Question 1

The primary difference between FIFO and LIFO is that each method makes a different choice regarding which financial statement element is shown at the out-of-date cost.

Accepted Answer

A) True 
 B)False

Question 2

An overstatement of ending inventory leads to an overstatement of cost of goods sold.

Accepted Answer

A) True 
 B)False

Question 3

The following information pertains to the Fan Company's inventory item B1008:
$\begin{array}{rlrr}
\text { March 1 } & \text { Inventory Balance } & 400 \text { units } &@\$ 3.10 \
5 & \text { Purchase } & 1,400 \text { units } &@ \$ 3.20 \
14 & \text { Purchase } & 280 \text { units } &@ \$ 3.25 \
31 & \text { Inventory Balance } & 520 \text { units } &
\end{array}$
-In a periodic inventory system,the ending FIFO inventory is

Accepted Answer

A) $1,624. 
B) $1,655. 
C) $1,678. 
D) $1,733. 
A) $1,624. 
B) $1,655. 
C) $1,678. 
D) $1,733.

Question 4

Firms that use LIFO must disclose the dollar magnitude of the difference between LIFO and FIFO cost.

Accepted Answer

A) True 
 B)False

Question 5

When the income effect of a LIFO liquidation is material,the SEC requires that the 10-K report disclose

Accepted Answer

A) the dollar impact of LIFO liquidation on both a before- and after-tax basis. 
B) the dollar impact of LIFO liquidation on the year-end inventory balance. 
C) this fact following a prescribed format. 
D) the dollar impact of LIFO liquidation on net income. 
A) the dollar impact of LIFO liquidation on both a before- and after-tax basis. 
B) the dollar impact of LIFO liquidation on the year-end inventory balance. 
C) this fact following a prescribed format. 
D) the dollar impact of LIFO liquidation on net income.

Question 6

Under GAAP,current cost (replacement cost)accounting may be used at the discretion of management.

Accepted Answer

A) True 
 B)False

Question 7

Information from Hope Company's records for the year ended December 31,2015 is available as follows:
$\begin{array}{lr}
\text { Net sales } & \$ 2,800,000 \
\text { Cost of goods manufactured: } & \
\text { Variable } & \$ 1,260,000 \
\text { Fixed } & \$ 630,000\\text { Operating expenses: } & \
\quad \text { Variable } & \$ 196,000 \
\quad \text { Fixed } & \$ 240,000 \
\text { Units manufactured } & 70,000 \
\text { Units sold } & 60,000 \
\text { Finished goods inventory, 1/1/2015 } & \$ 0
\end{array}$ 
Hope had no work-in-process inventories at either the beginning or end of 2015.
Required:
a.What would be Hope's finished goods inventory cost under the variable (direct)costing method at December 31,2015?
b.What would Hope's operating income be under the absorption costing method?

Accepted Answer

a.Hope's finished goods inventory under

Question 8

Konan, Inc. uses the lower of cost or market method to determine inventory value. The following information pertains to the ending inventory:
$\begin{array}{lccccc}\text { Item } & \text { Cost } & \begin{array}{c}
\text { Replacement } \
\text { Cost }
\end{array} & \begin{array}{c}
\text { Selling } \
\text { Price }
\end{array} & \begin{array}{c}
\text { Cost of } \
\text { Completion }
\end{array} & \begin{array}{c}
\text { Normal } \
\text { Profit }
\end{array}\
\text { L-19 } & \$ 40 & \$ 38 & \$ 50 & \$ 2 & \$ 11 \
\text { M-23 } & 52 & 40 & 60 & 4 & 14 \
\text { N-05 } & 20 & 24 & 30 & 2 & 6
\end{array}$
-The lower of cost or market for product N-05 is

Accepted Answer

A) $20. 
B) $22. 
C) $24. 
D) $28. 
A) $20. 
B) $22. 
C) $24. 
D) $28.

Question 9

FIFO matches current costs with current revenues.

