Question 1

Generally accepted accounting principles allow the cost flow pattern for merchandise inventory to differ from the physical flow of merchandise within the business.

Accepted Answer

A) True 
 B)False

Question 2

In an inflationary environment,

Accepted Answer

A) a company's net income will be higher if it uses FIFO than if it uses LIFO. 
B) a company's cost of goods sold will be lower if it uses LIFO as opposed to FIFO. 
C) a company's net income will be the same regardless of whether LIFO or FIFO is used. 
D) a company's assets will be lower if it uses FIFO as opposed to LIFO cost flow.

Question 3

On February 2, 2013, a fire destroyed the entire inventory of Blue Co. The following information was found in accounting records: Purchases, $280,000; Sales $460,000; beginning inventory, $80,000; average gross margin percentage during the past five years, 30%. Based on the above information, indicate whether each of the following statements is true or false.
_____ a) The cost of goods available for sale is $360,000.
_____ b) The cost of goods sold as a percent of sales is 70%.
_____ c) The estimated cost of goods sold is $202,000.
_____ d) Estimated inventory lost in the fire is $44,000.
_____ e) Estimated gross margin for the period up to the date of the fire was $138,000.

Accepted Answer

The answer of On February 2, 2013, a fire destroyed...

Question 4

When the cost of inventory is rising, which inventory cost flow method will produce the lowest amount of cost of goods sold?

Accepted Answer

A) FIFO 
B) Weighted Average. 
C) All methods will produce the same amount of cost of goods sold. 
D) LIFO

Question 5

During a period of rising prices, the amount of ending inventory reported on the balance sheet will be lower using the LIFO cost flow method than with FIFO.

Accepted Answer

A) True 
 B)False

Question 6

Marvella Company started the year with no inventory. During the year, it purchased two identical inventory items at different times. The first unit cost $600 and the second, $550. One of the items was sold during the year. Based on this information, how much product cost would be allocated to cost of goods sold and ending inventory, assuming use of
a. LIFO
b. FIFO
c. Weighted average

Accepted Answer

The answer of Marvella Company started the year with no...

Question 7

Generally accepted accounting principles do not restrict or limit a company's freedom to change accounting methods from one year to the next.

Accepted Answer

A) True 
 B)False

Question 8

A loss resulting from application of the lower-of-cost-or-market rule is included in Cost of Goods Sold if the loss is material in amount.

Accepted Answer

A) True 
 B)False

Question 9

Assuming Chandler uses a LIFO cost flow method, the amount of cost of goods sold for the sales transaction on January 18 is (round the final result to the nearest whole dollar):

Accepted Answer

A) $1,150. 
B) $1,070. 
C) $1,050. 
D) $1,130.

Question 10

During a period of declining prices, a company would report a lower gross margin using the LIFO cost flow method than with FIFO.

Accepted Answer

A) True 
 B)False

Question 11

Pufferbellies uses the FIFO inventory cost flow method. When its income tax is paid, what is the effect of the entry on the financial statements? Note that no tax liability had been accrued.

Accepted Answer

The answer of Pufferbellies uses the FIFO inventory cost flow...

Question 12

When prices are falling:

Accepted Answer

A) LIFO will result in lower income and a lower inventory valuation than will FIFO. 
B) LIFO will result in lower income and a higher inventory valuation than will FIFO. 
C) LIFO will result in higher income and a lower inventory valuation than will FIFO. 
D) LIFO will result in higher income and a higher inventory valuation than will FIFO.

Question 13

Vincent Company uses the perpetual inventory method. Vincent purchased 400 units of inventory that cost $5.00 each. At a later date the company purchased an additional 800 units of inventory that cost $6.00 each. Vincent sold 500 units of inventory for $9.00. If Vincent uses a FIFO cost flow method, the amount of cost of goods sold appearing on the income statement will be:

Accepted Answer

A) $1,900. 
B) $2,000. 
C) $1,500. 
D) $2,600.

Question 14

Benson Company purchased two identical inventory items. The item purchased first cost $14.00, and the item purchased second cost $15.00. Benson sold one of the items for $24.00. Which of the following statements is true?

