Question 1

During times of rising prices, which of the following is not an accurate statement?

Accepted Answer

The answer of During times of rising prices, which of...

Question 2

If Beginning Inventory (BI) + Purchases (P) - Ending Inventory (EI) = Cost of Goods Sold (COGS), an equivalent equation can be written as?

Accepted Answer

The correct formula for calculating the cost of goods sold is BI + P - EI = COGS. Rearranging this formula, we get: BI + P = COGS + EI. Therefore, choice C is the equivalent equation.

Question 3

During a period of consistently rising prices, the method of inventory that will result in reporting the greatest cost of merchandise sold is

Accepted Answer

During consistently rising prices, LIFO (Last-In, First-Out) method of inventory will result in reporting the greatest cost of merchandise sold. This is because under LIFO, the most recent and therefore most expensive inventory items are assumed to be sold first, resulting in a higher cost of goods sold and lower net income.

Question 4

The following lots of a particular commodity were available for sale during the year:  The firm uses the periodic system and there are 25 units of the commodity on hand at the end of the year.
What is the amount of the inventory at the end of the year using the average cost method?

Accepted Answer

The answer of The following lots of a particular commodity...

Question 5

Merchandise inventory at the end of the year is overstated. Which of the following statements correctly states the effect of the error?

Accepted Answer

When merchandise inventory is overstated, it results in a lower cost of goods sold, leading to a higher gross profit and net income. Consequently, retained earnings are also overstated.

Question 6

If the cost of an item of inventory is $50 and the current replacement cost is $57, the amount included in inventory according to the lower of cost or market is

Accepted Answer

According to the lower of cost or market (LCM) rule, the inventory of an item should be recorded at the lower of its cost or current market value. In this case, since the cost of the item is lower than its replacement cost, the inventory amount would be recorded at the cost price of $50. Therefore, the correct answer is B.

Question 7

If merchandise inventory is being valued at cost and the price level is steadily rising, the method of costing that will yield the highest net income is

Accepted Answer

FIFO (first-in, first-out) method assumes that the first units purchased are the first units sold. Therefore, in a period of inflation (rising prices), the earliest and lowest cost purchases will be matched against revenue, maximizing the gross profit margin and yielding the highest net income.

Question 8

Merchandise inventory at the end of the year was understated. Which of the following statements correctly states the effect of the error?

Accepted Answer

The answer of Merchandise inventory at the end of the...

Question 9

If the revenues are correctly reported and the Gross Profit of a company is understated, what is the effect on Owner's Equity?

Accepted Answer

Gross Profit is a component of the calculation of net income, which ultimately affects Owner's Equity. If Gross Profit is understated, then net income is also understated, leading to an overstatement of Owner's Equity.

Question 10

During a period of falling prices, which of the following inventory methods generally results in the lowest balance sheet amount for inventory.

Accepted Answer

The answer of During a period of falling prices, which...

Question 11

The following lots of a particular commodity were available for sale during the year:  The firm uses the periodic system and there are 25 units of the commodity on hand at the end of the year.
What is the amount of the inventory at the end of the year using the FIFO method?

Accepted Answer

The answer of The following lots of a particular commodity...

Question 12

Under a periodic inventory system

Accepted Answer

In a periodic inventory system, a physical inventory is taken at the end of the period to determine the ending inventory balance. Unlike perpetual inventory systems, accounting records do not continuously disclose the amount of inventory. A separate account for each type of merchandise may or may not be maintained in a subsidiary ledger, depending on the size and complexity of the business. Merchandise inventory is only debited when goods are initially purchased, not when they are returned to vendors.

Question 13

If merchandise inventory is being valued at cost and the purchase price is steadily falling, which method of costing will yield the largest net income?

Accepted Answer

The answer of If merchandise inventory is being valued at...

Question 14

Kristin's Boutiques has identified the following items for possible inclusion in its December 31, 2010 inventory. Which of the following would not be included in the year end inventory?

Accepted Answer

The answer of Kristin's Boutiques has identified the following items...

Question 15

If a manufacturer ships merchandise to a retailer on consignment, the unsold merchandise should be included in the inventory of the

Accepted Answer

The unsold merchandise should be included in the inventory of the manufacturer because, in a consignment arrangement, the consignor (manufacturer) retains ownership of the goods until they are sold.

Question 16

Damaged merchandise that can be sold only at prices below cost should be valued at

Accepted Answer

Damaged merchandise should be valued at their net realizable value, which is the estimated selling price minus any additional costs necessary to dispose of the product. This reflects the amount that could be reasonably obtained in the current market conditions, rather than relying on historical cost methods such as LIFO, FIFO, or average.

