover of 12.75, and its inventory amounts to $2,400,000. What is the amount of cost of goods sold?

Accepted Answer

A) $30,600,000 
B) $188,235 
C) $26,666,667 
D) $51,000 
A) $30,600,000 
B) $188,235 
C) $26,666,667 
D) $51,000

Question 13

Bell Company has provided the following figures as of December 31, Year 2: sales of $600,000, cost of goods sold of $320,000, net income of $120,000, and ending inventory of $64,000. Indicate whether each of the above statements pertaining to the Bell Company is true or false.________ a)Bell's inventory turnover is 5.0.________ b)Bell's average number of days to sell inventory is 39.5.________ c)Bell could increase its inventory turnover by increasing prices.________ d)Bell's gross margin as a percentage of sales was 46.7%.________ e)A local competitor in the same line of business has an inventory turnover of 3.5.
Assuming each firm has approximately the same gross margin rate, Bell Company is likely to be more profitable than the competitor.

Accepted Answer

A) True 
 B)False

Question 14

Phipps Corporation overstated its ending inventory on December 31, Year 1. Which of the following correctly identifies the effect of the error on Year 2 financial statements?

Accepted Answer

A) Cost of goods sold is overstated. 
B) Gross margin overstated. 
C) Ending inventory is understated. 
D) Net income is overstated. 
A) Cost of goods sold is overstated. 
B) Gross margin overstated. 
C) Ending inventory is understated. 
D) Net income is overstated.

Question 15

Stubbs Company uses the perpetual inventory method and the weighted-average cost flow method. On January 1, Year 2, Stubbs purchased 400 units of inventory that cost $8.00 each. On January 10, Year 2, the company purchased an additional 600 units of inventory that cost $9.00 each. If the company sells 700 units of inventory for $16.00 each, what is the amount of gross margin reported on the income statement?

Accepted Answer

A) $5,180 
B) $5,250 
C) $5,000 
D) $6,020 
A) $5,180 
B) $5,250 
C) $5,000 
D) $6,020

Question 16

Carson Company has an inventory turnover of 13.25, and its inventory amounts to $5,100,000. What is the amount of cost of goods sold?

Accepted Answer

A) $384,906 
B) $67,575,000 
C) $38,490,566 
D) $76,500 
A) $384,906 
B) $67,575,000 
C) $38,490,566 
D) $76,500

Question 17

What are the circumstances that might cause a company to need an estimate of the amount of its inventory?

Accepted Answer

An estimate is helpful in determining th

Question 18

Chase Company uses the perpetual inventory method. The inventory records for Chase reflected the following information:   Assuming Chase uses a FIFO cost flow method, what is the ending inventory on January 31?

Accepted Answer

A) $1,705 
B) $1,650 
C) $2,940 
D) $2,540 
A) $1,705 
B) $1,650 
C) $2,940 
D) $2,540

Question 19

Max Company's first year in operation was Year 1. The following inventory purchase information comes from Max's accounting records for the year:
   In December Year 1, Max sold 350 units for $480 each. Operating expenses for the year were $30,000, and the tax rate was 30%.
Required:a)Calculate the cost of goods sold using LIFO.b)Calculate the cost of goods sold using FIFO.c)What amount of income tax would Max have to pay if it uses LIFO?d)What amount of income tax would Max have to pay if it uses FIFO?e)Assuming that the results for Year 2 are representative of what Max can generally expect; would you recommend that the company use LIFO or FIFO? Explain.

Accepted Answer

a)$107,360b)$103,520c)$9,192d)$10,344e)B

Question 20

During a period of declining prices, a company would report a lower gross margin using the FIFO cost flow method than with LIFO.

Accepted Answer

A) True 
 B)False

Which of the following statements is not correct regarding the importance of inventory turnover to a company's profitability?

If a company overstates its Inventory balance at the end of Year 1 due to an error, its Retained Earnings will also be overstated on the Year 1 balance sheet.

Chase Company uses the perpetual inventory method. The inventory records for Chase reflected the following information: Assuming Chase uses a first-in, first-out (FIFO)cost flow method, what is the cost of goods sold for the sales transaction on January 31?

Glasgow Enterprises started the period with 80 units in beginning inventory that cost $7.50 each. During the period, the company purchased inventory items as follows: Glasgow sold 220 units after purchase 3 for $17.00 each. What is Glasgow's ending inventory under LIFO?

What happens when a company is operating in an inflationary environment?

