ch. 6 quiz

Tidwell Company needs to determine its year-end inventory. There are four categorizes of goods in transit at year-end. Which of these should Tidwell include in its ending inventory? (1) Goods in transit sold by Tidwell FOB destination (2) Goods in transit sold by Tidwell FOB shipping point (3) Goods in transit purchased by Tidwell FOB destination (4) Goods in transit purchased by Tidwell FOB shipping point. Which items should be included in Tidwell's inventory at December 31? a. (2) and (3) b. (1) and (4) c. (2) and (4) d. None of these answers is correct e. (1) and (3)

(1) and (4)

A company uses the periodic inventory method. An error in the physical count of goods on hand at the end of a period resulted in a $10,000 overstatement of the ending inventory. The effect of this error in the current period is that (i) gross profit is ________________ and (ii) retained earnings is ___________________. a. (i) Overstated and (ii) Overstated b. None of these c. (i) Understated and (ii) Overstated d. (i) Overstated and (ii) Understated e. (i) Understated and (ii) Understated

(i) Overstated and (ii) Overstated

A company uses the periodic inventory method. An error in the physical count of goods on hand at the end of a period resulted in a $10,000 understatement of the ending inventory. The effect of this error in the current period is that (i) cost of goods sold is _________________ and (ii) net income is __________________. a. None of these b. (i) Understated and (ii) Overstated c. (i) Overstated and (ii) Understated d. (i) Overstated and (ii) Overstated e. (i) Understated and (ii) Understated

(i) Overstated and (ii) Understated

A company uses the periodic inventory method. If beginning inventory is overstated by $10,000 because the prior's year's ending inventory was overstated by $10,000. The company's ending inventory for this period is correct. The effect of this error in the current period is that (i) cost of goods sold is _________________ and (ii) net Income is ___________________. a. None of these b. (i) Understated and (ii) Understated c. (i) Overstated and (ii) Understated d. (i) Understated and (ii) Overstated e. (i) Overstated and (ii) Overstated

(i) Overstated and (ii) Understated

A company uses the periodic inventory method. Beginning inventory is understated by $10,000 because the prior year's ending inventory was understated by $10,000. The company's ending inventory for this period is correct. The current period's gross profit is__________________ and this year's ending retained earnings is ____________________. a. (i) overstated and (ii) understated b. (i) understated and (ii) understated c. (i) overstated and (ii) overstated d. (i) understated and (ii) neither overstated nor understated e. (i) overstated; (ii) neither overstated nor understated

(i) overstated; (ii) neither overstated nor understated

Types of inventory accounts

-raw materials -work in process -finished goods

Which situation requires using the lower-of-cost-or-market basis to valuing inventory instead of the cost basis? a. A decline in the current replacement cost of the inventory b. An increase in the current replacement cost of the inventory c. An increase in the price charged to customers d. A decrease in the price charged to customers e. Paying for inventory within the discount period

A decline in the current replacement cost of the inventory

Which one of the following statements is true? a. A service company will normally have work in process as an inventory account classification. b. None of these c. All of these d. A manufacturing company will normally have raw materials, work in process, and finished goods as inventory account classifications. e. A merchandising company will normally have raw materials as an inventory account classification.

A manufacturing company will normally have raw materials, work in process, and finished goods as inventory account classifications

A low number of days in inventory may indicate a. there is a relatively high chance that sales opportunities may be lost because of inventory shortages. b. the company has a relatively small amount of funds tied up in inventory. c. there is a relatively low chance of inventory becoming obsolete before it can be sold. d. None of these e. All of these

All of these

Which of the following is a legitimate business reason for taking a physical inventory? a. All of these b. To check the accuracy of the perpetual inventory records c. To determine if any inventory has been lost from waste, shoplifting, or employee theft d. To determine cost of goods sold e. None of these