Accepted Answer

A) True 
 B)False

Question 10

LIFO can be applied on either a periodic or perpetual basis.However,using the perpetual method defeats the purpose of LIFO.

Accepted Answer

A) True 
 B)False

Question 11

The mechanics of absorption costing can lead to year-to-year income changes

Accepted Answer

A) whenever inventory levels remain fairly constant. 
B) if the productivity of factory workers improves. 
C) whenever production and sales are not parallel. 
D) when raw material prices are increasing. 
A) whenever inventory levels remain fairly constant. 
B) if the productivity of factory workers improves. 
C) whenever production and sales are not parallel. 
D) when raw material prices are increasing.

Question 12

Inventory carrying cost includes transportation costs paid by the purchaser.

Accepted Answer

A) True 
 B)False

Question 13

The size of the divergence between FIFO cost of goods sold and replacement cost of goods sold depends on the rapidity of the inventory turnover and the

Accepted Answer

A) change in accounts receivable turnover. 
B) divergence of total asset turnover from previous periods. 
C) severity of input cost change. 
D) rapidity of fixed asset turnover. 
A) change in accounts receivable turnover. 
B) divergence of total asset turnover from previous periods. 
C) severity of input cost change. 
D) rapidity of fixed asset turnover.

Question 14

For a firm using LIFO,the numerator of the inventory turnover ratio is predominantly current period costs

Accepted Answer

A) and the denominator consists of old LIFO costs. 
B) thus it must be adjusted to conform to the old LIFO costs in the denominator. 
C) thus the denominator must be adjusted by adding the LIFO reserve to ending inventory. 
D) thus the denominator must be adjusted by subtracting the LIFO reserve from both beginning and ending inventory. 
A) and the denominator consists of old LIFO costs. 
B) thus it must be adjusted to conform to the old LIFO costs in the denominator. 
C) thus the denominator must be adjusted by adding the LIFO reserve to ending inventory. 
D) thus the denominator must be adjusted by subtracting the LIFO reserve from both beginning and ending inventory.

Question 15

The use of the lower of cost or market method to value inventory for reporting purposes employs the accounting principle of matching.

Accepted Answer

A) True 
 B)False

Question 16

The advent of widely used computerized optical scanning equipment has led to the adoption of perpetual systems in high-volume settings where such systems were previously not cost effective.

Accepted Answer

A) True 
 B)False

Question 17

The weighted average cost flow assumption generates numbers that are between the LIFO and FIFO assumptions.

Accepted Answer

A) True 
 B)False

Question 18

When using LIFO,management occasionally deliberately stops normal purchases for the last few weeks of the year in an attempt to boost profits.

Accepted Answer

A) True 
 B)False

Question 19

A price index is a ratio which compares prices during the current year with prices during a base period.

Accepted Answer

A) True 
 B)False

Question 20

Under the lower of cost or market method,the floor provides a lower bound for write-downs in situations where input replacement cost and selling price do not move together.

Accepted Answer

A) True 
 B)False

The primary difference between FIFO and LIFO is that each method makes a different choice regarding which financial statement element is shown at the out-of-date cost.

An overstatement of ending inventory leads to an overstatement of cost of goods sold.

The following information pertains to the Fan Company's inventory item B1008: March 1 Inventory Balance 400 units @\ 3.10 5 Purchase 1,400 units @\ 3.20 14 Purchase 280 units @\ 3.25 31 Inventory Balance 520 units -In a periodic inventory system,the ending FIFO inventory is

Firms that use LIFO must disclose the dollar magnitude of the difference between LIFO and FIFO cost.

When the income effect of a LIFO liquidation is material,the SEC requires that the 10-K report disclose

Under GAAP,current cost (replacement cost)accounting may be used at the discretion of management.

FIFO matches current costs with current revenues.

LIFO can be applied on either a periodic or perpetual basis.However,using the perpetual method defeats the purpose of LIFO.

The mechanics of absorption costing can lead to year-to-year income changes

Inventory carrying cost includes transportation costs paid by the purchaser.

