Question 1

If purchases are recorded correctly but ending physical inventory is understated, which one of the following situations occurs for the current year?

Accepted Answer

The answer of If purchases are recorded correctly but ending...

Question 2

What is the effect on net income if a company fails to record a purchase in transit (FOB shipping point) and also fails to include the purchase in physical inventory?

Accepted Answer

The answer of What is the effect on net income...

Question 3

The accountant for Ella Company made the following errors related to the inventory in 2014: 1.The beginning inventory for 2014 was understated by $1,350 due to an error in the physical count.
2.A $1,500 purchase of merchandise on credit was not recorded or included in ending inventory.
Assuming a periodic inventory system, Ella Company's 2014 net income will be

Accepted Answer

The answer of The accountant for Ella Company made the...

Question 4

The accountant for Suzanne Company made the following errors related to inventory in 2015: 
1.The beginning inventory for 2014 was understated by $1,350 due to an error in the physical count.
2.A $1,500 purchase of merchandise on credit was not recorded or included in ending inventory. Assuming a periodic inventory system, how would Sue's cost of goods sold, gross profit, and net income be affected in 2015 by these errors?

Accepted Answer

The answer of The accountant for Suzanne Company made the...

Question 5

A purchase on credit is recorded twice and not corrected during the physical inventory. Which of the following statements correctly describes the impact of this error?

Accepted Answer

Recording a purchase on credit twice without correction means both purchases and ending inventory are overstated. This error does not affect the income statement's current year income because the overstatement in purchases (an expense) is offset by an equal overstatement in ending inventory (an asset), which is part of the cost of goods sold calculation.

Question 6

The correct net income for Sarah Corp. was $53,500. The company reported incorrect net income because beginning inventory was understated by $2,500, purchases were overstated by $2,000, and ending inventory was overstated by $2,000. What net income did Sarah Corp. report?

Accepted Answer

The net income was affected by inventory and purchase errors. Understating beginning inventory increases net income by $2,500, overstating purchases decreases net income by $2,000, and overstating ending inventory decreases net income by $2,000. The net effect is a decrease of $1,500, so reported net income was $53,500 + $1,500 = $56,000.

Question 7

If in the current year a purchase was not recorded but the purchased item was included in ending physical inventory, which one of the following situations occurs for the current year?

Accepted Answer

The answer of If in the current year a purchase...

Question 8

The dollar-value LIFO retail method combines

Accepted Answer

The dollar-value LIFO retail method combines the principle of retail LIFO with dollar-value LIFO. This approach adjusts the cost of inventory for both price-level changes and changes in the quantity of inventory. It is commonly used in retail businesses to manage inventory costs.

Question 9

Exhibit 8-3 The J. Love Company uses a periodic inventory accounting system and values its inventory by using the lower of cost or market rule. The allowance method is used in applying the lower of cost or market rule. The company adjusts and closes its books annually on December 31. Below are the cost and market values of the company's year-end inventories for a three-year period: 
$\begin{array}{c}
\begin{array}{l}
\underline{\text { Market} } \
\$ 70,000 \
46,000 \
58,000 
\end{array}
\begin{array}{lll}
\underline{\text { Cost}}\
 \$ 70,000 \
56,000\
64,000
\end{array}
\begin{array}{lll}
\underline{\text { Date}}\
\text {December 31,2014}\
\text {December 31, 2015}\ 
\text { December31,2016} 
\end{array}
\end{array}$
  
-Refer to Exhibit 8-3. Which of the following journal entries would be correct as of December 31, 2016, to apply the lower of cost or market rule?

Accepted Answer

The market value of the inventory on December 31, 2016, is $58,000, which is $6,000 less than the cost of $64,000. However, since the allowance method is used, the previous allowance of $10,000 (from 2015) needs to be adjusted to $6,000, resulting in a $4,000 recovery.

Question 10

The accountant for Lee Company made the following errors related to merchandise inventory in 2014: 
1.The beginning inventory for 2014 was overstated by $750 due to an error in the physical count.
2.A $1,300 purchase of merchandise on credit was not recorded or included in the ending inventory.
Assuming a periodic inventory system, Lee Company's 2014 cost of goods sold will be

Accepted Answer

The answer of The accountant for Lee Company made the...

Question 11

The accountant for the Daneen Company made the following errors related to purchases of merchandise and ending inventory in 2014: 
1.A $3,100 purchase of merchandise on credit early in 2015 was recorded and included in ending inventory at December 31, 2014.
2.A $2,750 purchase of merchandise on credit in 2014 was recorded, but it was not included in the end-of-year physical inventory count.
Assuming a periodic inventory system, Daneen Company's 2014 net income will be

Accepted Answer

The $3,100 purchase was incorrectly included in 2014 ending inventory, overstating it. The $2,750 purchase was not included in ending inventory, understating it. The net effect is an overstatement of $350 in ending inventory, leading to an overstatement of net income by the same amount.

