Deck 9: Inventories and Cost of Goodscalculation

Question 1

The cost of goods sold section under a periodic inventory system generally reports

A)beginning and ending inventory, total assets, and cash flows.
B)total assets, beginning inventory, and ending inventory.
C)beginning inventory, cash flow from operations, and total assets.
D)beginning and ending inventory, cost of goods purchased, and cost of goods available for sale.

Answer 1

A

Question 2

The Freight-in account

A)increases the cost of merchandise purchased.
B)is contra to the Purchases account.
C)is a permanent account.
D)has a normal credit balance.

Answer 2

B

Question 3

The journal entry to record a return of merchandise purchased on account under a periodic inventory system would be

A)Accounts Payable Purchase Returns and Allowances
B)Purchases Returns and Allowances Accounts Payable
C)Accounts Payable Inventory
D)Inventory Accounts Payable

Answer 3

B

Question 4

Farley Foods had beginning inventory of $15,000 at March 1, 2008.During the month, the company made purchases of $40,000.The inventory at the end of the month is $17,300.What is cost of goods sold for the month of March?

A)$37,700
B)$40,000
C)$55,000
D)$57,300

Question 5

The income statement for a merchandiser contains three sections:

A)sales revenues, total inventory, and cash flow from operations.
B)sales revenues, cost of goods sold, and operating expenses.
C)net income, cost of goods sold, and cash flow from financing activities.
D)operating income, total inventory, and operating expenses.

Question 6

The cost of goods sold section of an income statement prepared under a periodic inventory system will contain more detail than under a perpetual inventory system.

Question 7

Management may choose any inventory costing method it desires as long as the cost flow assumption chosen is consistent with the physical movement of goods in the company.

Question 8

Freight-in is an account that is subtracted from the Purchases account to arrive at cost of goods purchased.

Question 9

Barnett Restaurant Equipment has a beginning merchandise inventory of $20,000.During the period, purchases were $60,000; purchase returns, $2,000; and freight-in $5,000.A physical count of inventory at the end of the period revealed that $10,000 was still on hand.The cost of goods available for sale was

A)$77,000
B)$73,000
C)$83,000
D)$87,000

Question 10

Transactions that affect inventories on hand have an effect on both the balance sheet and the income statement.

Question 11

Under a periodic inventory system, acquisition of merchandise is debited to the

A)Merchandise Inventory account.
B)Cost of Goods Sold account.
C)Purchases account.
D)Accounts Payable account.

Question 12

If inventories are valued using the LIFO cost assumption, they should not be classified as a current asset on the balance sheet.

Question 13

Independent internal verification of the physical inventory process occurs when

A)the employee is required to count all items twice for sake of verification.
B)the items counted are compared to the inventory account balance.
C)a second employee counts the inventory and compares the result to the count made by the first employee.
D)all prenumbered inventory tags are accounted for.

Question 14

The factor which determines whether or not goods should be included in a physical count of inventory is

A)physical possession.
B)legal title.
C)management's judgment.
D)whether or not the purchase price has been paid.

Question 15

If a company changes its inventory valuation method, the effect of the change on net income should be disclosed in the financial statements.

Question 16

Consigned goods are goods held for sale by one party although ownership of the goods is retained by another party.

Question 17

Merchandise inventory is

A)reported under the classification of Property, Plant, and Equipment on the balance sheet.
B)often reported as a miscellaneous expense on the income statement.
C)reported as a current asset on the balance sheet.
D)generally valued at the price for which the goods can be sold.

Question 18

Use of the LIFO inventory valuation method enables a company to report paper or phantom profits.

Question 19

The First-in, First-out (FIFO) inventory method results in an ending inventory valued at the most recent cost.

Question 20

Items waiting to be used in production are considered to be

A)raw materials.
B)work in progress.
C)finished goods.
D)merchandise inventory.

Question 21

In a manufacturing enterprise, goods that are ready to be sold to customers are referred to as ________________, whereas in a merchandising enterprise they are generally referred to as _______________.

Question 22

The following information is available for Tye Produce Company at December 31, 2008: beginning inventory $80,000; ending inventory $120,000; cost of goods sold $1,200,000; and sales $1,600,000.Tye's inventory turnover in 2008 is

A)16 times.
B)15 times.
C)12 times.
D)10 times.

Question 23

Cost of goods purchased is the sum of ___________________ and ________________.

Question 24

Ken's Hotel Heating and Ventilation uses the specific identification method of costing inventory.During March, Ken purchased three air conditioning units for $5,000, $6,000, and $8,000, respectively.During March, two units are sold for $8,500 each.Ken determines that at March 31, the $8,000 unit is still on hand.What is Ken's gross profit for March?

