ACG quiz ch 6

Songbird Company has sales of $150,000 and cost of goods available for sale of $135,000. If the gross profit rate is 30%, the estimated cost of the ending inventory under the gross profit method is

150,000-(150,000x30%)=105,000 135,000-105,000=30,000

Carlos Company had beginning inventory of $80,000, ending inventory of $110,000, cost of goods sold of $285,000, and sales revenue of $475,000. Carlos's days in inventory is

365/(285,000/(80,000+110,000)2) = 121.7 days

Baylor Inc. has a gross profit rate of 45%. During the year the company had net sales of $400,000 and goods available for sale of $260,000. Beginning inventory was $35,000. Compute the dollar amount of the ending inventory.

400,000x55%=220,000 260,000-220,000=40,000

Trendy Toy Company purchased 1,000 toys at a cost of $50 each. Trendy Toys has 200 toys in inventory at year-end with a replacement cost of $45 each. The ending inventory at lower-of-cost-or-market is

45 X 200 toys = 9,000

Companies that use a periodic inventory system take a physical inventory for each of the following purposes to determine the

COGS for the period, inventory on hand at the BS date. 4

In a period of inflation, which cost flow method produces the highest net income?

FIFO

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

FIFO

There is an accounting requirement that the cost flow assumption be consistent with the physical movement of the goods.

False

Which of the following should be included in the physical inventory of a company?

Goods shipped on consignment to another company. Goods in transit from another company shipped FOB shipping point

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

LIFO

The first costs assigned to ending inventory are the costs of the beginning inventory under the

LIFO

When the current replacement cost of inventory is less than its cost, it is written down to

MARKET VALUE

Overstating beginning inventory will overstate

Net income

Which of the following is used to estimate the cost of ending inventory?

Retail inventory method.

Under the lower-of-cost-or-market basis, market is defined as current replacement cost.

TRUE

Which of the following statements is correct with respect to inventories?

Under FIFO, the ending inventory is based on the latest units purchased.

Under IFRS, inventory is defined as

assets held-for-sale in the ordinary course of business. assets in the process of production for sale assets to be consumed in the production of goods or services.

Inventory turnover is calculated by dividing cost of goods sold by

average inventory

For inventory valuation, IFRS permits the use of

both the FIFO and average-cost flow assumptions.

Understating ending inventory will overstate

cogs

Cost of goods available for sale consists of two elements: beginning inventory and

cost of goods purchased

Inventory costing methods place primary reliance on assumptions about the flow of

costs

An error in the ending inventory of the current period will have no effect on net income of the next accounting period.

false

3 classifications of inventory

finished goods, raw materials, work in process

In a period of rising prices, FIFO will result in

lower cost of goods sold than LIFO

In periods of rising prices, LIFO will produce

lower net income than FIFO

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

moving-average method.

Harold Company overstated its inventory by $15,000 at December 31, 2014. It did not correct the error in 2014 or 2015. As a result, Harold's stockholders' equity was

overstated at December 31, 2014, and properly stated at December 31, 2015. (Stockholders' equity is overstated by $15,000 at December 31, 2014, but is properly stated, not understated, at December 31, 2015. An ending inventory error in one period will have an equal and opposite effect on cost of goods sold and net income in the next period; after two years, the errors have offset each other.)

Atlantis Company's ending inventory is understated $4,000. The effects of this error on the current year's cost of goods sold and net income, respectively, are `

overstated, understated. (Because ending inventory is too low, cost of goods sold will be too high (overstated) and since cost of goods sold (an expense) is too high, net income will be too low (understated).

When the terms of sale are FOB destination, ownership of the goods remains with the seller until the goods

reach the buyer

Factors that affect the selection of an inventory costing method include

tax effects, BS effects, IS effect

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

terms of sale are FOB shipping point

Under IFRS, if inventory is written down under the lower-of-cost-or-market valuation,

the write-down may be reversed in a subsequent period up to the amount of the previous write-down.

Days in inventory measure the average number of days inventory is held.

true

IFRS prohibits the use of the LIFO cost flow assumption in accounting and reporting for inventories.

true

The results under FIFO in a perpetual system are the same as in a periodic system.

true

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

work in progress (BS)