Question 1

The understatement of the ending inventory balance causes:

Accepted Answer

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

Question 2

An error in the period-end inventory causes an offsetting error in the next period and therefore:

Accepted Answer

A)  Managers can ignore the error. 
B)  It is sometimes said to be self-correcting. 
C)  It affects only income statement accounts. 
D)  If affects only balance sheet accounts. 
E)  Is immaterial for managerial decision making. 
A)  Managers can ignore the error. 
B)  It is sometimes said to be self-correcting. 
C)  It affects only income statement accounts. 
D)  If affects only balance sheet accounts. 
E)  Is immaterial for managerial decision making.

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

A company has inventory with a market value of $217,000 and a cost of $241,000.According to the lower of cost or market,the inventory should be written down to $217,000.

Accepted Answer

A) True 
 B)False

Question 5

Using the retail inventory method,if the cost to retail ratio is 60% and ending inventory at retail is $45,000,then estimated ending inventory at cost is $27,000.

Accepted Answer

A) True 
 B)False

Question 6

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 7

A company had gross profit of $134,200 on net sales of $205,000.If ending inventory was $8,000 and average inventory was $7,080,what is the company's inventory turnover?

Accepted Answer

A)  10.0 
B)  8.85 
C)  16.77 
D)  18.95 
E)  28.95 
A)  10.0 
B)  8.85 
C)  16.77 
D)  18.95 
E)  28.95

Question 8

Discuss the important accounting features of a periodic inventory system including accounts and procedures used.

Accepted Answer

Each purchase of merchandise is debited

Question 9

A company that uses a perpetual inventory system made the following cash purchases and sales.There was no beginning inventory.
 $\begin{array}{|l|l|}
\hline \text { January } 1: & \text { Purchased } 100 \text { units at } \$ 10 \text { per unit } \
\hline \text { February 5: } & \text { Purchased } 60 \text { units at } \$ 12 \text { per unit } \
\hline \text { March 16: } & \text { Sold } 40 \text { units for } \$ 16 \text { per unit }\
\hline
\end{array}$
 
Prepare the general journal entry to record the March 16 sale,assuming the weighted-average method is used.

Accepted Answer

None

Question 10

Use the following information to estimate the third quarter ending inventory under the gross profit method.This company's gross profit ratio is 20%.
Third quarter beginning inventory: $54,000
Net sales for third quarter: $85,000
Net purchases for third quarter: $21,000

Accepted Answer

A)  $101,000 
B)  $58,000 
C)  $35,000 
D)  $7,000 
E)  $14,000 
A)  $101,000 
B)  $58,000 
C)  $35,000 
D)  $7,000 
E)  $14,000

Question 11

A company that uses a perpetual inventory system made the following cash purchases and sales.There was no beginning inventory.
 $\begin{array}{|l|l|}
\hline \text { January 1: } & \text { Purchased } 100 \text { units at } \$ 10 \text { per unit } \
\hline \text { February 5: } & \text { Purchased } 60 \text { units at } \$ 12 \text { per unit } \
\hline \text { March 16: } & \text { Sold } 40 \text { Units for } \$ 16 \text { per unit }\
\hline
\end{array}$
 
Prepare the general journal entries to record the March 16 sale using the LIFO inventory valuation method.

Accepted Answer

None

Question 12

An advantage of the _________________ method of inventory valuation is that it tends to smooth out the effect of erratic changes in costs.

Accepted Answer

The answer of An advantage of the _________________ method of...

Question 13

Some companies use the _________________ constraint or the __________________ constraint to avoid assigning incidental costs of acquiring merchandise to inventory.

Accepted Answer

materialit

Question 14

Which inventory valuation method assigns a value to the inventory on the balance sheet that approximates current cost and also mimics the actual flow of goods for most businesses?

Accepted Answer

A)  FIFO 
B)  Weighted average 
C)  LIFO 
D)  Specific identification 
E)  First in still here 
A)  FIFO 
B)  Weighted average 
C)  LIFO 
D)  Specific identification 
E)  First in still here

Question 15

Damaged and obsolete goods:

Accepted Answer

A)  Are never included in 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 included in 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 16

Toys "R" Us had cost of goods sold of $9,421 million,ending inventory of $2,089 million,and average inventory of $1,965 million.Its days' sales in inventory equals:

Accepted Answer

A)  0.21 
B)  4.51 
C)  4.79 
D)  76.1 days 
E)  80.9 days 
A)  0.21 
B)  4.51 
C)  4.79 
D)  76.1 days 
E)  80.9 days

Question 17

The ______________________ method of assigning costs to inventory and cost of goods sold assumes that the most recent purchases are sold first.

