Question 1

Goodman Company's inventory records show the following data:  A physical inventory on December 31 shows 6,000 units on hand. Under the FIFO method, the December 31 inventory is

Accepted Answer

The answer of Goodman Company's inventory records show the following...

Question 2

In a period of rising prices, FIFO will have

Accepted Answer

In a period of rising prices, the first-in, first-out (FIFO) method will have a higher cost of goods sold (COGS) compared to the last-in, first-out (LIFO) method. This is because under FIFO, the oldest and cheaper inventory is sold first, leaving the newer and more expensive inventory in stock. Therefore, the COGS will include a higher proportion of the newer and more expensive inventory. This leads to a lower net income than LIFO, but a lower income tax expense as well, as tax is levied only on the net income. However, out of the given options, the only correct one is B, as it correctly identifies the lower COGS under LIFO.

Question 3

The inventory turnover is computed 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. This formula helps to assess a company's efficiency in managing its inventory by measuring the frequency at which the inventory is sold and replaced. Using beginning or ending inventory alone may not provide an accurate assessment of inventory management as it does not account for fluctuations in inventory levels throughout the year. Dividing by 365 days is also incorrect as it does not provide a ratio of inventory turnover.

Question 4

Overstating ending inventory will overstate all of the following except

Accepted Answer

Overstating ending inventory will increase the value of assets and stockholders' equity and decrease cost of goods sold, leading to an increase in net income. However, it will not overstate cost of goods sold, it will actually understate it, as some of the ending inventory value would be incorrectly included in the cost of goods sold calculation.

Question 5

Goods in transit should be included in the inventory of the buyer when the

Accepted Answer

Goods in transit should be included in the inventory of the buyer when the terms of sale are FOB (Free On Board) shipping point, as ownership of the goods transfers to the buyer when the goods leave the seller's premises.

Question 6

Penny Company made an inventory count on December 31, 2018. During the count, one of the clerks made the error of counting an inventory item twice. For the balance sheet at December 31, 2018, the effects of this error are

Accepted Answer

The answer of Penny Company made an inventory count on...

Question 7

The following information was available for Pete Company at December 31, 2018: beginning inventory $90,000; ending inventory $70,000; cost of goods sold $984,000; and sales $1,350,000. Pete's inventory turnover in 2018 was

Accepted Answer

Inventory turnover = Cost of goods sold / Average inventory
Average inventory = (Beginning inventory + Ending inventory) / 2 = ($90,000 + $70,000) / 2 = $80,000
Inventory turnover = $984,000 / $80,000 = 12.3 times. Therefore, the answer is choice B.

Question 8

Disclosures about inventory should include each of the following except the

Accepted Answer

Disclosures about inventory should include the basis of accounting, costing method, and major inventory classifications. However, the quantity of inventory is typically not disclosed in financial statements.

Question 9

The following information was available for Pete Company at December 31, 2018: beginning inventory $90,000; ending inventory $70,000; cost of goods sold $984,000; and sales $1,350,000. Pete's days in inventory in 2018 was

Accepted Answer

The answer of The following information was available for Pete...

Question 10

In a period of inflation, the cost flow method that results in the lowest income taxes is the

Accepted Answer

In a period of inflation, the LIFO (last-in, first-out) method results in the lowest income taxes because it assumes that the last items purchased or produced are the first ones sold, which means that the cost of goods sold will include the higher prices paid for recently purchased or produced goods, resulting in a lower reported income and therefore lower taxes. Therefore, choice B is the best option.

Question 11

A new average cost is computed each time a purchase is made in the

Accepted Answer

The moving-average cost method recalculates the average cost with each new purchase, whereas the average-cost and weighted-average cost methods use a predetermined rate for calculating the cost. Therefore, choice B is the best answer.

Question 12

If beginning inventory is understated by $13,000, the effect of this error in the current period is

Accepted Answer

The answer of If beginning inventory is understated by $13,000,...

Question 13

Inventory items on an assembly line in various stages of production are classified as

Accepted Answer

Inventory items on an assembly line in various stages of production are classified as work in process because they have undergone certain stages of production but are not yet finished goods. Raw materials are the inputs required to start production, finished goods are fully completed products, and merchandise inventory refers to inventory held by retailers for resale.

Question 14

The requirements for accounting for and reporting of inventories under IFRS, compared to GAAP, tend to be more

Accepted Answer

IFRS tends to be more principles-based, meaning that it emphasizes the underlying concepts and objectives of financial reporting rather than strict rules and guidelines. While there are still specific requirements for accounting for and reporting inventories under IFRS, they tend to be more principles-based compared to the more rules-based approach of GAAP. There are also disclosure requirements under both IFRS and GAAP, but these vary based on the specific circumstances and nature of the company's operations.

Question 15

The following information is available for Everett Company at December 31, 2018: beginning inventory $80,000; ending inventory $120,000; cost of goods sold $1,050,000; and sales $1,800,000. Everett's inventory turnover in 2018 is

Accepted Answer

Inventory turnover = Cost of goods sold / Average inventory
Average inventory = (beginning inventory + ending inventory) / 2
Average inventory = ($80,000 + $120,000) / 2 = $100,000

Inventory turnover = $1,050,000 / $100,000 = 10.5 times

Question 16

Delmar Company had beginning inventory of $90,000, ending inventory of $110,000, cost of goods sold of $600,000, and sales of $960,000. Delmar's days in inventory is:

Accepted Answer

The answer of Delmar Company had beginning inventory of $90,000,...

Question 17

Under the LCNRV approach, the net realizable value is the

Accepted Answer

The LCNRV (Lower of Cost or Net Realizable Value) approach requires that inventory be valued at the lower of its cost or net realizable value. Net realizable value is defined as the estimated selling price less the estimated cost to complete and sell, making choice C the correct answer. Choices A, B, and D are not accurate definitions of net realizable value.

Question 18

The cost flow method that often parallels the actual physical flow of merchandise is the

Accepted Answer

The FIFO method assumes that the first goods purchased are the first goods sold, which generally parallels the actual physical flow of merchandise. This is because businesses typically sell their oldest goods first in order to avoid having expired or outdated inventory sit on their shelves. Therefore, the FIFO method is a reasonable cost flow assumption that can reflect the actual flow of goods in a business.

Question 19

A company uses the periodic inventory method and the beginning inventory is overstated by $7,000 because the ending inventory in the previous period was overstated by $7,000. The amounts reflected in the current end of the period balance sheet are

Accepted Answer

The answer of A company uses the periodic inventory method...

Question 20

Days in inventory is calculated by dividing

Accepted Answer

Days in inventory is calculated by dividing 365 days by the inventory turnover. This gives the average number of days items are in inventory before being sold.

Quiz 6: Inventories Periodic Approach

Goodman Company's inventory records show the following data: A physical inventory on December 31 shows 6,000 units on hand. Under the FIFO method, the December 31 inventory is