Accepted Answer

A) Ending inventory will be lower if Benson uses weighted average than if FIFO were used. 
B) Cost of goods sold will be higher if Benson uses FIFO than if weighted average were used. 
C) The dollar amount assigned to ending inventory will be the same no matter which cost flow method is used. 
D) Gross margin will be higher if Benson uses LIFO than it would be if FIFO were useD.If Benson uses weighted average, ending inventory will be $14.50. If the company uses FIFO, ending inventory will be $15.00.

Question 15

The Rocco Company has six different categories of inventory. Quantity, cost, market value for each inventory category is shown below  Required:
a) Determine the value of ending inventory after applying the lower-of-cost-or-market rule to each individual category of inventory.
b) Determine the value of ending inventory after applying the lower-of-cost-or-market rule to inventory in aggregate.
c) Prepare the journal entry, if required, to adjust inventory for part a above.
d) Prepare the journal entry, if required, to adjust inventory for part b above.

Accepted Answer

The answer of The Rocco Company has six different categories...

Question 16

The following transactions apply to Boston Books.  Assume the use of the perpetual inventory method and that all transactions were for cash.
Required:
a) Prepare the journal entries for the above transactions, assuming a FIFO cost flow.
b) Determine the amount of ending inventory using a FIFO cost flow.

Accepted Answer

The answer of The following transactions apply to Boston Books....

Question 17

Indicate whether each of the following statements is true or false.
_____ a) The FIFO cost flow method may only be used if the company actually rotates inventory so that the oldest inventory is sold first.
_____ b) In a period of rising prices, LIFO gives higher cost of goods sold than FIFO.
_____ c) Under the weighted average cost flow method, the cost per unit of ending inventory is equal to the cost per unit of inventory sold.
_____ d) In a period of declining prices, LIFO will result in lower income tax expense than FIFO.
_____ e) In a period of rising prices, FIFO gives higher ending inventory than LIFO does.

Accepted Answer

The answer of Indicate whether each of the following statements...

Question 18

What accounting steps would a firm normally take when it discovers a material difference between a physical inventory count and the book inventory figure? Assume that the company uses a perpetual inventory system.

Accepted Answer

The answer of What accounting steps would a firm normally...

Question 19

If prices are rising, which inventory cost flow method will produce the lowest amount of cost of goods sold?

Accepted Answer

A) FIFO 
B) LIFO 
C) NIFO 
D) Weighted Average

Question 20

On December 31, 2013, Owen Corporation overstates the ending inventory account by $4,000. How will this affect Retained Earnings in the December 31, 2014 balance sheet?

Accepted Answer

A) Retained Earnings will be overstated by $4,000. 
B) Retained Earnings will be understated by $4,000. 
C) Retained Earnings will be correctly stated. 
D) Cannot be determined with the above information.

Exam 5: Accounting for Inventories

Generally accepted accounting principles allow the cost flow pattern for merchandise inventory to differ from the physical flow of merchandise within the business.

In an inflationary environment,

When the cost of inventory is rising, which inventory cost flow method will produce the lowest amount of cost of goods sold?

During a period of rising prices, the amount of ending inventory reported on the balance sheet will be lower using the LIFO cost flow method than with FIFO.

Generally accepted accounting principles do not restrict or limit a company's freedom to change accounting methods from one year to the next.

A loss resulting from application of the lower-of-cost-or-market rule is included in Cost of Goods Sold if the loss is material in amount.

Assuming Chandler uses a LIFO cost flow method, the amount of cost of goods sold for the sales transaction on January 18 is (round the final result to the nearest whole dollar) :

During a period of declining prices, a company would report a lower gross margin using the LIFO cost flow method than with FIFO.

Pufferbellies uses the FIFO inventory cost flow method. When its income tax is paid, what is the effect of the entry on the financial statements? Note that no tax liability had been accrued.

When prices are falling:

Benson Company purchased two identical inventory items. The item purchased first cost $14.00, and the item purchased second cost $15.00. Benson sold one of the items for $24.00. Which of the following statements is true?

What accounting steps would a firm normally take when it discovers a material difference between a physical inventory count and the book inventory figure? Assume that the company uses a perpetual inventory system.

If prices are rising, which inventory cost flow method will produce the lowest amount of cost of goods sold?

On December 31, 2013, Owen Corporation overstates the ending inventory account by $4,000. How will this affect Retained Earnings in the December 31, 2014 balance sheet?