All of these

Inventory is accounted for at cost. After a company has determined the quantity of units of inventory, it applies unit costs to the quantities to determine the total cost of inventory and the cost of goods sold. Which of the following statements is not a method for computing the cost of inventory? a. Specific identification b. Average-cost c. Allowance estimation d. First-in, first-out e. Last-in, first-out

Allowance estimation

Inventory is accounted for at cost. After a company has determined the quantity of units of inventory, it applies unit costs to the quantities to determine the total cost of inventory and the cost of goods sold. Which of the following statements is not a method for computing the cost of inventory?a. Specific identification b. Average-cost c. Allowance estimation d. First-in, first-out e. Last-in, first-out

Allowance estimation

Which of the following would most likely employ the specific identification method of inventory costing? a. All of these are equally likely to use specific identification b. Car dealer c. Gasoline station d. Restaurant e. Office supply store

Car dealer

What accounting concept is employed when using the lower-of-cost-or-market valuation? a. Going concern assumption b. Cost constraint c. Economic entity concept d. Conservatism e. Revenue recognition

Conservatism

In a period of declining inventory costs, which inventory flow assumption will result in the lowest net income? a. Net income is not affected by inventory method cost flow assumptions. b. FIFO c. LIFO d. Average cost method e. Accelerated method

FIFO

In a period of declining prices, which of the following inventory methods generally results in the lowest balance sheet figure for inventory? a. LIFO method b. Average cost method c. Accelerated method d. Specific identification method e. FIFO method

FIFO method

In a period of inflation, the costs allocated to ending inventory will approximate their current cost if the a. accelerated method is used. b. LIFO method is used. c. FIFO method is used. d. specific identification method is used. e. average cost method is used.

FIFO method is used

Ownership passes to the buyer when purchased goods are received from a public carrier if the goods are shipped a. FOB buyer. b. FOB shipping point. c. FOB transit. d. FOB shipper. e. FOB destination.

FOB destination

Ownership passes to the buyer when the public carrier accepts the goods if the goods are shipped a. FOB buyer. b. FOB shipping point. c. FOB transit. d. FOB shipper. e. FOB destination.

FOB shipping point

Which of the following statements is true? a. Goods held on consignment are not owned by the company that holds them, but they should be included in the ending inventory of the company that holds them. b. Goods held on consignment are owned by the company that holds them, and they should not be included in the ending inventory of the company that holds them. c. Goods held on consignment are owned by the company that holds them, but they should not be included in the ending inventory of the company that holds them. d. Consigned goods should not be included in the ending inventory of any company, including the consignee and the consignor. e. Goods held on consignment are not owned by the company that holds them, and they should not be included in the ending inventory of the company that holds them.

Goods held on consignment are not owned by the company that holds them, and they should not be included in the ending inventory of the company that holds them.

Which of the following should not be included in the physical inventory of a company? a. None of these choices is correct. b. Goods in transit from another company shipped FOB shipping point c. Goods shipped on consignment to another company d. All of the answer choices are correct. e. Goods held on consignment from another company

Goods held on consignment from another company

Which of the following should be included in the physical inventory of a company? a. All of these answers are correct b. Goods in transit from another company shipped FOB shipping point c. None of these choices is correct d. Goods shipped on consignment to another company e. Goods held on consignment from another company

Goods shipped on consignment to another company

Which of the following is true of the FIFO inventory method? a. It assumes that the cost of the earliest units purchased are the first to be allocated to the ending inventory. b. None of these c. It assumes that the cost of the earliest units purchased are the last to be allocated to the beginning inventory. d. It assumes that the cost of the earliest units purchased are the first to be allocated to cost of goods sold. e. It assumes that the cost of the earliest units purchased are the last to be allocated to cost of goods sold.

It assumes that the cost of the earliest units purchased are the first to be allocated to cost of goods sold.

