Question 1

An error in the period-end inventory balance will cause an error in the calculation of cost of goods sold.

Accepted Answer

A) True 
 B)False

Question 2

During a period of steadily rising costs, the inventory valuation method that yields the highest reported net income is:

Accepted Answer

A)  FIFO method. 
B)  LIFO method. 
C)  Weighted-average method. 
D)  Average cost method. 
E)  Specific identification method. 
A)  FIFO method. 
B)  LIFO method. 
C)  Weighted-average method. 
D)  Average cost method. 
E)  Specific identification method.

Question 3

In applying the lower of cost or market method to inventory valuation, market is defined as:

Accepted Answer

A)  Historical cost. 
B)  LIFO. 
C)  Current replacement cost. 
D)  Current sales price. 
E)  FIFO. 
A)  Historical cost. 
B)  LIFO. 
C)  Current replacement cost. 
D)  Current sales price. 
E)  FIFO.

Question 4

A company's warehouse contents were destroyed by a flood on September 12. The following information was the only information that was salvaged: 1. Inventory, beginning: $28,000
2) Purchases for the period: $17,000
3) Sales for the period: $55,000
4) Sales returns for the period: $700
The company's average gross profit ratio is 35%. What is the estimated cost of the lost inventory?

Accepted Answer

A)  $25,995. 
B)  $9,705. 
C)  $44,000. 
D)  $45,000. 
E)  $29,250. 
A)  $25,995. 
B)  $9,705. 
C)  $44,000. 
D)  $45,000. 
E)  $29,250.

Question 5

The consistency concept:

Accepted Answer

A)  Is also called the full disclosure principle. 
B)  Is also called the matching principle. 
C)  Requires a company to use one method of inventory valuation exclusively. 
D)  Prescribes a company use the same accounting method of inventory valuation, an exception being when a change from one method to another will improve its financial reporting. 
E)  Requires that all companies in the same industry use the same accounting methods of inventory valuation. 
A)  Is also called the full disclosure principle. 
B)  Is also called the matching principle. 
C)  Requires a company to use one method of inventory valuation exclusively. 
D)  Prescribes a company use the same accounting method of inventory valuation, an exception being when a change from one method to another will improve its financial reporting. 
E)  Requires that all companies in the same industry use the same accounting methods of inventory valuation.

Question 6

Salmone Company reported the following purchases and sales of its only product. Salmone uses a periodic inventory system. Determine the cost assigned to ending inventory using LIFO. $$\begin{array} { | r | l | l | l | } 
\hline \text { Date } & \text { Activities } & \text { Units Acquired at Cost } & \text { Units Sold at Retail } \
\hline \text { May 1 } & \text { Beginning Inventory } & 150 \text { units @ \$10.00 } & \
\hline 5 & \text { Purchase } & 220 \text { units @\$12.00 } & \
\hline 10 & \text { Sales } & & 140 \text { units @ \$20.00 } \
\hline 15 & \text { Purchase } & 100 \text { units @ \$13.00 } & \
\hline 24 & \text { Sales } & & 90 \text { units @ \$21.00 }\
\hline 
\end{array}$$

Accepted Answer

A)  $2,100 
B)  $2,260 
C)  $2,580 
D)  $3,580 
E)  $3,180 
A)  $2,100 
B)  $2,260 
C)  $2,580 
D)  $3,580 
E)  $3,180

Question 7

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

Question 8

A company's store was destroyed by an earthquake on February 10 of the current year. The only information for the current period that could be salvaged included the following:
 $$\begin{array} { | l | r | } 
\hline \text { Beginning inventory. January 1: } & \$ 44,000 \
\hline \text { Purchases to date: } & \$ 198,000 \
\hline \text { Sales to date: } & \$ 310,000 \
\hline
\end{array}$$ Historically, the company's gross profit ratio has been 30%. Estimate the value of the destroyed inventory using the gross profit method.

Accepted Answer

\[\begin{array} { | l | r | } 
\hline \t

Question 9

When purchase costs regularly rise, the ________ method of inventory valuation yields the lowest gross profit and net income, providing a tax advantage.

Accepted Answer

Last in, f

Question 10

How do the consistency concept and the full disclosure principle affect inventory valuation?

Accepted Answer

The consistency concept requires that co

Question 11

If a period-end inventory amount is reported in error, it can cause a misstatement in all of the following except:

Accepted Answer

A)  Gross profit. 
B)  Cost of goods sold. 
C)  Current assets. 
D)  Net sales. 
E)  Net income. 
A)  Gross profit. 
B)  Cost of goods sold. 
C)  Current assets. 
D)  Net sales. 
E)  Net income.

