Question 1

If the ownership of merchandise passes to the buyer when the seller ships the merchandise, the terms are stated as FOB destination.

Accepted Answer

A) True 
 B)False

Question 2

In a period of increasing prices, which inventory flow assumption will result in the lowest amount of income tax expense?

Accepted Answer

A) FIFO 
B) LIFO 
C) Average cost method 
D) Income tax expense for the period will be the same under all assumptions.

Question 3

When the average cost method is applied in a perpetual inventory system, the sale of goods will change the unit cost that remains in inventory.

Accepted Answer

A) True 
 B)False

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

When is a physical inventory usually taken?

Accepted Answer

A) When goods are not being sold or received. 
B) When the company has its greatest amount of inventory. 
C) At the end of the company's fiscal year. 
D) When the company has its greatest amount of inventory and at the end of the company's fiscal year.

Question 6

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

Accepted Answer

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

Question 7

Classic Floors has the following inventory data: $$\begin{array} { r l c } 
\text { July } 1 & \text { Beginning inventory } & 30 \text { units at } \$ 6.00 \
5 & \text { Purchases } & 120 \text { units at } \$ 6.60 \
14 & \text { Sale } & 80 \text { units } \
21 & \text { Purchases } & 60 \text { units at } \$ 7.20 \
30 & \text { Sale } & 56 \text { units }
\end{array}$$ Assuming that a perpetual inventory system is used, what is the value of ending inventory on a LIFO basis for July?

Accepted Answer

A) $931.20 
B) $1,404.00 
C) $708.00 
D) $472.80

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

Which inventory method generally results in costs allocated to ending inventory that will approximate their current cost?

Accepted Answer

A) LIFO 
B) FIFO 
C) Average cost method 
D) Whichever method that produces the highest ending inventory figure

Question 10

All of the following statements are true regarding the LIFO reserve except:

Accepted Answer

A) Companies using LIFO are required to report the LIFO reserve. 
B) The equation (LIFO inventory - LIFO reserve = FIFO inventory) adjusts the inventory balance from LIFO to FIFO. 
C) The financial statement differences of using LIFO normally increase the longer a company uses LIFO. 
D) Current ratios and the inventory turnover can be significantly affected if a company has material LIFO reserves.

Question 11

Under the periodic inventory system, both the sales amount and the cost of goods sold amount are recorded when each item of merchandise is sold.

Accepted Answer

A) True 
 B)False

Question 12

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

Accepted Answer

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

Question 13

The situation that requires a departure from the cost basis of accounting to the lower of cost or market basis in valuing inventory is necessitated by

Accepted Answer

A) a decline in the value of the inventory. 
B) an increase in selling price. 
C) an increase in the value of the inventory. 
D) a desire for more profit.

Question 14

Under a periodic inventory system, the merchandise on hand at the end of the period is determined by a physical count of the inventory.

Accepted Answer

A) True 
 B)False

Question 15

Serene Stereos has the following inventory data: $\begin{array}{rll}
\text { Nov. } 1 & \text { Inventory } & 30 \text { units } @ \$ 6.00 \text { each } \
8 & \text { Purchase } & 120 \text { units } @ \$ 6.45 \text { each } \
17 & \text { Purchase } & 60 \text { units } @ \$ 6.30 \text { each } \
25 & \text { Purchase } & 90 \text { units } @ \$ 6.60 \text { each }
\end{array}$ A physical count of merchandise inventory on November 30 reveals that there are 100 units on hand. Cost of goods sold under FIFO is

Accepted Answer

A) $657 
B) $1,269 
C) $632 
D) $1,295

Question 16

Laser Listening has the following inventory data: $\begin{array}{rll}
\text { Nov. } 1 & \text { Inventory } & 30 \text { units } @ \$ 6.00 \text { each } \
8 & \text { Purchase } & 120 \text { units } @ \$ 6.45 \text { each } \
17 & \text { Purchase } & 60 \text { units } @ \$ 6.30 \text { each } \
25 & \text { Purchase } & 90 \text { units } @ \$ 6.60 \text { each }
\end{array}$ A physical count of merchandise inventory on November 30 reveals that there are 100 units on hand. Assuming that the specific identification method is used and that ending inventory consists of 30 units from each of the three purchases and 10 units from the November 1 inventory, cost of goods sold is

