Deck 6: Inventories

Question 1

If a company changes its inventory valuation method, the effect of the change on net income should be disclosed in the financial statements.

Answer 1

True

Question 2

If a company has no beginning inventory and the unit price of inventory is increasing during a period, the cost of goods available for sale during the period will be the same under the average-cost and FIFO inventory methods.

Answer 2

True

Question 3

The expense recognition principle requires that the cost of goods sold be matched against the ending merchandise inventory in order to determine income.

Answer 3

False

Question 4

The specific identification method of costing inventories tracks the actual physical flow of the goods available for sale.

Question 5

Management may choose any inventory costing method it desires as long as the cost flow assumption chosen is consistent with the physical movement of goods in the company.

Question 6

The more inventory a company has in stock, the greater the company's profit.

Question 7

If the unit price of inventory is increasing during a period, a company using the average-cost inventory method will show less gross profit for the period, than if it had used the FIFO inventory method.

Question 8

In a period of rising prices, if a company uses the FIFO cost flow assumption, income tax expense will be lower than if they used average-costing.

Question 9

Use of the FIFO inventory valuation method enables a company to report higher net income when in a period of falling prices.

Question 10

One reason a company using a perpetual inventory system must make a physical count of goods is to determine the amount of inventory on hand as of the statement of financial position date.

Question 11

If a company has no beginning inventory and the unit cost of inventory items does not change during the year, the value assigned to the ending inventory will be the same under FIFO and average cost flow assumptions.

Question 12

All inventories are reported as current assets on the statement of financial position.

Question 13

Raw materials inventories are the goods that a manufacturer has completed and are ready to be sold to customers.

Question 14

The average cost method costs units using a weighted-average unit cost.

Question 15

Transactions that affect inventories on hand have an effect on both the statement of financial position and the income statement.

Question 16

The first-in, first-out (FIFO) inventory method results in an ending inventory valued at the most recent cost.

Question 17

Goods that have been purchased FOB destination but are in transit, should be excluded from a physical count of goods.

Question 18

IFRS allows companies to cost inventory using either the LIFO or the FIFO cost flow assumption.

Question 19

Goods out on consignment should be included in the inventory of the consignor.

Question 20

The specific identification method of inventory valuation is desirable when a company sells a large number of low-unit cost items.

Question 21

Under the FIFO method, the costs of the earliest units purchased are the first charged to cost of goods sold.

Question 22

The accounting concept of prudence dictates that the accounting principle used should
be the one least likely to overstate assets and income.

Question 23

The retail inventory method requires a company to value its inventory on the statement of financial position at retail prices.

Question 24

An error that overstates the ending inventory will also cause net income for the period to be overstated.

Question 25

A major difference between IFRS and GAAP is that GAAP specifically prohibits use of the FIFO cost flow assumption.

Question 26

The LIFO cost flow assumption can also be called the LISH assumption.

Question 27

Companies have the choice of physically counting inventory on hand at the end of the year or using the gross profit method to estimate the ending inventory.

Question 28

A major advantage of LIFO is that the inventory reported on the statement of financial position will approximate current cost.

Question 29

If the inventory reported on the statement of financial position is understated, then net income reported on the income statement is understated.

Question 30

Accounting for inventories under IFRS is very similar to accounting under GAAP.

Question 31

In applying the LIFO assumption in a perpetual inventory system, the cost of the units most recently purchased prior to sale is allocated first to the units sold.

Question 32

If a company uses the FIFO cost assumption, the cost of goods sold for the period will be the same under a perpetual or periodic inventory system.

Question 33

Accountants believe that the write down from cost to net realizable value should not be made in the period in which the price decline occurs.

Question 34

Finished goods are a classification of inventory for a manufacturer that are completed and ready for sale.

Question 35

The pool of inventory costs consists of the beginning inventory plus the cost of goods purchased.

Question 36

In a period of rising prices, the statement of financial position will report a higher inventory amount if FIFO, rather than average-costing, is the cost flow assumption used.

Question 37

If an error understates the beginning inventory, net income will also be understated.

Question 38

The moving-average cost flow assumption for a perpetual inventory system and the average-cost cost flow assumption for a periodic inventory system will allocate the same amounts to ending inventory and cost of goods sold.

Question 39

In all cases when average-costing is used, the cost of goods sold would be the same whether a perpetual or periodic system is used.

Question 40

Inventory turnover is calculated as cost of goods sold divided by ending inventory.

