Question 1

Net realizable value for damaged or obsolete goods is sales price plus the cost of making the sale.

Accepted Answer

A) True 
 B)False

Question 2

LIFO is preferred when purchase costs are rising and managers have incentives to report higher income for reasons such as bonus plans, job security, and reputation.

Accepted Answer

A) True 
 B)False

Question 3

Some companies choose to avoid assigning incidental costs of acquiring merchandise to inventory by recording them as expenses when incurred. The argument that supports this is called:

Accepted Answer

A)  The matching principle. 
B)  The materiality constraint. 
C)  The cost principle. 
D)  The conservation constraint principle. 
E)  The lower of cost or market principle. 
A)  The matching principle. 
B)  The materiality constraint. 
C)  The cost principle. 
D)  The conservation constraint principle. 
E)  The lower of cost or market principle.

Question 4

Using the information given below, prepare the general journal entry to record the March 16 sale assuming a cash sale and the LIFO method is used:

Accepted Answer

The answer of Using the information given below, prepare the...

Question 5

A company reported the current month purchase and sales data for its only product and uses the perpetual inventory system. Determine the cost assigned to ending inventory and cost of goods sold using LIFO.

Accepted Answer

The answer of A company reported the current month purchase...

Question 6

When units are purchased at different costs over time, determining the cost per unit assigned to inventory items is simple.

Accepted Answer

A) True 
 B)False

Question 7

Thelma Company reported cost of goods sold for Year 1 and Year 2 as follows:   Thelma Company made two errors: 1) ending inventory at the end of Year 1 was understated by $15,000 and 2) ending inventory at the end of Year 2 was overstated by $6,000. Given this information, the correct cost of goods sold figure for Year 2 would be:

Accepted Answer

A)  $291,000 
B)  $276,000 
C)  $264,000 
D)  $285,000 
E)  $249,000 
A)  $291,000 
B)  $276,000 
C)  $264,000 
D)  $285,000 
E)  $249,000

Question 8

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.
$45,000 * .60 = $27,000

Accepted Answer

A) True 
 B)False

Question 9

Goods in transit are included in a purchaser's inventory:

Accepted Answer

A)  At any time during transit. 
B)  When the purchaser is responsible for paying freight charges. 
C)  When the supplier is responsible for freight charges. 
D)  If the goods are shipped FOB destination. 
E)  After the half-way point between the buyer and seller. 
A)  At any time during transit. 
B)  When the purchaser is responsible for paying freight charges. 
C)  When the supplier is responsible for freight charges. 
D)  If the goods are shipped FOB destination. 
E)  After the half-way point between the buyer and seller.

Question 10

A company that has operated with a 30% average gross profit ratio for a number of years had $100,000 in sales during the first quarter of this year. If it began the quarter with $18,000 of inventory at cost and purchased $72,000 of inventory during the quarter, its estimated ending inventory by the gross profit method is:

Accepted Answer

A)  $30,000. 
B)  $21,000. 
C)  $20,000. 
D)  $18,000. 
E)  $27,000. 
A)  $30,000. 
B)  $21,000. 
C)  $20,000. 
D)  $18,000. 
E)  $27,000.

Question 11

A company reported the following data:   Required:
1. Calculate the company's merchandise inventory turnover for each year.
2. Comment on the company's efficiency in managing its inventory.

Accepted Answer

The answer of A company reported the following data: ...

Question 12

An overstated beginning inventory will ______________ cost of goods sold and _____________ net income.

Accepted Answer

Overstate;

Question 13

All of the following statements related to goods on consignment are true except:

Accepted Answer

A)  Goods on consignment are goods provided by the owner, call the consignor. 
B)  A consignee sells goods for the owner. 
C)  The consignor continues to own the consigned goods. 
D)  The consignee reports the goods in its inventory until sold. 
E)  The consignor reports the goods in its inventory until sold. 
A)  Goods on consignment are goods provided by the owner, call the consignor. 
B)  A consignee sells goods for the owner. 
C)  The consignor continues to own the consigned goods. 
D)  The consignee reports the goods in its inventory until sold. 
E)  The consignor reports the goods in its inventory until sold.

Question 14

On December 31, a company needed to estimate its ending inventory to prepare its fourth quarter financial statements. The following information is currently available: Inventory as of October 1: $12,500
Net sales for fourth quarter: $40,000
Net purchases for fourth quarter: $27,500
This company typically achieves a gross profit ratio of 15%. Ending Inventory under the gross profit method would be:

Accepted Answer

A)  $4,000. 
B)  $6,000. 
C)  $10,000. 
D)  $16,000. 
E)  $34,000. 
A)  $4,000. 
B)  $6,000. 
C)  $10,000. 
D)  $16,000. 
E)  $34,000.

Question 15

On July 24 of the current year, The Georgia Peach Company experienced a natural disaster that destroyed the company's entire inventory. At the beginning of July, the company reported beginning inventory of $226,750. Inventory purchased during July (until the date of the disaster) was $197,800. Sales for the month of July through July 24 were $642,500. Assuming the company's typical gross profit ratio is 50%, estimate the amount of inventory destroyed in the natural disaster.

Accepted Answer

A)  $212,275 
B)  $103,300 
C)  $217,950 
D)  $321,250 
E)  $157,788 
A)  $212,275 
B)  $103,300 
C)  $217,950 
D)  $321,250 
E)  $157,788

Question 16

When purchase costs of inventory regularly decline, which method of inventory costing will yield the lowest cost of goods sold?

Accepted Answer

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

Question 17

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

Accepted Answer

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

Question 18

The _____________________ is a measure of how quickly a merchandiser sells its merchandise inventory.

Accepted Answer

The answer of The _____________________ is a measure of how...

Question 19

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 20

In a period of rising purchase costs, FIFO usually gives a lower taxable income and therefore, yields a tax advantage.

Accepted Answer

A) True 
 B)False

Exam 6: Inventories and Cost of Sales

Net realizable value for damaged or obsolete goods is sales price plus the cost of making the sale.

LIFO is preferred when purchase costs are rising and managers have incentives to report higher income for reasons such as bonus plans, job security, and reputation.

Some companies choose to avoid assigning incidental costs of acquiring merchandise to inventory by recording them as expenses when incurred. The argument that supports this is called:

Using the information given below, prepare the general journal entry to record the March 16 sale assuming a cash sale and the LIFO method is used:

A company reported the current month purchase and sales data for its only product and uses the perpetual inventory system. Determine the cost assigned to ending inventory and cost of goods sold using LIFO.

When units are purchased at different costs over time, determining the cost per unit assigned to inventory items is simple.

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. $45,000 * .60 = $27,000

Goods in transit are included in a purchaser's inventory:

A company reported the following data: Required: 1. Calculate the company's merchandise inventory turnover for each year. 2. Comment on the company's efficiency in managing its inventory.

An overstated beginning inventory will ______________ cost of goods sold and _____________ net income.

All of the following statements related to goods on consignment are true except:

When purchase costs of inventory regularly decline, which method of inventory costing will yield the lowest cost of goods sold?

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

The _____________________ is a measure of how quickly a merchandiser sells its merchandise inventory.

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

In a period of rising purchase costs, FIFO usually gives a lower taxable income and therefore, yields a tax advantage.

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

Filters

An overstated beginning inventory will __ cost of goods sold and _ net income.