Accepted Answer

A) $640. 
B) $1,286 
C) $1,281 
D) $1,254

Question 17

Use the following information regarding Black Company and Red Company to answer the question "Which amount is equal to Red Company's "days in inventory" for 2016 (to the closest decimal place)?" $$\begin{array}{l}
\begin{array} { | l | c | c | c | } 
\hline & \text { Year } & \begin{array} { c } 
\text { Inventory } \
\text { Turnover }
\end{array} & \text { Ending Inventory } \
\hline \text { Black Company } & 2015 & & \$ 26,340 \
\hline & 2016 & 8.7 & \$ 29,890 \
\hline & 2017 & 8.4 & \$ 30,100 \
\hline\
\hline \text { Red Company } & 2015 & & \$ 25,860 \
\hline & 2016 & 7.0 & \$ 24,750 \
\hline & 2017 & 7.5 & \$ 22,530 \
\hline
\end{array}
\end{array}$$

Accepted Answer

A) 43.5 days 
B) 48.7 days 
C) 42.0 days 
D) 52.1 days

Question 18

If beginning inventory is understated by $10,000, the effect of this error in the current period is $$\begin{array} { l c c } 
& \text { Cost of Goods Sold } & \text { Net Income } \
\text { a. } & \text { Understated } & \text { Understated } \
\text { b. } & \text { Overstated } & \text { Overstated } \
\text { c. } & \text { Understated } & \text { Overstated } \
\text { d. } & \text { Overstated } & \text { Understated }
\end{array}$$

Accepted Answer

The answer of If beginning inventory is understated by $10,000,...

Question 19

Use the following information for Boxter, Inc., Clifford Company, Danforth Industries, and Evans Services to answer the question "Using LIFO, what is Boxter's inventory turnover for 2017 (to the closest decimal place)?" \(\begin{array}{|l|c|c|c|c|}
\hline {\text { (amounts in \$ millions) }} & \text { Boxter } & \text { Clifford } & \text { Danforth } & \text { Evans } \
\hline \text { Inventory Method for 2016 \& 2017 } & \text { LIFO } & \text { FIFO } & \text { LIFO } & \text { FIFO } \
\hline 2016 \text { Ending inventory assuming LIFO } & \$ 324 & \text { N/A } & \$ 225 & \text { N/A } \\hline 2016 \text { Ending inventory assuming FIFO } & \$ 427 & \$ 535 & \$ 310 & \$ 663 \
\hline 2017 \text { Ending inventory assuming LIFO } & \$ 436 & \text { N/A } & \$ 167 & \text { N/A } \
\hline 2017 \text { Ending inventory assuming FIFO } & \$ 578 & \$ 612 & \$ 209 & \$ 542 \\hline \begin{array}{c}
2016 \text { Current assets } \
\text { (reported on balance sheet) }
\end{array} & \$ 1,677 & \$ 2,031 & \$ 1,308 & \$ 2,748 \
\hline 2016 \text { Current liabilities } & \$ 987 & \$ 1,209 & \$ 545 & \$ 1,200 \\hline \begin{array}{l}
2017 \text { Current assets } \
\text { (reported on balance sheet) }
\end{array} & \$ 2,225 & \$ 2,605 & \$ 1,100 & \$ 2,390 \
\hline 2017 \text { Current liabilities } & \$ 1,306 & \$ 1,410 & \$ 465 & \$ 1,000 \\hline 2017 \text { Cost of goods sold } & \$ 4,678 & \$ 1,410 & \$ 465 & \$ 1,000 \
\hline
\end{array}\)

Accepted Answer

A) 12.3 times 
B) 9.3 times 
C) 7.5 times 
D) 6.4 times

Question 20

Which of the following is an inventory costing method?

Accepted Answer

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

Exam 5: Reporting and Analyzing Inventory

If the ownership of merchandise passes to the buyer when the seller ships the merchandise, the terms are stated as FOB destination.

In a period of increasing prices, which inventory flow assumption will result in the lowest amount of income tax expense?

When the average cost method is applied in a perpetual inventory system, the sale of goods will change the unit cost that remains in inventory.

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

When is a physical inventory usually taken?

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

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

Which inventory method generally results in costs allocated to ending inventory that will approximate their current cost?

All of the following statements are true regarding the LIFO reserve except:

Under the periodic inventory system, both the sales amount and the cost of goods sold amount are recorded when each item of merchandise is sold.

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

The situation that requires a departure from the cost basis of accounting to the lower of cost or market basis in valuing inventory is necessitated by

Under a periodic inventory system, the merchandise on hand at the end of the period is determined by a physical count of the inventory.

Which of the following is an inventory costing method?