Question 1

Most companies do not take a physical count of inventory each year, but rather rely on inventory records to determine the inventory value.

Accepted Answer

A) True 
 B)False

Question 2

A company has beginning inventory of 15 units at a cost of $12 each on October 1. On October 5, it purchases 10 units at $13 per unit. On October 12 it purchases 20 units at $14 per unit. On October 15, it sells 30 units. Using the FIFO periodic inventory method, what is the value of the inventory at October 15 after the sale?

Accepted Answer

A) $380 
B) $590 
C) $140 
D) $160 
E) $210 
A) $380 
B) $590 
C) $140 
D) $160 
E) $210

Question 3

An understatement of ending inventory will cause

Accepted Answer

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

Question 4

An understatement of the ending inventory balance will overstate cost of goods sold and understate net income.

Accepted Answer

A) True 
 B)False

Question 5

On December 31 of the current year, Plunkett Company reported an ending inventory balance of $215,000. The following additional information is also available:
-Plunkett sold and shipped goods costing $38,000 to Savannah Enterprises on December 28 with shipping terms of FOB shipping point. The goods were not included in the ending inventory amount of $215,000.
-Plunkett purchased goods costing $44,000 on December 29. The goods were shipped FOB destination and were received by Plunkett on January 2 of the following year. The shipment was a rush order that was supposed to arrive by December 31. These goods were included in the ending inventory balance of $215,000.
-Plunkett's ending inventory balance of $215,000 included $15,000 of goods being held on consignment from Carole Company. (Plunkett Company is the consignee.)
-Plunkett's ending inventory balance of $215,000 did not include goods costing $95,000 that were shipped to Plunkett on December 27 with shipping terms of FOB destination and were still in transit at year-end.
Based on the above information, the amount that Plunkett should report in ending inventory on December 31 is:

Accepted Answer

A) $209,000 
B) $156,000 
C) $200,000 
D) $171,000 
E) $194,000 
A) $209,000 
B) $156,000 
C) $200,000 
D) $171,000 
E) $194,000

Question 6

Starlight Company has inventory of 8 units at a cost of $200 each on October 1. On October 2, it purchased 20 units at $205 each. 11 units are sold on October 4. Using the LIFO perpetual inventory method, what amount will be reported in cost of goods sold for the 11 units that were sold?

Accepted Answer

A) $2,255. 
B) $2,239. 
C) $2,200. 
D) $2,215. 
E) $2,228. 
A) $2,255. 
B) $2,239. 
C) $2,200. 
D) $2,215. 
E) $2,228.

Question 7

LIFO assumes that inventory costs flow in the order incurred.

Accepted Answer

A) True 
 B)False

Question 8

Match between columns
                        Premises: Gross profit method
Consistency concept
Inventory turnover
Consignor
Consignee
Retail inventory method
Days’ sales in inventory
Conservatism principle
Lower of cost or market
Specific identification method

Accepted Answer

The Answer of A method for estimating inventory based on is...

Question 9

Accounting principles require that inventory be reported at the market value (cost)of replacing inventory when market value is lower than cost.

Accepted Answer

A) True 
 B)False

Question 10

Beckenworth had cost of goods sold of $9,421 million, ending inventory of $2,089 million, and average inventory of $1,965 million. Its days' sales in inventory equals: (Use 365 days a year.)

Accepted Answer

A) 4.51. 
B) 0.21. 
C) 76.1 days. 
D) 80.9 days. 
E) 4.79. 
A) 4.51. 
B) 0.21. 
C) 76.1 days. 
D) 80.9 days. 
E) 4.79.

Question 11

When units are purchased at different costs over time, determining the cost per unit assigned to inventory items is simple.

Accepted Answer

A) True 
 B)False

Question 12

Explain the reason a company might use the retail inventory method for valuing inventory.

Accepted Answer

The retail method is generally used to p

Question 13

The inventory valuation method that results in the lowest taxable income in a period of inflation is:

Accepted Answer

A) LIFO method. 
B) FIFO method. 
C) Specific identification method. 
D) Weighted-average cost method. 
E) Gross profit method. 
A) LIFO method. 
B) FIFO method. 
C) Specific identification method. 
D) Weighted-average cost method. 
E) Gross profit method.

Question 14

On April 24 of the current year, The Memphis Pecan Company experienced a tornado that destroyed the company's entire inventory. At the beginning of April, the company reported beginning inventory of $226,750. Inventory purchased during April (until the date of the tornado)was $197,800. Sales for the month of April through April 24 were $642,500. Assuming the company's typical gross profit ratio is 50%, estimate the amount of inventory destroyed in the tornado.

Accepted Answer

A) $212,275 
B) $103,300 
C) $321,250 
D) $217,950 
E) $157,788 
A) $212,275 
B) $103,300 
C) $321,250 
D) $217,950 
E) $157,788

Question 15

FIFO is preferred when purchase costs are rising and managers have incentives to report higher income for reasons such as bonus plans, job security, and reputation.

Accepted Answer

A) True 
 B)False

Question 16

A company must disclose any change in its inventory costing method in its financial statements.

