Question 1

An aircraft company would most likely have a

Accepted Answer

An aircraft company would have a low inventory turnover because the production of aircraft takes a longer period of time and requires a higher investment in materials and labor.

Question 2

If beginning inventory is understated by $1,300 and ending inventory is understated by $700,pretax profit for the period will be which of the following?

Accepted Answer

Understating beginning inventory decreases cost of goods sold and increases gross profit. Understating ending inventory has the opposite effect, increasing cost of goods sold and decreasing gross profit. Therefore, understating both beginning and ending inventory results in an overstatement of gross profit which in turn leads to an overstatement of net income.

The correct calculation for the effect on pretax profit is:
Beginning inventory understated: +$1,300 
Ending inventory understated: +$700
Effect on gross profit: -$600 (gross profit is overstated by $600)
Assuming a tax rate of 0% (for simplicity): 
Effect on pretax profit: -$600 (pretax profit is overstated by $600)

Thus, the pretax profit is overstated by $600, so the answer is C.

Question 3

In order to determine cost of goods sold in a periodic inventory system we

Accepted Answer

In a periodic inventory system, cost of goods sold is calculated by subtracting ending inventory from cost of goods available for sale. This is because the company does not maintain a continuously updated record of inventory levels and instead performs physical counts at the end of each period to determine inventory levels. Therefore, the cost of goods sold can only be calculated by using the total cost of goods available for sale and subtracting the ending inventory balance.

Question 4

A problem with the specific identification method is that

Accepted Answer

The specific identification method allows management to manipulate profit by choosing which specific items to sell based on their cost and the desired outcome. This can lead to potential ethical issues and inaccuracies in financial reporting.

Question 5

Sue Company reported profit in 20A of $27,000 and in 20B of $32,000.Later it was discovered that the ending inventory for 20A was understated by $15,000.Disregard income taxes.The correct amounts of profit for 20A and 20B were which of the following?

Accepted Answer

The answer of Sue Company reported profit in 20A of...

Question 6

During the audit of Virginia Company's 20B financial statements,the auditors discovered that the 20A ending inventory had been overstated by $10,000 and that the 20B ending inventory had been overstated by $8,000.Before the effect of these errors,20B pretax profit had been computed as $100,000.What should be reported as the correct 20B profit before taxes?

Accepted Answer

The overstatement of the 20A ending inventory would have caused the 20A profit to be overstated and the 20B beginning inventory to be overstated, reducing 20B profit by $10,000. The overstatement of the 20B ending inventory increases 20B profit by $8,000. Therefore, the correct 20B profit before taxes is $100,000 - $10,000 + $8,000 = $98,000.

Question 7

In a period of rising prices,which of the following inventory cost formulas generally results in the lowest profit figure?

Accepted Answer

In a period of rising prices, the weighted-average method spreads out the cost of goods sold over all units, resulting in a higher cost of goods sold and thus a lower profit compared to FIFO, which uses older, cheaper costs.

Question 8

In a period of declining prices,which of the following inventory cost formula generally results in the lowest statement of financial position figure for inventory?

Accepted Answer

In a period of declining prices, the weighted-average method will generally result in a lower ending inventory value on the statement of financial position compared to FIFO, as it averages out the costs, including the lower recent prices.

Question 9

Which of the following inventory costing methods is subject to manipulation with regard to the resulting inventory cost?

Accepted Answer

Specific identification can be manipulated by selectively choosing which items to sell, affecting the cost of goods sold and ending inventory values.

Question 10

The cost of goods available for sale is allocated between

Accepted Answer

The cost of goods available for sale is allocated between ending inventory and cost of goods sold. This is because the total cost of goods available for sale is either sold during the period (cost of goods sold) or remains unsold at the end of the period (ending inventory). Therefore, the allocation is made between these two categories.

Question 11

Which of the following statements regarding inventories is correct?

Accepted Answer

The answer of Which of the following statements regarding inventories...

Question 12

Upaway Company hired some students to help count inventory during their semester break.Unfortunately,the students added incorrectly and ending inventory was overstated by $12,000.What would be the effect of this error in ending inventory?

Accepted Answer

When ending inventory is overstated, cost of goods sold is understated, leading to an overstatement of profit.

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 method ensures that inventories are not over-valued by valuing them at the lower of their historical cost or the amount they can be sold for, minus any selling costs.

Question 14

"Toys 4 U" had cost of goods sold in 2012 of $8,191 million and $7,710 million in 2011.Their merchandise inventory in 2012 was $1,902 million and $2,464 million in 2011.What was their inventory turnover in 2012?

Accepted Answer

Inventory turnover is calculated as cost of goods sold divided by average inventory. We can calculate the average inventory by adding the beginning and ending inventory for the year and dividing by 2.

For 2012: 
Average inventory = (1,902 + 2,464) / 2 = 2,183
Inventory turnover = 8,191 / 2,183 = 3.75

Therefore, the answer is D) 3.75.

Question 15

HD Motorcycles has an inventory turnover ratio of 10.1 in 2012 compared to their competitor TT Motorcycle with a 2.6 ratio in 2012.Which of the following is the most likely cause of TT Co's lower ratio?

Accepted Answer

The answer of HD Motorcycles has an inventory turnover ratio...

Question 16

On December 15,20A,Toby Company accepted delivery of merchandise which it purchased on credit.As of December 31,20A,the company had neither recorded the transaction nor included the merchandise in its inventory because the seller's invoice had not been received.The effect of this omission on its statement of financial position at December 31,20A,(end of the accounting period)was which of the following?

Accepted Answer

The omission resulted in both assets (inventory) and liabilities (accounts payable) being understated, but shareholders' equity was not affected because the transaction was not recorded.

Question 17

If a company decreases their inventory turnover ratio from last year to the current year,which of the following could cause that change?

Accepted Answer

If a company increases their inventory levels through a change in product mix, it could cause their inventory turnover ratio to decrease as there is a larger stock of inventory to sell through. This is in contrast to options A and B which would likely increase the inventory turnover ratio by reducing inventory levels or speeding up production processes, respectively. Option D could potentially maintain the inventory turnover ratio if sales and inventory both increase at a proportional rate.

Question 18

Maxell Company uses the periodic FIFO method to value inventory and had the following transactions in the period.What are the cost of goods sold and ending inventory balances in dollars for the period?

Accepted Answer

The answer of Maxell Company uses the periodic FIFO method...

Question 19

"Toys 4 U" had cost of goods sold in 2012 of $8,191 million and $7,710 million in 2011.Their merchandise inventory in 2012 was $1,902 million and $2,464 million in 2011.How long was "Toys 4 U" average days to sell their inventory in 20112?

Accepted Answer

To find the average days to sell inventory, use the formula: (Average Inventory / Cost of Goods Sold) * 365. Average Inventory = (2011 Inventory + 2012 Inventory) / 2 = ($2,464M + $1,902M) / 2 = $2,183M. Days to sell = ($2,183M / $8,191M) * 365 = 97.3 days.

Question 20

At the end of 20B,SAS Company failed to include some goods in its ending inventory and failed to record the purchase of these goods.For 20B,these two errors caused which of the following?

Accepted Answer

The answer of At the end of 20B,SAS Company failed...

Quiz 8: Reporting and Interpreting Property, plant, and Equipment; Intangibles; and Natural Resources