Question 1

Why is the LIFO cost flow assumption an acceptable valuation method for merchandise inventory when it rarely matches the physical movement of the product?

Accepted Answer

LIFO is an acceptable inventory valuation method because it provides an excellent matching of current selling prices (revenue)with current merchandise costs (expense)on the income statement.This matching of current revenue and costs provides more accurate information in regard to the gross margin.

Question 2

The matching of revenue with inventory costs is best achieved with the FIFO method.

Accepted Answer

A) True 
 B)False  False

Question 3

An overstatement of beginning inventory results in

Accepted Answer

A)  no effect on the period's gross margin. 
B)  an overstatement of gross margin. 
C)  an understatement of gross margin. 
D)  a need to adjust purchases. 
A)  no effect on the period's gross margin. 
B)  an overstatement of gross margin. 
C)  an understatement of gross margin. 
D)  a need to adjust purchases. C

Question 4

Which of the following methods generally is used to determine the loss when inventory is destroyed or stolen?

Accepted Answer

A)  Retail method 
B)  FIFO 
C)  LIFO 
D)  Gross profit method 
A)  Retail method 
B)  FIFO 
C)  LIFO 
D)  Gross profit method

Question 5

Days' inventory on hand equals the inventory turnover divided by 365.

Accepted Answer

A) True 
 B)False

Question 6

When the average-cost method is applied to a perpetual inventory system,a moving average cost per unit is computed with each purchase.

Accepted Answer

A) True 
 B)False

Question 7

An assumption about cost flow is necessary

Accepted Answer

A)  because it is required by income tax regulations. 
B)  only when the flow of goods cannot be determined. 
C)  because prices usually change, and tracking which units have been sold is difficult. 
D)  even when there is no change in the purchase price of inventory. 
A)  because it is required by income tax regulations. 
B)  only when the flow of goods cannot be determined. 
C)  because prices usually change, and tracking which units have been sold is difficult. 
D)  even when there is no change in the purchase price of inventory.

Question 8

Assuming that ending inventory for 2009 was understated,indicate whether each of the following will be understated (U),overstated (O),or not affected (N).
_____ 1.Beginning inventory for 2010
_____ 2.Cost of goods sold for 2009
_____ 3.Stockholders' equity at the end of 2010
_____ 4.Income before income taxes for 2010
_____ 5.Stockholders' equity at the end of 2009
_____ 6.Cost of goods sold for 2010
_____ 7.Income before income taxes for 2009

Accepted Answer

The answer of Assuming that ending inventory for 2009 was...

Question 9

Which of the following costs usually would not be included in the inventory cost?

Accepted Answer

A)  Storage costs 
B)  Related tariffs 
C)  Invoice price less purchases discounts 
D)  Insurance on goods in transit 
A)  Storage costs 
B)  Related tariffs 
C)  Invoice price less purchases discounts 
D)  Insurance on goods in transit

Question 10

A company has cost of goods available for sale of $250,000,sales of $287,000,and a gross profit percentage of 30 percent.Using the gross profit method,what is the ending inventory?

Accepted Answer

A)  $113,000 
B)  $50,000 
C)  $49,100 
D)  $163,900 
A)  $113,000 
B)  $50,000 
C)  $49,100 
D)  $163,900

Question 11

The higher the inventory turnover,the higher the days' inventory on hand.

Accepted Answer

A) True 
 B)False

Question 12

In general,when prices are rising,use of the FIFO method will result in a lower tax liability than the other methods.

Accepted Answer

A) True 
 B)False

Question 13

A retail store has goods available for sale of $2 million at retail and $1,100,000 at cost,and ending inventory of $160,000 at retail.What is the estimated cost of ending inventory?

Accepted Answer

A)  $128,000 
B)  $160,000 
C)  $110,000 
D)  $88,000 
A)  $128,000 
B)  $160,000 
C)  $110,000 
D)  $88,000

Question 14

Goods held on consignment should be included in the consignee's ending inventory.

Accepted Answer

A) True 
 B)False

Question 15

Supply-chain management works well in a just-in-time operating environment.

Accepted Answer

A) True 
 B)False

Question 16

The costs included in work in process and finished goods inventories would properly contain manufacturing overhead costs.

