Question 1

When the average cost method is applied in a periodic inventory system,

Accepted Answer

In a periodic inventory system, the average cost method calculates the average cost per unit at the end of the period, after all purchases have been made, rather than after each individual purchase. This contrasts with a perpetual system where the average cost can be updated after each purchase.

Question 2

An aircraft manufacturer would most likely have a

Accepted Answer

Aircraft manufacturing involves complex, lengthy production processes, leading to a low inventory turnover as products take a long time to complete and sell.

Question 3

Use the following information for questions 
The following information was available for Free for All Limited at December 31, 2022:
 
-Free for All inventory turnover was

Accepted Answer

The answer of Use the following information for questions 
The...

Question 4

If beginning inventory is understated by $10,000, the effect of this error in the current period is

Accepted Answer

The answer of If beginning inventory is understated by $10,000,...

Question 5

Under the lower of cost and net realizable value basis, the adjusting entry to record a decline in net realizable value below cost includes a

Accepted Answer

When the net realizable value of inventory falls below its cost, an adjusting entry is made to recognize this decline. This is done by debiting the Cost of Goods Sold account, which reflects the loss in value as an expense, thereby reducing net income.

Question 6

Use the following information for questions 
The following information was available for Free for All Limited at December 31, 2022:
 
-Free for All days in inventory was

Accepted Answer

Days in inventory is calculated using the formula: Days in Inventory = (Average Inventory / Cost of Goods Sold) * 365. Without specific financial data from "Free for All," it's impossible to calculate the exact days in inventory. However, based on the choices provided, the correct answer to the question as it stands, without additional context or calculations, is option C) 52.1 days, assuming this information was previously given or is known from the context in which the question was asked.

Question 7

An increase in inventory turnover means days in inventory

Accepted Answer

An increase in inventory turnover indicates that a company is selling its inventory more quickly. Consequently, the number of days the inventory remains unsold (days in inventory) decreases.

Question 8

The inventory turnover ratio is calculated by dividing cost of goods sold by

Accepted Answer

The inventory turnover ratio is calculated by dividing the cost of goods sold by the average inventory to measure how efficiently a company manages its inventory.

Question 9

Babal Inc.is a wholesaler of electronics.It purchased 1,200 units of Product X for $600 each during 2022.The selling price during the year was $800 per unit.At year end, it had 200 units on hand and due to changes in technology, the selling price will have to be reduced by 35% in order to sell them.The value of each unit of Product X for the year-end inventory presentation should be

Accepted Answer

The value of each unit of Product X for year-end inventory should be $520. This is calculated by reducing the original selling price of $800 by 35%, which equals $280. Subtracting this reduction from the original selling price ($800 - $280) gives us $520. This reflects the lower of cost or market rule, where inventory is reported at the lower of its cost ($600) or its market value ($520).

Question 10

Days in inventory is calculated by dividing 365 days by

Accepted Answer

Days in inventory is calculated by dividing 365 days by the inventory turnover ratio to determine how many days it takes for a company to turn its inventory into sales.

Question 11

In a periodic inventory system, the cost of goods sold is determined

Accepted Answer

In a periodic inventory system, the cost of goods sold (COGS) is calculated at the end of the accounting period by conducting a physical inventory count to determine the inventory on hand, and then using this information along with the beginning inventory and purchases during the period to calculate COGS.

Question 12

An overstatement of the beginning inventory results in

Accepted Answer

An overstatement of the beginning inventory leads to an overstatement of the cost of goods sold (since beginning inventory is part of the cost of goods sold calculation). This, in turn, results in an understatement of net income because higher costs mean lower profits.

Question 13

The lower of cost and net realizable value basis of valuing inventories ensures that inventories are

Accepted Answer

The lower of cost and net realizable value (NRV) method ensures that inventory is not recorded on the balance sheet at an amount greater than what the company expects to realize from its sale. This prevents overstatement of assets and income.

Question 14

For 2022, Superplus Inc.reported $48,000 beginning inventory and $52,000 ending inventory.Sales were $320,000 and gross profit was $110,000 for the same period.Based on these figures, days in inventory for 2022 was

Accepted Answer

To calculate days in inventory, first, find the cost of goods sold (COGS) and average inventory. COGS = Sales - Gross Profit = $320,000 - $110,000 = $210,000. Average inventory = (Beginning Inventory + Ending Inventory) / 2 = ($48,000 + $52,000) / 2 = $50,000. Days in inventory = (Average Inventory / COGS) * 365 = ($50,000 / $210,000) * 365 ≈ 87 days.

Question 15

When using the average method under the periodic inventory system the average cost is calculated:

Accepted Answer

Under the periodic inventory system, the average cost is calculated at the end of the period, not after each transaction. This method involves taking the total cost of goods available for sale during the period and dividing it by the total units available for sale, to determine the cost of ending inventory and the cost of goods sold.

Question 16

For 2022, Superplus Inc.reported $48,000 beginning inventory and $52,000 ending inventory.Net sales were $320,000 and gross profit was $110,000 for the same period.Based on these figures, inventory turnover for 2022 was

Accepted Answer

The answer of For 2022, Superplus Inc.reported $48,000 beginning inventory...

Question 17

Wholesome Ltd.has a days in inventory ratio of 50 and average inventory of $320,000.What is its cost of goods sold?

Accepted Answer

The cost of goods sold (COGS) can be calculated using the formula: COGS = Average Inventory / (Days in Inventory / 365). Plugging in the values: COGS = $320,000 / (50 / 365) = $2,336,000.

Question 18

An overstatement of ending inventory in one period results in

Accepted Answer

An overstatement of ending inventory in one period results in an understatement of cost of goods sold, leading to an overstatement of net income for that period. Consequently, in the next period, this overstatement of ending inventory becomes an overstatement of the beginning inventory, which will increase the cost of goods sold, thereby understating net income for the next period.

Question 19

An error in the physical count of goods on hand at the end of a period resulted in a $10,000 overstatement of the ending inventory.The effect of this error in the current period is

Accepted Answer

The answer of An error in the physical count of...

Question 20

Inventory that originally cost $11,200 was written down to its net realizable value of $9,400 at the end of 2021.At the end of 2022, the net realizable value is determined to be $11,700.At what amount should the inventory be reported on the December 31, 2022 statement of financial position?

Accepted Answer

Under the lower of cost or market rule, once inventory is written down, any subsequent recoveries in value are not recognized until the inventory is actually sold. Therefore, the inventory should be reported at its written-down value of $11,200, the original cost, because the recovery exceeds the original cost, and the write-down does not reverse.

Quiz 6: Reporting and Analyzing Inventory