Question 1

Which of the following statements is correct?

Accepted Answer

A) Cost of goods available for sale is allocated between costs of goods sold and inventory at year-end. 
B) A purchase of inventory on credit increases both cost of goods available for sale and cost of goods sold. 
C) Purchases of inventory during a period less that period's cost of goods sold equals ending inventory regardless of the beginning inventory amount. 
D) Cost of goods available for sale equals ending inventory plus purchases. 
A) Cost of goods available for sale is allocated between costs of goods sold and inventory at year-end. 
B) A purchase of inventory on credit increases both cost of goods available for sale and cost of goods sold. 
C) Purchases of inventory during a period less that period's cost of goods sold equals ending inventory regardless of the beginning inventory amount. 
D) Cost of goods available for sale equals ending inventory plus purchases.

Question 2

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 LIFO cost flow assumption?

Accepted Answer

A) $40,000 
B) $52,500 
C) $60,000 
D) $55,000 
A) $40,000 
B) $52,500 
C) $60,000 
D) $55,000

Question 3

Cash flow from operations increases by $1,000,000 when there is a $3,000,000 decrease in inventory and a $2,000,000 decrease in accounts payable.

Accepted Answer

A) True 
 B)False

Question 4

Given a particular set of facts and assumptions,the following pairs of amounts were computed using FIFO and LIFO.For each pair of amounts,indicate which amount resulted from applying FIFO,and which amount resulted from applying LIFO. A. Prices are increasing, ending inventory
is:
1. $\$ 20,650$
2. $\$ 19,400$
B. Prices are increasing, cost of goods sold is:
1. $\$ 10,650$
2. $\$ 9,400$
C. Prices are decreasing, ending inventory is:
1. $\$ 5,500$
2. $\$ 5,000$
D. Prices are decreasing, cost of goods sold is:
1. $\$ 6,200$
2. $\$ 7,000$

Accepted Answer

In inventory accounting, FIFO (First-In,

Question 5

Sideline Company reported net income for 2010 of $70,000 and in 2011 of $84,000 (both after income taxes at a 30% rate).It was discovered in 2011 that the ending inventory for 2010 was understated by $2,000 (before any income tax effect).Calculate the correct net income (after income tax of 20%)for 2009 and 2010.

Accepted Answer

To calculate the correct net income for

Question 6

What is the net adjustment to net income with respect to the determination of operating cash flows when inventory increases $100,000 and accounts payable increases $20,000?

Accepted Answer

A) An increase of $120,000. 
B) A decrease of $120,000. 
C) An increase of $80,000. 
D) A decrease of $80,000 
A) An increase of $120,000. 
B) A decrease of $120,000. 
C) An increase of $80,000. 
D) A decrease of $80,000

Question 7

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 ending inventory using the FIFO cost flow assumption?

Accepted Answer

A) $640,000 
B) $840,000 
C) $960,000 
D) $880,000 
A) $640,000 
B) $840,000 
C) $960,000 
D) $880,000

Question 8

Which of the following statements is correct?

Accepted Answer

A) FIFO reports lower income amounts than LIFO when prices are increasing. 
B) LIFO reports a higher income amount than FIFO when prices are increasing. 
C) LIFO reports a higher income amount than FIFO when prices are decreasing. 
D) LIFO reports the same amount of income as FIFO when prices are increasing. 
A) FIFO reports lower income amounts than LIFO when prices are increasing. 
B) LIFO reports a higher income amount than FIFO when prices are increasing. 
C) LIFO reports a higher income amount than FIFO when prices are decreasing. 
D) LIFO reports the same amount of income as FIFO when prices are increasing.

Question 9

Which of the following statements is correct?

Accepted Answer

A) The choice of an inventory costing method is dependent upon the actual physical flow of the inventory. 
B) LIFO should be used during a period of increasing prices when the objective is to maximize the ending inventory value on the balance sheet. 
C) FIFO should be used during a period of decreasing prices when the objective is to maximize the gross profit reported on the balance sheet. 
D) The average cost method will result in an ending inventory balance which is somewhere between LIFO and FIFO when inventory prices are changing. 
A) The choice of an inventory costing method is dependent upon the actual physical flow of the inventory. 
B) LIFO should be used during a period of increasing prices when the objective is to maximize the ending inventory value on the balance sheet. 
C) FIFO should be used during a period of decreasing prices when the objective is to maximize the gross profit reported on the balance sheet. 
D) The average cost method will result in an ending inventory balance which is somewhere between LIFO and FIFO when inventory prices are changing.