Accepted Answer

A) True 
 B)False

Question 17

The inventory turnover ratio is calculated as:

Accepted Answer

A) Cost of goods sold divided by ending inventory. 
B) Cost of goods sold divided by average merchandise inventory. 
C) Ending inventory divided by cost of goods sold. 
D) Sales divided by cost of goods sold. 
E) Cost of goods sold divided by ending inventory times 365. 
A) Cost of goods sold divided by ending inventory. 
B) Cost of goods sold divided by average merchandise inventory. 
C) Ending inventory divided by cost of goods sold. 
D) Sales divided by cost of goods sold. 
E) Cost of goods sold divided by ending inventory times 365.

Question 18

IFRS reporting currently does not allow which method of inventory costing?

Accepted Answer

A) Lower of cost or market. 
B) Weighted average. 
C) Specific identification. 
D) FIFO. 
E) LIFO. 
A) Lower of cost or market. 
B) Weighted average. 
C) Specific identification. 
D) FIFO. 
E) LIFO.

Question 19

The inventory valuation method that identifies each item in ending inventory with a specific purchase and invoice is the:

Accepted Answer

A) Weighted average inventory method. 
B) Retail inventory method. 
C) Last-in, first-out method. 
D) First-in, first-out method. 
E) Specific identification method. 
A) Weighted average inventory method. 
B) Retail inventory method. 
C) Last-in, first-out method. 
D) First-in, first-out method. 
E) Specific identification method.

Question 20

Explain how the inventory turnover ratio and the days' sales in inventory ratio are used to evaluate inventory management.

Accepted Answer

A merchandiser's ability to pay its shor

Most companies do not take a physical count of inventory each year, but rather rely on inventory records to determine the inventory value.

An understatement of ending inventory will cause

An understatement of the ending inventory balance will overstate cost of goods sold and understate net income.

Starlight Company has inventory of 8 units at a cost of $200 each on October 1. On October 2, it purchased 20 units at $205 each. 11 units are sold on October 4. Using the LIFO perpetual inventory method, what amount will be reported in cost of goods sold for the 11 units that were sold?

LIFO assumes that inventory costs flow in the order incurred.

Accounting principles require that inventory be reported at the market value (cost)of replacing inventory when market value is lower than cost.

Beckenworth had cost of goods sold of $9,421 million, ending inventory of $2,089 million, and average inventory of $1,965 million. Its days' sales in inventory equals: (Use 365 days a year.)

When units are purchased at different costs over time, determining the cost per unit assigned to inventory items is simple.

Explain the reason a company might use the retail inventory method for valuing inventory.

The inventory valuation method that results in the lowest taxable income in a period of inflation is:

FIFO is preferred when purchase costs are rising and managers have incentives to report higher income for reasons such as bonus plans, job security, and reputation.

A company must disclose any change in its inventory costing method in its financial statements.

The inventory turnover ratio is calculated as:

IFRS reporting currently does not allow which method of inventory costing?

The inventory valuation method that identifies each item in ending inventory with a specific purchase and invoice is the:

Explain how the inventory turnover ratio and the days' sales in inventory ratio are used to evaluate inventory management.

Accounting in Business

Analyzing and Recording Transactions

Adjusting Accounts and Preparing Financial Statements

Completing the Accounting Cycle

Accounting for Merchandising Operations

Accounting Information Systems

Cash and Internal Controls

Accounting for Receivables

Plant Assets, Natural Resoures, and Intangibles

Current Liabilities and Payroll Accounting

Accounting for Partnerships

Accounting for Corporations

Long-Term Liabilities

Investments and International Operations

Reporting the Statement of Cash Flows

Analysis of Financial Statements

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Exam 6: Inventories and Cost of Sales

Most companies do not take a physical count of inventory each year, but rather rely on inventory records to determine the inventory value.

An understatement of ending inventory will cause

An understatement of the ending inventory balance will overstate cost of goods sold and understate net income.

Starlight Company has inventory of 8 units at a cost of $200 each on October 1. On October 2, it purchased 20 units at $205 each. 11 units are sold on October 4. Using the LIFO perpetual inventory method, what amount will be reported in cost of goods sold for the 11 units that were sold?

LIFO assumes that inventory costs flow in the order incurred.

Accounting principles require that inventory be reported at the market value (cost)of replacing inventory when market value is lower than cost.

Beckenworth had cost of goods sold of $9,421 million, ending inventory of $2,089 million, and average inventory of $1,965 million. Its days' sales in inventory equals: (Use 365 days a year.)

When units are purchased at different costs over time, determining the cost per unit assigned to inventory items is simple.

Explain the reason a company might use the retail inventory method for valuing inventory.

The inventory valuation method that results in the lowest taxable income in a period of inflation is:

FIFO is preferred when purchase costs are rising and managers have incentives to report higher income for reasons such as bonus plans, job security, and reputation.

A company must disclose any change in its inventory costing method in its financial statements.

The inventory turnover ratio is calculated as:

IFRS reporting currently does not allow which method of inventory costing?

The inventory valuation method that identifies each item in ending inventory with a specific purchase and invoice is the:

Explain how the inventory turnover ratio and the days' sales in inventory ratio are used to evaluate inventory management.

Accounting in Business

Analyzing and Recording Transactions

Adjusting Accounts and Preparing Financial Statements

Completing the Accounting Cycle

Accounting for Merchandising Operations

Accounting Information Systems

Cash and Internal Controls

Accounting for Receivables

Plant Assets, Natural Resoures, and Intangibles

Current Liabilities and Payroll Accounting

Accounting for Partnerships

Accounting for Corporations

Long-Term Liabilities

Investments and International Operations

Reporting the Statement of Cash Flows

Analysis of Financial Statements

Filters