Question 41

Use the following information for questions .
What should be the inventory reported on Queen's July 31 statement of financial position using the FIFO inventory method?

A)£108,000.
B)£117,600.
C)£124,800.
D)£126,000.

Question 42

Use the following information for questions .
What should be the inventory reported on Queen's July 31 statement of financial position using the average-cost inventory method (round per unit amounts to two decimal places)?

A)£108,000.
B)£117,600.
C)£118,440.
D)£126,000.

Question 43

In a manufacturing business, inventory that is ready for sale is called

A)raw materials inventory.
B)work in process inventory.
C)finished goods inventory.
D)store supplies inventory.

Question 44

Merchandise inventory is

A)reported under the classification of Property, Plant, and Equipment on the statement of financial position.
B)often reported as a miscellaneous expense on the income statement.
C)reported as a current asset on the statement of financial position.
D)generally valued at the price for which the goods can be sold.

Question 45

The lower-of-cost-or-net realizable value basis is an example of the accounting concept of prudence.

Question 46

Inventories affect

A)only the statement of financial position.
B)only the income statement.
C)both the statement of financial position and the income statement.
D)neither the statement of financial position nor the income statement.

Question 47

The term "FOB" denotes

A)free on board.
B)freight on board.
C)free only (to) buyer.
D)freight charge on buyer.

Question 48

As a result of a thorough physical inventory, Hastings Company determined that it had inventory worth $540,000 at December 31, 2011.This count did not take into consideration the following facts: Carlin Consignment store currently has goods worth $104,000 on its sales floor that belong to Hastings but are being sold on consignment by Carlin.The selling price of these goods is $150,000.Hastings purchased $40,000 of goods that were shipped on December 27 FOB destination, that will be received by Hastings on January 3.Determine the correct amount of inventory that Hastings should report.

A)$580,000.
B)$684,000.
C)$644,000.
D)$690,000.

Question 49

Inventories are reported in the current assets section of the statement of financial position immediately before receivables.

Question 50

Items not yet placed into production are considered to be

A)raw materials.
B)work in process.
C)finished goods.
D)merchandise inventory.

Question 51

Manufacturers usually classify inventory into all the following general categories except:

A)work in process
B)finished goods
C)merchandise inventory
D)raw materials

Question 52

Question 53

In a period of falling prices, the average-cost method results in a lower cost of goods sold than the FIFO method.

Question 54

If goods in transit are shipped FOB destination

A)the seller has legal title to the goods until they are delivered.
B)the buyer has legal title to the goods until they are delivered.
C)the transportation company has legal title to the goods while the goods are in transit.
D)no one has legal title to the goods until they are delivered.

Question 55

An auto manufacturer would classify vehicles in various stages of production as

A)finished goods.
B)merchandise inventory.
C)raw materials.
D)work in process.

Question 56

Use the following information for questions .
What is Queen's cost of goods available for sale?

A)£77,000.
B)£284,800.
C)£754,800.
D)cannot be determined.

Question 57

Which of the following should be included in the physical inventory of a company

A)Goods held on consignment from another company.
B)Goods in transit to another company shipped FOB shipping point.
C)Goods in transit from another company shipped FOB shipping point.
D)Both b and c above.

Question 58

In a perpetual inventory system, the cost of goods sold under the FIFO method is based on the cost of the latest goods on hand during the period.

Question 59

The factor which determines whether or not goods should be included in a physical count of inventory is

A)physical possession.
B)legal title.
C)management's judgment.
D)whether or not the purchase price has been paid.

Question 60

The gross profit method is based on the assumption that the rate of gross profit remains constant from one year to the next.

Question 61

Ted's Used Cars uses the specific identification method of costing inventory.During March, Ted purchased three cars for $8,000, $10,000, and $13,000, respectively.During March, two cars are sold for $12,000 each.Ted determines that at March 31, the $13,000 car is still on hand.What is Ted's gross profit for March?

A)$7,000.
B)$6,000.
C)$1,000.
D)$11,000.

Question 62

A physical count of merchandise inventory on June 30 reveals that there are 200 units on hand.Using the average-cost method, the amount allocated to the ending inventory on June 30 is

A)¥28,000.
B)¥20,000.
C)¥7,670.
D)¥8,000.

Question 63

The cost of goods available for sale is allocated between

A)beginning inventory and ending inventory.
B)beginning inventory and cost of goods on hand.
C)ending inventory and cost of goods sold.
D)beginning inventory and cost of goods purchased.

