Question 1

The weighted-average inventory method rarely is used with periodic inventory procedures.

Accepted Answer

The weighted-average inventory method is commonly used with periodic inventory procedures because it simplifies the calculation of the cost of goods sold and ending inventory by averaging the costs of all goods available for sale during the period.

Question 2

Harris company has items that were incorrectly omitted from purchases made in 2013,but entered correctly in ending inventory.These would have overstated pre-tax income and understated liabilities.

Accepted Answer

If the items were omitted from purchases, this means they were not recorded as an expense and therefore would have overstated pre-tax income. However, since they were correctly included in ending inventory, they would have understated liabilities (specifically, accounts payable or accrued expenses) since those items were not paid for in the current year.

Question 3

M Company should include the following items in its merchandise inventory:
A)Goods purchased FOB destination still en route.
B)Goods purchased FOB shipping point still en route.
C)Goods sold by M Company FOB shipping point still en route.
D)Goods held on consignment from the B Company to M Company.

Accepted Answer

Goods purchased FOB shipping point still en route should be included in the merchandise inventory as they are already in possession of the buyer and in transit to their destination.

Answer: D
 Goods held on consignment from the B Company to M Company should also be included in the merchandise inventory as they are in M Company's possession and available for sale.

Goods purchased FOB destination still en route should not be included in the merchandise inventory until they reach their destination and are in possession of M Company. Goods sold by M Company FOB shipping point still en route should not be included in the merchandise inventory as they have already been sold and are no longer owned by M Company.

Question 4

Which of the following items should not be included in the inventory at year-end? 
A)Goods that are owned by a company 
B) Goods returned by a customer
C)Goods out on consignment
D)Goods held on consignment for sale on commission

Accepted Answer

Goods held on consignment for sale on commission are not owned by the company and should not be included in the company's inventory.

Question 5

Use of a perpetual inventory system versus a periodic inventory system may affect the application of the inventory cost flow methods.

Accepted Answer

Under perpetual inventory system, the inventory balance is updated on a continuous basis, while under periodic inventory system, the inventory balance is updated only at the end of each accounting period. The use of different inventory systems may affect the application of inventory cost flow methods, such as FIFO, LIFO, and weighted average cost. Therefore, the statement is true.

Question 6

FIFO will produce the same ending inventory result regardless of whether a periodic or perpetual inventory system is used.

Accepted Answer

FIFO (First-In, First-Out) method ensures that the oldest inventory items are sold first, and the newest inventory items are left in ending inventory. This method results in the same ending inventory value regardless of whether a periodic or perpetual inventory system is used.

Question 7

Gross margin rate,mark-up,and cost percentage,are different names for the same relationship.

Accepted Answer

Gross margin rate is the percentage of profit obtained after deducting the cost of goods sold from the revenue, whereas mark-up is the percentage added to the cost of goods to arrive at the selling price. Cost percentage is the percentage of cost of goods in relation to the selling price. While they are related, each term refers to a slightly different calculation.

Question 8

The allocation of the cost of goods available for sale during a reporting period involves the flow of costs rather than the flow of units.

Accepted Answer

The cost of goods available for sale represents both the cost of beginning inventory and the cost of goods purchased or produced during the reporting period. The cost flow assumption (such as FIFO, LIFO, or average cost) determines how the cost is allocated to units sold and units remaining in ending inventory. Therefore, the allocation of costs is based on the flow of costs rather than the flow of units.

Question 9

The average cost method of inventory valuation can be applied in exactly the same way by using either the periodic or perpetual inventory system.

Accepted Answer

The average cost method can be applied under both the periodic and perpetual inventory systems, but the calculation and application differ. In a periodic system, the average cost is calculated at the end of the period based on the goods available for sale during the entire period. In a perpetual system, the average cost is recalculated after each purchase, continuously updating the average cost of inventory throughout the accounting period.

Question 10

The allowance method and the direct reduction method of reporting the holding losses on lower-of-cost or NRV inventory valuation will produce the same cost of goods sold amount.

Accepted Answer

The two methods will not produce the same cost of goods sold amount. The allowance method will result in a lower cost of goods sold than the direct reduction method because it only recognizes a holding loss when it is incurred, while the direct reduction method recognizes the loss immediately.

Question 11

Items on Harris's ledger for inventory that are purchased and correctly debited to 2013 purchases,but improperly included in 2013 ending inventory would have overstated both asset and pre-tax income of 2013.

Accepted Answer

If the items are incorrectly included in 2013 ending inventory, it would actually understate pre-tax income for 2013 because the cost of goods sold would be understated. Additionally, it would overstate the value of the ending inventory asset.

Question 12

Using the direct reduction method of reporting a holding loss for lower-of-cost or NRV valuation of inventory,any holding loss is merged into the cost of goods sold amount.

Accepted Answer

When using the direct reduction method, any holding loss is deducted from the cost of the inventory directly and merged into the cost of goods sold amount. This reduces the reported value of inventory on the balance sheet and the amount of profit on the income statement.

Question 13

The difference between the gross margin percentage and cost ratio is usually called the mark-up rate.

Accepted Answer

The answer of The difference between the gross margin percentage...

Question 14

Which one of the following should be excluded from inventories?
A)Goods in transit to which title is held
B)Shop worn goods saleable at a price lower than the regular sale price
C)Goods out on consignment
D)Goods held on consignment

Accepted Answer

Goods held on consignment should be excluded from inventories because they are not owned by the company. The consignor, not the consignee, retains ownership until the goods are sold.

Question 15

On a particular date,which of the following should be included in a company's inventory?
A)Goods in the company's warehouse which have been received from another company for sale on consignment
B)Goods sold through a sales contract the terms of which have been completed, but the goods are being held for the customer to call for at his convenience
C)Goods purchased and in transit f.o.b.destination
D)Goods held for sale in the possession of an agent of the company

Accepted Answer

Goods held for sale in the possession of an agent of the company should be included in the company's inventory on a particular date. The other options involve goods that are not fully owned by the company or are not yet in their possession, and thus should not be included in the inventory.

Question 16

Sales taxes are subject to input tax credits while value-added (VAT) taxes are not.

Accepted Answer

The answer of Sales taxes are subject to input tax...

Question 17

The same inventory costing method must be used on the income tax return,on the income statement,and in the ledger accounts of the company.

Accepted Answer

Companies often use different inventory costing methods for financial reporting and tax purposes due to differences in accounting standards and tax regulations.

Question 18

When using the moving average method of inventory flow,it is necessary to re-compute a new average each time units are issued from the inventory.

Accepted Answer

The answer of When using the moving average method of...

Question 19

If purchases made in one year are mistakenly recorded the following year,this error will counterbalance,that is,there will be no effect on income over a 2-year period.

Accepted Answer

The error will overstate expenses in the year the purchases are mistakenly recorded and understate expenses in the year they should have been recorded, but over a 2-year period, the total expenses and income will be correctly stated, thus counterbalancing the mistake.

Question 20

F Corporation should include the following in its inventory:
A)Goods purchased FOB destination, still en route.
B)Goods held for pick-up by the buyer.
C)Goods it sold FOB shipping point, still en route.
D)Goods out on consignment to the M Company.

Accepted Answer

The answer of F Corporation should include the following in...

Quiz 8: Cost-Based Inventories and Cost of Sales