Question 1

The understatement of the beginning inventory balance causes:

Accepted Answer

A)  Cost of goods sold to be understated and net income to be understated. 
B)  Cost of goods sold to be understated and net income to be overstated. 
C)  Cost of goods sold to be overstated and net income to be overstated. 
D)  Cost of goods sold to be overstated and net income to be understated. 
E)  Cost of goods sold to be overstated and net income to be correct. 
A)  Cost of goods sold to be understated and net income to be understated. 
B)  Cost of goods sold to be understated and net income to be overstated. 
C)  Cost of goods sold to be overstated and net income to be overstated. 
D)  Cost of goods sold to be overstated and net income to be understated. 
E)  Cost of goods sold to be overstated and net income to be correct.

Question 2

Big Box Store has operated with a 30% average gross profit ratio for a number of years.It had $100,000 in sales during the second quarter of this year.If it began the quarter with $18,000 of inventory at cost and purchased $72,000 of inventory during the quarter,its estimated ending inventory by the gross profit method is:

Accepted Answer

A)  $30,000. 
B)  $21,000. 
C)  $20,000. 
D)  $18,000. 
E)  $27,000. 
A)  $30,000. 
B)  $21,000. 
C)  $20,000. 
D)  $18,000. 
E)  $27,000.

Question 3

Damaged and obsolete goods that can be sold:

Accepted Answer

A)  Are never counted as inventory. 
B)  Are included in inventory at their full cost. 
C)  Are included in inventory at their net realizable value. 
D)  Should be disposed of immediately. 
E)  Are assigned a value of zero. 
A)  Are never counted as inventory. 
B)  Are included in inventory at their full cost. 
C)  Are included in inventory at their net realizable value. 
D)  Should be disposed of immediately. 
E)  Are assigned a value of zero.

Question 4

Health Defense sells first aid kits and uses the periodic inventory system to account for its merchandise.The beginning balance of the inventory and its transactions during January were as follows:
January 1: Beginning balance of 18 units at $13 each
January 12: Purchased 30 units at $14 each
January 19: Sold 24 units at a selling price of $30 each
January 20: Purchased 24 units at $17 each
January 27: Sold 27 units at a selling price of $30 each
If the ending inventory is reported at $357,what inventory method was used?

Accepted Answer

A)  LIFO. 
B)  FIFO. 
C)  Weighted average. 
D)  Specific identification. 
E)  Retail inventory method. 
A)  LIFO. 
B)  FIFO. 
C)  Weighted average. 
D)  Specific identification. 
E)  Retail inventory method.

Question 5

A company had the following purchases and sales during its first year of operations:
$$\begin{array} { | l | l | l | } 
\hline & \text { Purchases } & \text { Sales } \
\hline \text { January: } & 10 \text { units at } \$ 120 & 6 \text { units } \
\hline \text { February: } & 20 \text { units at } \$ 125 & 5 \text { units } \
\hline \text { May: } & 15 \text { units at } \$ 130 & 9 \text { units } \
\hline \text { September: } & 12 \text { units at } \$ 135 & 8 \text { units } \
\hline \text { November: } & 10 \text { units at } \$ 140 & 13 \text { units } \
\hline
\end{array}$$
On December 31,there were 26 units remaining in ending inventory.
-Using the Perpetual LIFO inventory valuation method,what is the cost of the ending inventory? (Assume all sales were made on the last day of the month.)

Accepted Answer

A)  $3,405. 
B)  $3,270. 
C)  $3,200. 
D)  $3,364. 
E)  $5,400. 
A)  $3,405. 
B)  $3,270. 
C)  $3,200. 
D)  $3,364. 
E)  $5,400.

Question 6

When costs to purchase inventory regularly decline,which method of inventory costing will yield the lowest cost of goods sold?

Accepted Answer

A)  FIFO. 
B)  LIFO. 
C)  Weighted average. 
D)  Specific identification. 
E)  Gross margin. 
A)  FIFO. 
B)  LIFO. 
C)  Weighted average. 
D)  Specific identification. 
E)  Gross margin.

Question 7

Apply the retail method to the following company information to calculate the cost of the ending inventory for the current period.
 $$\begin{array} { | l | r | r | } 
\hline & { \text { Cost } } &  { \text { Retail } } \
\hline \text { Beginning inventory } & \$ 20,224 & \$ 31,600 \
\hline \text { Net purchases } & 59,508 & 97,000 \
\hline \text { Sales } & & 89,000 \
\hline
\end{array}$$

Accepted Answer

\[\begin{array} { | l | r | r | } 
\hlin

Question 8

Match the following terms with the appropriate definition.
-The number of times a company's average inventory is sold during an accounting period.

Accepted Answer

A) Gross profit method 
B) Inventory turnover 
C) Conservatism principle 
D) Consistency concept 
E) Consignor
F)Consignee
G)Days' sales in inventory
H)Retail inventory method
I)Specific identification method
J)Lower of cost or market 
A) Gross profit method 
B) Inventory turnover 
C) Conservatism principle 
D) Consistency concept 
E) Consignor
F)Consignee
G)Days' sales in inventory
H)Retail inventory method
I)Specific identification method
J)Lower of cost or market

Question 9

What is the effect of an error in the ending inventory balance on the accounts reported in the income statement?

Accepted Answer

An inventory error causes misstatements

Question 10

The Inventory account is a controlling account for the inventory subsidiary ledger that contains a separate record for each separate product.

Accepted Answer

A) True 
 B)False

Question 11

Interim financial statements:

Accepted Answer

A)  Are required by the Congress. 
B)  Are necessary to achieve full disclosure about a business's operations. 
C)  Are statements prepared for periods of less than one year. 
D)  Require the use of the perpetual method for inventories. 
E)  Cannot be prepared if the company follows the conservatism principle. 
A)  Are required by the Congress. 
B)  Are necessary to achieve full disclosure about a business's operations. 
C)  Are statements prepared for periods of less than one year. 
D)  Require the use of the perpetual method for inventories. 
E)  Cannot be prepared if the company follows the conservatism principle.

Question 12

A company reported the current month purchase and sales data for its only product and uses the perpetual inventory system.Determine the cost assigned to ending inventory and cost of goods sold using LIFO.
 $$\begin{array} { | r | r | r | r | } 
\hline \text { Date } &  { \text { Activities } } & \text { Units Acquired at Cost } & \text { Units Sold at Retail } \
\hline \text { April } 1 & \text { Beginning Inventory } & 175 \text { units @ } \$ 15.00 & \
\hline 4 & \text { Purchase } & 150 \text { units @ } \$ 16.00 & \
\hline 7 & \text { Sales } & & 160 \text { units @ } \$ 30.00 \
\hline 10 & \text { Purchase } & 200 \text { units @ } \$ 17.00 & \
\hline 16 & \text { Sales } & & 250 \text { units @ } \$ 30.00 \
\hline 25 & \text { Purchase } & 160 \text { units @ } \$ 18.00 & \
\hline 28 & \text { Sales } & & 150 \text { units @ } \$ 32.00 \
\hline
\end{array}$$

Accepted Answer

The answer of A company reported the current month purchase...

Question 13

On September 1 of the current year,Scots Company experienced a flood that destroyed the company's entire inventory.Because the company had not completed its month end reporting for August,it must estimate the amount of inventory lost using the gross profit method.At the beginning of August,the company reported beginning inventory of $215,450.Inventory purchased during August was $192,530.Sales for the month of August were $542,500.Assuming the company's typical gross profit ratio is 40%,estimate the amount of inventory destroyed in the flood.

Accepted Answer

A)  $87,480 
B)  $134,520 
C)  $109,980 
D)  $82,480 
E)  $81,480 
A)  $87,480 
B)  $134,520 
C)  $109,980 
D)  $82,480 
E)  $81,480

Question 14

The ________ ratio reflects how much inventory is available in terms of days' sales.

Accepted Answer

days' sale

Question 15

The assignment of costs to cost of goods sold and inventory using weighted average usually yields different results depending on whether a perpetual or periodic system is used.

Accepted Answer

A) True 
 B)False

Question 16

A company has inventory with a selling price of $451,000,a market value of $223,000 and a cost of $241,000.According to the lower of cost or market,the inventory should be written down to $223,000.

Accepted Answer

A) True 
 B)False

Question 17

Carolina Company uses the LIFO method for valuing its ending inventory.The following financial statement information is available for its first year of operation:
 $$\begin{array} {c}
\text { Carolina Company } \
\text { Income Statement } \
\text { For the year ended December 31 }\
\begin{array} { | l | r | } 
\hline \text { Sales } & \$ 60,000 \
\hline \text { Cost of goods sold } & 23,000 \
\hline \text { Gross profit } & \$ 37,000 \
\hline \text { Expenses } & 13,000 \
\hline \text { Income before taxes } & \$ 24,000 \
\hline
\end{array}
\end{array}$$ 
Carolina's ending inventory using the LIFO method was $8,700.Carolina's accountant determined that had the company used FIFO,the ending inventory would have been $9,100.
a.Determine what the income before taxes would have been,had Carolina used the FIFO method of inventory valuation instead of LIFO.
b.What would be the difference in income taxes between LIFO and FIFO,assuming a 30% tax rate?
c.If Carolina wanted to lower the amount of income taxes to be paid,which method would it choose?

