Question 1

The LIFO Reserve is a contra-asset account which represents the excess of FIFO inventory costs over LIFO inventory costs.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following statements is incorrect?

Accepted Answer

A) An increase in raw materials inventory means that raw materials purchases exceed raw materials used. 
B) An increase in work in process inventory means that costs put into work in process exceed cost of goods manufactured. 
C) A decrease in work in process inventory means that cost of goods sold exceed cost of goods manufactured. 
D) An increase in finished goods inventory means that cost of goods manufactured exceeds cost of goods sold. 
A) An increase in raw materials inventory means that raw materials purchases exceed raw materials used. 
B) An increase in work in process inventory means that costs put into work in process exceed cost of goods manufactured. 
C) A decrease in work in process inventory means that cost of goods sold exceed cost of goods manufactured. 
D) An increase in finished goods inventory means that cost of goods manufactured exceeds cost of goods sold.

Question 3

Which of the following costs will not affect cost of goods sold?

Accepted Answer

A) Inventory inspection costs. 
B) Inventory preparation costs. 
C) Inventory related selling costs. 
D) Freight charges incurred to acquire inventory. 
A) Inventory inspection costs. 
B) Inventory preparation costs. 
C) Inventory related selling costs. 
D) Freight charges incurred to acquire inventory.

Question 4

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 ending inventory 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 5

A company using the periodic inventory system correctly recorded a purchase of merchandise,but the merchandise was not included in the physical inventory count at the end of the accounting period.The error caused which of the following?

Accepted Answer

A) An understatement of both net income and assets. 
B) An overstatement of inventory, purchases, and accounts payable. 
C) An understatement of inventory, purchases, and accounts payable. 
D) An overstatement of net income and assets. 
A) An understatement of both net income and assets. 
B) An overstatement of inventory, purchases, and accounts payable. 
C) An understatement of inventory, purchases, and accounts payable. 
D) An overstatement of net income and assets.

Question 6

Which of the following businesses would not be as likely to use the specific identification method of inventory valuation?

Accepted Answer

A) An automobile dealer 
B) A custom jewelry store 
C) A hardware store 
D) An art dealer 
A) An automobile dealer 
B) A custom jewelry store 
C) A hardware store 
D) An art dealer

Question 7

Which of the following statements is incorrect when inventory prices are increasing?

Accepted Answer

A) LIFO's cost of goods sold will be the largest among the inventory costing methods. 
B) LIFO's income tax will be the lowest among the inventory costing methods. 
C) Ending inventory using the average cost method will be larger than the ending inventory when the LIFO method is used. 
D) Cost of goods sold using the average cost method will be less than cost of goods sold when the FIFO method is used. 
A) LIFO's cost of goods sold will be the largest among the inventory costing methods. 
B) LIFO's income tax will be the lowest among the inventory costing methods. 
C) Ending inventory using the average cost method will be larger than the ending inventory when the LIFO method is used. 
D) Cost of goods sold using the average cost method will be less than cost of goods sold when the FIFO method is used.

Question 8

On March 15,2010,Ryan Company purchased $10,000 of merchandise on credit subject to terms of 2/10,n/30.Ryan Company records its purchases using the gross amount.The periodic inventory system is used.Which of the following journal entries is correct when Ryan Company pays for these goods on March 30,2010?

Accepted Answer

A)  Accounts payable $\quad $9,800
$\quad $Cash $\quad $$\quad $$\quad $$\quad $$\quad $$\quad $9,800 
B)  Accounts payable $\quad $$\quad $10,000
$\quad $Cash$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $10,000 
C)  Accounts payable $\quad $10,000
$\quad $Cash $\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $9,800
$\quad $Purchase discounts$\quad $$\quad $$\quad $200 
D)  Accounts payable $\quad $9,800
Purchase discounts $\quad $200
$\quad $$\quad $Cash$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $10,000 
A)  Accounts payable $\quad $9,800
$\quad $Cash $\quad $$\quad $$\quad $$\quad $$\quad $$\quad $9,800 
B)  Accounts payable $\quad $$\quad $10,000
$\quad $Cash$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $10,000 
C)  Accounts payable $\quad $10,000
$\quad $Cash $\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $9,800
$\quad $Purchase discounts$\quad $$\quad $$\quad $200 
D)  Accounts payable $\quad $9,800
Purchase discounts $\quad $200
$\quad $$\quad $Cash$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $10,000

Question 9

The use of raw materials in the manufacturing process is reported as an operating expense on the income statement.

