Question 1

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 2

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

The goods held for sale in the possession of an agent of the company should be included in the company's inventory because they are still owned by the company and available for sale. Options A, B, and C are not included in the inventory because the goods are not currently in the company's possession or ownership.

Question 3

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

Accepted Answer

Gross margin rate is the percentage of a product's sale price that represents profit. Mark-up is the amount added to the product's cost to get the sale price. Cost percentage is the percentage of the sale price that represents the cost of the product. While they are related, they represent different aspects of the pricing and profitability of a product.

Question 4

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...

Question 5

Choose the correct statement concerning periodic and perpetual inventory systems.
A) Only the periodic system requires a physical count once per year
B) The balance in the inventory account is known twice per fiscal year under the periodic system
C) Both systems provide a means of estimating shrinkage loss
D) Only the periodic system ever requires an adjusting entry at the end of each year after the physical count

Accepted Answer

The answer of Choose the correct statement concerning periodic and...

Question 6

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 7

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 should not be included in the inventory of the company holding the goods because they do not own these goods. Ownership remains with the consignor until the goods are sold.

Question 8

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 9

Which of the following is not a true statement concerning a perpetual inventory system:
A) Physical inventory is counted from time to time primarily to verify the inventory records.
B) Detailed subsidiary records are maintained and the inventory account is a control account.
C) Information concerning the physical quantity of goods on hand is available from the accounting records at any time.
D) Shrinkage cannot be measured directly.

Accepted Answer

Shrinkage can be measured directly in a perpetual inventory system as it tracks inventory transactions in real-time and updates inventory records immediately, allowing for the detection of shrinkage as soon as it occurs.

Question 10

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

In the direct reduction method, any holding loss on inventory is directly deducted from the cost of goods sold, resulting in a higher cost per unit and a lower profit margin. Therefore, the holding loss is merged into the cost of goods sold amount.

Question 11

Which of the following would not be included in the merchandise inventory amount reported on X Company's balance sheet?
A) Items out on consignment to another company
B) Items purchased from a supplier and en route directly to a customer of X Company; the term is FOB destination; invoice received but not yet paid
C) Items shipped today FOB shipping point, invoice has been mailed to the customer
D) Items in the receiving department of X Company, returned by the customer, invoice has been mailed

Accepted Answer

The answer of Which of the following would not be...

Question 12

The average inventory costing method, which results in a changed unit inventory, cost after each successive purchase is:
A) Weighted average.
B) Moving average.
C) Specific cost.
D) Simple average.

Accepted Answer

The method described in the question is known as the moving average method. This method calculates the average cost of inventory after each successive purchase by taking into account the cost of the new purchase as well as the cost of the previous inventory on hand. Therefore, the best answer is B for moving average.

Question 13

Which of the following should be included in the inventory cost of an item purchased?
A) Purchase discounts lost
B) Insurance premium on item during transit
C) Costs incurred to build a permanent display cabinet for this, and similar items
D) Costs to train employees on a new computerized inventory control system

Accepted Answer

The insurance premium on the item during transit is a cost directly related to acquiring the item for resale and is therefore part of its inventory cost.

Answer: C
 The costs incurred to build a permanent display cabinet for the item and similar items is a cost directly related to displaying and selling the item and should be included in the inventory cost.

Answer: A and D are incorrect.
 Purchase discounts lost represents a reduction in the cost of goods purchased and is not part of the inventory cost. The costs to train employees on a new computerized inventory control system do not relate directly to the acquisition, production, or sale of the item and should not be included in its inventory cost.

Question 14

When determining the unit cost of an inventory item, which of the following should not be included?
A) Interest on loans obtained to purchase the item
B) Commissions paid when purchased
C) Freight costs on the item when purchased
D) Storage fees prior to sale

Accepted Answer

Interest on loans obtained to purchase the item is not directly related to the cost of the inventory item itself and should not be included when determining its unit cost. The other options, such as commissions paid, freight costs, and storage fees, are directly related to the purchase and storage of the item and should be included in its unit cost.

Question 15

Purchase discounts should be reported as a(n):
A) Deduction from the purchase cost of the goods.
B) Adjustment in full to the ending inventory amount.
C) Contra inventory account.
D) Adjustment in full to cost of goods sold.

Accepted Answer

Purchase discounts should be reported as a deduction from the purchase cost of the goods because they represent a reduction in the cost of the items purchased. This is reflected in the calculation of Cost of Goods Sold by deducting the purchase discounts from the total cost of inventory purchased. Reporting purchase discounts as a contra inventory account or as an adjustment to ending inventory amount would not accurately reflect the reduction in cost of the goods sold.

Question 16

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 17

When a periodic inventory system is used:
A) Cost of goods sold is a residual amount.
B) Ending inventory is transferred to expense and the beginning inventory is transferred to assets.
C) Two entries must be made when goods are purchased.
D) A purchases account is not used; all inventory purchase entries are debits to the inventory account.

Accepted Answer

In a periodic inventory system, cost of goods sold is calculated as a residual amount by subtracting the ending inventory from the sum of beginning inventory and purchases. It is not calculated directly as it is in a perpetual inventory system.

Question 18

When a perpetual inventory system is used:
A) Cost of goods sold is not a residual amount and its amount essentially is verifiable in the inventory records.
B) Goods out on consignment are removed from inventory.
C) There is apt to be less inventory control than when a periodic inventory system is used.
D) One journal entry is made at the time merchandise is sold.

Accepted Answer

A perpetual inventory system continuously updates inventory records, allowing for an accurate and verifiable cost of goods sold.

Answer: B
 In a perpetual inventory system, goods out on consignment would be removed from inventory to accurately reflect the quantity and value of goods on hand.

Answer: D
 With a perpetual inventory system, a journal entry is made at the time merchandise is sold to update the inventory records and record the cost of goods sold.

Therefore, the best choices are A, B, and D. Choice C is incorrect as a perpetual inventory system typically provides better inventory control than a periodic inventory system.

Question 19

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 20

Lost Discounts indicates that the recorded cost of an item purchased for inventory is its:
A) Invoice price.
B) Invoice price plus any purchase discount already lost.
C) Invoice price less any purchase discount already taken.
D) Invoice price less the purchase discount allowable whether or not taken to date.

Accepted Answer

Lost Discounts indicates that the recorded cost of an item purchased for inventory is its invoice price less the purchase discount allowable whether or not taken to date.

Quiz 8: Cost-Based Inventories and Cost of Sales

Which one of the following should be excluded from inventories?

On a particular date, which of the following should be included in a company's inventory?

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

F Corporation should include the following in its inventory:

Choose the correct statement concerning periodic and perpetual inventory systems.

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.

Which of the following items should not be included in the inventory at year-end?

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

Which of the following is not a true statement concerning a perpetual inventory system:

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.

Which of the following would not be included in the merchandise inventory amount reported on X Company's balance sheet?

The average inventory costing method, which results in a changed unit inventory, cost after each successive purchase is:

Which of the following should be included in the inventory cost of an item purchased?

When determining the unit cost of an inventory item, which of the following should not be included?

Purchase discounts should be reported as a(n) :

M Company should include the following items in its merchandise inventory:

When a periodic inventory system is used:

When a perpetual inventory system is used:

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.

Lost Discounts indicates that the recorded cost of an item purchased for inventory is its: