Question 1

Which of the following statements is correct with respect to the determination of operating cash flows?

Accepted Answer

A) A decrease in inventory is deducted from net income. 
B) An increase in accounts payable is deducted from net income. 
C) An increase in inventory is deducted from net income. 
D) A decrease in accounts payable is added to net income. 
A) A decrease in inventory is deducted from net income. 
B) An increase in accounts payable is deducted from net income. 
C) An increase in inventory is deducted from net income. 
D) A decrease in accounts payable is added to net income. C

Question 2

Which of the following statements is false?

Accepted Answer

A) Companies do not have to use the same inventory method for all items of inventory. 
B) Companies do not have to consistently use the same inventory costing methods. 
C) Use of the LIFO inventory method during a period of increasing prices may create a conflict of interest between the owners and managers. 
D) A company choosing to maximize stockholders' equity during a period of increasing prices should use the FIFO inventory method. 
A) Companies do not have to use the same inventory method for all items of inventory. 
B) Companies do not have to consistently use the same inventory costing methods. 
C) Use of the LIFO inventory method during a period of increasing prices may create a conflict of interest between the owners and managers. 
D) A company choosing to maximize stockholders' equity during a period of increasing prices should use the FIFO inventory method. B

Question 3

When a company uses the periodic inventory system,which of the following is true?

Accepted Answer

A) Purchases are recorded in the cost of goods sold account. 
B) The inventory account is updated after each sale. 
C) Cost of goods sold is computed at the end of the accounting period rather than at each sale date. 
D) The inventory account is updated throughout the year as purchases are made. 
A) Purchases are recorded in the cost of goods sold account. 
B) The inventory account is updated after each sale. 
C) Cost of goods sold is computed at the end of the accounting period rather than at each sale date. 
D) The inventory account is updated throughout the year as purchases are made. C

Question 4

QV-TV,Inc.provided the following items in their footnotes for the year-end 2010:
Cost of goods sold was $22 billion under FIFO costing and their inventory value under FIFO costing was $2.1 billion.The LIFO Reserve for year-end 2009 was a $0.6 billion credit balance and at year-end 2010 it had increased to a credit balance of $0.8 billion.How much is LIFO inventory value at year-end 2010?

Accepted Answer

A) $1.9 billion 
B) $2.9 billion 
C) $2.3 billion 
D) $1.3 billion 
A) $1.9 billion 
B) $2.9 billion 
C) $2.3 billion 
D) $1.3 billion

Question 5

The journal entry to write-down inventory under the lower-of-cost-or-market (LCM)rule results in a debit to cost of goods sold and a credit to inventory.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following statements is correct when inventory prices are decreasing?

Accepted Answer

A) Inventory turnover will be the greatest when the average cost inventory method is used. 
B) FIFO's gross profit will be the highest among the inventory costing methods. 
C) Inventory turnover will be the largest when the LIFO inventory method is used. 
D) Use of the LIFO method will result in lower cash flows due to a decreased cost of goods sold. 
A) Inventory turnover will be the greatest when the average cost inventory method is used. 
B) FIFO's gross profit will be the highest among the inventory costing methods. 
C) Inventory turnover will be the largest when the LIFO inventory method is used. 
D) Use of the LIFO method will result in lower cash flows due to a decreased cost of goods sold.

Question 7

A corporation has provided the following information about one of their products:

$$\begin{array}{ll}
\begin{array} { ll } 
\text { Date } & \text { Transaction } \
1 / 1 & \text { Beginning Inventory } \
6 / 5 & \text { Purchase } \
11 / 10 & \text { Purchase } \

\end{array}
\begin{array} { l l} 
\text { Number of Units } & \text { Cost per Unit } \
200& \$ 140 \
400 & \$ 160 \
100 & \$ 200 \

\end{array}
\end{array}$$
 During the year,400 units were sold. What is cost of goods sold using the average cost method?

