Question 1

If obsolete or damaged goods can be sold, they will be included in inventory at their net realizable value.

Accepted Answer

A) True 
 B)False

Question 2

The inventory valuation method that tends to smooth out erratic changes in costs is:

Accepted Answer

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

Question 3

There is no simple rule for inventory turnover, except that a high ratio is preferable provided inventory is adequate to meet demand.

Accepted Answer

A) True 
 B)False

Question 4

Physical counts of inventory:

Accepted Answer

A)  Are not necessary under the perpetual system. 
B)  Are necessary to adjust the Inventory account to the actual inventory available. 
C)  Must be taken at least once a month. 
D)  Requires the use of hand-held portable computers. 
E)  Are not necessary under the cost-to benefit constraint. 
A)  Are not necessary under the perpetual system. 
B)  Are necessary to adjust the Inventory account to the actual inventory available. 
C)  Must be taken at least once a month. 
D)  Requires the use of hand-held portable computers. 
E)  Are not necessary under the cost-to benefit constraint.

Question 5

LIFO assumes that inventory costs flow in the order incurred.

Accepted Answer

A) True 
 B)False

Question 6

A company had inventory of 5 units at a cost of $20 each on November 1. On November 2, it purchased 10 units at $22 each. On November 6 it purchased 6 units at $25 each. On November 8, it sold 18 units for $54 each. Using the LIFO perpetual inventory method, what was the cost of the 18 units sold?

Accepted Answer

A)  $395. 
B)  $410. 
C)  $450. 
D)  $510. 
E)  $520. 
A)  $395. 
B)  $410. 
C)  $450. 
D)  $510. 
E)  $520.

Question 7

The cost of an inventory item includes its invoice cost minus any discount, and plus any added or incidental costs necessary to put it in a place and condition for sale.

Accepted Answer

A) True 
 B)False

Question 8

A company normally sells its product for $20 per unit. However, 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 now fallen to $13 per unit. Calculate the value of this company's inventory at the lower of cost or market.

Accepted Answer

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

Question 9

A company made the following merchandise purchases and sales during the current month:   There was no beginning inventory. If the company uses the last-in, first-out perpetual inventory system, what would be the cost of the ending inventory?

Accepted Answer

The answer of A company made the following merchandise purchases...

Question 10

A company has the following per unit original costs and replacement costs for its inventory: Part A: 50 units with a cost of $5, and replacement cost of $4.50
Part B: 75 units with a cost of $6, and replacement cost of $6.50
Part C: 160 units with a cost of $3, and replacement cost of $2.50
Under the lower of cost or market method, the total value of this company's ending inventory is:

Accepted Answer

A)  $1,180.00. 
B)  $1,075.00. 
C)  $1,075.00 or $1,112.50, depending upon whether LCM is applied to individual items or the inventory as a whole. 
D)  $1,112.50. 
E)  $1,180.00 or $1,075.00, depending upon whether LCM is applied to individual items or to the inventory as a wholE. 
A)  $1,180.00. 
B)  $1,075.00. 
C)  $1,075.00 or $1,112.50, depending upon whether LCM is applied to individual items or the inventory as a whole. 
D)  $1,112.50. 
E)  $1,180.00 or $1,075.00, depending upon whether LCM is applied to individual items or to the inventory as a wholE.

Question 11

Describe the internal controls that must be applied when taking a physical count of inventory.

Accepted Answer

The internal controls should include (1)

Question 12

The conservatism constraint requires that when more than one estimate of the amounts to be received or paid in the future exists and these estimates are about equally likely, then the less optimistic amount is used.

Accepted Answer

A) True 
 B)False

Question 13

The _____________________ method of assigning costs to inventory and cost of goods sold assumes that the inventory items are sold in the order acquired.

Accepted Answer

First in,

Question 14

Axme uses a weighted average perpetual inventory system. August 2, 10 units were purchased at $12 per unit.
August 18, 15 units were purchased at $15 per unit.
August 29, 20 units were sold.
August 31, 14 units were purchased at $16 per unit.
What is the per-unit value of ending inventory on August 31?

