Question 1

A perpetual inventory system provides management with valuable tools in which to plan and control inventory levels because the amount of inventory is known at any point in time.

Accepted Answer

A perpetual inventory system allows businesses to track inventory levels in real-time, providing accurate and up-to-date information that can be used for planning and controlling inventory levels. This information is valuable for businesses to make informed decisions about purchasing, selling, and stocking inventory. Therefore, the statement is true.

Question 2

A manufacturing firm would not normally have an account titled
A) goods in process inventory
B) raw materials inventory
C) merchandise inventory
D) finished goods inventory

Accepted Answer

A manufacturing firm would not typically have a merchandise inventory account because merchandise inventory refers to the inventory of items that a retail or wholesale company sells to customers, rather than the inventory of goods being produced by a manufacturing company. Instead, a manufacturing firm would have accounts for raw materials inventory, goods in process inventory, and finished goods inventory.

Question 3

The SEC requires a company that uses LIFO to disclose the amount of the differentiation between LIFO and FIFO.

Accepted Answer

The SEC does require companies to disclose the amount of the differentiation between LIFO and FIFO in their financial statements. This is because the choice of inventory valuation method can have a significant impact on a company's financial statements and profitability, and it is important for investors and analysts to be aware of this impact when analyzing the company's financial performance.

Question 4

If a company uses LIFO for annual reporting purposes, it must also use it for interim reporting. This enables external users to accurately compare financial statements.

Accepted Answer

This statement is true. Consistency in accounting methods is important for financial statement users to compare companies' financials over time. If a company switches between LIFO and FIFO for interim and annual reporting, it can make it difficult for users to make accurate comparisons. Therefore, if a company uses LIFO for annual reporting, it must also use it for interim reporting to maintain consistency.

Question 5

In a period of rising prices LIFO produces the highest cost of goods sold and the lowest gross profit.

Accepted Answer

LIFO (Last In First Out) assumes that the latest purchases are sold first, resulting in the highest cost of goods sold during a period of rising prices. This leads to the lowest gross profit since the cost of goods sold is higher.

Question 6

The cost of goods sold model for a manufacturer is:

Accepted Answer

The answer of The cost of goods sold model for...

Question 7

A company's liquidation of inventory under LIFO results in higher income during periods of rising costs. Management can manipulate earnings by delaying purchases until after the end of the fiscal year.

Accepted Answer

Liquidation of inventory under LIFO results in selling the older, cheaper inventory first which leads to higher cost of goods sold and consequently higher income during periods of rising costs. Management can manipulate earnings by delaying purchases until after the end of the fiscal year and reducing the cost of goods sold.

Question 8

For only a merchandiser, the sum of beginning inventory and net purchases, or production costs, of inventory represents the cost of goods available for sale.

Accepted Answer

The answer of For only a merchandiser, the sum of...

Question 9

Inventory costs include all costs directly or indirectly associated with bringing an item to its existing condition or location for sale.

Accepted Answer

Inventory costs include all costs associated with the purchase or production of the item, transportation, storage, and handling costs, as well as any taxes or insurance related to the inventory.

Question 10

The use of inventory pools with dollar-value LIFO overcomes the issues associated with keeping numerous detailed records of individual quantities of each item.

Accepted Answer

The answer of The use of inventory pools with dollar-value...

Question 11

When shipping FOB shipping point the seller still retains economic control until the goods are received by the buyer, therefore they should not be recorded into inventory by the buyer until receipt.

Accepted Answer

Under FOB shipping point, the buyer gains economic control and ownership of the goods once they are shipped, so they should be recorded in the buyer's inventory at that point.

Question 12

A manufacturing company typically has how many inventory accounts?
A) 1
B) 2
C) 3
D) 4

Accepted Answer

A manufacturing company typically has three inventory accounts: Raw Materials, Work-in-Process, and Finished Goods. These accounts are used to track the cost of materials, the cost of goods in production, and the cost of completed products ready for sale, respectively.

Question 13

Which of the following is included in the work in process account?
A) manufacturing overhead
B) direct labor
C) raw materials
D) all of these

Accepted Answer

Work in process account includes all direct and indirect costs that have been incurred and not yet charged to finished goods. This includes manufacturing overhead, direct labor, and raw materials.

Question 14

Net purchases is computed as follows:

Accepted Answer

The computation for net purchases is not provided in the given text.

Question 15

A retail firm would normally use an inventory account titled
A) finished goods inventory
B) merchandise inventory
C) goods in process inventory
D) raw materials inventory

Accepted Answer

Merchandise inventory is the correct inventory account for a retail firm, as it represents the inventory of products available for sale. Finished goods inventory is used for manufacturing firms, goods in process inventory is used for tracking the inventory of products during the manufacturing process, and raw materials inventory is used for materials that have not yet been put into production.

Question 16

The LIFO conformity rule allows a company to use FIFO for financial reporting and LIFO for income taxes.

Accepted Answer

The LIFO conformity rule requires that if a company uses the LIFO (Last In, First Out) method for tax purposes, it must also use LIFO for financial reporting purposes.

Question 17

When shipping FOB shipping point the buyer has economic control of the inventory and must record the goods in its inventory accounts.

Accepted Answer

When goods are shipped FOB (Free on Board) shipping point, the buyer takes ownership and responsibility for the goods as soon as they leave the seller's premises, thus they must record the goods in their inventory.

Question 18

The use of dollar-value LIFO follows the same methodology as the LIFO method but reduces the record keeping.

Accepted Answer

Dollar-value LIFO reduces record keeping by grouping inventory items with similar values into pools and tracking changes in the total value of each pool rather than each individual item.

Question 19

In a period of falling prices, FIFO produces the lowest cost of goods sold and the highest gross profit.

Accepted Answer

In a period of falling prices, LIFO (Last In, First Out) would produce the lowest cost of goods sold and the highest gross profit, not FIFO (First In, First Out). FIFO would result in a higher cost of goods sold and a lower gross profit in this scenario because the older, cheaper inventory would be sold first.

Question 20

The costs of operating a purchasing department are necessary to the purchasing of inventory therefore those costs incurred should be allocated to inventory.

Accepted Answer

The answer of The costs of operating a purchasing department...

Quiz 7: Inventories: Cost Measurement and Flow Assumptions