Accepted Answer

A) $48,000 
B) $64,000 
C) $50,000 
D) $62,000 
A) $48,000 
B) $64,000 
C) $50,000 
D) $62,000

Question 8

Lauer Corporation uses the periodic inventory system and has provided the following information about one of their laptop computers:

$$\begin{array}{ll}
\begin{array} { ll } 
\text { Date } & \text { Transaction } \
1 / 1 & \text { Beginning Inventory } \
5 / 5 & \text { Purchase } \
8 / 10 & \text { Purchase } \
10 / 15 & \text { Purchase }
\end{array}
\begin{array} { l l} 
\text { Number of Units } & \text { Cost per Unit } \
100& \$ 800 \
200 & \$ 900 \
300 & \$ 1,000 \
200 & \$ 1,050
\end{array}
\end{array}$$
 During the year,750 laptop computers were sold. What was ending inventory using the FIFO cost flow assumption?

Accepted Answer

A) $60,000 
B) $52,500 
C) $52,000 
D) $40,000 
A) $60,000 
B) $52,500 
C) $52,000 
D) $40,000

Question 9

During the audit of Montane Company's 2010 financial statements,the auditors discovered that the 2010 ending inventory had been overstated by $8,000 and that the 2010 beginning inventory was overstated by $5,000.Before the effect of these errors,2010 pretax income had been computed as $100,000.What should be reported as the correct 2010 pretax income before taxes?

Accepted Answer

A) $113,000 
B) $87,000 
C) $105,000 
D) $97,000 
A) $113,000 
B) $87,000 
C) $105,000 
D) $97,000

Question 10

RJ Corporation has provided the following information about one of their inventory items:

$$\begin{array}{ll}
\begin{array} { ll } 
\text { Date } & \text { Transaction } \
1 / 1 & \text { Beginning Inventory } \
6 /6& \text { Purchase } \
9 / 10 & \text { Purchase } \
11/ 15 & \text { Purchase }
\end{array}
\begin{array} { l l} 
\text { Number of Units } & \text { Cost per Unit } \
400& \$ 3,200 \
800 & \$ 3,600 \
1,200 & \$ 4,000 \
800 & \$ 4,200
\end{array}
\end{array}$$
 During the year,3,000 units were sold. What was cost of goods sold using the FIFO cost flow assumption?

Accepted Answer

A) $11,680,000 
B) $11,590,000 
C) $11,480,000 
D) $11,550,000 
A) $11,680,000 
B) $11,590,000 
C) $11,480,000 
D) $11,550,000

Question 11

Coleman Company has provided the following information:
Beginning inventory,$100,000; cost of goods sold,$450,000; and ending inventory,$80,000.How much were Coleman's inventory purchases?

Accepted Answer

A) $450,000 
B) $410,000 
C) $430,000 
D) $420,000 
A) $450,000 
B) $410,000 
C) $430,000 
D) $420,000

Question 12

An increase in inventory is deducted from net income when determining operating activities cash flows.

Accepted Answer

A) True 
 B)False

Question 13

A $25,000 overstatement of the 2010 ending inventory was discovered after the financial statements for 2010 were prepared.Which of the following describes the effect of the inventory error on the 2011 financial statements?

Accepted Answer

A) Net income and stockholders' equity are both understated. 
B) Net income is understated and stockholders' equity is not affected. 
C) Net income and stockholders' equity are both overstated. 
D) Net income and stockholders' equity are both unaffected. 
A) Net income and stockholders' equity are both understated. 
B) Net income is understated and stockholders' equity is not affected. 
C) Net income and stockholders' equity are both overstated. 
D) Net income and stockholders' equity are both unaffected.