Question 10

Which of the following statements does not accurately describe the lower of cost or market (LCM)valuation method?

Accepted Answer

A) The journal entry to write-down inventory decreases gross profit. 
B) The journal entry to write-down inventory decreases current assets. 
C) The journal entry to write-down inventory does not affect income from operations. 
D) The journal entry to write-down inventory increases cost of goods sold. 
A) The journal entry to write-down inventory decreases gross profit. 
B) The journal entry to write-down inventory decreases current assets. 
C) The journal entry to write-down inventory does not affect income from operations. 
D) The journal entry to write-down inventory increases cost of goods sold.

Question 11

Which of the following would not be a component of the year-end inventory balance?

Accepted Answer

A) Freight-in costs 
B) Inventory inspection costs 
C) Inventory preparation costs 
D) Inventory related selling costs 
A) Freight-in costs 
B) Inventory inspection costs 
C) Inventory preparation costs 
D) Inventory related selling costs

Question 12

For each independent situation given below,determine the effect on pretax income for each.Enter "+" to indicate pretax income is overstated,"-" to indicate pretax income is understated,or "NA" to indicate that pretax income is not affected. $\begin{array} { c c c } & \text { Independent Situations } && \text { Effect on Pretax Income } \
 \end{array}$
$\begin{array} { c c c } &&&&&&&&&&&&&& \text { 2009 } && \text { 2010 } \
 \end{array}$
A.  2009 ending inventory is overstated. 
B. 2009 ending inventory is understated.
C. 2010 ending inventory is overstated.
D. 2010 beginning inventory is overstated
E. 2009 beginning inventory is understated.
F. 2010 beginning inventory is understated and 2010 ending inventory is understated by the same amount.

Accepted Answer

To determine the effect on pretax income

Question 13

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 cost of goods sold using the LIFO cost flow assumption?

Accepted Answer

A) $717,500 
B) $730,000 
C) $703,125 
D) $725,500 
A) $717,500 
B) $730,000 
C) $703,125 
D) $725,500

Question 14

A company can use the LIFO inventory method for income tax purposes and the FIFO inventory method for financial reporting purposes during a given year.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following statements is correct regarding either the perpetual or periodic inventory systems?

Accepted Answer

A) In a perpetual inventory system, the inventory account is not changed for each purchase during the accounting period. 
B) In a perpetual inventory system, cost of goods sold is recorded at the time of each sale during the accounting period. 
C) In a periodic inventory system, cost of goods sold is developed from a comparison of beginning inventory and ending inventory only. 
D) In a periodic inventory system, the inventory account is increased for each purchase during the accounting period. 
A) In a perpetual inventory system, the inventory account is not changed for each purchase during the accounting period. 
B) In a perpetual inventory system, cost of goods sold is recorded at the time of each sale during the accounting period. 
C) In a periodic inventory system, cost of goods sold is developed from a comparison of beginning inventory and ending inventory only. 
D) In a periodic inventory system, the inventory account is increased for each purchase during the accounting period.

Question 16

Manufactured goods transferred out of work in process are reported as finished goods on the balance sheet.

Accepted Answer

A) True 
 B)False

Question 17

Atomic Company incorrectly recorded a December 2009 credit purchase of inventory during January 2010.Assuming that the December 31,2009 ending inventory was correctly determined,what is the effect of this error on the financial statements for the year ended December 31,2009?

Accepted Answer

A) Net income is not affected. 
B) Stockholders' equity is not affected. 
C) Net income is overstated. 
D) Current assets are understated. 
A) Net income is not affected. 
B) Stockholders' equity is not affected. 
C) Net income is overstated. 
D) Current assets are understated.

Question 18

During periods of decreasing prices,use of the LIFO inventory method will result in a larger amount of inventory than will the use of the FIFO inventory method.

Accepted Answer

A) True 
 B)False

Question 19

At the end of 2010,a $5,000 understatement was discovered in the amount of the 2010 ending inventory as reflected in the perpetual inventory records.What were the 2010 effects of the $5,000 inventory error (before correction)?

