Question 1

Which of the following is generally not true about inventory?

Accepted Answer

A) Inventory consists of all goods owned and held for sale to customers. 
B) Inventory is a non-financial asset. 
C) Inventory must be managed on a unit-by-unit (i.e. ,specific identification)method. 
D) Inventory is usually shown on the balance sheet at cost. 
A) Inventory consists of all goods owned and held for sale to customers. 
B) Inventory is a non-financial asset. 
C) Inventory must be managed on a unit-by-unit (i.e. ,specific identification)method. 
D) Inventory is usually shown on the balance sheet at cost. C

Question 2

During periods of inflation,the FIFO cost flow assumption will yield a higher cost of goods sold than LIFO.

Accepted Answer

A) True 
 B)False  False

Question 3

In a periodic inventory system,recording a sale on account involves crediting which of the following accounts?

Accepted Answer

A) Only Sales. 
B) Sales and Inventory. 
C) Sales and Cost of Goods Sold. 
D) Sales,Inventory,and Cost of Goods Sold. 
A) Only Sales. 
B) Sales and Inventory. 
C) Sales and Cost of Goods Sold. 
D) Sales,Inventory,and Cost of Goods Sold. A

Question 4

Companies with periodic inventory systems often use techniques such as the gross profit method and the retail method to:

Accepted Answer

A) Prepare interim financial statements without taking a complete physical inventory. 
B) Increase gross profit. 
C) Value inventory at its sales price instead of its cost. 
D) Reduce taxable income during a period of rising prices. 
A) Prepare interim financial statements without taking a complete physical inventory. 
B) Increase gross profit. 
C) Value inventory at its sales price instead of its cost. 
D) Reduce taxable income during a period of rising prices.

Question 5

On Saturday,June 30,BD Pool Supplies sold merchandise to E.Luang on account.The sales price was $6,400,and the cost of goods sold was $5,300.The sales revenue was recorded immediately,but the entry recording the cost of goods sold was dated Monday,July 2.As a result,net income for June was:

Accepted Answer

A) Overstated by $6,400. 
B) Overstated by $5,300. 
C) Overstated by $1,100. 
D) Not affected,but the net income for July is understated. 
A) Overstated by $6,400. 
B) Overstated by $5,300. 
C) Overstated by $1,100. 
D) Not affected,but the net income for July is understated.

Question 6

[The following information applies to the questions displayed below.]
Midwest Office Products uses the retail method to estimate ending inventory in its monthly financial statements.The following information is available for the month ended May 31:
  
-Refer to the information above.Estimate the cost of the May 31 inventory using the retail method.

Accepted Answer

A) $116,964 
B) $137,400 
C) $150,425 
D) $204,000 
A) $116,964 
B) $137,400 
C) $150,425 
D) $204,000

Question 7

During the month of January,Sundown Corporation had sales of $300,000 and a cost of goods available for sale of $600,000.The company consistently earns a gross profit rate of 45%.Using the gross profit method,the estimated inventory at January 31 amounts to:

Accepted Answer

A) $135,000. 
B) $435,000. 
C) $165,000. 
D) $465,000. 
A) $135,000. 
B) $435,000. 
C) $165,000. 
D) $465,000.

Question 8

During periods of rising prices,and being primarily concerned with tax implications,most of the companies would select:

Accepted Answer

A) LIFO. 
B) FIFO. 
C) Specific identification. 
D) The inventory valuation does not affect taxation. 
A) LIFO. 
B) FIFO. 
C) Specific identification. 
D) The inventory valuation does not affect taxation.

Question 9

Which of the four inventory approaches transfers the most recent purchase cost to the cost of goods sold and the remaining items in inventory are valued at the oldest acquisition costs?

Accepted Answer

A) LIFO 
B) FIFO 
C) Average cost 
D) Specific identification 
A) LIFO 
B) FIFO 
C) Average cost 
D) Specific identification

Question 10

A write down of inventory due to obsolescence reduces the amount in the Inventory account and may increase the amount in the Cost of Goods Sold account.

Accepted Answer

A) True 
 B)False

Question 11

The choice of inventory valuation method can help achieve each of the following independent goals,except:

Accepted Answer

A) Reduce cost of merchandise acquired from suppliers. 
B) Increase reported net income. 
C) Increase the inventory turnover rate. 
D) Reduce the amount of income taxes owed. 
A) Reduce cost of merchandise acquired from suppliers. 
B) Increase reported net income. 
C) Increase the inventory turnover rate. 
D) Reduce the amount of income taxes owed.

Question 12

In a manufacturing company,the "just-in-time" concept of inventory management is best illustrated by:

Accepted Answer

A) Receiving deliveries of materials from suppliers just before the materials are used in the production process. 
B) Completing the manufacturing process just before the deadline established by the customer. 
C) An automated factory that reduces production time below that of other companies in the industry. 
D) Selling finished products before they go out of style. 
A) Receiving deliveries of materials from suppliers just before the materials are used in the production process. 
B) Completing the manufacturing process just before the deadline established by the customer. 
C) An automated factory that reduces production time below that of other companies in the industry. 
D) Selling finished products before they go out of style.

Question 13

Merchandise sold F.O.B.destination belongs to the buyer while in transit.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following inventory valuation methods is only an estimate of actual costs?

Accepted Answer

A) Only the retail method. 
B) Only the gross profit method. 
C) Both retail and gross profit methods are only estimations. 
D) Neither the retail nor the gross profit methods are estimations. 
A) Only the retail method. 
B) Only the gross profit method. 
C) Both retail and gross profit methods are only estimations. 
D) Neither the retail nor the gross profit methods are estimations.

Question 15

Any business that sells numerous units of identical products may determine its cost of goods sold using a cost flow assumption,rather than the specific identification method.

Accepted Answer

A) True 
 B)False

Question 16

[The following information applies to the questions displayed below.]
Beech Soda,Inc.uses a perpetual inventory system.The company's beginning inventory of a particular product and its purchases during the month of January were as follows:
   On January 14,Beech Soda,Inc.sold 25 units of this product.The other 28 units remained in inventory at January 31.
-Assuming that Beech Soda uses the average cost flow assumption,the cost of goods sold to be recorded at January 14 is (round your intermediate calculation to one decimal place and cost per unit to the nearest cent):

Accepted Answer

A) $317.50. 
B) $308.25. 
C) $272.50. 
D) $673.00. 
A) $317.50. 
B) $308.25. 
C) $272.50. 
D) $673.00.

Question 17

In a periodic inventory system,recording a sale on account involves debiting which of the following accounts?

Accepted Answer

A) Only Accounts Receivable. 
B) Accounts Receivable and Inventory. 
C) Accounts Receivable and Cost of Goods Sold. 
D) Accounts Receivable,Cost of Goods Sold,and Inventory. 
A) Only Accounts Receivable. 
B) Accounts Receivable and Inventory. 
C) Accounts Receivable and Cost of Goods Sold. 
D) Accounts Receivable,Cost of Goods Sold,and Inventory.

Question 18

Comparison of LIFO and FIFO
Both Company X and Company Y sell the same product.The cost of this product has been rising steadily throughout the year.Both companies reported the same net income for the year,although Company X used the first-in,first-out method of pricing inventory,while Company Y used the last-in,first-out method.
(a)Which company's valuation of ending inventory in the balance sheet is more likely to approximate replacement cost?
Company ________
(b)Which company reports a cost of goods sold figure in the current year income statement that is more likely to reflect the replacement cost of the units sold?
Company ________
(c)Which company is minimizing income taxes it must pay?
Company ________
(d)Which company would have reported the higher net income if both companies had used the same method of pricing inventory?
Company ________

Accepted Answer

(a)Company X (FIFO method).
(b

Question 19

[The following information applies to the questions displayed below.]
At year-end,the perpetual inventory records of Anderson Co.indicate 60 units of a particular product in inventory,acquired at the following dates and unit costs:
Purchased in August: 30 units at $750 per unit.
Purchased in November: 30 units at $700 per unit.
A complete physical inventory taken at year-end indicates only 50 units of this product actually are on hand
-Assuming that Anderson uses the FIFO cost flow assumption,it should record this inventory shrinkage by:

Accepted Answer

A) Crediting Cost of Goods Sold $7,500. 
B) Debiting Cost of Goods Sold $7,000. 
C) Crediting Cost of Goods Sold $7,000. 
D) Debiting Cost of Goods Sold $7,500. 
A) Crediting Cost of Goods Sold $7,500. 
B) Debiting Cost of Goods Sold $7,000. 
C) Crediting Cost of Goods Sold $7,000. 
D) Debiting Cost of Goods Sold $7,500.

Question 20

An advantage of the average-cost method of accounting for inventory is that the inventory is valued in the balance sheet at current replacement costs.

Accepted Answer

A) True 
 B)False

Exam 8: Inventories and the Cost of Goods Sold

Which of the following is generally not true about inventory?

During periods of inflation,the FIFO cost flow assumption will yield a higher cost of goods sold than LIFO.

In a periodic inventory system,recording a sale on account involves crediting which of the following accounts?

Companies with periodic inventory systems often use techniques such as the gross profit method and the retail method to:

On Saturday,June 30,BD Pool Supplies sold merchandise to E.Luang on account.The sales price was $6,400,and the cost of goods sold was $5,300.The sales revenue was recorded immediately,but the entry recording the cost of goods sold was dated Monday,July 2.As a result,net income for June was:

During the month of January,Sundown Corporation had sales of $300,000 and a cost of goods available for sale of $600,000.The company consistently earns a gross profit rate of 45%.Using the gross profit method,the estimated inventory at January 31 amounts to:

During periods of rising prices,and being primarily concerned with tax implications,most of the companies would select:

Which of the four inventory approaches transfers the most recent purchase cost to the cost of goods sold and the remaining items in inventory are valued at the oldest acquisition costs?

A write down of inventory due to obsolescence reduces the amount in the Inventory account and may increase the amount in the Cost of Goods Sold account.

The choice of inventory valuation method can help achieve each of the following independent goals,except:

In a manufacturing company,the "just-in-time" concept of inventory management is best illustrated by:

Merchandise sold F.O.B.destination belongs to the buyer while in transit.

Which of the following inventory valuation methods is only an estimate of actual costs?

Any business that sells numerous units of identical products may determine its cost of goods sold using a cost flow assumption,rather than the specific identification method.

In a periodic inventory system,recording a sale on account involves debiting which of the following accounts?

An advantage of the average-cost method of accounting for inventory is that the inventory is valued in the balance sheet at current replacement costs.

Accounting: Information for Decision Making

Basic Financial Statements

The Accounting Cycle: Capturing Economic Events

The Accounting Cycle: Accruals and Deferrals

The Accounting Cycle: Reporting Financial Results

Merchandising Activities

Financial Assets

Plant and Intangible Assets

Liabilities

Stockholders Equity: Paid-In Capital

Income and Changes in Retained Earnings

Statement of Cash Flows

Financial Statement Analysis

Global Business and Accounting

Management Accounting

Job Order Cost Systems and Overhead Allocations

Process Costing

Costing and the Value Chain

Cost-Volume-Profit Analysis

Incremental Analysis

Responsibility Accounting and Transfer Pricing

Operational Budgeting

Standard Cost Systems

Rewarding Business Performance

Capital Budgeting

the Time Value of Money: Future Amounts and Present Values

Forms of Business Organization

Filters