Question 14

Quest Inc.provided the following footnote in their annual report:
Inventories are stated at the lower of cost or market.The cost of inventories has been determined using last in first out (LIFO)method.Cost of goods sold under LIFO costing were $22.2 billion for 2011 and ending inventory under LIFO was $1.3 billion.Inventory in 2010 under LIFO costing was $1.2 billion.The LIFO Reserve account carried a credit balance of $0.8 billion in 2011 and $0.6 billion in 2010.
Compute the following:
 1. FIFO ending inventory balance at year end 2010 $ \quad $ -------
2. FIFO ending inventory balance at year end 2011 $ \quad $  -------
3. FIFO cost of goods sold for year end 2011 $ \quad $  $ \quad $ $ \quad $-------
4. Inventory turnover under LIFO costing for 2011 $ \quad $ -------
5. Inventory turnover under FIFO costing for 2011 $ \quad $ -------

Accepted Answer

To compute the FIFO ending inventory bal

Question 15

A large retail department store probably would use the specific identification inventory costing method for most of the items in its inventory.

Accepted Answer

A) True 
 B)False

Question 16

Moore Company purchased an item for inventory that cost $20 per unit and was priced to sell at $30.It was determined that the replacement cost is $18 per unit.Using the lower-of-cost-or- market rule,what amount should be reported on the balance sheet for inventory?

Accepted Answer

A) $18 
B) $20 
C) $12 
D) $30 
A) $18 
B) $20 
C) $12 
D) $30

Question 17

Give the journal entries for the transactions listed below under each of the two inventory systems.
A.Purchased merchandise for cash, $1,000.
B.Sold merchandise for $600 cash that had cost $480 (cost is 80% of the sales price.
C.Accepted a sales return from a customer: sales price $30.A cash refund was given to the customer.The goods were returned to regular inventory.
D.Returned goods to the vendor because they did not meet our specification; $50 cash refund was received.

Accepted Answer

Under the perpetual inventory system:
A.

Question 18

Which of the following statements is incorrect?

Accepted Answer

A) Ending inventory exceeds beginning inventory when purchases are greater than cost of goods sold. 
B) Cost of goods sold exceeds purchases when ending inventory is less than beginning inventory. 
C) Cost of goods available for sale will always be equal to or greater than cost of goods sold. 
D) Ending inventory is greater than beginning inventory when purchases are less than cost of goods sold. 
A) Ending inventory exceeds beginning inventory when purchases are greater than cost of goods sold. 
B) Cost of goods sold exceeds purchases when ending inventory is less than beginning inventory. 
C) Cost of goods available for sale will always be equal to or greater than cost of goods sold. 
D) Ending inventory is greater than beginning inventory when purchases are less than cost of goods sold.

Question 19

William Company uses the periodic inventory system and has provided the following data:
 $$\begin{array} { l r r } 
& \text { Units } & \text { Amount } \
\text { Beginning inventory } & 6,000 & \$ 30,000 \
\text { Purchases } & 32,000 & 192,000 \
\text { Sales } & 28,000 & 280,000
\end{array}$$ Requirement 1:
Calculate the following using both FIFO and LIFO inventory methods. $\begin{array}{ll}
 & \$ \text { FIFO } & \$ \text { LIFO } \
\text { A. Ending inventory }& \$----& \$----\
\text { B. Cost of Goods Sold }& \$----& \$----\
\text { C. Gross margin }& \$----& \$----\
\end{array}$ Requirement 2:
Conceptually,how does pretax income using FIFO (in times of rising prices)compare to LIFO pretax income? Explain your answer.

Accepted Answer

To calculate the ending inventory, cost

Question 20

Hopkins Company reported the following information related to inventory and sales:
 $$\begin{array} { l r r } 
& \text { Units } & \text {  Unit Cost } \
\text { Beginning inventory } & 6,000 & \$ 30,000 \
\text { Purchase No.1 } & 32,000 & 192,000 \
\text {Purchase No.2 } & 28,000 & 280,000
\end{array}$$ Sales-8,000 units at $35 per unit.
Compute the following amounts assuming a periodic inventory system: $\begin{array}{lcccccl}
\text { Inventory Costing } & & \text { Cost of Goods } & \text { Gross } & \text { Balance Sheet } \
\text { Method } & \text { Revenue } & \text { Sold } & \text { Margin } & \text { Inventory }\
\text { FIFO }\
\text { LIFO}\
\end{array}$

Accepted Answer

To compute the Cost of Goods Sold (COGS)

Which of the following statements is correct with respect to the determination of operating cash flows?

Which of the following statements is false?

When a company uses the periodic inventory system,which of the following is true?

The journal entry to write-down inventory under the lower-of-cost-or-market (LCM)rule results in a debit to cost of goods sold and a credit to inventory.

Which of the following statements is correct when inventory prices are decreasing?

Coleman Company has provided the following information: Beginning inventory,$100,000; cost of goods sold,$450,000; and ending inventory,$80,000.How much were Coleman's inventory purchases?

An increase in inventory is deducted from net income when determining operating activities cash flows.

A $25,000 overstatement of the 2010 ending inventory was discovered after the financial statements for 2010 were prepared.Which of the following describes the effect of the inventory error on the 2011 financial statements?

A large retail department store probably would use the specific identification inventory costing method for most of the items in its inventory.

Moore Company purchased an item for inventory that cost $20 per unit and was priced to sell at $30.It was determined that the replacement cost is $18 per unit.Using the lower-of-cost-or- market rule,what amount should be reported on the balance sheet for inventory?

Which of the following statements is incorrect?

Financial Statements and Business Decisions

Investing and Financing Decisions and the Balance Sheet

Operating Decisions and the Income Statement

Adjustments,Financial Statements,and the Quality of Earnings

Communicating and Interpreting Accounting Information

Reporting and Interpreting Sales Revenue, Receivables, and Cash

Reporting and Interpreting Property, Plant, and Equipment; Natural Resources; and Intangibles

Reporting and Interpreting Liabilities

Reporting and Interpreting Bonds

Reporting and Interpreting Owners Equity

Reporting and Interpreting Investments in Other Corporations

Statement of Cash Flows

Analyzing Financial Statements

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

Which of the following statements is correct with respect to the determination of operating cash flows?

Which of the following statements is false?

When a company uses the periodic inventory system,which of the following is true?

The journal entry to write-down inventory under the lower-of-cost-or-market (LCM)rule results in a debit to cost of goods sold and a credit to inventory.

Which of the following statements is correct when inventory prices are decreasing?

Coleman Company has provided the following information: Beginning inventory,$100,000; cost of goods sold,$450,000; and ending inventory,$80,000.How much were Coleman's inventory purchases?

An increase in inventory is deducted from net income when determining operating activities cash flows.

A $25,000 overstatement of the 2010 ending inventory was discovered after the financial statements for 2010 were prepared.Which of the following describes the effect of the inventory error on the 2011 financial statements?

A large retail department store probably would use the specific identification inventory costing method for most of the items in its inventory.

Moore Company purchased an item for inventory that cost $20 per unit and was priced to sell at $30.It was determined that the replacement cost is $18 per unit.Using the lower-of-cost-or- market rule,what amount should be reported on the balance sheet for inventory?

Which of the following statements is incorrect?

Financial Statements and Business Decisions

Investing and Financing Decisions and the Balance Sheet

Operating Decisions and the Income Statement

Adjustments,Financial Statements,and the Quality of Earnings

Communicating and Interpreting Accounting Information

Reporting and Interpreting Sales Revenue, Receivables, and Cash

Reporting and Interpreting Property, Plant, and Equipment; Natural Resources; and Intangibles

Reporting and Interpreting Liabilities

Reporting and Interpreting Bonds

Reporting and Interpreting Owners Equity

Reporting and Interpreting Investments in Other Corporations

Statement of Cash Flows

Analyzing Financial Statements

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