Accepted Answer

A) Assets were understated by $5,000 and pretax income was understated by $5,000. 
B) Assets were understated by $5,000 and pretax income was overstated by $5,000. 
C) Cost of goods sold was understated by $5,000 and pretax income was understated by $5,000. 
D) Cost of goods sold was overstated by $5,000 and pretax income was overstated by $5,000. 
A) Assets were understated by $5,000 and pretax income was understated by $5,000. 
B) Assets were understated by $5,000 and pretax income was overstated by $5,000. 
C) Cost of goods sold was understated by $5,000 and pretax income was understated by $5,000. 
D) Cost of goods sold was overstated by $5,000 and pretax income was overstated by $5,000.

Question 20

Jennings Company uses the periodic inventory system and applied FIFO inventory costing.At the end of the annual accounting period,December 31,2010,the accounting records for the best selling item in inventory showed:
 $$\begin{array} { l c c } 
 \text { Transactions }  & \text { Units } & \text { Unit Cost } \

\text { Beginning inventory, Jan. 1, } 2010 & 500 & \$ 100 \
\text { 1. Purchase, Feb. } 1 & 600 & 105 \
\text { 2. Sale, March } 15 \text { (sold at } \$ 20 \text { each) } & (700) & \
\text { 3. Purchase, May } 15 & 400 & 110 \
\text { 4. Sale, July } 31 \text { (sold at } \$ 25 \text { each) } & (500) &
\end{array}$$ Calculate the following:
 (round to the nearest dollar.)
1.Goods available for sale
2.Ending inventory
3.Cost of goods sold

Accepted Answer

To calculate the goods available for sal

Which of the following statements is correct?

Cash flow from operations increases by $1,000,000 when there is a $3,000,000 decrease in inventory and a $2,000,000 decrease in accounts payable.

What is the net adjustment to net income with respect to the determination of operating cash flows when inventory increases $100,000 and accounts payable increases $20,000?

Which of the following statements is correct?

Which of the following statements is correct?

Which of the following statements does not accurately describe the lower of cost or market (LCM)valuation method?

Which of the following would not be a component of the year-end inventory balance?

A company can use the LIFO inventory method for income tax purposes and the FIFO inventory method for financial reporting purposes during a given year.

Which of the following statements is correct regarding either the perpetual or periodic inventory systems?

Manufactured goods transferred out of work in process are reported as finished goods on the balance sheet.

Atomic Company incorrectly recorded a December 2009 credit purchase of inventory during January 2010.Assuming that the December 31,2009 ending inventory was correctly determined,what is the effect of this error on the financial statements for the year ended December 31,2009?

During periods of decreasing prices,use of the LIFO inventory method will result in a larger amount of inventory than will the use of the FIFO inventory method.

At the end of 2010,a $5,000 understatement was discovered in the amount of the 2010 ending inventory as reflected in the perpetual inventory records.What were the 2010 effects of the $5,000 inventory error (before correction)?

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?

Cash flow from operations increases by $1,000,000 when there is a $3,000,000 decrease in inventory and a $2,000,000 decrease in accounts payable.

What is the net adjustment to net income with respect to the determination of operating cash flows when inventory increases $100,000 and accounts payable increases $20,000?

Which of the following statements is correct?

Which of the following statements is correct?

Which of the following statements does not accurately describe the lower of cost or market (LCM)valuation method?

Which of the following would not be a component of the year-end inventory balance?

A company can use the LIFO inventory method for income tax purposes and the FIFO inventory method for financial reporting purposes during a given year.

Which of the following statements is correct regarding either the perpetual or periodic inventory systems?

Manufactured goods transferred out of work in process are reported as finished goods on the balance sheet.

Atomic Company incorrectly recorded a December 2009 credit purchase of inventory during January 2010.Assuming that the December 31,2009 ending inventory was correctly determined,what is the effect of this error on the financial statements for the year ended December 31,2009?

During periods of decreasing prices,use of the LIFO inventory method will result in a larger amount of inventory than will the use of the FIFO inventory method.

At the end of 2010,a $5,000 understatement was discovered in the amount of the 2010 ending inventory as reflected in the perpetual inventory records.What were the 2010 effects of the $5,000 inventory error (before correction)?

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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