Question 1

Which financial statements will be properly stated if the Year 1 ending inventory balance is understated?

Accepted Answer

A)  Year 1 balance sheet 
B)  Year 2 balance sheet 
C)  Year 1 income statement 
D)  Year 2 income statement 
A)  Year 1 balance sheet 
B)  Year 2 balance sheet 
C)  Year 1 income statement 
D)  Year 2 income statement B

Question 2

Sparks Furniture Company carries three lines of sofas.Information about the sofa inventory as of the end of its most recent fiscal year follows.If LCM is applied to each separate product line,what is the amount of the adjustment that must be made to the company's inventory?

Accepted Answer

A)  $6,250 
B)  ($35,750) 
C)  ($25,500) 
D)  ($29,500) 
A)  $6,250 
B)  ($35,750) 
C)  ($25,500) 
D)  ($29,500) B

Question 3

The cost assigned to cost of goods sold and to inventory under the FIFO method will be the same whether the perpetual or the periodic inventory system is used.

Accepted Answer

A) True 
 B)False  True

Question 4

Lower of cost or market can be applied on an item or product category basis.

Accepted Answer

A) True 
 B)False

Question 5

Darlington Inc.reported the following amounts on their financial statements for Year 1,Year 2 and Year 3:
 
   
It was discovered early in Year 4 that the ending inventory at the end of Year 1 was overstated by $6,000 and the ending inventory at the end of Year 2 was understated by $2,500.The ending inventory at the end of Year 3 was correctly reported.
Required:
Ignoring income taxes,determine the correct amounts of cost of goods sold and net income for each of the three years and total assets at the end of each the three years and complete the table below.Show your work.
   
Supporting calculations:

Accepted Answer

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Question 6

Recording a Lower of Cost or Market (LCM)adjustment involves which of the following generic journal entries?

Accepted Answer

A)  Debit Sales Revenue and Inventory 
B)  Debit Cost of Goods Sold and credit Inventory 
C)  Debit Loss on Goods Sold and credit Inventory 
D)  Debit Retained Earnings and credit Inventory 
A)  Debit Sales Revenue and Inventory 
B)  Debit Cost of Goods Sold and credit Inventory 
C)  Debit Loss on Goods Sold and credit Inventory 
D)  Debit Retained Earnings and credit Inventory

Question 7

Pearl Company has a perpetual inventory system.The company uses the FIFO method to assign costs to inventory and cost of goods sold.Consider the following information:
 
What amounts would be reported as cost of goods sold and ending inventory for April?

Accepted Answer

A)  Cost of goods sold $6,250; Ending inventory $1,750 
B)  Cost of goods sold $7,550; Ending inventory $2,250 
C)  Cost of goods sold $5,500; Ending inventory $2,500 
D)  Cost of goods sold $6,000; Ending inventory $2,000 
A)  Cost of goods sold $6,250; Ending inventory $1,750 
B)  Cost of goods sold $7,550; Ending inventory $2,250 
C)  Cost of goods sold $5,500; Ending inventory $2,500 
D)  Cost of goods sold $6,000; Ending inventory $2,000

Question 8

Your company has 500 units in inventory that were purchased for $12 each.These units have a current market value of $15 each.Your supplier has just announced a price increase to $16.50 that will go into effect at the beginning of next year.Management should:

Accepted Answer

A)  make no adjustments to the inventory account. 
B)  adjust the inventory account using the lower of the recent market values, which is $15. 
C)  adjust the inventory account using the cost, which is $12.00. 
D)  adjust the inventory account using the average of the recent market values, which is $14.50. 
A)  make no adjustments to the inventory account. 
B)  adjust the inventory account using the lower of the recent market values, which is $15. 
C)  adjust the inventory account using the cost, which is $12.00. 
D)  adjust the inventory account using the average of the recent market values, which is $14.50.

Question 9

An increasing balance in the Inventory account accompanied by an increase in the inventory turnover ratio would imply that the inventory build-up is occurring because:

Accepted Answer

A)  inventory is not selling as fast as anticipated. 
B)  the company is expecting to sell more inventory in the future. 
C)  inventory is selling, but it is taking longer to collect payment from customers. 
D)  the economy is slowing down. 
A)  inventory is not selling as fast as anticipated. 
B)  the company is expecting to sell more inventory in the future. 
C)  inventory is selling, but it is taking longer to collect payment from customers. 
D)  the economy is slowing down.

Question 10

If inventory is sold with terms of FOB destination,the goods belong to the seller while in transit.