Accepted Answer

A) True 
 B)False

Question 10

Costs of goods available for sale ends up being allocated to both ending inventory and cost of goods sold.

Accepted Answer

A) True 
 B)False

Question 11

McMillan Company uses the periodic inventory system.It has compiled the following information in order to prepare the financial statements at December 31,2010:
 $$\begin{array} { l r } 
\text { Gross sales during 2010 } & \$ 2,000,000 \
\text { Sales returns and allowances during } 2010 & 50,000 \
\text { Beginning inventory, January 1, 2010 } & 100,000 \
\text { Ending inventory, December } 31,2010 & 120,000 \
\text { Purchases during 2010 } & 750,000
\end{array}$$ Calculate each of the following:
 Cost of goods available for sale,cost of goods sold and gross margin.

Accepted Answer

To calculate the cost of goods available

Question 12

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 2010 financial statements?

Accepted Answer

A) Current assets were overstated and net income was understated. 
B) Current assets were understated and net income was understated. 
C) Current assets were overstated and net income was overstated. 
D) Current assets were understated and net income was overstated. 
A) Current assets were overstated and net income was understated. 
B) Current assets were understated and net income was understated. 
C) Current assets were overstated and net income was overstated. 
D) Current assets were understated and net income was overstated.

Question 13

Which of the following statements is incorrect for a manufacturing entity?

Accepted Answer

A) Inventory is transferred from work in process to finished goods. 
B) Raw materials used are transferred to work in process. 
C) Finished goods inventory eventually becomes cost of goods sold. 
D) Cost of goods sold is recognized when the manufacturing process is complete. 
A) Inventory is transferred from work in process to finished goods. 
B) Raw materials used are transferred to work in process. 
C) Finished goods inventory eventually becomes cost of goods sold. 
D) Cost of goods sold is recognized when the manufacturing process is complete.

Question 14

Cassie Corporation has provided the following information for its most recent month of operation:
Sales $32,000,beginning inventory $8,000,purchases $16,000 and gross profit $20,000.How much was Cassie's ending inventory?

Accepted Answer

A) $4,000 
B) $8,000 
C) $6,000 
D) $12,000 
A) $4,000 
B) $8,000 
C) $6,000 
D) $12,000

Question 15

Rio Company uses the FIFO inventory costing method and has a perpetual inventory system.All purchases and sales were cash transactions.The records reflected the following for January,2010:
 $\begin{array} { l c c } & \text { Units } & \text { Unit Cost } \ \text { Beginning inventory } & 100 & \$ 1.00 \ \text { Purchase, January 6 } & 200 & 1.20 \ \text { Sale, January 10 (at \$2.40 per unit) } & 110 & \ \text { Purchase, January 14 } & 100 & 1.30 \ \text { Sale, January 29 (at } \$ 2.60 \text { per unit) } & 170 & \end{array}$
Determine the following:
A. 2010 cost of goods available for sale
B. 2010 ending inventory
C. 2010 cost of goods sold
D. The journal entries for January 6 and 10 .

Accepted Answer

To determine the cost of goods available

Question 16

The average days to sell inventory decreases as inventory turnover increases.

Accepted Answer

A) True 
 B)False

Question 17

Factory overhead manufacturing costs are a component of the cost of the work-in process inventory.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following journal entries is not consistent with the use of a periodic inventory system?

