Question 1

In a perpetual inventory system, prompt-pay discounts are recorded as reductions to Accounts Receivable.

Accepted Answer

A) True 
 B)False  False

Question 2

International Financial Reporting Standards allow the use FIFO and LIFO, but not moving average, inventory valuation for financial reporting purposes.

Accepted Answer

A) True 
 B)False  False

Question 3

Terms offered by a supplier to encourage prompt payment of credit purchases made by customers are

Accepted Answer

A)  purchase allowances. 
B)  purchase discounts. 
C)  purchase returns. 
D)  sales allowances. 
E)  sales discounts. 
A)  purchase allowances. 
B)  purchase discounts. 
C)  purchase returns. 
D)  sales allowances. 
E)  sales discounts. B

Question 4

Use the following information to answer questions 
On April 14, 2010, Mattingly Furniture bought 200 coffee tables at $100 each from Mississippi Pine Warehouse. Shipping terms are FOB destination. Total delivery charges are $1,000. Mattingly uses a perpetual inventory system.
-Mattingly's inventory account balance should be increased by what amount as a direct result of this purchase?

Accepted Answer

A)  $ 0 
B)  $ 1,000 
C)  $19,000 
D)  $20,000 
E)  $21,000 
A)  $ 0 
B)  $ 1,000 
C)  $19,000 
D)  $20,000 
E)  $21,000

Question 5

Assume that Andrews Company took a physical inventory and had $100,000 of inventory on hand (at retail prices). The company should show a loss for the period of

Accepted Answer

A)  $1,000 
B)  $3,000 
C)  $3,200 
D)  $5,000 
E)  none of the above 
A)  $1,000 
B)  $3,000 
C)  $3,200 
D)  $5,000 
E)  none of the above

Question 6

If ending inventory in 2010 is overstated, then net income in 2010 will be overstated.

Accepted Answer

A) True 
 B)False

Question 7

The lower-of-cost-or-market inventory method

Accepted Answer

A)  presents ending inventory on the balance sheet at current replacement cost and Cost of Goods Sold on the income statement at actual cost. 
B)  is an application of the conservatism principle of accounting. 
C)  presents Cost of Goods Sold on the income statement at current replacement cost and ending inventory on the balance sheet at actual cost. 
D)  is a manufacturing company's equivalent to the retail method of inventory. 
E)  requires that ending inventory be recorded at current replacement cost by increasing Cost of Goods Sold. 
A)  presents ending inventory on the balance sheet at current replacement cost and Cost of Goods Sold on the income statement at actual cost. 
B)  is an application of the conservatism principle of accounting. 
C)  presents Cost of Goods Sold on the income statement at current replacement cost and ending inventory on the balance sheet at actual cost. 
D)  is a manufacturing company's equivalent to the retail method of inventory. 
E)  requires that ending inventory be recorded at current replacement cost by increasing Cost of Goods Sold.

Question 8

PetWorld uses the retail inventory method to value its inventory. The following information is available for July 2010:
 
Required:
A)	Compute PetWorld's cost to retail percentage.
B)	Compute PetWorld's ending inventory at cost.
C)	Compute PetWorld's cost of goods sold for July.
D)	Assume that PetWorld counted its ending inventory on July 31 and found it had $415,000 of goods on hand at retail selling prices. What, if any, amount of loss did PetWorld have since its last physical inventory?

Accepted Answer

The answer of PetWorld uses the retail inventory method to...

Question 9

When goods are shipped

Accepted Answer

A)  FOB shipping point, the buyer obtains legal title to the goods when the goods are received by the buyer. 
B)  FOB destination, the seller retains legal title to the goods until the goods reach the shipping point. 
C)  FOB shipping point, the buyer obtains legal title to the goods when the goods are shipped and also pays for the related delivery charges. 
D)  FOB destination point, the buyer obtains legal title to the goods when the goods reach the shipping point and the seller pays for the related delivery charges. 
E)  FOB shipping point, the seller retains legal title to the goods until the goods reach the buyer but the buyer pays for the related delivery charges. 
A)  FOB shipping point, the buyer obtains legal title to the goods when the goods are received by the buyer. 
B)  FOB destination, the seller retains legal title to the goods until the goods reach the shipping point. 
C)  FOB shipping point, the buyer obtains legal title to the goods when the goods are shipped and also pays for the related delivery charges. 
D)  FOB destination point, the buyer obtains legal title to the goods when the goods reach the shipping point and the seller pays for the related delivery charges. 
E)  FOB shipping point, the seller retains legal title to the goods until the goods reach the buyer but the buyer pays for the related delivery charges.