The Internal Revenue Service allows a company to use LIFO for income tax purposes only if it also uses LIFO for financial reporting.

What is meant by "market" in the lower-of-cost-or-market rule?

Discuss the significance of the average number of days to sell inventory.

Landis Company is preparing its financial statements. Gross margin is normally 40% of sales. Information taken from the company's records revealed sales of $25,000; beginning inventory of $2,500 and purchases of $17,500. What is the estimated amount of ending inventory at the end of the period?

Blake Company purchased two identical inventory items. The item purchased first cost $16.00, and the item purchased second cost $18.00. Blake sold one of the items for $24.00. Which of the following statements is true?

Carson Company has an inventory turnover of 12.75, and its inventory amounts to $2,400,000. What is the amount of cost of goods sold?

Phipps Corporation overstated its ending inventory on December 31, Year 1. Which of the following correctly identifies the effect of the error on Year 2 financial statements?

Carson Company has an inventory turnover of 13.25, and its inventory amounts to $5,100,000. What is the amount of cost of goods sold?

What are the circumstances that might cause a company to need an estimate of the amount of its inventory?

Chase Company uses the perpetual inventory method. The inventory records for Chase reflected the following information: Assuming Chase uses a FIFO cost flow method, what is the ending inventory on January 31?

During a period of declining prices, a company would report a lower gross margin using the FIFO cost flow method than with LIFO.

An Introduction to Accounting

Accounting for Accruals

Accounting for Deferrals

Accounting for Merchandising Businesses

Internal Control and Accounting for Cash

Accounting for Receivables

Accounting for Long-Term Operational Assets

Accounting for Current Liabilities and Payroll

Accounting for Long-Term Debt

Proprietorships, Partnerships, and Corporations

Statement of Cash Flows

The Double-Entry Accounting System

Financial Statement Analysis Available Online in Connect

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Exam 5: Accounting for Inventories

Which of the following statements is not correct regarding the importance of inventory turnover to a company's profitability?

If a company overstates its Inventory balance at the end of Year 1 due to an error, its Retained Earnings will also be overstated on the Year 1 balance sheet.

Chase Company uses the perpetual inventory method. The inventory records for Chase reflected the following information: Assuming Chase uses a first-in, first-out (FIFO)cost flow method, what is the cost of goods sold for the sales transaction on January 31?

Glasgow Enterprises started the period with 80 units in beginning inventory that cost $7.50 each. During the period, the company purchased inventory items as follows: Glasgow sold 220 units after purchase 3 for $17.00 each. What is Glasgow's ending inventory under LIFO?

What happens when a company is operating in an inflationary environment?

The Internal Revenue Service allows a company to use LIFO for income tax purposes only if it also uses LIFO for financial reporting.

What is meant by "market" in the lower-of-cost-or-market rule?

Discuss the significance of the average number of days to sell inventory.

Landis Company is preparing its financial statements. Gross margin is normally 40% of sales. Information taken from the company's records revealed sales of $25,000; beginning inventory of $2,500 and purchases of $17,500. What is the estimated amount of ending inventory at the end of the period?

Blake Company purchased two identical inventory items. The item purchased first cost $16.00, and the item purchased second cost $18.00. Blake sold one of the items for $24.00. Which of the following statements is true?

Carson Company has an inventory turnover of 12.75, and its inventory amounts to $2,400,000. What is the amount of cost of goods sold?

Phipps Corporation overstated its ending inventory on December 31, Year 1. Which of the following correctly identifies the effect of the error on Year 2 financial statements?

Carson Company has an inventory turnover of 13.25, and its inventory amounts to $5,100,000. What is the amount of cost of goods sold?

What are the circumstances that might cause a company to need an estimate of the amount of its inventory?

Chase Company uses the perpetual inventory method. The inventory records for Chase reflected the following information: Assuming Chase uses a FIFO cost flow method, what is the ending inventory on January 31?

During a period of declining prices, a company would report a lower gross margin using the FIFO cost flow method than with LIFO.

An Introduction to Accounting

Accounting for Accruals

Accounting for Deferrals

Accounting for Merchandising Businesses

Internal Control and Accounting for Cash

Accounting for Receivables

Accounting for Long-Term Operational Assets

Accounting for Current Liabilities and Payroll

Accounting for Long-Term Debt

Proprietorships, Partnerships, and Corporations

Statement of Cash Flows

The Double-Entry Accounting System

Financial Statement Analysis Available Online in Connect

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