Question 1

An increase in accounts payable is added to net income when determining operating activities cash flows.

Accepted Answer

A) True 
 B)False

Question 2

Cutting Edge Technologies reported the following information in their 2010 annual report:
 $\begin{array}{lr}
& \text {In millions}\
\text { Net sales revenue } & \$ 18,860 \
\text { Cost of sales } & 11,010 \
\text { December } 31,2010 \text { inventory } & 1,840 \
\text { December } 31,2011 \text { inventory } & 1,550
\end{array}$ 1.Determine the inventory turnover ratio.
2.Determine the average days to sell inventory.
3.Explain the meaning of each number.

Accepted Answer

1. To determine the inventory turnover r

Question 3

Which of the following would not be included in Latimer Company's ending inventory?

Accepted Answer

A) Goods shipped from a supplier with terms of FOB shipping point. 
B) Goods shipped to customers with terms of FOB destination. 
C) Samples provided to a customer with the understanding that they would be returned to Latimer at the beginning of the next year. 
D) Goods shipped to customers with terms of FOB shipping point. 
A) Goods shipped from a supplier with terms of FOB shipping point. 
B) Goods shipped to customers with terms of FOB destination. 
C) Samples provided to a customer with the understanding that they would be returned to Latimer at the beginning of the next year. 
D) Goods shipped to customers with terms of FOB shipping point.

Question 4

When a company using the LIFO inventory method reduces its inventory levels at the end of the year,it can lead to LIFO liquidation.

Accepted Answer

A) True 
 B)False

Question 5

During periods of increasing prices,the LIFO inventory method results in lower income taxes.

Accepted Answer

A) True 
 B)False

Question 6

An understatement of ending inventory results in an overstatement of net income.

Accepted Answer

A) True 
 B)False

Question 7

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

Accepted Answer

A) LIFO will result in lower net income and a higher inventory valuation than will FIFO. 
B) LIFO will result in higher net income and lower inventory valuation than will FIFO. 
C) FIFO will result in lower net income and a lower inventory valuation than will LIFO. 
D) FIFO will result in higher net income and a higher inventory valuation than will LIFO. 
A) LIFO will result in lower net income and a higher inventory valuation than will FIFO. 
B) LIFO will result in higher net income and lower inventory valuation than will FIFO. 
C) FIFO will result in lower net income and a lower inventory valuation than will LIFO. 
D) FIFO will result in higher net income and a higher inventory valuation than will LIFO.

Question 8

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 LIFO 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 9

Which of the following statements does not accurately describe the effects of a write-down of inventory on December 31,2010 using the lower of cost or market (LCM)valuation method?

Accepted Answer

A) The 2010 gross profit decreases. 
B) The 2011 cost of goods sold is effectively decreased if the inventory was sold during 2011. 
C) The 2010 ending inventory is decreased. 
D) The 2011 gross profit is not affected when the inventory was sold during 2011. 
A) The 2010 gross profit decreases. 
B) The 2011 cost of goods sold is effectively decreased if the inventory was sold during 2011. 
C) The 2010 ending inventory is decreased. 
D) The 2011 gross profit is not affected when the inventory was sold during 2011.

Question 10

The lower-of-cost-or-market (LCM)rule is used because of the conservatism constraint,which allows a departure from the historical cost principle.

Accepted Answer

A) True 
 B)False

Question 11

How much was ending inventory when sales revenue was $500,000,purchases were $310,000,beginning inventory was $22,000,and gross margin was $200,000?

Accepted Answer

To calculate the ending inventory, we ne

Question 12

The records of Atlantis Company reflected the following for the month of February:
 $\begin{array}{llcc}
\text { Date } & {\text { Transaction }} & \text { Number of Units } & \text { Unit Cost } \
2 / 1 & \text { Beginning inventory } & 600 & \$ 3 \
2 / 2 & \text { Purchase No.1 } & 500 & \$ 4 \
2 / 5 & \text { Sale No. 1 } & 700 &  \
2 / 12 & \text { Purchase No. } 2 & 600 & \$ 5\
2 / 15 & \text { Sale No. 2 } & 700 & \
2 / 23 & \text { Purchase No. } 3 & 900  &\$ 6\
2 / 28 & \text { Ending inventory} & ?  &\
\end{array}$
Determine the amount of ending inventory and cost of goods sold using the following methods:
$\begin{array} { l c c c } & \text { Method } & \text { Inventory } & \text { Cost of Goods Sold } \ \text { A. } & \text { LIFO } & \$ & \$ \ \text { B. FIFO } & \text { F } & \$ & \$ 
\end{array}$

Accepted Answer

To determine the ending inventory and co

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 FIFO 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

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 average 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 15

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 average cost flow assumption?