Accepted Answer

a.If ending inventory is $400 higher usi

Question 18

Days' sales in inventory:

Accepted Answer

A)  Is also called days' stock on hand. 
B)  Focuses on average inventory rather than ending inventory. 
C)  Is used to measure solvency. 
D)  Is calculated by dividing cost of goods sold by ending inventory. 
E)  Is a substitute for the acid-test ratio. 
A)  Is also called days' stock on hand. 
B)  Focuses on average inventory rather than ending inventory. 
C)  Is used to measure solvency. 
D)  Is calculated by dividing cost of goods sold by ending inventory. 
E)  Is a substitute for the acid-test ratio.

Question 19

Starlight Company has inventory of 8 units at a cost of $200 each on October 1.On October 2,it purchased 20 units at $205 each.11 units are sold on October 4.
-Using the LIFO perpetual inventory method,what amount will be reported in cost of goods sold for the 11 units that were sold?

Accepted Answer

A)  $2,239. 
B)  $2,255. 
C)  $2,200. 
D)  $2,228. 
E)  $2,215. 
A)  $2,239. 
B)  $2,255. 
C)  $2,200. 
D)  $2,228. 
E)  $2,215.

Question 20

Accounting principles require that inventory be reported at the market value (cost)of replacing inventory when cost is lower than market value.

Accepted Answer

A) True 
 B)False

The understatement of the beginning inventory balance causes:

Damaged and obsolete goods that can be sold:

When costs to purchase inventory regularly decline,which method of inventory costing will yield the lowest cost of goods sold?

Apply the retail method to the following company information to calculate the cost of the ending inventory for the current period. Cost Retail Beginning inventory \ 20,224 \ 31,600 Net purchases 59,508 97,000 Sales 89,000

Match the following terms with the appropriate definition. -The number of times a company's average inventory is sold during an accounting period.

What is the effect of an error in the ending inventory balance on the accounts reported in the income statement?

The Inventory account is a controlling account for the inventory subsidiary ledger that contains a separate record for each separate product.

Interim financial statements:

The ________ ratio reflects how much inventory is available in terms of days' sales.

The assignment of costs to cost of goods sold and inventory using weighted average usually yields different results depending on whether a perpetual or periodic system is used.

A company has inventory with a selling price of $451,000,a market value of $223,000 and a cost of $241,000.According to the lower of cost or market,the inventory should be written down to $223,000.

Days' sales in inventory:

Starlight Company has inventory of 8 units at a cost of $200 each on October 1.On October 2,it purchased 20 units at $205 each.11 units are sold on October 4. -Using the LIFO perpetual inventory method,what amount will be reported in cost of goods sold for the 11 units that were sold?

Accounting principles require that inventory be reported at the market value (cost)of replacing inventory when cost is lower than market value.

Accounting in Business

Analyzing for Business Transactions

Adjusting Accounts for Financial Statements

Accounting for Merchandising Operations

Cash, fraud, and Internal Controls

Accounting for Receivables

Accounting for Long-Term Assets

Accounting for Current Liabilities

Accounting for Long-Term Liabilities

Corporate Reporting and Analysis

Reporting Cash Flows

Analysis of Financial Statements

Time Value of Money

Investments

Partnership Accounting

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Exam 5: Inventories and Cost of Sales

The understatement of the beginning inventory balance causes:

Damaged and obsolete goods that can be sold:

When costs to purchase inventory regularly decline,which method of inventory costing will yield the lowest cost of goods sold?

Apply the retail method to the following company information to calculate the cost of the ending inventory for the current period. Cost Retail Beginning inventory \ 20,224 \ 31,600 Net purchases 59,508 97,000 Sales 89,000

Match the following terms with the appropriate definition. -The number of times a company's average inventory is sold during an accounting period.

What is the effect of an error in the ending inventory balance on the accounts reported in the income statement?

The Inventory account is a controlling account for the inventory subsidiary ledger that contains a separate record for each separate product.

Interim financial statements:

The ________ ratio reflects how much inventory is available in terms of days' sales.

The assignment of costs to cost of goods sold and inventory using weighted average usually yields different results depending on whether a perpetual or periodic system is used.

A company has inventory with a selling price of $451,000,a market value of $223,000 and a cost of $241,000.According to the lower of cost or market,the inventory should be written down to $223,000.

Days' sales in inventory:

Starlight Company has inventory of 8 units at a cost of $200 each on October 1.On October 2,it purchased 20 units at $205 each.11 units are sold on October 4. -Using the LIFO perpetual inventory method,what amount will be reported in cost of goods sold for the 11 units that were sold?

Accounting principles require that inventory be reported at the market value (cost)of replacing inventory when cost is lower than market value.

Accounting in Business

Analyzing for Business Transactions

Adjusting Accounts for Financial Statements

Accounting for Merchandising Operations

Cash, fraud, and Internal Controls

Accounting for Receivables

Accounting for Long-Term Assets

Accounting for Current Liabilities

Accounting for Long-Term Liabilities

Corporate Reporting and Analysis

Reporting Cash Flows

Analysis of Financial Statements

Time Value of Money

Investments

Partnership Accounting

Filters