Question 1

The journal entry to write down inventory to its market value results in a loss on the income statement.

Accepted Answer

A) True 
 B)False  True

Question 2

For which type of inventory would a company most likely use the specific identification method?

Accepted Answer

A)   Barbie dolls
B)   Cartons of milk
C)   Custom designed diamond rings
D)   Gasoline in storage tanks at a gasoline station C

Question 3

Transportation-in is

Accepted Answer

A)   an operating expense
B)   a stockholders' equity account
C)   added to transportation-out as part of the calculation of cost of goods sold
D)   part of cost of goods purchased D

Question 4

Under the indirect method, a decrease in inventory is added to net income to determine cash flow from operating activities.

Accepted Answer

A) True 
 B)False

Question 5

In the following information from the 2015 annual reports of Focal Point Industries all figures have been rounded to millions of dollars.
Changes in assets and liabilities:
REQUIRED:
   1 Explain what the amount "adjustment to LIFO" represents. What effects has this "adjustment" had on Focal
Point Industries' net earnings in 2014 and 2015?
2 What method of determining cash flows from operating activities has Focal Point Industries used in preparing its statement of cash flows? Explain your answer.
3 From 2014 to 2015, what change in the inventory balance increase or decrease occurred in each year as a result of operating activities? What was the effect on the company's cash flow each year as a result of the inventory change?

Accepted Answer

The answer of In the following information from the 2015...

Question 6

Park, Inc. purchased merchandise from Jay Zee Music Company on June 5, 2015. The goods were shipped the same day. The merchandise's selling price was $15,000. The credit terms were 1/10, n/30. The shipping terms were FOB shipping point. Park received the merchandise on June 10, 2015. Park paid the amount due on June 13, 2015. Who is responsible for payment of the transportation costs on the merchandise sold by Jay Zee Music to Park?

Accepted Answer

A)   Jay Zee Music Company
B)   Park, Inc.
C)   Split equally between the two companies.
D)   Cannot be determined from the information provided.

Question 7

The excess of the value of a company's inventory stated at FIFO over the value stated at LIFO is called an
_________________________.

Accepted Answer

The answer of The excess of the value of a...

Question 8

Match the inventory-related accounts to costs that may be included in inventories for retailers and manufacturers.
-Costs of direct materials, overhead, and direct labor used in unfinished goods.

Accepted Answer

A)  Merchandise Inventory
B)  Raw Materials
C)  Work in Process
D)  Finished Goods
E)  Cost of Goods Sold

Question 9

Giant-Mart purchased a large shipment of shoes from Primus, Inc. on credit near the end of its accounting period.
Primus shipped the shoes in January and Giant-Mart received the shoes in February. Assume that Giant-Mart's accounting period ends on January 31, while Giant's accounting period ends on May 31. Answer each independent question in the set that follows.
REQUIRED: Under what shipping terms would Giant-Mart include the shoes as part of inventory on its January 31 balance sheet?

Accepted Answer

The answer of Giant-Mart purchased a large shipment of shoes...

Question 10

Cost of goods sold is equal to beginning inventory plus the net cost of purchases minus ending inventory.

Accepted Answer

A) True 
 B)False

Question 11

Summer, Inc. has been in business for 20 years. During that time the company has consistently used the LIFO inventory costing method. Because of inflation, prices for merchandise have increased consistently over the 20 years. The company has maintained the same inventory quantities over the 20-year period. Which one of the following statements is true?

Accepted Answer

A)   Summer, Inc.'s total net income for the past 20 years is greater than it would have reported using another inventory method.
B)   Summer, Inc. will have paid more income taxes over the past 20 years than it would have if it had used the FIFO method.
C)   Summer will have to continue using the LIFO method indefinitely because of generally accepted accounting principles and federal income tax rules.
D)   The ending inventory figure reported on the balance sheet may be significantly lower than its current value.