Accepted Answer

A) True 
 B)False

Question 17

Under the perpetual inventory system,cost of goods sold is not recorded until the end of the accounting period.

Accepted Answer

A) True 
 B)False

Question 18

During October,Tedesco Company sold 240 units of Product R.Its beginning inventory and purchases during the month were as follows:
 $\begin{array}{llll}
\text { Oct. } & 1 & \text { Beginning inventory } & 100 \text { units @ } \$ 20 \
& 5 & \text { Purchases } & 100 \text { units @ } \$ 24\
&10 & \text { Purchases } & 100 \text { units @ } \$ 22 \
&15 & \text { Purchases } & 100 \text { units @ } \$ 24\
&20 & \text { Purchases } & 100 \text { units @ } \$ 28 \
&25 & \text { Purchases } & 100 \text { units @ } \$ 26
\end{array}$
 Compute the cost of goods sold under each of three methods: (a)average-cost,(b)LIFO,and (c)FIFO.Assume the periodic inventory system is used.(Show your work.)

Accepted Answer

a.Average-cost: $5,760 [(100 * $20)+ (10

Question 19

Braxton Company uses the retail method to estimate the cost of ending inventory.Use the following information to estimate the cost of Braxton's ending inventory on December 31,2010,using the retail method.Show your answer in good form.

Accepted Answer

The answer of Braxton Company uses the retail method to...

Question 20

For each of the following descriptive statements,indicate whether FIFO or LIFO is being described.
_____ 1.Preferable method for conforming to matching principle
_____ 2.Preferable method for tax purposes under rising prices
_____ 3.Results in more up-to-date ending inventory figure
_____ 4.Results in fictitious profits under rising prices
_____ 5.Produces higher income when prices are declining
_____ 6.Produces higher ending inventory when prices are rising

Accepted Answer

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

Exam 6: Inventories

Why is the LIFO cost flow assumption an acceptable valuation method for merchandise inventory when it rarely matches the physical movement of the product?

The matching of revenue with inventory costs is best achieved with the FIFO method.

An overstatement of beginning inventory results in

Which of the following methods generally is used to determine the loss when inventory is destroyed or stolen?

Days' inventory on hand equals the inventory turnover divided by 365.

When the average-cost method is applied to a perpetual inventory system,a moving average cost per unit is computed with each purchase.

An assumption about cost flow is necessary

Which of the following costs usually would not be included in the inventory cost?

A company has cost of goods available for sale of $250,000,sales of $287,000,and a gross profit percentage of 30 percent.Using the gross profit method,what is the ending inventory?

The higher the inventory turnover,the higher the days' inventory on hand.

In general,when prices are rising,use of the FIFO method will result in a lower tax liability than the other methods.

A retail store has goods available for sale of $2 million at retail and $1,100,000 at cost,and ending inventory of $160,000 at retail.What is the estimated cost of ending inventory?

Goods held on consignment should be included in the consignee's ending inventory.

Supply-chain management works well in a just-in-time operating environment.

The costs included in work in process and finished goods inventories would properly contain manufacturing overhead costs.

Under the perpetual inventory system,cost of goods sold is not recorded until the end of the accounting period.

Braxton Company uses the retail method to estimate the cost of ending inventory.Use the following information to estimate the cost of Braxton's ending inventory on December 31,2010,using the retail method.Show your answer in good form.

Uses of Accounting Information and the Financial Statements

Analyzing Business Transactions

Measuring Business Income

Supplement - Closing Entries and the Work Sheet

Financial Reporting and Analysis

The Operating Cycle and Merchandising Operations

Cash and Receivables

Current Liabilities and Fair Value Accounting

Long Term Assets

Long-Term Liabilities

Contributed Capital

Investments

The Corporate Income Statement and the Statement of Stockholders Equity

The Statement of Cash Flows

The Changing Business Environment - a Managers Perspective

Cost Concepts and Cost Allocation

Costing Systems- Job Order Costing

Costing Systems- Process Costing

Value-Based Systems- Abm and Lean

Cost Behavior Analysis

The Budgeting Process

Performance Management and Evaluation

Standard Costing and Variance Analysis

Short Run Decision Analysis

Capital Investment Analysis

Pricing Decisions,incltarget Costing and Transfer Pricing

Quality Management and Measurement

Financial Analysis of Performance

Filters