Question 10

In its balance sheet, a buyer would report inventory for items

Accepted Answer

A)  shipped FOB destination and received. 
B)  shipped FOB destination and in transit. 
C)  shipped FOB shipping point and in seller's warehouse. 
D)  all of the above. 
E)  a and b. 
A)  shipped FOB destination and received. 
B)  shipped FOB destination and in transit. 
C)  shipped FOB shipping point and in seller's warehouse. 
D)  all of the above. 
E)  a and b.

Question 11

Stone's Department Store applies the lower-of-cost-or-market rule to its ending inventory.
 
Required:
A)	What is Stone's ending inventory value if the lower-of-cost-or-market rule is applied on a total cost basis?
B)	What is Stone's ending inventory value if the lower-of-cost-or-market rule is applied on an item-by-item basis?

Accepted Answer

The answer of Stone's Department Store applies the lower-of-cost-or-market rule...

Question 12

FIFO yields a most realistic picture of inventory value than LIFO does.

Accepted Answer

A) True 
 B)False

Question 13

Use the following information to answer questions 
On April 14, 2010, Mattingly Furniture bought 200 coffee tables at $100 each from Mississippi Pine Warehouse. Shipping terms are FOB destination. Total delivery charges are $1,000. Mattingly uses a perpetual inventory system.
-Mississippi Pine Warehouse gave Mattingly Furniture terms of 2/10, n/30. Mattingly paid for the coffee tables on April 22. On the 22nd, Mattingly would make which of the following entries?

Accepted Answer

A)    
B)    
C)    
D)    
E)  none of the above 
A)    
B)    
C)    
D)    
E)  none of the above

Question 14

In a period of rising prices, the inventory method that produces the lowest ending inventory is the

Accepted Answer

A)  FIFO perpetual method. 
B)  moving average method. 
C)  retail inventory method. 
D)  LIFO periodic method. 
E)  LIFO perpetual method. 
A)  FIFO perpetual method. 
B)  moving average method. 
C)  retail inventory method. 
D)  LIFO periodic method. 
E)  LIFO perpetual method.

Question 15

When FIFO and LIFO are compared,

Accepted Answer

A)  LIFO yields a higher net income during inflationary times than FIFO does. 
B)  FIFO yields a lower balance sheet value for ending inventory than LIFO during periods of inflation. 
C)  FIFO and LIFO show, respectively, the oldest and newest per-unit inventory costs in the ending inventory on the balance sheet. 
D)  LIFO is generally perceived to better match current dollars of revenues and expenses, giving a profit figure that better reflects a business's economic reality. 
E)  FIFO is generally preferred by businesses over LIFO in a period of steadily rising prices from a taxation standpoint. 
A)  LIFO yields a higher net income during inflationary times than FIFO does. 
B)  FIFO yields a lower balance sheet value for ending inventory than LIFO during periods of inflation. 
C)  FIFO and LIFO show, respectively, the oldest and newest per-unit inventory costs in the ending inventory on the balance sheet. 
D)  LIFO is generally perceived to better match current dollars of revenues and expenses, giving a profit figure that better reflects a business's economic reality. 
E)  FIFO is generally preferred by businesses over LIFO in a period of steadily rising prices from a taxation standpoint.

Question 16

Because FIFO yields lower profits than LIFO in a period of steadily rising prices, the FIFO method translates into lower tax payments.

Accepted Answer

A) True 
 B)False

Question 17

A cost flow assumption is used when a business understands the distinct pattern in which goods are sold.

Accepted Answer

A) True 
 B)False

Question 18

Use the following information to answer questions 
On December 31, 2009, the Italian Pasta Company's ending inventory consisted of 100 bags of fettuccine at a cost of $0.75 per bag. Throughout January 2010, the Italian Pasta Company purchased and sold additional bags of fettuccine. Refer to the table below for additional information.
  
-Assume that the Italian Pasta Company uses a LIFO perpetual inventory system. Cost of goods sold for January 2010, is

Accepted Answer

A)  $300.00. 
B)  $445.00. 
C)  $460.00 
D)  $462.50. 
E)  $600.00. 
A)  $300.00. 
B)  $445.00. 
C)  $460.00 
D)  $462.50. 
E)  $600.00.

