Deck 7: Inventories

Question 1

Inventory is an example of a long-term asset.

Answer 1

False

Question 2

Periodic and perpetual are examples of inventory costing systems.

Answer 2

True

Question 3

Indirect materials and indirect labor are components of manufacturing overhead.

Answer 3

True

Question 4

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

Question 5

The determination of the balance sheet cost of merchandise inventory is important to the determination of net income.

Question 6

The just-in-time operating environment produces decreased carrying costs for inventory.

Question 7

The costs included in work in process and finished goods inventories would not contain manufacturing overhead costs.

Question 8

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

Question 9

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

Question 10

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

Question 11

Supply-chain management works well in a just-in-time operating environment.

Question 12

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

Question 13

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

Question 14

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

Question 15

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

Question 16

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

Question 17

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

Question 18

Inventory turnover is a measure not expressed in terms of a percentage.

Question 19

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

Question 20

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

Question 21

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

Question 22

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

Question 23

The LIFO inventory method produces the most up-to-date figure for ending inventory.

Question 24

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

Question 25

If prices were to never change,there would still be a need for alternative inventory methods.

Question 26

If a company uses LIFO for tax purposes,it must also use LIFO for financial reporting purposes.

Question 27

Costs incurred in storing inventory usually are included in inventory costs.

Question 28

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

Question 29

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

Question 30

Freight charges associated with the purchase of inventory normally are included in inventory cost.

Question 31

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

Question 32

Under the periodic inventory system,cost of goods sold is recorded throughout the accounting period as inventory is sold.

Question 33

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

Question 34

In accounting for inventory,the assumed cost flow must match the physical goods flow.

Question 35

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

Question 36

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

Question 37

The LIFO method tends to smooth out the peaks and valleys of a business cycle.

Question 38

The average-cost method relies on a calculation of average unit cost.

Question 39

The specific identification method identifies the cost of each item in ending inventory.

Question 40

Merchandise inventory is always valued on the balance sheet at its historical cost.

Question 41

Which of the following is an inventory processing system?

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

Question 42

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

Question 43

The retail method is the only method that is useful in estimating the inventory cost.

Question 44

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

Question 45

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

Question 46

Under the perpetual inventory system,cost of goods sold is accumulated as sales are made throughout the accounting period.

Question 47

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

Question 48

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

Question 49

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

Question 50

All of the following are inventory costing methods except

A) last-in,last-out.
B) average-cost.
C) perpetual.
D) specific identification.

Question 51

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

Question 52

In verifying a claim for a loss of inventory,an insurance company will most likely use the retail method.

Question 53

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

Question 54

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

Question 55

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

Question 56

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

Question 57

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

Question 58

The computer has made the perpetual inventory system more popular and easier to apply.

Question 59

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

Question 60

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

Question 61

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

A) Materiality
B) Cost-benefit
C) Matching
D) Consistency

Question 62

Which of the following accounts would not appear as an asset on a manufacturer's balance sheet?

A) Finished Goods
B) Work in Process
C) Factory Overhead
D) Raw Materials

Question 63

During the year,Toyz for Boyz had beginning inventory of $350,000,ending inventory of $320,000,and cost of goods sold of $1,507,500.The days' inventory on hand was

A) 4.5 days.
B) 4.7 days.
C) 81.1 days.
D) 77.7 days.

Question 64

An overstatement of beginning inventory results in

A) no effect on the period's gross margin.
B) an overstatement of gross margin.
C) an understatement of gross margin.
D) a need to adjust purchases.

Question 65

Cost of goods sold equals $1,000,000,and average inventory equals $400,000.Days' inventory on hand equals

A) 91.3 days.
B) 146.0 days.
C) 821.9 days.
D) 912.5 days.

Question 66

Which of the following is an inventory valuation method?

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

Question 67

Inventory turnover is expressed in terms of

A) days.
B) a percentage.
C) dollars.
D) times.

Question 68

Average inventory equals $200,000,and cost of goods sold equals $432,000.Inventory turnover equals

A) 0.46 times.
B) 1.23 times.
C) 2.16 times.
D) 168.98 times.

Question 69

Which of the following is an inventory costing method?

A) Cost
B) Lower-of-cost-or-market
C) First-in,First-out
D) Periodic

Question 70

Goods held on consignment are

A) kept for sale on the premises of the consignor.
B) included as part of no one's ending inventory.
C) never owned by the consignee.
D) included in the consignee's ending inventory.

Question 71

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

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

Question 72

Cost of goods sold equals $1,000,000,and average inventory equals $400,000.Inventory turnover equals

A) 0.4 times.
B) 2.5 times.
C) 5 times.
D) 146.0 times.

Question 73

An understatement of year 1's beginning inventory will

A) cause year 2's gross margin to be overstated.
B) cause year 1's cost of goods sold to be understated.
C) cause year 2's gross margin to be understated.
D) have no effect on year 1's gross margin.

Question 74

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 75

An understatement of year 1's ending inventory will

A) cause year 2's cost of goods sold to be overstated.
B) result in an understatement of year 2's beginning inventory.
C) not affect year 2's ending owner's equity.
D) have no effect on year 2's gross margin.

Question 76

An overstatement of ending inventory in one period results in

A) an overstatement of the ending inventory of the next period.
B) an understatement of gross margin of the next period.
C) an overstatement of gross margin of the next period.
D) no effect on gross margin of the next period.

Question 77

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

A) Full disclosure
B) Consistency
C) Cost-benefit
D) Conservatism

Question 78

Average inventory equals $200,000,and cost of goods sold equals $432,000.Days' inventory on hand equals

A) 168.98 days.
B) 170.0 days.
C) 157.9 days.
D) 193.1 days.

Question 79

Manufacturing overhead would not include which of the following costs?

A) Packing materials
B) Depreciation of plant assets
C) Factory rent
D) Direct labor

Question 80

Days' inventory on hand equals 365 divided by

A) inventory turnover.
B) cost of goods sold.
C) goods available for sale.
D) average inventory.