Question 12

Refer to the data for Share, Inc.
If the LIFO method is used, how much is cost of goods sold for May?

Accepted Answer

The answer of Refer to the data for Share, Inc.
If...

Question 13

The following information was taken from the operating activity section of the 2014 statement of cash flows for Limited Corp:  Based on the information provided, which one of the following conclusions is correct?

Accepted Answer

A)   Accounts payable decreased $2,000 in 2014.
B)   Inventories increased $8,000 in 2014.
C)   The direct method was used to prepare the operating section of the cash flow statement.
D)   Cash payments of merchandise exceeded cost of goods sold by $2,000.

Question 14

The inventory method that assigns the most recent costs to ending inventory is LIFO.

Accepted Answer

A) True 
 B)False

Question 15

Texas Inc. sold merchandise to Fagin Corp. on December 28, 2014, with shipping terms of FOB destination. Fagin Corp. received the merchandise on January 3, 2015. Which one of the following statements is true?

Accepted Answer

A)   Texas should record sales revenue on December 28, 2014.
B)   Fagin Corp. should pay the transportation costs.
C)   Fagin Corp. should include the merchandise in its inventory at December 31, 2014.
D)   Fagin Corp. should record a liability for the purchase on January 3, 2015.

Question 16

If the direct method is used to prepare the Operating Activities category of the statement of cash flows, the amount of cash paid to suppliers of inventory is shown as an addition in this section of the statement.

Accepted Answer

A) True 
 B)False

Question 17

Sales Returns and Allowances is a contra-asset account.

Accepted Answer

A) True 
 B)False

Question 18

A major advantage of the weighted average method of inventory costing is that

Accepted Answer

A)   Cost flows correspond with the physical flow of merchandise
B)   It is relatively easy to apply
C)   It matches current costs with revenues
D)   Recent costs are assigned to the ending inventory balance

Question 19

Floors, Inc. offers terms of 2/10, n/30 to credit customers. Tile Magic Corp. purchased 100 tile cutters with a list price of $20 each on August 5, 2015, on account. If Tile Magic Corp. pays the amount of the invoice for its purchase on August 14, 2015, how much cash will Floors receive from Tile Magic Corp.?

Accepted Answer

A)   $1,764
B)   $1,800
C)   $1,960
D)   $2,000

Question 20

Under the indirect method, an increase in accounts payable is added to net income to determine cash flow from operating activities.

Accepted Answer

A) True 
 B)False

Exam 5: Inventories and Cost of Goods Sold

The journal entry to write down inventory to its market value results in a loss on the income statement.

For which type of inventory would a company most likely use the specific identification method?

Transportation-in is

Under the indirect method, a decrease in inventory is added to net income to determine cash flow from operating activities.

The excess of the value of a company's inventory stated at FIFO over the value stated at LIFO is called an _________________________.

Match the inventory-related accounts to costs that may be included in inventories for retailers and manufacturers. -Costs of direct materials, overhead, and direct labor used in unfinished goods.

Cost of goods sold is equal to beginning inventory plus the net cost of purchases minus ending inventory.

Refer to the data for Share, Inc. If the LIFO method is used, how much is cost of goods sold for May?

The following information was taken from the operating activity section of the 2014 statement of cash flows for Limited Corp: Based on the information provided, which one of the following conclusions is correct?

The inventory method that assigns the most recent costs to ending inventory is LIFO.

Texas Inc. sold merchandise to Fagin Corp. on December 28, 2014, with shipping terms of FOB destination. Fagin Corp. received the merchandise on January 3, 2015. Which one of the following statements is true?

If the direct method is used to prepare the Operating Activities category of the statement of cash flows, the amount of cash paid to suppliers of inventory is shown as an addition in this section of the statement.

Sales Returns and Allowances is a contra-asset account.

A major advantage of the weighted average method of inventory costing is that

Under the indirect method, an increase in accounts payable is added to net income to determine cash flow from operating activities.