Question 19

In a perpetual inventory system,

Accepted Answer

A)  the Inventory and Cost of Goods Sold accounts are updated once a period. 
B)  temporary accounts, such as Purchases and Purchase Discounts, are used. 
C)  the availability of computer technology is generally not considered important. 
D)  a purchase of goods would require a debit to Inventory and a credit to either Cash or Accounts Payable. 
E)  no entry is made for Cost of Goods Sold expense when goods are sold to customers. 
A)  the Inventory and Cost of Goods Sold accounts are updated once a period. 
B)  temporary accounts, such as Purchases and Purchase Discounts, are used. 
C)  the availability of computer technology is generally not considered important. 
D)  a purchase of goods would require a debit to Inventory and a credit to either Cash or Accounts Payable. 
E)  no entry is made for Cost of Goods Sold expense when goods are sold to customers.

Question 20

The average age of inventory is calculated as

Accepted Answer

A)  average inventory divided by 360 days. 
B)  (cost of goods sold divided by ending inventory) divided by 360 days. 
C)  360 days divided by (cost of goods sold divided by average inventory). 
D)  360 days divided by cost of goods sold. 
E)  none of the above. 
A)  average inventory divided by 360 days. 
B)  (cost of goods sold divided by ending inventory) divided by 360 days. 
C)  360 days divided by (cost of goods sold divided by average inventory). 
D)  360 days divided by cost of goods sold. 
E)  none of the above.

In a perpetual inventory system, prompt-pay discounts are recorded as reductions to Accounts Receivable.

International Financial Reporting Standards allow the use FIFO and LIFO, but not moving average, inventory valuation for financial reporting purposes.

Terms offered by a supplier to encourage prompt payment of credit purchases made by customers are

Assume that Andrews Company took a physical inventory and had $100,000 of inventory on hand (at retail prices). The company should show a loss for the period of

If ending inventory in 2010 is overstated, then net income in 2010 will be overstated.

The lower-of-cost-or-market inventory method

When goods are shipped

In its balance sheet, a buyer would report inventory for items

FIFO yields a most realistic picture of inventory value than LIFO does.

In a period of rising prices, the inventory method that produces the lowest ending inventory is the

When FIFO and LIFO are compared,

Because FIFO yields lower profits than LIFO in a period of steadily rising prices, the FIFO method translates into lower tax payments.

A cost flow assumption is used when a business understands the distinct pattern in which goods are sold.

In a perpetual inventory system,

The average age of inventory is calculated as

An Introduction to the Role of Accounting in the Business World

Concepts and Elements Underlying Accounting

The Mechanics of Double-Entry Bookkeeping

Cash, Short-Term Investments and Accounts Receivable

Long-Term Assets: Property, Plant Equipment and Intangibles

Liabilities

Stockholders Equity

The Corporate Income Statement and Financial Analysis

Statement of Cash Flows

Managerial Accounting

Cost-Volume-Profit Analysis

The Master Budget

Activity-Based Management and Performance Measurementreward

Filters

Exam 5: Inventory

In a perpetual inventory system, prompt-pay discounts are recorded as reductions to Accounts Receivable.

International Financial Reporting Standards allow the use FIFO and LIFO, but not moving average, inventory valuation for financial reporting purposes.

Terms offered by a supplier to encourage prompt payment of credit purchases made by customers are

Assume that Andrews Company took a physical inventory and had $100,000 of inventory on hand (at retail prices). The company should show a loss for the period of

If ending inventory in 2010 is overstated, then net income in 2010 will be overstated.

The lower-of-cost-or-market inventory method

When goods are shipped

In its balance sheet, a buyer would report inventory for items

FIFO yields a most realistic picture of inventory value than LIFO does.

In a period of rising prices, the inventory method that produces the lowest ending inventory is the

When FIFO and LIFO are compared,

Because FIFO yields lower profits than LIFO in a period of steadily rising prices, the FIFO method translates into lower tax payments.

A cost flow assumption is used when a business understands the distinct pattern in which goods are sold.

In a perpetual inventory system,

The average age of inventory is calculated as

An Introduction to the Role of Accounting in the Business World

Concepts and Elements Underlying Accounting

The Mechanics of Double-Entry Bookkeeping

Cash, Short-Term Investments and Accounts Receivable

Long-Term Assets: Property, Plant Equipment and Intangibles

Liabilities

Stockholders Equity

The Corporate Income Statement and Financial Analysis

Statement of Cash Flows

Managerial Accounting

Cost-Volume-Profit Analysis

The Master Budget

Activity-Based Management and Performance Measurementreward

Filters