Question 12

Oxford Packing Company reported net sales in November of the current year of $1,000,000. At the beginning of November, the company reported beginning inventory of $368,000. Cost of goods purchased during November amounted to $217,500. The company reported ending inventory at the end of November of $226,750. The company's gross profit rate for November of the current year was:

Accepted Answer

A)  81.2% 
B)  18.8% 
C)  58.6% 
D)  35.9% 
E)  64.1% 
A)  81.2% 
B)  18.8% 
C)  58.6% 
D)  35.9% 
E)  64.1%

Question 13

A company's inventory records indicate the following data for the month of July:
 $$\begin{array} { | l | l | l | } 
\hline \text { July 1 } & \text { Begining } & 380 \text { units at \$15 each } \
\hline \text { July 5 } & \text { Purchased } & 270 \text { units at \$17 each } \
\hline \text { July 10 } & \text { Sold } & 400 \text { units at \$50 each } \
\hline \text { July 20 } & \text { Purchased } & 300 \text { units at \$22 each } \
\hline \text { July 25 } & \text { Sold } & 400 \text { units at \$50 each } \
\hline
\end{array}$$ If the company uses the weighted average inventory valuation method and the perpetual inventory system, what would be the cost of its ending inventory? (Round average cost per unit to 2 decimals, and final answer to the nearest dollar.)

Accepted Answer

Note: As a result of rounding

Question 14

The reasoning behind the retail inventory method is that if we can get a good estimate of the cost-to-retail ratio, we can multiply ending inventory at retail by this ratio to estimate ending inventory at cost.

Accepted Answer

A) True 
 B)False

Question 15

An overstatement of ending inventory will cause an overstatement of assets and an understatement of equity on the balance sheet.

Accepted Answer

A) True 
 B)False

Question 16

The Community Store reported the following amounts on their financial statements for Year 1, Year 2, and Year 3:
 $$\begin{array} {r}
  { \text { Far the year ended } } \
 { \text { December 31 } } \
\begin{array}{ | l | r | r | r | } 
\hline & \text { Year 1 } & \text { Year 2 } & \text { Year 3 } \
\hline \text { Cost of goods sold } & \$ 75,000 & \$ 87,000 & \$ 77,000 \
\hline \text { Net income } & 22,000 & 25,000 & 21,000 \
\hline \text { Total current assets } & 155,000 & 165,000 & 110,000 \
\hline \text { Equity } & 287,000 & 295,000 & 304,000 \
\hline
\end{array}\end{array}$$ It was discovered early in Year 4 that the ending inventory on December 31, Year 1 was overstated by $6,000, and the ending inventory on December 31, Year 2 was understated by $2,500. The ending inventory on December 31, Year 3 was correct. Ignoring income taxes determine the correct amounts of cost of goods sold, net income, total current assets, and equity for each of the years Year 1, Year 2, and Year 3.

Accepted Answer

\[\begin{array}{r}
  { \text { For the y

Question 17

A company had inventory on November 1 of 5 units at a cost of $20 each. On November 2, they purchased 10 units at $22 each. On November 6 they purchased 6 units at $25 each. On November 8, 8 units were sold for $55 each. Using the LIFO perpetual inventory method, what was the value of the inventory on November 8 after the sale?

Accepted Answer

A)  $304 
B)  $288 
C)  $296 
D)  $280 
E)  $276 
A)  $304 
B)  $288 
C)  $296 
D)  $280 
E)  $276

Question 18

A company's normal selling price for its product is $20 per unit. However, due to market competition, the selling price has fallen to $15 per unit. This company's current inventory consists of 200 units purchased at $16 per unit. Replacement cost has fallen to $13 per unit. Calculate the value of this company's inventory at the lower of cost or market.

Accepted Answer

A)  $3,200. 
B)  $2,700. 
C)  $2,550. 
D)  $2,600. 
E)  $3,000. 
A)  $3,200. 
B)  $2,700. 
C)  $2,550. 
D)  $2,600. 
E)  $3,000.

