ch. 6

$215,000 >Inventory should include all goods owned by the company regardless of whether the company holds physical possession or not. The correct amount of inventory that should be reported by Railway should be the $180,000 cost of goods in possession plus the $35,000 of cost of the goods that are on consignment. The title to the goods in transit will transfer on January 3 and should not be reported on December 31, 2014. The correct balance = $180,000 + $35,000 = $215,000.

As a result of a thorough physical inventory, Railway Company determined that it had inventory worth $180,000 at December 31, 2014. This count did not take into consideration the following transactions: *Rogers Consignment store currently has goods worth $35,000 on its sales floor that belong to Railway but are being sold on consignment by Cityplace Rogers. The selling price of these goods is $50,000. *Railway purchased $13,000 of goods that were shipped on December 27, FOB destination, that will be received by Railway on January 3. Determine the correct amount of inventory that Railway should report. -$215,000 -$228,000 -$193,000 -$230,000

Assets are overstated and stockholders' equity is overstated >If the ending inventory is overstated, assets, net income, and stockholders' equity will be overstated, while the cost of goods sold will be understated

If the ending inventory is overstated, what occurs? -assets are overstated and the liabilities are understated -assets are overstated and stockholders' equity is overstated -assets are overstated and the cost of goods sold is overstated -assets are overstated and the net income is understated

LIFO >LIFO will provide the highest net income during a period of falling prices.

In a period of falling prices, which of the following methods will give the largest net income? -specific identification -average-cost -LIFO -FIFO

False >Cost of goods sold under LIFO will be higher since LIFO utilizes the higher market price of the last units purchased which produces a lower net income.

In a period of inflation, LIFO produces a higher net income than FIFO. True or false?

Costs. >The flow of costs determine the inventory costing method.

Inventory costing methods place primary reliance on assumptions about the flow of... -values. -goods. -costs. -resale prices.

FOB shipping point >Under FOB shipping pont, title transfers when the carrier accepts the goods.

Ownership passes to the buyer when the public accepts the goods if the goods are shipped... -FOB shipping point -FOB buyer -FOB destination -FOB shipper

6.0 times >Cost of goods sold is the difference between sales revenue and gross profit: $1,800,000 - $600,000 = $1,200,000 Inventory turnover ratio = Cost of goods sold divided by average inventory: $1,200,000 / [($160,000 + $240,000)/2] = 6.0

The following information came from the income statement of the Wilkens Company at December 31, 2014: sales revenue $1,800,000; beginning inventory $160,000; ending inventory $240,000; and gross profit $600,000. What is Wilkens' inventory turnover ratio for 2014? -3.75 times -6.0 times -3.0 times -2.5 times

The conservatism constraint >Conservatism means to use the lowest value for assets and revenues when in doubt.

What is the underlying rationale for the lower-of-cost-or-market rule? -the materiality constraint -the conservatism constraint -the economic entity assumption -the historical cost principle

True >Sales terms of FOB destination indicate that the seller holds title until the goods reach the destination.

When the terms of a sale are FOB (Free On Board) destination, legal title to the goods passes to the buyer when the goods reach the buyer's place of business. True or false?

Specific identification method inventory valuation requires physical flow of goods to be representative of the cost flow. >The specific identification method has this constraint. There is no requirement for the physical flow of goods under the LIFO or FIFO inventory valuation concepts to match cost flow.

Which of the following statements is true? -all of these answer choices are correct. -specific identification method inventory valuation requires physical flow of goods to be representative of the cost flow. -FIFO inventory valuation requires physical flow of goods to be representative of the cost flow. -LIFO inventory valuation requires physical flow of goods to be representative of the cost flow.