Deck 7: Inventories

Question 1

A major criticism of the FIFO method is that it magnifies the effects of the business cycle on business income.

Answer 1

True

Question 2

In accounting for inventory,the assumed cost flow need not match the physical goods flow.

Answer 2

True

Question 3

A manufacturer's inventory consists of raw materials,work in process,and finished goods.

Answer 3

True

Question 4

The term cost flow refers to the association of costs with their assumed flow in the operation of a business.

Question 5

If prices were to never change,there would be no need for alternative inventory methods.

Question 6

Market is the amount that a merchandising company would pay at the present time for the same goods as are in the inventory and from the usual suppliers in the usual quantities

Question 7

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

Question 8

Direct materials and direct labor are components of manufacturing overhead.

Question 9

The specific identification method is well suited for a discount department store.

Question 10

The average-cost method under a periodic inventory system relies on a simple average calculation as total cost of goods available for sale divided by the total units availabler for sale.

Question 11

When the cost of inventory is written down due to a market decline,a loss must be recorded.

Question 12

Goods in transit shipped FOB destination should not be included in the buyer's ending inventory.

Question 13

The lower-of-cost-or-market rule implies that it is a violation of the conservatism concept to carry inventory at a cost that is in excess of its market value.

Question 14

Costs incurred in storing inventory usually are not included in inventory costs.

Question 15

Freight charges associated with the purchase of inventory normally are not included in inventory cost.

Question 16

Inventory is an example of a long-term asset.

Question 17

Inventory methods such as LIFO and FIFO deal more with cost flow than with goods flow.

Question 18

Merchandise inventory is valued on the balance sheet at the expected resale price.

Question 19

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

Question 20

Goods in transit shipped FOB shipping point should be included in the seller's ending inventory.

Question 21

In periods of falling prices,LIFO will result in a higher ending inventory valuation than FIFO.

Question 22

The costs of an automated perpetual inventory system are considerable because they include the costs of automating the system,maintaining the system,and taking a physical inventory.

Question 23

Periodic and perpetual are examples of inventory costing systems.

Question 24

The LIFO method agrees with the actual physical goods flow in most businesses.

Question 25

The specific identification method and the FIFO method produce the same results under both the perpetual and periodic inventory systems.

Question 26

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

Question 27

Ending merchandise inventory for LIFO will be the same dollar amount under a periodic inventory system as under a perpetual inventory system.

Question 28

The LIFO method is rarely used because most companies do not sell the last goods they purchase first.

Question 29

The FIFO inventory method does not produce the most up-to-date figure for ending inventory.

Question 30

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

Question 31

In general,when prices are rising,use of the FIFO method will result in a lower tax liability than the other methods.

Question 32

If a company uses LIFO for tax purposes,it need not use LIFO for financial reporting purposes.

Question 33

Specific identification is a very popular inventory method because it is very easy to apply.

Question 34

In general,in times of rising prices,using FIFO has a favorable effect on cash flows.

Question 35

When the average-cost method is applied to a perpetual inventory system,the sale of goods will not change the unit cost of the goods that remain in inventory.

Question 36

In periods of rising prices,the LIFO method will result in a larger gross margin than the FIFO method.

Question 37

The matching of revenue with inventory costs is best achieved with the FIFO method.

Question 38

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

Question 39

The LIFO method tends to create peaks and valleys in the business cycle.

Question 40

During periods of consistently falling prices,the FIFO inventory method will produce the highest possible amount of net income.

Question 41

The determination of the balance sheet cost of merchandise inventory is not important to the determination of net income.

Question 42

A cost-to-retail percentage must be calculated when applying the gross profit method.

Question 43

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

Question 44

The higher the value assigned to ending inventory,the lower the gross margin.

Question 45

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

Question 46

The portion of cost of goods available for sale that is not assigned to ending inventory is assigned to work in process.

Question 47

Days' inventory on hand equals the inventory turnover divided by 365.

Question 48

An understatement of ending inventory in a period will result in an overstatement of gross margin in the next period.