If there is an error in the ending inventory affecting the net income of the current period, what will happen to the net income of the next accounting period? a. Cannot be determined from the information given. b. It will have no effect on the net income of the next accounting period. c. If net income was overstated in the current period, it will be overstated in the next period. d. It will have the reverse effect on the net income during the next accounting period.

It will have the reverse effect on the net income during the next accounting period.

Jerry gives goods on consignment to Cecil who agrees to try to sell them for a 25% commission. At the end of the accounting period, the goods have not been sold. Which of the following parties includes in its inventory the consigned goods? a. None of these b. Cecil c. Both Cecil and Jerry d. Neither Cecil nor Jerry e. Jerry

Jerry

Reporting which one of the following allows analysts and other users of financial statements to make adjustments to compare companies that use different cost flow methods? a. LIFO reserve b. Inventory turnover c. Current replacement cost d. Inventory adjustment factor e. FIFO reserve

LIFO Reserve

In a period of inflation, the cost flow method that results in the lowest income taxes is the a. FIFO method. b. LIFO method. c. average cost method. d. gross profit method. e. None of these

LIFO method

Which inventory method usually results in cost of goods sold being the closest to the current cost of replacing inventory? a. Average-cost method b. Specific identification method c. All of these inventory methods result in the same cost of goods sold value being reported on financial reports. d. FIFO method e. LIFO method

LIFO method

With the assumption of costs and prices generally rising, which of the following is correct? a. Specific identification method provides the closest cost of goods sold to replacement cost on the income statement. b. FIFO provides the closest cost of goods sold to replacement cost. c. LIFO provides the closest valuation of cost of goods sold to replacement cost of inventory sold. d. LIFO provides the closest valuation of inventory on the balance sheet to replacement cost. e. None of these

LIFO provides the closest valuation of cost of goods sold to replacement cost of inventory sold.

Which is true if the ending inventory is overstated? a. Net income will be overstated and the stockholders' equity will be understated. b. Net income will be understated and the stockholders' equity will be understated. c. Net income will be overstated and the stockholders' equity will be overstated. d. Net income will be understated and the stockholders' equity will be overstated. e. None of these

Net income will be overstated and the stockholders' equity will be overstated.

A company overstated its ending inventory by $15,000 at the end of the first year. It never noticed the error. As a result, what was the effect on Harold's stockholders equity at the end of the first year and at the end of the second year, respectively? a. Understated and understated, respectively b. Overstated and properly stated, respectively c. None of these d. Overstated and overstated, respectively e. Overstated and understated, respectively

Overstated and properly stated, respectively

Which of the following statements is true? a. All of these b. Specific identification method inventory valuation requires the physical flow of goods to be representative of the cost flow. c. None of these d. LIFO inventory valuation requires the physical flow of goods to be representative of the cost flow. e. FIFO inventory valuation requires the physical flow of goods to be representative of the cost flow.

Specific identification method inventory valuation requires the physical flow of goods to be representative of the cost flow.

All of the following statements are true regarding the LIFO reserve except: a. To adjust LIFO inventory to FIFO inventory requires adding the LIFO reserve from LIFO inventory. b. Current ratios and the inventory turnover can be significantly affected if a company has a large LIFO reserves. c. Companies using LIFO are required to report the LIFO reserve. None of these d. The LIFO reserve normally decreases the longer a company uses LIFO.

The LIFO reserve normally decreases the longer a company uses LIFO.

Two companies report the same cost of goods available for sale, but each employs a different inventory costing method. If the price of goods has increased during the period, which statement is true? a. The company using LIFO will have the lowest cost of goods sold. b. The company using LIFO will have the highest ending inventory. c. None of these d. The company using FIFO will have the highest cost of goods sold. e. The company using FIFO will have the highest ending inventory.