Accepted Answer

A) True 
 B)False

Question 11

If the market value of goods in inventory is $26,000 below its cost,the company should:

Accepted Answer

A)  do nothing, because assets are reported at their original purchase price. 
B)  credit Inventory for $26,000. 
C)  debit Inventory for $26,000. 
D)  use the weighted average cost method since that method provides a more accurate indicator of current value. 
A)  do nothing, because assets are reported at their original purchase price. 
B)  credit Inventory for $26,000. 
C)  debit Inventory for $26,000. 
D)  use the weighted average cost method since that method provides a more accurate indicator of current value.

Question 12

Which one of the following statements about inventory is not correct?

Accepted Answer

A)  An increase in inventory levels is always a sign of inefficiency in inventory management. 
B)  The measurement of inventory affects both the balance sheet and the income statement within an accounting period. 
C)  The ending inventory of one accounting period becomes the beginning inventory of the next accounting period. 
D)  The cost of inventory can vary over time and may be affected by technological innovation. 
A)  An increase in inventory levels is always a sign of inefficiency in inventory management. 
B)  The measurement of inventory affects both the balance sheet and the income statement within an accounting period. 
C)  The ending inventory of one accounting period becomes the beginning inventory of the next accounting period. 
D)  The cost of inventory can vary over time and may be affected by technological innovation.

Question 13

Specific identification is:

Accepted Answer

A)  the classification of an account as an asset, liability, or stockholders' equity account. 
B)  an inventory method that individually identifies and records the cost of each item as cost of goods sold. 
C)  a detailed list of all of a corporation's stockholders. 
D)  a high-tech security technique for identifying key employees. 
A)  the classification of an account as an asset, liability, or stockholders' equity account. 
B)  an inventory method that individually identifies and records the cost of each item as cost of goods sold. 
C)  a detailed list of all of a corporation's stockholders. 
D)  a high-tech security technique for identifying key employees.

Question 14

Which method will result in the same cost of goods sold amount whether it is computed using the periodic inventory system or the perpetual inventory system?

Accepted Answer

A)  LIFO 
B)  Weighted average cost 
C)  FIFO 
D)  None of the above because periodic and perpetual inventory systems always produce different amounts. 
A)  LIFO 
B)  Weighted average cost 
C)  FIFO 
D)  None of the above because periodic and perpetual inventory systems always produce different amounts.

Question 15

A lower of cost or market write-down would be recorded with a debit to Inventory Expense.

Accepted Answer

A) True 
 B)False

Question 16

Nordic Industries uses a periodic inventory system.During its first month of operations, Nordic Industries purchased inventory as follows:
   
There were 100 units in ending inventory on January 31.
-Use the information above to answer the following question.Under the LIFO cost method,what is the cost of goods sold for January?

Accepted Answer

A)  $17,250 
B)  $19,500 
C)  $18,750 
D)  $18,000 
A)  $17,250 
B)  $19,500 
C)  $18,750 
D)  $18,000

Question 17

FIFO,an inventory costing method,actually describes how to calculate the cost of:

Accepted Answer

A)  goods sold. 
B)  goods available for sale. 
C)  beginning inventory. 
D)  purchases. 
A)  goods sold. 
B)  goods available for sale. 
C)  beginning inventory. 
D)  purchases.

Question 18

Which of the following financial statement line items will be affected in Year 1 if the ending inventory is overstated at the end of Year 1?

Accepted Answer

A)  Cost of goods sold will be overstated. 
B)  Current assets will be overstated. 
C)  Current liabilities will be overstated. 
D)  Net income will be understated. 
A)  Cost of goods sold will be overstated. 
B)  Current assets will be overstated. 
C)  Current liabilities will be overstated. 
D)  Net income will be understated.

Question 19

When the lower of cost or market rule requires an inventory adjustment,the:

Accepted Answer

A)  adjustment usually, but not always, reduces the book value of inventory. 
B)  write-down is usually reported as a part of cost of goods sold. 
C)  inventory adjustment is recorded in a contra-account called Inventory Allowances. 
D)  write-down does not affect any of the financial statements. 
A)  adjustment usually, but not always, reduces the book value of inventory. 
B)  write-down is usually reported as a part of cost of goods sold. 
C)  inventory adjustment is recorded in a contra-account called Inventory Allowances. 
D)  write-down does not affect any of the financial statements.

Question 20

Acme,Inc.had cost of goods sold of $2,000.If beginning inventory was $2,100 and ending inventory was $500,Acme's purchases must have been:

Accepted Answer

A)  $400. 
B)  $600. 
C)  $1,600. 
D)  $3,600. 
A)  $400. 
B)  $600. 
C)  $1,600. 
D)  $3,600.

Which financial statements will be properly stated if the Year 1 ending inventory balance is understated?

Sparks Furniture Company carries three lines of sofas.Information about the sofa inventory as of the end of its most recent fiscal year follows.If LCM is applied to each separate product line,what is the amount of the adjustment that must be made to the company's inventory?

