Question 1

The journal entry to write-down inventory under the lower of cost or market (LCM) rule results in a decrease in both ending inventory and cost of goods sold.

Accepted Answer

A) True 
 B)False  False

Question 2

Hollander Company hired some students to help count inventory during their semester break. Unfortunately, the students added incorrectly and the 2014 ending inventory was overstated by $5,000. What would be the effect of this error in ending inventory?

Accepted Answer

A)   2014 net income would be overstated.
B)   2014 net income would be understated.
C)  2014 ending retained earnings would be understated.
D)  2014 cost of goods sold would be overstateD.The overstatement of the ending inventory causes cost of goods sold to be understated and net income to be overstated. A

Question 3

Carp Corporation has provided the following information for its most recent month of operation: sales $16,000; ending inventory $4,000, purchases $8,000 and gross profit $10,000. How much was Carp's beginning inventory?

Accepted Answer

A)   $2,000.
B)   $18,000.
C)  $6,000.
D)  $12,000. A

Question 4

When a company uses the periodic inventory system, which of the following is true?

Accepted Answer

A)   Purchases are recorded in the cost of goods sold account.
B)   The inventory account is updated after each sale.
C)  Cost of goods sold is computed at the end of the accounting period rather than at each sale date.
D)  The inventory account is updated throughout the year as purchases are made.

Question 5

Which of the following journal entries is not consistent with the use of a perpetual inventory system? A. Inventory
$\quad$Accounts payable
B. Cost of goods sold
$\quad$Inventory
C. Purchases
$\quad$Accounts payable
D. Accounts receivable
$\quad$Sales revenue

Accepted Answer

A)   Option A
B)   Option B
C)  Option C
D)  Option D

Question 6

In the year of an overstatement of ending inventory, cost of goods sold will be understated and net income will be overstated.

Accepted Answer

A) True 
 B)False

Question 7

Atomic Company did not record a December 2013 purchase of inventory on credit until January 2014. Assuming that the December 31, 2013 ending inventory was correctly determined, what is the effect of this error on the financial statements for the year ended December 31, 2014?

Accepted Answer

A)   Net income is correct.
B)   Stockholders' equity is correct.
C)  Net income is overstated.
D)  Stockholders' equity is overstateD.Inventory related errors including purchase cutoff errors are self-correcting on the balance sheet after two periods.

Question 8

An overstatement of the 2013 ending inventory results in an overstatement of stockholders' equity as of the end of 2013.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following is correct?

Accepted Answer

A)   The raw materials inventory account is used to record inventory purchased by a retailer for resale.
B)   Work in process is an expense account used by a manufacturing company.
C)  Finished goods is an asset account used by a manufacturing company to record the cost of inventory ready for sale.
D)  Retailers use a purchases account to record raw materials inventory.

Question 10

Which of the following businesses would not be as likely to use the specific identification method of inventory valuation?

Accepted Answer

A)   An automobile dealer.
B)   A custom jewelry store.
C)  A grocery store.
D)  An art dealer.

Question 11

The inventory records of Martin Corporation reflected the following information for the month of August:  Required: 
A. Determine the amount of the ending inventory and cost of goods sold under each of the following methods assuming the periodic inventory system.
  
B. Why would cash flow considerations relate to the choice of an inventory method?

Accepted Answer

The answer of The inventory records of Martin Corporation reflected...

Question 12

Which of the following statements is correct?

Accepted Answer

A)   FIFO reports lower net income amounts than LIFO when unit costs are increasing.
B)   LIFO reports a higher net income amount than FIFO when unit costs are increasing.
C)  LIFO reports a higher net income amount than FIFO when unit costs are decreasing.
D)  LIFO reports the same amount of net income as FIFO when unit costs are increasing.

Question 13

Coleman Company has provided the following information: beginning inventory, $100,000; cost of goods sold, $450,000; and ending inventory, $80,000. How much were Coleman's inventory purchases?

Accepted Answer

A)   $450,000.
B)   $410,000.
C)  $430,000.
D)  $420,000.

Question 14

For each independent situation given below, determine the effect on pretax income for each. Enter "O" to indicate pretax income is overstated, "U" to indicate pretax income is understated, or "NA" to indicate that pretax income is not affected.

Accepted Answer

The answer of For each independent situation given below, determine...

Question 15

Maxim Corp. has provided the following information about one of its products: $\begin{array}{clrr}\text { Date }&\text { Transaction } &\text { Number of Units }&\text { Cost per Unit }\\hline
1 / 1 & \text { Beginning Inventory } & 200 & \$ 140 \
6 / 5 & \text { Purchase } & 400 & \$ 160 \
11 / 10 & \text { Purchase } & 100 & \$ 200
\end{array}$ During the year, Maxim sold 400 units. What is ending inventory using the average cost method?

Accepted Answer

A)   $48,000.
B)   $64,000.
C)  $50,000.
D)  $62,000.

Question 16

QV-TV, Inc. provided the following items in its notes to the financial statements for the year-end 2014: Cost of goods sold was $22 billion under FIFO costing and the inventory value under FIFO costing was $2.1 billion. The LIFO Reserve for year-end 2014 was $0.6 billion and at year-end 2014 it had increased to $0.8 billion. How much is the 2014 LIFO cost of goods sold?

Accepted Answer

A)   $22.2 billion.
B)   $19.8 billion.
C)  $22.8 billion.
D)  $19.2 billion.