Question 17

During the taking of its physical inventory on December 31, 2010, Barry's Bike Shop incorrectly counted its inventory as $270,000 instead of the correct amount of $190,000. The effect on the balance sheet and income statement would be as follows:

Accepted Answer

Since the inventory was overstated by $80,000, the assets and retained earnings were overstated by the same amount. This error did not affect the income statement since it happened after the end of the fiscal year. If the error had occurred during the fiscal year, it would have affected the cost of goods sold and net income. Therefore, the inventory adjustment would result in assets and retained earnings overstated by $80,000 and net income overstated by $80,000.

Question 18

The following lots of a particular commodity were available for sale during the year:  The firm uses the periodic system and there are 20 units of the commodity on hand at the end of the year.
What is the amount of cost of goods sold the year according to the LIFO method?

Accepted Answer

The answer of The following lots of a particular commodity...

Question 19

The following lots of a particular commodity were available for sale during the year:  The firm uses the periodic system and there are 25 units of the commodity on hand at the end of the year.
What is the amount of the inventory at the end of the year using the LIFO method?

Accepted Answer

In LIFO method, the cost of the most recent inventory is used to calculate the cost of goods sold and the cost of ending inventory. Therefore, the cost of the most recent lots available for sale during the year will be used first to calculate the cost of goods sold and the cost of ending inventory will be the cost of the oldest lots. The cost of goods sold can be calculated as:
(9 × $70) + (15 × $75) + (21 × $80) = $1,935
The cost of ending inventory can be calculated as:
(4 × $70) + (11 × $75) + (10 × $80) = $1,525

Question 20

Merchandise inventory at the end of the year was inadvertently overstated. Which of the following statements correctly states the effect of the error on net income, assets, and retained earnings?

Accepted Answer

The answer of Merchandise inventory at the end of the...

Quiz 6: Inventories

During times of rising prices, which of the following is not an accurate statement?

If Beginning Inventory (BI) + Purchases (P) - Ending Inventory (EI) = Cost of Goods Sold (COGS) , an equivalent equation can be written as?

During a period of consistently rising prices, the method of inventory that will result in reporting the greatest cost of merchandise sold is

The following lots of a particular commodity were available for sale during the year: The firm uses the periodic system and there are 25 units of the commodity on hand at the end of the year. What is the amount of the inventory at the end of the year using the average cost method?

Merchandise inventory at the end of the year is overstated. Which of the following statements correctly states the effect of the error?

If the cost of an item of inventory is $50 and the current replacement cost is $57, the amount included in inventory according to the lower of cost or market is

If merchandise inventory is being valued at cost and the price level is steadily rising, the method of costing that will yield the highest net income is

Merchandise inventory at the end of the year was understated. Which of the following statements correctly states the effect of the error?

If the revenues are correctly reported and the Gross Profit of a company is understated, what is the effect on Owner's Equity?

During a period of falling prices, which of the following inventory methods generally results in the lowest balance sheet amount for inventory.

The following lots of a particular commodity were available for sale during the year: The firm uses the periodic system and there are 25 units of the commodity on hand at the end of the year. What is the amount of the inventory at the end of the year using the FIFO method?

Under a periodic inventory system

If merchandise inventory is being valued at cost and the purchase price is steadily falling, which method of costing will yield the largest net income?

Kristin's Boutiques has identified the following items for possible inclusion in its December 31, 2010 inventory. Which of the following would not be included in the year end inventory?

If a manufacturer ships merchandise to a retailer on consignment, the unsold merchandise should be included in the inventory of the

Damaged merchandise that can be sold only at prices below cost should be valued at

During the taking of its physical inventory on December 31, 2010, Barry's Bike Shop incorrectly counted its inventory as $270,000 instead of the correct amount of $190,000. The effect on the balance sheet and income statement would be as follows:

The following lots of a particular commodity were available for sale during the year: The firm uses the periodic system and there are 20 units of the commodity on hand at the end of the year. What is the amount of cost of goods sold the year according to the LIFO method?

The following lots of a particular commodity were available for sale during the year: The firm uses the periodic system and there are 25 units of the commodity on hand at the end of the year. What is the amount of the inventory at the end of the year using the LIFO method?

Merchandise inventory at the end of the year was inadvertently overstated. Which of the following statements correctly states the effect of the error on net income, assets, and retained earnings?