Question 1

Of the following, which is not a reason for having controls to safeguard inventories?

Accepted Answer

The cost of maintaining the LIFO Reserve is a financial statement concern and not directly related to safeguarding inventories. The other choices are all legitimate reasons for having controls to safeguard inventories.

Question 2

McMillan Company uses the periodic inventory system. It has compiled the following information in order to prepare the financial statements at December 31, 2016:  Required:
Calculate each of the following: 
A.Cost of goods available for sale
B.Cost of goods sold
C.Gross profit

Accepted Answer

The answer of McMillan Company uses the periodic inventory system....

Question 3

Which of the following statements is correct when inventory unit costs are decreasing?

Accepted Answer

The answer of Which of the following statements is correct...

Question 4

Which of the following businesses would not be as likely to use the specific identification method of inventory valuation?

Accepted Answer

A grocery store would not be as likely to use the specific identification method of inventory valuation because it deals with a large volume of identical items, making it impractical to track inventory on an individual basis. Instead, a grocery store would likely use the FIFO (first-in, first-out) or LIFO (last-in, first-out) methods to determine the cost of goods sold.

Question 5

Compute the missing amounts that are numbered in parentheses for the income statement of each independent case. (Hint: Each case need not be calculated in the numerical order of the missing numbers.)

Accepted Answer

The answer of Compute the missing amounts that are numbered...

Question 6

The records of Jimmy Company show 2016 purchases of $90,000. An actual count revealed a 2016 ending inventory of $8,000. The 2016 beginning inventory was $5,000. What was cost of goods sold for 2016?

Accepted Answer

The answer of The records of Jimmy Company show 2016...

Question 7

Which of the following statements is correct when inventory unit costs are increasing?

Accepted Answer

When inventory unit costs are increasing, LIFO will have the largest cost of goods sold and the lowest ending inventory, resulting in the largest inventory turnover ratio. Therefore, choice C is correct. Choices A and B are incorrect because LIFO will have the lowest ending inventory and FIFO's gross profit will be higher due to lower cost of goods sold. Choice D is incorrect because LIFO will result in lower income taxes and possibly higher cash flows due to the lower taxes.

Question 8

Which of the following statements is incorrect?

Accepted Answer

The choice of an inventory costing method (LIFO, FIFO, or weighted-average) is an accounting decision and does not depend on the actual physical flow of goods.

Question 9

The following income statement is complete except for a few missing titles (bold lines on the left), and amounts (dotted lines on the right).
Required:
Prepare a complete income statement using the format and amounts provided. Fill in all items that are missing titles and amounts (ignore income taxes).

Accepted Answer

The answer of The following income statement is complete except...

Question 10

How much were inventory purchases when cost of goods sold was $250,000, beginning inventory was $20,000, and ending inventory was $25,000?

Accepted Answer

The answer of How much were inventory purchases when cost...

Question 11

Jennings Company uses the periodic inventory system and applies FIFO inventory costing. At the end of the annual accounting period, December 31, 2016, the accounting records for the best selling item in inventory showed the following:  Required:
Calculate the following:
1. Goods available for sale
2. Ending inventory
3. Cost of goods sold

Accepted Answer

The answer of Jennings Company uses the periodic inventory system...

Question 12

Which of the following statements is incorrect when inventory unit costs are increasing?

Accepted Answer

When inventory unit costs are increasing, the FIFO method will result in the lowest cost of goods sold because it assigns the oldest costs to goods sold first. Therefore, statement D is incorrect. Statements A, B, and C are correct.

Question 13

Which of the following statements is correct?

Accepted Answer

Cost of goods available for sale is allocated between costs of goods sold and inventory at year-end. This is done in order to determine the value of inventory remaining at the end of a reporting period and the cost of the inventory that has been sold during the period.

Question 14

William Company uses the periodic inventory system and has provided the following data:  Required: 
A.Calculate the following using both: FIFO and LIFO inventory methods.  
B.In times of rising unit costs, how does pretax income using FIFO compare to pretax income using LIFO? Explain your answer.

Accepted Answer

The answer of William Company uses the periodic inventory system...

Question 15

Which of the following statements is correct with respect to the determination of cash flows from operating activities?