Question 64

Beginning inventory plus the cost of goods purchased equals

A)cost of goods sold.
B)cost of goods available for sale.
C)net purchases.
D)total goods purchased.

Question 65

The accounting principle that requires that the cost flow assumption be consistent with the physical movement of goods is

A)called the matching principle.
B)called the consistency principle.
C)nonexistent; that is, there is no accounting requirement.
D)called the physical flow assumption.

Question 66

Of the following companies, which one would not likely employ the specific identification method for inventory costing?

A)Music store specializing in organ sales
B)Farm implement dealership
C)Antique shop
D)Hardware store

Question 67

A company just starting in business purchased three merchandise inventory items at the following prices.First purchase $80; Second purchase $95; Third purchase $85.If the company sold two units for a total of $240 and used FIFO costing, the gross profit for the period would be

A)$65.
B)$75.
C)$60.
D)$50.

Question 68

Nolvo Company uses the periodic inventory system.For February 2011, the beginning inventory consisted of 100 units that cost CHF65 each.During the month, the company made two purchases: 400 units at CHF68 each and 150 units at $72 each.Nolvo sold 500 units during the month of February at CHF110 per unit.Using the average cost method, what is the amount of ending inventory at February 28, 2011?

A)CHF10,800.
B)CHF10,500.
C)CHF10,269.
D)CHF9,750.

Question 69

A company purchased inventory as follows: The average unit cost for inventory is

A)$10.00.
B)$11.00.
C)$11.20.
D)$12.00.

Question 70

Vestle Company uses the periodic inventory system.For January 2011, the beginning inventory consisted of 12,000 units that cost CHF12 each.During the month, the company made two purchases: 5,000 units at CHF13 each and 20,000 units at CHF13.50 each.Vestle sold 21,500 units during the month for CHF19.50 per unit.Using the average-cost method, what is the amount of cost of goods sold for the month of January 2011 (round per unit amount to two decimal places)?

A)CHF278,425.
B)CHF289,500.
C)CHF269,750.
D)CHF279,500.

Question 71

Which of the following statements is correct with respect to inventories?

A)The FIFO method assumes that the costs of the earliest goods acquired are the last to be sold.
B)It is generally good business management to sell the most recently acquired goods first.
C)Under FIFO, the ending inventory is based on the latest units purchased.
D)FIFO seldom coincides with the actual physical flow of inventory.

Question 72

Colletti Company recorded the following data: The weighted average unit cost of the inventory at January 31 is:

A)$2.00.
B)$2.10.
C)$2.12.
D)$2.20.

Question 73

Use the following information for questions .
The value assigned to cost of goods sold if Brocken uses average-cost is

A)£17,062.
B)£16,900.
C)£16,961.
D)£17,520.

Question 74

Which one of the following inventory methods is often impractical to use?

A)Specific identification
B)Average cost
C)FIFO
D)All of the above are practical to use

Question 75

A problem with the specific identification method is that

A)inventories can be reported at actual costs.
B)management can manipulate income.
C)matching is not achieved.
D)the lower-of-cost-or-net realizable value basis cannot be applied.

Question 76

Use the following information for questions .
The value assigned to cost of goods sold if Brocken uses FIFO is

A)£16,900.
B)£16,960.
C)£17,069.
D)£17,082.

Question 77

Kershaw Bookstore had 600 units on hand at January 1, costing €18 each.Purchases and sales during the month of January were as follows: Kershaw does not maintain perpetual inventory records.According to a physical count, 450 units were on hand at January 31. The cost of the inventory at January 31, under the FIFO method is:

A)€1,200.
B)€8,100.
C)€9,300.
D)€9,600.

Question 78

A company just starting business made the following four inventory purchases in June: A physical count of merchandise inventory on June 30 reveals that there are 200 units on hand.Using the FIFO inventory method, the amount allocated to cost of goods sold for June is

A)¥8,700.
B)¥16,960.
C)¥19,300.
D)¥20,850.

Question 79

A company just starting business made the following four inventory purchases in June: A physical count of merchandise inventory on June 30 reveals that there are 200 units on hand. The inventory method which results in the highest gross profit for June is

A)the FIFO method.
B)the specific identification method.
C)the average-cost method.
D)not determinable.

Question 80

The selection of an appropriate inventory cost flow assumption for an individual company is made by

A)the external auditors.
B)the IASB.
C)the internal auditors.
D)company management.