Chapter 6 Q&A

Which of the following should not be included in the physical inventory of a company? (a) Goods held on consignment from another company. (b) Goods shipped on consignment to another company. (c) Goods in transit from another company shipped FOB shipping point. (d) None of the above.

(a) Goods held on consignment from another company.

As a result of a thorough physical inventory, Railway Company determined that it had inventory worth $180,000 at December 31, 2017. This count did not take into consideration the following facts: Rogers Consignment store currently has goods worth $35,000 on its sales floor that belong to Railway but are being sold on consignment by 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. (a) $230,000. (b) $215,000. (c) $228,000. (d) $193,000.

(b) $215,000.

King 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: (a) $15,000. (b) $30,000. (c) $45,000. (d) $75,000.

(b) $30,000.

Santana Company had beginning inventory of $80,000, ending inventory of $110,000, cost of goods sold of $285,000, and sales of $475,000. Santana's days in inventory is: (a) 73 days. (b) 121.7 days. (c) 102.5 days. (d) 84.5 days.

(b) 121.7 days.

Cost of goods available for sale consists of two elements: beginning inventory and: (a) ending inventory. (b) cost of goods purchased. (c) cost of goods sold. (d) All of the answer choices are correct.

(b) cost of goods purchased.

Pauline Company overstated its inventory by $15,000 at December 31, 2016. It did not correct the error in 2016 or 2017. As a result, Pauline's stockholders' equity was: (a) overstated at December 31, 2016, and understated at December 31, 2017. (b) overstated at December 31, 2016, and properly stated at December 31, 2017. (c) understated at December 31, 2016, and understated at December 31, 2017. (d) overstated at December 31, 2016, and overstated at December 31, 2017.

(b) overstated at December 31, 2016, and properly stated at December 31, 2017.

Falk 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: (a) understated, overstated. (b) overstated, understated. (c) overstated, overstated. (d) understated, understated.

(b) overstated, understated.

Poppins Company has the following: Inventory, Jan. 1; 8,000; $11 Purchase, June 19; 13,000; $12 Purchase, Nov. 8; 5,000; $13 If Poppins has 9,000 units on hand at December 31, the cost of the ending inventory under FIFO is: (a) $99,000. (b) $108,000. (c) $113,000. (d) $117,000.

(c) $113,000.

In periods of rising prices, LIFO will produce: (a) higher net income than FIFO. (b) the same net income as FIFO. (c) lower net income than FIFO. (d) higher net income than average-cost.

(c) lower net income than FIFO.

Using the data in Question 4 above, the cost of the ending inventory under LIFO is: (a) $113,000. (b) $108,000. (c) $99,000. (d) $100,000.

(d) $100,000.

Norton Company purchased 1,000 widgets and has 200 widgets in its ending inventory at a cost of $91 each and a current replacement cost of $80 each. The ending inventory under lower-of-cost-or-market is: (a) $91,000. (b) $80,000. (c) $18,200. (d) $16,000.

(d) $16,000.

Hansel Electronics has the following: Inventory, Jan. 1; 5,000; $8 Purchase, April 2; 15,000; $10 Purchase, Aug. 28; 20,000; $12 If Hansel has 7,000 units on hand at December 31, the cost of ending inventory under the average-cost method is: (a) $84,000. (b) $70,000. (c) $56,000. (d) $75,250.

(d) $75,250.

Which of these would cause the inventory turnover to increase the most? (a) Increasing the amount of inventory on hand. (b) Keeping the amount of inventory on hand constant but increasing sales. (c) Keeping the amount of inventory on hand constant but decreasing sales. (d) Decreasing the amount of inventory on hand and increasing sales.

(d) Decreasing the amount of inventory on hand and increasing sales.

In a perpetual inventory system: (a) LIFO cost of goods sold will be the same as in a periodic inventory system. (b) average costs are a simple average of unit costs incurred. (c) a new average is computed under the average-cost method after each sale. (d) FIFO cost of goods sold will be the same as in a periodic inventory system.

(d) FIFO cost of goods sold will be the same as in a periodic inventory system.

Factors that affect the selection of an inventory costing method do not include: (a) tax effects. (b) balance sheet effects. (c) income statement effects. (d) perpetual vs. periodic inventory system.

(d) perpetual vs. periodic inventory system.