Question 19

Given the following information, determine the cost of the inventory at June 30 using the LIFO perpetual inventory method. $$\begin{array} { | l | l | l | } 
\hline \text { June 1 } & \text { Beginging inventory } & 15 \text { units at \$20 each } \
\hline \text { June 15 } & \text { Sale of 6 units for \$50 each } & \
\hline \text { June 29 } & \text { Purchase } & \text { 8 units at \$25 each } \
\hline
\end{array}$$ The cost of the ending inventory is:

Accepted Answer

A)  $220 
B)  $380 
C)  $275 
D)  $300 
E)  $200 
A)  $220 
B)  $380 
C)  $275 
D)  $300 
E)  $200

Question 20

Errors in the period-end inventory balance only affect the current period's records and financial statements.

Accepted Answer

A) True 
 B)False

An error in the period-end inventory balance will cause an error in the calculation of cost of goods sold.

During a period of steadily rising costs, the inventory valuation method that yields the highest reported net income is:

In applying the lower of cost or market method to inventory valuation, market is defined as:

The consistency concept:

When purchase costs regularly rise, the ________ method of inventory valuation yields the lowest gross profit and net income, providing a tax advantage.

How do the consistency concept and the full disclosure principle affect inventory valuation?

If a period-end inventory amount is reported in error, it can cause a misstatement in all of the following except:

The reasoning behind the retail inventory method is that if we can get a good estimate of the cost-to-retail ratio, we can multiply ending inventory at retail by this ratio to estimate ending inventory at cost.

An overstatement of ending inventory will cause an overstatement of assets and an understatement of equity on the balance sheet.

Given the following information, determine the cost of the inventory at June 30 using the LIFO perpetual inventory method. June 1 Beginging inventory 15 units at \2 0 each June 15 Sale of 6 units for \5 0 each June 29 Purchase 8 units at \2 5 each The cost of the ending inventory is:

Errors in the period-end inventory balance only affect the current period's records and financial statements.

Accounting in Business

Analyzing and Recording Transactions

Adjusting Accounts and Preparing Financial Statements

Completing the Accounting Cycle

Accounting for Merchandising Operations

Accounting Information Systems

Cash and Internal Controls

Accounting for Receivables

Plant Assets Natural Resoures and Intangibles

Current Liabilities and Payroll Accounting

Accounting for Partnerships

Accounting for Corporations

Long-Term Liabilities

Investments

Reporting the Statement of Cash Flows

Analysis of Financial Statements

Managerial Accounting Concepts and Principles

Job Order Costing

Process Costing

Cost-Volume-Profit Analysis

Master Budgets and Planning

Flexible Budgets and Standard Costs

Performance Measurement and Responsibility Accounting

Capital Budgeting and Managerial Decisions

Present and Future Values in Accounting

Activity-Based Costing

Filters

Exam 6: Inventories and Cost of Sales

An error in the period-end inventory balance will cause an error in the calculation of cost of goods sold.

During a period of steadily rising costs, the inventory valuation method that yields the highest reported net income is:

In applying the lower of cost or market method to inventory valuation, market is defined as:

The consistency concept:

When purchase costs regularly rise, the ________ method of inventory valuation yields the lowest gross profit and net income, providing a tax advantage.

How do the consistency concept and the full disclosure principle affect inventory valuation?

If a period-end inventory amount is reported in error, it can cause a misstatement in all of the following except:

The reasoning behind the retail inventory method is that if we can get a good estimate of the cost-to-retail ratio, we can multiply ending inventory at retail by this ratio to estimate ending inventory at cost.

An overstatement of ending inventory will cause an overstatement of assets and an understatement of equity on the balance sheet.

Given the following information, determine the cost of the inventory at June 30 using the LIFO perpetual inventory method. June 1 Beginging inventory 15 units at \2 0 each June 15 Sale of 6 units for \5 0 each June 29 Purchase 8 units at \2 5 each The cost of the ending inventory is:

Errors in the period-end inventory balance only affect the current period's records and financial statements.

Accounting in Business

Analyzing and Recording Transactions

Adjusting Accounts and Preparing Financial Statements

Completing the Accounting Cycle

Accounting for Merchandising Operations

Accounting Information Systems

Cash and Internal Controls

Accounting for Receivables

Plant Assets Natural Resoures and Intangibles

Current Liabilities and Payroll Accounting

Accounting for Partnerships

Accounting for Corporations

Long-Term Liabilities

Investments

Reporting the Statement of Cash Flows

Analysis of Financial Statements

Managerial Accounting Concepts and Principles

Job Order Costing

Process Costing

Cost-Volume-Profit Analysis

Master Budgets and Planning

Flexible Budgets and Standard Costs

Performance Measurement and Responsibility Accounting

Capital Budgeting and Managerial Decisions

Present and Future Values in Accounting

Activity-Based Costing

Filters