Question 1

A retail company has goods available for sale of $500,000 at retail and $200,000 at cost and ending inventory of $49,000 at retail.What is the estimated cost of goods sold?

Accepted Answer

A)  $151,000 
B)  $190,200 
C)  $180,400 
D)  $170,600 
A)  $151,000 
B)  $190,200 
C)  $180,400 
D)  $170,600

Question 2

The most important accounting problem in dealing with merchandise inventory is the application of which of the following conventions or rules?

Accepted Answer

A)  Materiality 
B)  Full disclosure 
C)  Matching 
D)  Conservatism 
A)  Materiality 
B)  Full disclosure 
C)  Matching 
D)  Conservatism

Question 3

If a company uses LIFO for tax purposes,it must also use LIFO for financial reporting purposes.

Accepted Answer

A) True 
 B)False

Question 4

The lower the value assigned to ending inventory,the lower the gross margin.

Accepted Answer

A) True 
 B)False

Question 5

Use this information to answer the following question. $$\begin{array} { l l } 
\text { Beginning inventory } & \text { 100 units @ \$8.00 } \
\text { Purchase-Oct. } & \text { 200 units @ } \$ 6.00 \
\text { Purchase-Dec. } & \text { 100 units } @ \$ 12.00
\end{array}$$ A periodic inventory system is used; ending inventory is 151 units.
What is ending inventory under FIFO?

Accepted Answer

A)  $1,406 
B)  $1,606 
C)  $1,306 
D)  $1,506 
A)  $1,406 
B)  $1,606 
C)  $1,306 
D)  $1,506

Question 6

Manufacturing overhead would not include which of the following costs?

Accepted Answer

A)  Packing materials 
B)  Supervisory salaries 
C)  Factory rent 
D)  Raw materials 
A)  Packing materials 
B)  Supervisory salaries 
C)  Factory rent 
D)  Raw materials

Question 7

Assume that during the physical count of the inventory of a large corporation last year,$750,000 of merchandise was not counted.The error was not detected,and the financial statements for the current fiscal year were prepared.Identify the individual statements that would be affected and explain the effect the error would have on each of these statements.

Accepted Answer

By understating last year's ending inven

Question 8

When the cost of inventory is written down due to a market decline,a loss must be recorded.

Accepted Answer

A) True 
 B)False

Question 9

An overstatement of ending inventory in a period will result in an overstatement of gross margin in that period.

Accepted Answer

A) True 
 B)False

Question 10

In a period of rising prices,which of the following inventory methods generally results in the lowest gross margin figure?

Accepted Answer

A)  Cannot tell without more information 
B)  LIFO 
C)  FIFO 
D)  Average-cost 
A)  Cannot tell without more information 
B)  LIFO 
C)  FIFO 
D)  Average-cost

Question 11

An understatement of ending inventory in a period will result in an understatement of gross margin in the next period.

Accepted Answer

A) True 
 B)False

Question 12

Use this information to answer the following question. $\begin{array}{llll}
\text { Jan. } & 1 & \text { Inventory } &15 \text { units @ } \$4.00 \
& 8 & \text { Purchase } & 60 \text { units } @ \$ 4.40\
&17 & \text { Purchase } & 30 \text { units } @ \$ 4.20 \
&25 & \text { Purchase } & 45 \text { units @ } \$ 8.40 \
&&\text { Total sales }& 100 \text { units }
\end{array}$

Assuming that the specific identification method is used and that ending inventory consists of 15 units from each of the three purchases and five units from the January 1 inventory,cost of goods sold is

Accepted Answer

A)  $221. 
B)  $418. 
C)  $338. 
D)  $445. 
A)  $221. 
B)  $418. 
C)  $338. 
D)  $445.

Question 13

Use this inventory information for the month of September to answer the following question. $\begin{array}{llll}
\text { Sept. } & 1 & \text { Beginning inventory } & 10 \text { units @ } \$ 120 \
& 5 & \text { Purchase } & 60 \text { units @ } \$ 112 \
& 14 & \text { Sale } & 40 \text { units }\
&21& \text { Purchase } &30 \text { units @\$116 }\
&30 &\text { Sale }& 28 \text { units } 
\end{array}$

Assuming that a perpetual inventory system is used,what is ending inventory (rounded)under the average-cost method?