Accepted Answer

An increase in inventory is considered a use of cash in operating activities because it represents cash tied up in inventory that is not available for other uses. Therefore, it is subtracted from net income in the indirect method of calculating cash flows from operating activities.

Question 16

What is the net adjustment to net income with respect to the determination of cash flows from operating activities when inventory increases $100,000 and accounts payable increases $20,000?

Accepted Answer

When inventory increases by $100,000, it means the company has spent $100,000 to purchase more inventory, which is a decrease in cash, and therefore a deduction from net income in the determination of cash flows from operating activities. When accounts payable increases by $20,000, it means the company has not yet paid for $20,000 worth of goods or services received, which is an increase in cash, and therefore an addition to net income. Therefore, the net adjustment to net income is a decrease of $80,000 ($100,000 - $20,000 = $80,000).

Question 17

How much was ending inventory when sales revenue was $500,000, purchases were $310,000, beginning inventory was $22,000, and gross profit was $200,000.

Accepted Answer

The answer of How much was ending inventory when sales...

Question 18

Coulter Company uses the LIFO inventory method under the periodic inventory system. The following data were available for the month of January, 2016:  Required:
Compute the following:
1. Beginning inventory
2. Ending inventory
3. Cost of goods available for sale
4. Cost of goods sold
5. Gross profit

Accepted Answer

The answer of Coulter Company uses the LIFO inventory method...

Question 19

Of the following, which is not a control for safeguarding inventories?

Accepted Answer

Having only one person responsible for receiving and shipping inventory creates an opportunity for that person to commit fraud or to make errors without anyone else detecting it. A better control would be to have separate individuals responsible for each function, or to have a supervisor oversee both functions. Storing inventory in a locked warehouse, limiting inventory access to authorized employees, and separating inventory accounting from handling duties are all effective controls for safeguarding inventories.

Question 20

Which of the following statements is correct when inventory unit costs are decreasing?

Accepted Answer

FIFO has the largest cost of goods sold during a period of decreasing unit costs.

Quiz 7: Reporting and Interpreting Cost of Goods Sold and Inventory

Of the following, which is not a reason for having controls to safeguard inventories?

McMillan Company uses the periodic inventory system. It has compiled the following information in order to prepare the financial statements at December 31, 2016: Required: Calculate each of the following: A.Cost of goods available for sale B.Cost of goods sold C.Gross profit

Which of the following statements is correct when inventory unit costs are decreasing?

Which of the following businesses would not be as likely to use the specific identification method of inventory valuation?

Compute the missing amounts that are numbered in parentheses for the income statement of each independent case. (Hint: Each case need not be calculated in the numerical order of the missing numbers.)

The records of Jimmy Company show 2016 purchases of $90,000. An actual count revealed a 2016 ending inventory of $8,000. The 2016 beginning inventory was $5,000. What was cost of goods sold for 2016?

Which of the following statements is correct when inventory unit costs are increasing?

Which of the following statements is incorrect?

How much were inventory purchases when cost of goods sold was $250,000, beginning inventory was $20,000, and ending inventory was $25,000?

Which of the following statements is incorrect when inventory unit costs are increasing?

Which of the following statements is correct?

William Company uses the periodic inventory system and has provided the following data: Required: A.Calculate the following using both: FIFO and LIFO inventory methods. B.In times of rising unit costs, how does pretax income using FIFO compare to pretax income using LIFO? Explain your answer.

Which of the following statements is correct with respect to the determination of cash flows from operating activities?

What is the net adjustment to net income with respect to the determination of cash flows from operating activities when inventory increases $100,000 and accounts payable increases $20,000?

How much was ending inventory when sales revenue was $500,000, purchases were $310,000, beginning inventory was $22,000, and gross profit was $200,000.

Coulter Company uses the LIFO inventory method under the periodic inventory system. The following data were available for the month of January, 2016: Required: Compute the following: 1. Beginning inventory 2. Ending inventory 3. Cost of goods available for sale 4. Cost of goods sold 5. Gross profit

Of the following, which is not a control for safeguarding inventories?

Which of the following statements is correct when inventory unit costs are decreasing?