Question 12

The accountant for Angie Company made the following errors related to purchases of merchandise and ending inventory in 2013: 
1.A $2,200 purchase of merchandise on credit was not recorded or included in ending inventory.
2.A $3,180 purchase of merchandise on credit was recorded, but it was inadvertently omitted from the end-of-year physical inventory count.
Assuming a periodic inventory system, Angie's Company's 2013 net income will be

Accepted Answer

The answer of The accountant for Angie Company made the...

Question 13

Bennett Company's accountant made the following errors related to merchandise inventory in 2013: 
1.The beginning inventory for 2013 was overstated by $1,900 due to an error in the physical count.
2.A $1,150 purchase of merchandise on credit was not recorded, but the items were included in the ending inventory.
Assuming a periodic inventory system, Bennett Company's 2013 cost of goods sold will be

Accepted Answer

The beginning inventory overstatement increases the cost of goods sold by $1,900, while the unrecorded purchase decreases it by $1,150. The net effect is an overstatement of $750 in the cost of goods sold.

Question 14

Exhibit 8-3 The J. Love Company uses a periodic inventory accounting system and values its inventory by using the lower of cost or market rule. The allowance method is used in applying the lower of cost or market rule. The company adjusts and closes its books annually on December 31. Below are the cost and market values of the company's year-end inventories for a three-year period: 
$\begin{array}{c}
\begin{array}{l}
\underline{\text { Market} } \
\$ 70,000 \
46,000 \
58,000 
\end{array}
\begin{array}{lll}
\underline{\text { Cost}}\
 \$ 70,000 \
56,000\
64,000
\end{array}
\begin{array}{lll}
\underline{\text { Date}}\
\text {December 31,2014}\
\text {December 31, 2015}\ 
\text { December31,2016} 
\end{array}
\end{array}$
 
-Refer to Exhibit 8-3. Which of the following journal entries would be correct as of December 31, 2015, to apply the lower of cost or market rule to the valuation of inventory?

Accepted Answer

The correct answer is B because it records the loss due to market valuation and reduces the inventory to its market value.

Question 15

Barry Corp. reported 2014 net income of $40,000. However, the ending inventory in 2013 had been understated by $3,000, and 2014's ending inventory had been overstated by $6,000. Barry's correct net income for 2014 was

Accepted Answer

The answer of Barry Corp. reported 2014 net income of...

Question 16

Given the following information for the Raquel Company: 
$\begin{array}{c}
\begin{array}{l}
\underline{\text { Market} } \
\$ 500 \
650 \
730 
\end{array}
\begin{array}{lll}
\underline{\text { Cost}}\
 \$ 500 \
700\
800
\end{array}
\begin{array}{lll}
\underline{\text { Date}}\
\text {December 31,2014}\
\text {December 31, 2015}\ 
\text { December31,2016} 
\end{array}
\end{array}$
  If the allowance method of recording lower of cost or market is in use, which December 31, 2016, entry is correct?

Accepted Answer

The answer of Given the following information for the Raquel...

Question 17

What is the effect on net income for the current year if a company fails to record a purchase of materials in transit (FOB shipping point) but includes the materials in physical inventory at year-end?

Accepted Answer

If the company fails to record the purchase of materials in transit, then the cost of goods sold for the current year will be understated as the cost of materials will not be included in the calculation. As a result, net income will be overstated as the expenses have been understated. Including the materials in physical inventory at year-end will further overstate the inventory balance, which will carry over to the next year's balance sheet.

Question 18

The accountant for Frieda Company did not record a purchase of merchandise on credit or include the items in the ending inventory. Assuming a periodic inventory system, the effect of these omissions on assets, liabilities, and retained earnings would be

Accepted Answer

The answer of The accountant for Frieda Company did not...

Question 19

The accountant for the Hilga Company recorded a purchase of merchandise on credit for the current year, but the merchandise was shipped FOB destination and did not arrive until after current year-end. Assuming a periodic inventory system, how would assets, liabilities, and retained earnings be affected on the year-end balance sheet?

Accepted Answer

The answer of The accountant for the Hilga Company recorded...

Question 20

The accountant for the Issenock Company did not record a purchase of merchandise on credit for the current year, but the merchandise was correctly included in the ending inventory. Assuming a periodic inventory system, how would assets, liabilities, and retained earnings be affected on the year-end balance sheet?

Accepted Answer

The answer of The accountant for the Issenock Company did...

Quiz 8: Inventories: Special Valuation Issues