A)$4,000
B)$6,000
C)$3,000
D)$9,000

Question 25

If beginning inventory is understated by $10,000, the effect of this error in the current period is Cost of
$\quad$ Cost of Goods Sold $\quad$ Net Income

A) $\quad$ Understated $\quad$ $\quad$ $\quad$ Understated
B) $\quad$ Overstated $\quad$ $\quad$ $\quad$ Overstated
C) $\quad$ Understated $\quad$ $\quad$ $\quad$ Overstated
D) $\quad$ Overstated $\quad$ $\quad$ $\quad$ Understated

Question 26

If companies have identical inventoriable costs but use different inventory flow assumptions when the price of goods have not been constant, then the

A)cost of goods sold of the companies will be identical.
B)cost of goods available for sale of the companies will be identical.
C)ending inventory of the companies will be identical.
D)net income of the companies will be identical.

Question 27

Inventory turnover is calculated by dividing cost of goods sold by

A)beginning inventory.
B)ending inventory.
C)average inventory.
D)365 days.

Question 28

The LIFO inventory method assumes that the cost of the latest units purchased are

A)the last to be allocated to cost of goods sold.
B)the first to be allocated to ending inventory.
C)the first to be allocated to cost of goods sold.
D)not allocated to cost of goods sold or ending inventory.

Question 29

The LIFO inventory method assumes that the cost of the latest units purchased are

A)the last to be allocated to cost of goods sold.
B)the first to be allocated to ending inventory.
C)the first to be allocated to cost of goods sold.
D)not allocated to cost of goods sold or ending inventory.

Question 30

Which one of the following inventory methods is often impractical to use?

A)Specific identification
B)LIFO
C)FIFO
D)Average cost

Question 31

Selection of an inventory costing method by management does not usually depend on

A)the fiscal year end.
B)income statement effects.
C)balance sheet effects.
D)tax effects.

Question 32

The following information is available for Starr Company at December 31, 2007: Beginning inventory $ 80,000
Ending inventory 120,000
Cost of goods sold 900,000
Sales 1,200,000
Starr's inventory turnover in 2008 is

A)12.0 times.
B)11.3 times.
C)9.0 times.
D)7.5 times.

Question 33

In periods of inflation, phantom or paper profits may be reported as a result of using the

A)perpetual inventory method.
B)FIFO costing assumption.
C)LIFO costing assumption.
D)periodic inventory method.

Question 34

A company uses the periodic inventory method and the beginning inventory is overstated by $4,000 because the ending inventory in the previous period was overstated by $4,000.The amounts reflected in the current end of the period balance sheet are
$\quad$$\quad$ Assets $\quad$$\quad$ Stockholders' Equity

A) $\quad$ Overstated $\quad$ Overstated
B) $\quad$ Correct $\quad$$\quad$$\quad$ Correct
C) $\quad$ Understated $\quad$ Understated
D) $\quad$ Overstated $\quad$$\quad$ Correct

Question 35

If beginning inventory is understated by $10,000, the effect of this error in the current period is Cost of $\quad$ Cost of Goods Sold $\quad$ Net Income

A) Understated $\quad$ $\quad$ $\quad$ Understated
B) Overstated $\quad$ $\quad$ $\quad$ Overstated
C) Understated $\quad$ $\quad$ $\quad$ Overstated
D) Overstated $\quad$ $\quad$ $\quad$ Understated

Question 36

Understating beginning inventory will understate

A)assets.
B)cost of goods sold.
C)net income.
D)owner's equity.

Question 37

Which of the following statements is true regarding inventory cost flow assumptions?

A)A company may use more than one costing method concurrently.
B)A company must comply with the method specified by industry standards.
C)A company must use the same method for domestic and foreign operations.
D)A company may never change its inventory costing method once it has chosen a method.

Question 38

The accountant at Lloyd Produce Company is figuring out the difference in income taxes the company will pay depending on the choice of either FIFO or LIFO as an inventory costing method.The tax rate is 30% and the FIFO method will result in income before taxes of $4,600.The LIFO method will result in income before taxes of $3,850.What is the difference in tax that would be paid between the two methods?

A)$750
B)$525
C)$225
D)Cannot be determined from the information provided.

Question 39

The managers of Totally Thai Restaurant receive performance bonuses based on the net income of the restaurant.Which inventory costing method are they likely to favor in periods of declining prices?

A)LIFO
B)Average Cost
C)FIFO
D)Physical inventory method

Question 40

The accountant at Blackjack Company is figuring out the difference in income taxes the company will pay depending on the choice of either FIFO or LIFO as an inventory costing method.The tax rate is 30% and the FIFO method will result in income before taxes of $3,640.The LIFO method will result in income before taxes of $3,290.What is the difference in tax that would be paid between the two methods?

A)$350
B)$150
C)$105
D)$360

Question 41

The ______________ method tracks the actual physical flow of each unit of inventory available for sale; however, management may be able to manipulate ______________ by using this method.

Question 42

It is generally recognized that a major objective of accounting for inventory is the proper determination of ______________.

Question 43

________________ measures the number of times on average the inventory sold during the period.