Exam 7: Inventories

Condensed income statements for Marlin Company are shown below for two years. Compute the corrected income before income taxes for 2013 and 2014,assuming that the inventory as of the end of 2013 was mistakenly understated by $26,000.

Given equal circumstances,which inventory method probably would be the most time consuming?

Which of the following companies would be most likely to use the retail method?

Which of the following would normally be included in the inventory?

In periods of rising inventory prices,the LIFO method will result in a higher inventory valuation than will the average-cost method.

Assuming a perpetual inventory system is used,use the following information to calculate cost of goods sold on an average-cost basis.

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

An unrealistic picture of the inventory's current value on the balance sheet is an argument against using

Why are cost flow assumptions made when accounting for merchandise inventory?

Emily Holmes owns and operates a large antique shop.She uses the specific identification method to account for transactions that affect inventory.Holmes recently completed a physical inventory of the merchandise in her shop as part of her year-end work.Today,her accountant called to inform her that it would be necessary to adjust the inventory figure shown on the balance sheet,which will increase Holme's tax liability.Holmes argued that the inventory had to be correct,because she counted it twice and matched every item to an invoice.Cite reasons why the accountant would find it necessary to adjust the inventory even if Holme's count is accurate.

In verifying a claim for a loss of inventory,an insurance company might use the gross profit method.

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?

The lower the inventory turnover,the lower the days' inventory on hand.

Direct materials and direct labor are components of manufacturing overhead.

The average-cost method produces an ending inventory figure that is somewhere between the figures produced by FIFO and LIFO.

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

Use this inventory information for the month of March to answer the following question. Assuming that a periodic inventory system is used,what is cost of goods sold on a FIFO basis?

Goods held on consignment should be included in the consignee's ending inventory.

Inventory on hand is considered

Under the perpetual inventory system,cost of goods sold is not recorded until the end of the accounting period.