Accepted Answer

last in,fi

Question 18

The ______________________ method of assigning costs to inventory and cost of goods sold requires that the cost of goods available for sale be divided by the units of inventory available when each sale takes place.

Accepted Answer

weighted-a

Question 19

A company's ability to pay its short-term obligations depends on many factors including how quickly it is able to sell its merchandise inventory.

Accepted Answer

A) True 
 B)False

Question 20

Monitor Company uses the LIFO method for valuing its ending inventory.The following financial statement information is available for their first year of operation:
 $\begin{array}{c}
\text { MONITOR COMPANY}\
\text { Income Statement}\
\text { For the year ended December 31}\
\begin{array}{|l|r|}
\hline \text { Sales } \quad \quad \quad \quad & \$ 50,000 \
\hline \text { Cost of goods sold } & 23,000 \
\hline \text { Gross profit } & \$ 27,000 \
\hline \text { Expenses } & \underline{13,000} \
\hline \text { Income before taxes } & \$ 14,000\
\hline
\end{array}\end{array}$
 
Monitor's ending inventory using the LIFO method was $8,200.Monitor's accountant determined that had they used FIFO,the ending inventory would have been $8,500.
a.Determine what the income before taxes would have been had Monitor 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?

Accepted Answer

a.If ending inventory is $300 higher usi

Exam 5: Inventories and Cost of Sales

The understatement of the ending inventory balance causes:

An error in the period-end inventory causes an offsetting error in the next period and therefore:

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

A company has inventory with a market value of $217,000 and a cost of $241,000.According to the lower of cost or market,the inventory should be written down to $217,000.

Using the retail inventory method,if the cost to retail ratio is 60% and ending inventory at retail is $45,000,then estimated ending inventory at cost is $27,000.

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 had gross profit of $134,200 on net sales of $205,000.If ending inventory was $8,000 and average inventory was $7,080,what is the company's inventory turnover?

Discuss the important accounting features of a periodic inventory system including accounts and procedures used.

Use the following information to estimate the third quarter ending inventory under the gross profit method.This company's gross profit ratio is 20%. Third quarter beginning inventory: $54,000 Net sales for third quarter: $85,000 Net purchases for third quarter: $21,000

An advantage of the _________________ method of inventory valuation is that it tends to smooth out the effect of erratic changes in costs.

Some companies use the _________________ constraint or the __________________ constraint to avoid assigning incidental costs of acquiring merchandise to inventory.

Which inventory valuation method assigns a value to the inventory on the balance sheet that approximates current cost and also mimics the actual flow of goods for most businesses?

Damaged and obsolete goods:

Toys "R" Us had cost of goods sold of $9,421 million,ending inventory of $2,089 million,and average inventory of $1,965 million.Its days' sales in inventory equals:

The ______________________ method of assigning costs to inventory and cost of goods sold assumes that the most recent purchases are sold first.

The ______________________ method of assigning costs to inventory and cost of goods sold requires that the cost of goods available for sale be divided by the units of inventory available when each sale takes place.

A company's ability to pay its short-term obligations depends on many factors including how quickly it is able to sell its merchandise inventory.

Introducing Accounting in Business

Analyzing and Recording Transactions

Adjusting Accounts and Preparing Financial Statements

Accounting for Merchandising Operations

Cash and Internal Controls

Accounts and Notes Receivable

Long-Term Assets

Current Liabilities

Long-Term Liabilities

Corporate Reporting and Analysis

Reporting Cash Flows

Analysis of Financial Statements

Managerial Accounting Concepts and Principles

Job Order Costing and Analysis

Process Costing

Activity-Based Costing and Analysis

Cost-Volume-Profit Analysis

Variable Costing and Performance Reporting

Master Budgets and Performance Planning

Flexible Budgets and Standard Costs

Decentralization and Performance Measurement

Relevant Costing for Managerial Decisions

Capital Budgeting and Investment Analysis

Accounting With Special Journals

Time Value of Money

Investments and International Operations

Accounting for Partnerships

Filters

Some companies use the _ constraint or the __ constraint to avoid assigning incidental costs of acquiring merchandise to inventory.