Accepted Answer

A)  $12.00. 
B)  $13.80. 
C)  $15.42. 
D)  $16.00. 
E)  $17.74. 
A)  $12.00. 
B)  $13.80. 
C)  $15.42. 
D)  $16.00. 
E)  $17.74.

Question 15

A company made the following merchandise purchases and sales during the month of May:   There was no beginning inventory. If the company uses the weighted average inventory valuation method and the perpetual inventory system, what would be the cost of its ending inventory?

Accepted Answer

The answer of A company made the following merchandise purchases...

Question 16

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 17

A company has inventory of 15 units at a cost of $12 each on August 1. On August 5, it purchased 10 units at $13 per unit. On August 12 it purchased 20 units at $14 per unit. On August 15, it sold 30 units. Using the FIFO periodic inventory method, what is the value of the inventory at August 15 after the sale?

Accepted Answer

A)  $140. 
B)  $160. 
C)  $210. 
D)  $380. 
E)  $590. 
A)  $140. 
B)  $160. 
C)  $210. 
D)  $380. 
E)  $590.

Question 18

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 19

The days' sales in inventory ratio is computed by dividing ending inventory by cost of goods sold and multiplying the result by 365.

Accepted Answer

A) True 
 B)False

Question 20

An advantage of LIFO is that it assigns the most recent costs to cost of goods sold, and does a better job of matching current costs with revenues on the income statement.

Accepted Answer

A) True 
 B)False

Exam 6: Inventories and Cost of Sales

If obsolete or damaged goods can be sold, they will be included in inventory at their net realizable value.

The inventory valuation method that tends to smooth out erratic changes in costs is:

There is no simple rule for inventory turnover, except that a high ratio is preferable provided inventory is adequate to meet demand.

Physical counts of inventory:

LIFO assumes that inventory costs flow in the order incurred.

A company had inventory of 5 units at a cost of $20 each on November 1. On November 2, it purchased 10 units at $22 each. On November 6 it purchased 6 units at $25 each. On November 8, it sold 18 units for $54 each. Using the LIFO perpetual inventory method, what was the cost of the 18 units sold?

The cost of an inventory item includes its invoice cost minus any discount, and plus any added or incidental costs necessary to put it in a place and condition for sale.

A company made the following merchandise purchases and sales during the current month: There was no beginning inventory. If the company uses the last-in, first-out perpetual inventory system, what would be the cost of the ending inventory?

Describe the internal controls that must be applied when taking a physical count of inventory.

The conservatism constraint requires that when more than one estimate of the amounts to be received or paid in the future exists and these estimates are about equally likely, then the less optimistic amount is used.

The _____________________ method of assigning costs to inventory and cost of goods sold assumes that the inventory items are sold in the order acquired.

A company made the following merchandise purchases and sales during the month of May: There was no beginning inventory. If the company uses the weighted average inventory valuation method and the perpetual inventory system, what would be the cost of its ending inventory?

The understatement of the ending inventory balance causes:

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

The days' sales in inventory ratio is computed by dividing ending inventory by cost of goods sold and multiplying the result by 365.

An advantage of LIFO is that it assigns the most recent costs to cost of goods sold, and does a better job of matching current costs with revenues on the income statement.

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 Resources, and Intangibles

Current Liabilities and Payroll Accounting

Accounting for Partnerships

Accounting for Corporations

Long-Term Liabilities

Investments and International Operations

Reporting the Statement of Cash Flows

Analysis of Financial Statements

Managerial Accounting Concepts and Principles

Job Order Cost Accounting

Process Cost Accounting

Cost Allocation and Performance Measurement

Cost-Volume-Profit Analysis

Master Budgets and Planning

Flexible Budgets and Standard Costs

Capital Budgeting and Managerial Decisions

Time Value of Money

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