The size of the divergence between FIFO cost of goods sold and replacement cost of goods sold depends on the rapidity of the inventory turnover and the

For a firm using LIFO,the numerator of the inventory turnover ratio is predominantly current period costs

The use of the lower of cost or market method to value inventory for reporting purposes employs the accounting principle of matching.

The advent of widely used computerized optical scanning equipment has led to the adoption of perpetual systems in high-volume settings where such systems were previously not cost effective.

The weighted average cost flow assumption generates numbers that are between the LIFO and FIFO assumptions.

When using LIFO,management occasionally deliberately stops normal purchases for the last few weeks of the year in an attempt to boost profits.

A price index is a ratio which compares prices during the current year with prices during a base period.

Under the lower of cost or market method,the floor provides a lower bound for write-downs in situations where input replacement cost and selling price do not move together.

The Economic and Institutional Setting for Financial Reporting

Accrual Accounting and Income Determination

Additional Topics in Income Determination

Structure of the Balance Sheet and Statement of Cash Flows

Essentials of Financial Statement Analysis

The Role of Financial Information in Valuation and Credit Risk Assessment

The Role of Financial Information in Contracting

Receivables

Long-Lived Assets

Financial Instruments As Liabilities

Financial Reporting for Leases

Income Tax Reporting

Pensions and Postretirement Benefits

Financial Reporting for Owners Equity

Intercorporate Equity Investments

Statement of Cash Flows

Filters

Exam 9: Inventories

The primary difference between FIFO and LIFO is that each method makes a different choice regarding which financial statement element is shown at the out-of-date cost.

An overstatement of ending inventory leads to an overstatement of cost of goods sold.

The following information pertains to the Fan Company's inventory item B1008: March 1 Inventory Balance 400 units @\ 3.10 5 Purchase 1,400 units @\ 3.20 14 Purchase 280 units @\ 3.25 31 Inventory Balance 520 units -In a periodic inventory system,the ending FIFO inventory is

Firms that use LIFO must disclose the dollar magnitude of the difference between LIFO and FIFO cost.

When the income effect of a LIFO liquidation is material,the SEC requires that the 10-K report disclose

Under GAAP,current cost (replacement cost)accounting may be used at the discretion of management.

FIFO matches current costs with current revenues.

LIFO can be applied on either a periodic or perpetual basis.However,using the perpetual method defeats the purpose of LIFO.

The mechanics of absorption costing can lead to year-to-year income changes

Inventory carrying cost includes transportation costs paid by the purchaser.

The size of the divergence between FIFO cost of goods sold and replacement cost of goods sold depends on the rapidity of the inventory turnover and the

For a firm using LIFO,the numerator of the inventory turnover ratio is predominantly current period costs

The use of the lower of cost or market method to value inventory for reporting purposes employs the accounting principle of matching.

The advent of widely used computerized optical scanning equipment has led to the adoption of perpetual systems in high-volume settings where such systems were previously not cost effective.

The weighted average cost flow assumption generates numbers that are between the LIFO and FIFO assumptions.

When using LIFO,management occasionally deliberately stops normal purchases for the last few weeks of the year in an attempt to boost profits.

A price index is a ratio which compares prices during the current year with prices during a base period.

Under the lower of cost or market method,the floor provides a lower bound for write-downs in situations where input replacement cost and selling price do not move together.

The Economic and Institutional Setting for Financial Reporting

Accrual Accounting and Income Determination

Additional Topics in Income Determination

Structure of the Balance Sheet and Statement of Cash Flows

Essentials of Financial Statement Analysis

The Role of Financial Information in Valuation and Credit Risk Assessment

The Role of Financial Information in Contracting

Receivables

Long-Lived Assets

Financial Instruments As Liabilities

Financial Reporting for Leases

Income Tax Reporting

Pensions and Postretirement Benefits

Financial Reporting for Owners Equity

Intercorporate Equity Investments

Statement of Cash Flows

Filters