The cost assigned to cost of goods sold and to inventory under the FIFO method will be the same whether the perpetual or the periodic inventory system is used.

Lower of cost or market can be applied on an item or product category basis.

Recording a Lower of Cost or Market (LCM)adjustment involves which of the following generic journal entries?

Pearl Company has a perpetual inventory system.The company uses the FIFO method to assign costs to inventory and cost of goods sold.Consider the following information: What amounts would be reported as cost of goods sold and ending inventory for April?

Your company has 500 units in inventory that were purchased for $12 each.These units have a current market value of $15 each.Your supplier has just announced a price increase to $16.50 that will go into effect at the beginning of next year.Management should:

An increasing balance in the Inventory account accompanied by an increase in the inventory turnover ratio would imply that the inventory build-up is occurring because:

If inventory is sold with terms of FOB destination,the goods belong to the seller while in transit.

If the market value of goods in inventory is $26,000 below its cost,the company should:

Which one of the following statements about inventory is not correct?

Specific identification is:

Which method will result in the same cost of goods sold amount whether it is computed using the periodic inventory system or the perpetual inventory system?

A lower of cost or market write-down would be recorded with a debit to Inventory Expense.

FIFO,an inventory costing method,actually describes how to calculate the cost of:

Which of the following financial statement line items will be affected in Year 1 if the ending inventory is overstated at the end of Year 1?

When the lower of cost or market rule requires an inventory adjustment,the:

Acme,Inc.had cost of goods sold of $2,000.If beginning inventory was $2,100 and ending inventory was $500,Acme's purchases must have been:

Business Decisions and Financial Accounting

Reporting Investing and Financing Results on the Balance Sheet

Reporting Operating Results on the Income Statement

Adjustments,financial Statements,and Financial Results

Fraud, Internal Control, and Cash

Internal Control and Financial Reporting for Cash and Merchandising Operations

Reporting and Interpreting Receivables,bad Debt Expense,and Interest Revenue

Reporting and Interpreting Long-Lived Tangible and Intangible Assets

Reporting and Interpreting Liabilities

Reporting and Interpreting Stockholders Equity

Reporting and Interpreting the Statement of Cash Flows

Measuring and Evaluating Financial Performance

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Exam 7: Reporting and Interpreting Inventories and Cost of Goods Sold

Which financial statements will be properly stated if the Year 1 ending inventory balance is understated?

Sparks Furniture Company carries three lines of sofas.Information about the sofa inventory as of the end of its most recent fiscal year follows.If LCM is applied to each separate product line,what is the amount of the adjustment that must be made to the company's inventory?

The cost assigned to cost of goods sold and to inventory under the FIFO method will be the same whether the perpetual or the periodic inventory system is used.

Lower of cost or market can be applied on an item or product category basis.

Recording a Lower of Cost or Market (LCM)adjustment involves which of the following generic journal entries?

Pearl Company has a perpetual inventory system.The company uses the FIFO method to assign costs to inventory and cost of goods sold.Consider the following information: What amounts would be reported as cost of goods sold and ending inventory for April?

Your company has 500 units in inventory that were purchased for $12 each.These units have a current market value of $15 each.Your supplier has just announced a price increase to $16.50 that will go into effect at the beginning of next year.Management should:

An increasing balance in the Inventory account accompanied by an increase in the inventory turnover ratio would imply that the inventory build-up is occurring because:

If inventory is sold with terms of FOB destination,the goods belong to the seller while in transit.

If the market value of goods in inventory is $26,000 below its cost,the company should:

Which one of the following statements about inventory is not correct?

Specific identification is:

Which method will result in the same cost of goods sold amount whether it is computed using the periodic inventory system or the perpetual inventory system?

A lower of cost or market write-down would be recorded with a debit to Inventory Expense.

FIFO,an inventory costing method,actually describes how to calculate the cost of:

Which of the following financial statement line items will be affected in Year 1 if the ending inventory is overstated at the end of Year 1?

When the lower of cost or market rule requires an inventory adjustment,the:

Acme,Inc.had cost of goods sold of $2,000.If beginning inventory was $2,100 and ending inventory was $500,Acme's purchases must have been:

Business Decisions and Financial Accounting

Reporting Investing and Financing Results on the Balance Sheet

Reporting Operating Results on the Income Statement

Adjustments,financial Statements,and Financial Results

Fraud, Internal Control, and Cash

Internal Control and Financial Reporting for Cash and Merchandising Operations

Reporting and Interpreting Receivables,bad Debt Expense,and Interest Revenue

Reporting and Interpreting Long-Lived Tangible and Intangible Assets

Reporting and Interpreting Liabilities

Reporting and Interpreting Stockholders Equity

Reporting and Interpreting the Statement of Cash Flows

Measuring and Evaluating Financial Performance

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