Question 49

Inventory turnover is a measure expressed in terms of a percentage.

Question 50

Valuation of inventory on the balance sheet impacts cost of goods sold on the income statement.

Question 51

An overstatement of beginning inventory in a period will result in an overstatement of gross margin in the next period.

Question 52

The gross profit method requires that records be kept at both cost and retail.

Question 53

The costs included in work in process and finished goods inventories would properly contain manufacturing overhead costs.

Question 54

When the average-cost method is applied to a perpetual inventory system,a moving average cost per unit is computed with each purchase.

Question 55

An overstatement of ending inventory in a period will result in an understatement of gross margin in that period.

Question 56

Supply-chain management helps companies maintain lower levels of inventory.

Question 57

When taking a physical inventory under the retail method,it is necessary to know only the quantity of items on hand.

Question 58

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

Question 59

To increase their levels of inventory,many merchandisers and manufacturers use supply-chain management in conjunction with a just-in-time operating environment.

Question 60

Both the retail method and the gross profit method are useful in estimating the inventory cost.

Question 61

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

A)Storage costs
B)Related tariffs
C)Invoice price less purchases discounts
D)Insurance on goods in transit

Question 62

Inventory costing methods place primary reliance on assumptions about the flow of

A)costs.
B)goods.
C)resale prices.
D)values.

Question 63

A jeweler probably would use which of the following inventory methods?

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

Question 64

Goods held on consignment are

A)kept for sale on the premises of the consignee.
B)included as part of no one's ending inventory.
C)owned by the consignee.
D)included in the consignee's ending inventory.

Question 65

Which of the following is a reason for not using the specific identification method?

A)It is impractical to keep track of the purchase and sale of individual items.
B)Deciding which of many identical items sold would be arbitrary.
C)Deciding whether lower or higher-priced identical items sold could be a means of manipulating income.
D)All of these are reasons for not using the specific identification method.

Question 66

The most important accounting problem in dealing with merchandise inventory is the application of which of the following conventions or rules?

A)Materiality
B)Full disclosure
C)Matching
D)Conservatism

Question 67

When applying the lower-of-cost-or-market rule to inventory valuation,market generally means

A)original cost,less physical deterioration.
B)replacement cost.
C)original cost.
D)resale value.

Question 68

Despite its advantages,the just-in-time operating environment produces increased carrying costs for inventory.

Question 69

Which costing method can only be used when it is possible to identify units as coming from specific purchases?

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

Question 70

Manufacturing overhead would not include which of the following costs?

A)Plant utilities
B)Supervisory salaries
C)Depreciation of plant assets
D)Raw materials

Question 71

Which costing method assumes that the cost of the first few items acquired should be assigned to the first items sold?

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

Question 72

Which of the following is an inventory costing method?

A)Perpetual
B)Lower-of-cost-or-market
C)Specific identification
D)Periodic

Question 73

Which of the following terms best describes the assumption made in applying the four inventory methods?

A)Cost flow
B)Goods flow
C)Asset flow
D)Physical flow

Question 74

Applying the lower-of-cost-or-market rule follows which of the following accounting conventions?

A)Full disclosure
B)Matching
C)Materiality
D)Conservatism

Question 75

Inventory on hand is considered

A)a current asset.
B)a current liability.
C)a long-term asset.
D)an expense.

Question 76

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

A)Outgoing goods shipped FOB destination
B)Goods sold but not yet delivered
C)Incoming goods shipped FOB destination
D)Goods held on consignment

Question 77

All of the following are inventory costing methods except

A)first-in,first-out.
B)average-cost.
C)periodic.
D)specific identification.

Question 78

Which of the following is an inventory valuation method?

A)First-in,first-out
B)Average-cost
C)Lower-of-cost-or-market
D)Perpetual

Question 79

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

A)Invoice price
B)Cost of goods held on consignment
C)Freight-in
D)Sales tax

Question 80

Which costing method tends to level out the effects of cost increases or decreases?

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