Accepted Answer

A) $640,000 
B) $840,000 
C) $770,000 
D) $880,000 
A) $640,000 
B) $840,000 
C) $770,000 
D) $880,000

Question 16

A decrease in the merchandise inventory account occurs when inventory purchases are greater than cost of goods sold.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following is correct when beginning inventory is understated by $1,300 and ending inventory is understated by $700?

Accepted Answer

A) Net income is understated by $600. 
B) Net income is understated by $2,000. 
C) Net income is overstated by $600. 
D) Net income is overstated by $2,000. 
A) Net income is understated by $600. 
B) Net income is understated by $2,000. 
C) Net income is overstated by $600. 
D) Net income is overstated by $2,000.

Question 18

During periods of increasing prices,use of the LIFO inventory method will result in a lower inventory amount on the balance sheet and a lower net income than will use of the FIFO inventory method.

Accepted Answer

A) True 
 B)False

Question 19

Dows Company prepared income statements that reflected pretax income of $21,000 for 2010 and $30,000 for 2011.An audit has determined that there were two errors in the inventory amounts as follows:
 $$\begin{array} { l c c } 
& \begin{array} { c } 
\text { Amount } \
\text { Reported }
\end{array} & \underline { \text { Correct Amount } } \
\text { Ending inventory, 2010 } & \$ 15,000 & \$ 14,000 \
\text { Ending inventory, 2011 } & 18,000 & 16,000
\end{array}$$ Determine the correct pretax income amount for each year (show computations assuming the errors were not corrected)

Accepted Answer

To determine the correct pretax income f

Question 20

A company reported the following information for its most recent year of operation:
Purchases,$100,000; beginning inventory,$20,000; and cost of goods sold,$110,000.How much was the company's ending inventory?

Accepted Answer

A) $10,000 
B) $20,000 
C) $15,000 
D) $30,000 
A) $10,000 
B) $20,000 
C) $15,000 
D) $30,000

An increase in accounts payable is added to net income when determining operating activities cash flows.

Which of the following would not be included in Latimer Company's ending inventory?

When a company using the LIFO inventory method reduces its inventory levels at the end of the year,it can lead to LIFO liquidation.

During periods of increasing prices,the LIFO inventory method results in lower income taxes.

An understatement of ending inventory results in an overstatement of net income.

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

Which of the following statements does not accurately describe the effects of a write-down of inventory on December 31,2010 using the lower of cost or market (LCM)valuation method?

The lower-of-cost-or-market (LCM)rule is used because of the conservatism constraint,which allows a departure from the historical cost principle.

How much was ending inventory when sales revenue was $500,000,purchases were $310,000,beginning inventory was $22,000,and gross margin was $200,000?

A decrease in the merchandise inventory account occurs when inventory purchases are greater than cost of goods sold.

Which of the following is correct when beginning inventory is understated by $1,300 and ending inventory is understated by $700?

During periods of increasing prices,use of the LIFO inventory method will result in a lower inventory amount on the balance sheet and a lower net income than will use of the FIFO inventory method.

A company reported the following information for its most recent year of operation: Purchases,$100,000; beginning inventory,$20,000; and cost of goods sold,$110,000.How much was the company's ending inventory?

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

An increase in accounts payable is added to net income when determining operating activities cash flows.

Which of the following would not be included in Latimer Company's ending inventory?

When a company using the LIFO inventory method reduces its inventory levels at the end of the year,it can lead to LIFO liquidation.

During periods of increasing prices,the LIFO inventory method results in lower income taxes.

An understatement of ending inventory results in an overstatement of net income.

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

Which of the following statements does not accurately describe the effects of a write-down of inventory on December 31,2010 using the lower of cost or market (LCM)valuation method?

The lower-of-cost-or-market (LCM)rule is used because of the conservatism constraint,which allows a departure from the historical cost principle.

How much was ending inventory when sales revenue was $500,000,purchases were $310,000,beginning inventory was $22,000,and gross margin was $200,000?

A decrease in the merchandise inventory account occurs when inventory purchases are greater than cost of goods sold.

Which of the following is correct when beginning inventory is understated by $1,300 and ending inventory is understated by $700?

During periods of increasing prices,use of the LIFO inventory method will result in a lower inventory amount on the balance sheet and a lower net income than will use of the FIFO inventory method.

A company reported the following information for its most recent year of operation: Purchases,$100,000; beginning inventory,$20,000; and cost of goods sold,$110,000.How much was the company's ending inventory?

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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