The company using FIFO will have the highest ending inventory

What is the LIFO reserve? a. The difference between inventory reported using LIFO and inventory using FIFO b. The difference between income reported using LIFO and inventory using average cost. c. An difference between inventory reported at cost and inventory at lower-of-cost-or-market. d. An amount used to adjust inventory reported using LIFO inventory to its historical cost e. The cost of ending inventory using LIFO

The difference between inventory reported using LIFO and inventory using FIFO

Which statement concerning lower of cost or market (LCM) is false? a. All of the above are correct. b. Under the LCM basis, inventory is recorded at market if it increases in value after it is acquired. c. LCM is an example of a company choosing the accounting method that will be least likely to overstate assets and income. d. LCM is applied after one of the cost flow assumptions has been applied. e. The LCM basis uses current replacement cost for inventory that has declined in value.

Under the LCM basis, inventory is recorded at market if it increases in value after it is acquired.

Which of the following is an inventory account? a. Accounts receivable b. All of these are inventory accounts c. Equipment d. Accounts payable e. Work in process

Work in process

The situation that requires a departure from the cost basis of accounting to the lower of cost or market basis in valuing inventory is necessitated by a. an increase in selling price. b. a change from one cost flow assumption to another. c. a decline in the value of the inventory. d. an increase in the value of the inventory. e. a desire for more profit.

a decline in the value of the inventory.

A company uses the periodic inventory method. An overstatement of ending inventory in one period results in a. an understatement of net income of the next period. b. no effect on net income of the next period. c. an overstatement of the ending inventory of the next period. d. an understatement of the beginning inventory of the next period. e. an overstatement of net income of the next period.

an understatement of net income of the next period (it would be overstatement if it was this period. But will carry on as under if it is into next period.)

A company uses the periodic inventory method and the beginning inventory is overstated by $4,000 because the ending inventory in the previous period was overstated by $4,000; the ending inventory for this period is correct. The amounts reflected in the current end of the period balance sheet are a. assets are overstated and stockholders' equity is overstated. b. None of these c. assets are correct and stockholders' equity is correct. d. assets are overstated and stockholders' equity is correct. e. assets are understated and stockholders' equity is understated.

assets are correct and stockholders' equity is correct.

Inventory costing methods place primary reliance on assumptions about the flow of a. values. b. goods. c. margins. d. costs. e. resale prices.

costs

When applying the lower of cost or market rule to inventory valuation, market generally means a. amount owed. b. gross margin. c. operating margin. d. current replacement cost. e. original cost.

current replacement cost

When terms are FOB destination a. ownership of the goods transfer to the seller when the buyer pays for them. b. ownership of the goods transfer to the seller at the end of the year. c. ownership of the goods passes to the buyer when the public carrier accepts the goods from the seller. d. ownership of the goods remains with the seller until the goods reach the buyer. e. ownership of the goods remains with the seller until the goods are sold by the buyer.

ownership of the goods remains with the seller until the goods reach the buyer.

Companies must arrive at an accurate count of inventory for financial reporting purposes. What determines whether goods should be included in the inventory it reports on its balance sheet is a. whether the goods are considered to be finished goods b. whether the company manufactured the goods c. the company's physical possession of the goods d. the company's title or ownership of the goods e. whether the company has paid for the goods

the company's title or ownership of the goods

The LIFO reserve is a. the difference between inventory reported at cost and inventory at lower-of-cost-or-market. b. the amount used to adjust inventory to its historical cost. c. the difference between inventory reported using LIFO and inventory using average cost. d. the difference between inventory reported using LIFO and inventory using FIFO. e. none of these

the difference between inventory reported using LIFO and inventory using FIFO.

If goods in transit are shipped FOB destination a. the buyer has title to the goods once they are given to the transportation company. b. who has title cannot be determined. c. the transportation company has title to the goods while the goods are in transit. d. the seller has title to the goods until they are delivered to the buyer. e. no one has title to the goods until they are delivered.

the seller has title to the goods until they are delivered to the buyer.

Manufactured inventory that has begun the production process but is not yet completed is called a. raw materials. b. merchandise inventory. c. finished goods. d. work in process. e. all of these

work in process