Accepted Answer

A)  Purchases
$\quad $ Accounts payable 
B)  Inventory
$\quad $ Accounts payable 
C)  Accounts payable 
$\quad $ Cash 
D)  Accounts receivable
$\quad $ Sales revenue 
A)  Purchases
$\quad $ Accounts payable 
B)  Inventory
$\quad $ Accounts payable 
C)  Accounts payable 
$\quad $ Cash 
D)  Accounts receivable
$\quad $ Sales revenue

Question 19

Coulter Company uses the LIFO inventory method under the periodic inventory system.The following data were available for the month of January,2010:
 $$\begin{array} { l c r } 
& \text { Units } & \text { Cost per Unit } \
\text { Inventory, January 1 } & 200 & \$ 5.00 \
\text { Purchase No. 1 } & 400 & 5.50 \
\text { Sale No. 1 (sold at } \$ 12.00 \text { per unit) } & 500 & \
\text { Purchase No. } 2 & 700 & 6.00 \
\text { Sale No. } 2 \text { (sold at } \$ 13.00 \text { per unit) } & 500 &
\end{array}$$ Compute the following:
1.Beginning inventory
2.Ending inventory
3.Cost of goods available for sale
4.Cost of goods sold
5.Gross margin

Accepted Answer

To compute the requested information, we

Question 20

A company provided the following footnote in its most recent annual report:
During the current and prior year,the company reduced certain inventory quantities that were valued at lower LIFO costs prevailing in prior years.The effect of these physical reductions was to increase after tax earnings this year by $90 million,$.30 per share,and $98 million,or $.327 per share last year.
1.Explain why the reduction in inventory quantity increased after tax earnings for this company.
2.If the company had been using FIFO costing,would the reductions in inventory quantity during the two years have increased after tax earnings? Explain.

Accepted Answer

1. The reduction in inventory quantity i

The LIFO Reserve is a contra-asset account which represents the excess of FIFO inventory costs over LIFO inventory costs.

Which of the following statements is incorrect?

Which of the following costs will not affect cost of goods sold?

A company using the periodic inventory system correctly recorded a purchase of merchandise,but the merchandise was not included in the physical inventory count at the end of the accounting period.The error caused which of the following?

Which of the following businesses would not be as likely to use the specific identification method of inventory valuation?

Which of the following statements is incorrect when inventory prices are increasing?

The use of raw materials in the manufacturing process is reported as an operating expense on the income statement.

Costs of goods available for sale ends up being allocated to both ending inventory and cost of goods sold.

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 2010 financial statements?

Which of the following statements is incorrect for a manufacturing entity?

Cassie Corporation has provided the following information for its most recent month of operation: Sales $32,000,beginning inventory $8,000,purchases $16,000 and gross profit $20,000.How much was Cassie's ending inventory?

The average days to sell inventory decreases as inventory turnover increases.

Factory overhead manufacturing costs are a component of the cost of the work-in process inventory.

Which of the following journal entries is not consistent with the use of a periodic inventory system?

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

The LIFO Reserve is a contra-asset account which represents the excess of FIFO inventory costs over LIFO inventory costs.

Which of the following statements is incorrect?

Which of the following costs will not affect cost of goods sold?

A company using the periodic inventory system correctly recorded a purchase of merchandise,but the merchandise was not included in the physical inventory count at the end of the accounting period.The error caused which of the following?

Which of the following businesses would not be as likely to use the specific identification method of inventory valuation?

Which of the following statements is incorrect when inventory prices are increasing?

The use of raw materials in the manufacturing process is reported as an operating expense on the income statement.

Costs of goods available for sale ends up being allocated to both ending inventory and cost of goods sold.

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 2010 financial statements?

Which of the following statements is incorrect for a manufacturing entity?

Cassie Corporation has provided the following information for its most recent month of operation: Sales $32,000,beginning inventory $8,000,purchases $16,000 and gross profit $20,000.How much was Cassie's ending inventory?

The average days to sell inventory decreases as inventory turnover increases.

Factory overhead manufacturing costs are a component of the cost of the work-in process inventory.

Which of the following journal entries is not consistent with the use of a periodic inventory system?

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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