Question 17

Lauer Corporation uses the periodic inventory system and has provided the following information about one of its laptop computers: $\begin{array}{clrr}\text { Date }&\text { Transaction } &\text { Number of Units }&\text { Cost per Unit }\\hline
1 / 1 & \text { Beginning Inventory } & 100 & \$ 800 \
5 / 5 & \text { Purchase } & 200 & \$ 900 \
8 / 10 & \text { Purchase } & 300 & \$ 1,000 \
10 / 15 & \text { Purchase } & 200 & \$ 1,050
\end{array}$ During the year, Lauer sold 750 laptop computers. What was ending inventory using the LIFO cost flow assumption?

Accepted Answer

A)   $40,000.
B)   $45,000.
C)  $55,000.
D)  $60,000.

Question 18

Manufactured goods transferred out of work in process are reported as finished goods on the balance sheet.

Accepted Answer

A) True 
 B)False

Question 19

Redford Company hired a new store manager in October 2013, who determined the ending inventory on December 31, 2013, to be $50,000. In March, 2014, the company discovered that the December 31, 2013 ending inventory should have been $58,000. The December 31, 2014, inventory was correct. Ignore income taxes.
Required:
Complete the following table to show the effects of the inventory error on the four amounts listed. Give the amount of the discrepancy and indicate whether it was overstated (O), understated (U), or had no effect (N).

Accepted Answer

The answer of Redford Company hired a new store manager...

Question 20

Which of the following statements is incorrect?

Accepted Answer

A)   A year-end purchase of inventory increases the LIFO cost of goods sold when unit costs are increasing.
B)   A year-end purchase of inventory increases the FIFO ending inventory when unit costs are increasing.
C)  The choice of an inventory costing method is dependent on the actual flow of goods when inventory is sold.
D)  A year-end purchase of inventory does not affect the weighted-average ending inventory when unit costs are increasing.

Exam 7: Reporting and Interpreting Cost of Goods Sold and Inventory

The journal entry to write-down inventory under the lower of cost or market (LCM) rule results in a decrease in both ending inventory and cost of goods sold.

Hollander Company hired some students to help count inventory during their semester break. Unfortunately, the students added incorrectly and the 2014 ending inventory was overstated by $5,000. What would be the effect of this error in ending inventory?

Carp Corporation has provided the following information for its most recent month of operation: sales $16,000; ending inventory $4,000, purchases $8,000 and gross profit $10,000. How much was Carp's beginning inventory?

When a company uses the periodic inventory system, which of the following is true?

Which of the following journal entries is not consistent with the use of a perpetual inventory system? A. Inventory $\quad$ Accounts payable B. Cost of goods sold $\quad$ Inventory C. Purchases $\quad$ Accounts payable D. Accounts receivable $\quad$ Sales revenue

In the year of an overstatement of ending inventory, cost of goods sold will be understated and net income will be overstated.

Atomic Company did not record a December 2013 purchase of inventory on credit until January 2014. Assuming that the December 31, 2013 ending inventory was correctly determined, what is the effect of this error on the financial statements for the year ended December 31, 2014?

An overstatement of the 2013 ending inventory results in an overstatement of stockholders' equity as of the end of 2013.

Which of the following is correct?

Which of the following businesses would not be as likely to use the specific identification method of inventory valuation?

Which of the following statements is correct?

Coleman Company has provided the following information: beginning inventory, $100,000; cost of goods sold, $450,000; and ending inventory, $80,000. How much were Coleman's inventory purchases?

For each independent situation given below, determine the effect on pretax income for each. Enter "O" to indicate pretax income is overstated, "U" to indicate pretax income is understated, or "NA" to indicate that pretax income is not affected.

Manufactured goods transferred out of work in process are reported as finished goods on the balance sheet.

Which of the following statements is incorrect?

Exam 7: Reporting and Interpreting Cost of Goods Sold and Inventory

The journal entry to write-down inventory under the lower of cost or market (LCM) rule results in a decrease in both ending inventory and cost of goods sold.

Hollander Company hired some students to help count inventory during their semester break. Unfortunately, the students added incorrectly and the 2014 ending inventory was overstated by $5,000. What would be the effect of this error in ending inventory?

Carp Corporation has provided the following information for its most recent month of operation: sales $16,000; ending inventory $4,000, purchases $8,000 and gross profit $10,000. How much was Carp's beginning inventory?

When a company uses the periodic inventory system, which of the following is true?

Which of the following journal entries is not consistent with the use of a perpetual inventory system? A. Inventory \quad Accounts payable B. Cost of goods sold \quad Inventory C. Purchases \quad Accounts payable D. Accounts receivable \quad Sales revenue

In the year of an overstatement of ending inventory, cost of goods sold will be understated and net income will be overstated.

Atomic Company did not record a December 2013 purchase of inventory on credit until January 2014. Assuming that the December 31, 2013 ending inventory was correctly determined, what is the effect of this error on the financial statements for the year ended December 31, 2014?

An overstatement of the 2013 ending inventory results in an overstatement of stockholders' equity as of the end of 2013.

Which of the following is correct?

Which of the following businesses would not be as likely to use the specific identification method of inventory valuation?

Which of the following statements is correct?

Coleman Company has provided the following information: beginning inventory, $100,000; cost of goods sold, $450,000; and ending inventory, $80,000. How much were Coleman's inventory purchases?

For each independent situation given below, determine the effect on pretax income for each. Enter "O" to indicate pretax income is overstated, "U" to indicate pretax income is understated, or "NA" to indicate that pretax income is not affected.

Manufactured goods transferred out of work in process are reported as finished goods on the balance sheet.

Which of the following statements is incorrect?

Which of the following journal entries is not consistent with the use of a perpetual inventory system? A. Inventory $\quad$ Accounts payable B. Cost of goods sold $\quad$ Inventory C. Purchases $\quad$ Accounts payable D. Accounts receivable $\quad$ Sales revenue