Accepted Answer

A)  $3,666 
B)  $3,712 
C)  $3,208 
D)  $7,734 
A)  $3,666 
B)  $3,712 
C)  $3,208 
D)  $7,734

Question 14

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

Accepted Answer

A)  Invoice price 
B)  Cost of goods held on consignment 
C)  Freight-in 
D)  Sales tax 
A)  Invoice price 
B)  Cost of goods held on consignment 
C)  Freight-in 
D)  Sales tax

Question 15

Why will an understated beginning inventory produce an overstated income before income taxes for the same period? Will the understatement have a favorable or unfavorable effect on current year income taxes?

Accepted Answer

An understated beginning inventory will

Question 16

Use this information to answer the following question. $$\begin{array} { l l } 
\text { Beginning inventory } & \text { 100 units@\$8.00 } \
\text { purchase-Oct. } & \text { 200 units \$6.00 } \
\text { purchase-Dec. } & \text { 100 units@\$12.00 }
\end{array}$$ A periodic inventory system is used; ending inventory is 147 units.
What is cost of goods sold under LIFO?

Accepted Answer

A)  $1,118 
B)  $3,118 
C)  $2,118 
D)  $4,118 
A)  $1,118 
B)  $3,118 
C)  $2,118 
D)  $4,118

Question 17

Inventory methods such as LIFO and FIFO deal more with cost flow than with goods flow.

Accepted Answer

A) True 
 B)False

Question 18

The lower-of-cost-or-market rule implies that it is unrealistic to carry inventory at a cost that is in excess of its market value.

Accepted Answer

A) True 
 B)False

Question 19

In general,in times of rising prices,using FIFO has a favorable effect on cash flows.

Accepted Answer

A) True 
 B)False

Question 20

Jayne's Department Store had net retail sales of $310,000 during the current year.The following additional information was obtained from the accounting records.
 $$\begin{array} { l r r } 
& \text { At Cost } & \text { At Retail } \
 \text { Bepinging inventory } & \$ 55,000 & 95,000 \
 \text { Net purchases for the period }& 169,000 & 290,000 \
\text { Freight-in }& 7,000 &
\end{array}$$ Estimate the company's ending inventory at cost using the retail method.(Show your work.)

Accepted Answer

None

Exam 6: Inventories

A retail company has goods available for sale of $500,000 at retail and $200,000 at cost and ending inventory of $49,000 at retail.What is the estimated cost of goods sold?

The most important accounting problem in dealing with merchandise inventory is the application of which of the following conventions or rules?

If a company uses LIFO for tax purposes,it must also use LIFO for financial reporting purposes.

The lower the value assigned to ending inventory,the lower the gross margin.

Use this information to answer the following question. Beginning inventory 100 units @ \8 .00 Purchase-Oct. 200 units @ \ 6.00 Purchase-Dec. 100 units @\ 12.00 A periodic inventory system is used; ending inventory is 151 units. What is ending inventory under FIFO?

Manufacturing overhead would not include which of the following costs?

When the cost of inventory is written down due to a market decline,a loss must be recorded.

An overstatement of ending inventory in a period will result in an overstatement of gross margin in that period.

In a period of rising prices,which of the following inventory methods generally results in the lowest gross margin figure?

An understatement of ending inventory in a period will result in an understatement of gross margin in the next period.

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

Why will an understated beginning inventory produce an overstated income before income taxes for the same period? Will the understatement have a favorable or unfavorable effect on current year income taxes?

Use this information to answer the following question. Beginning inventory 100 units@ \8 .00 purchase-Oct. 200 units \6 .00 purchase-Dec. 100 units@ \1 2.00 A periodic inventory system is used; ending inventory is 147 units. What is cost of goods sold under LIFO?

Inventory methods such as LIFO and FIFO deal more with cost flow than with goods flow.

The lower-of-cost-or-market rule implies that it is unrealistic to carry inventory at a cost that is in excess of its market value.

In general,in times of rising prices,using FIFO has a favorable effect on cash flows.

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