exam 3 acc 310 ch. 8

Milford Company had 600 units of "Tank" in its inventory at a cost of $6 each. It purchased 900 more units of "Tank" at a cost of $9 each. Milford then sold 1,050 units at a selling price of $15 each. The LIFO liquidation overstated normal gross profit by

$450

In a period of rising prices, the inventory method which tends to give the highest reported cost of goods sold is

LIFO.

The use of a Purchase Discounts Lost account implies that the recorded cost of a purchased inventory item is its

invoice price less the purchase discount allowable whether taken or not.

The tax benefit that the LIFO method provides might get nullified when:

revenues are increasing faster than costs.

Costs which are inventoriable include all of the following except

selling costs of a sales department.

The pricing of issues from inventory must be deferred until the end of the accounting period under the following method of inventory valuation:

weighted-average.

Chess Top uses the periodic inventory system. For the current month, the beginning inventory consisted of 480 units that cost $65 each. During the month, the company made two purchases: 720 units at $68 each and 360 units at $70 each. Chess Top also sold 1,200 units during the month. Using the LIFO method, what is the amount of cost of goods sold for the month?

$81,960.

Niles Co. has the following data related to an item of inventory: Inventory, March 1 400 units @ $2.10 Purchase, March 7 1,400units @ $2.20 Purchase, March 16 280 units @ $2.25 Inventory, March 31 520 units The value assigned to ending inventory if Niles uses LIFO is

$1,104.

Bell Inc. took a physical inventory at the end of the year and determined that $840,000 of goods were on hand. In addition, the following items were not included in the physical count. Bell, Inc. determined that $96,000 of goods purchased were in transit that were shipped f.o.b. destination (goods were actually received by the company three days after the inventory count).The company sold $40,000 worth of inventory f.o.b. destination. What amount should Bell report as inventory at the end of the year?

$880,000.

In the context of dollar-value LIFO, what is a LIFO layer?

The LIFO value of an increase in the inventory for a given year.

In the double-extension method, the value of the units in inventory is extended at:

both base-year prices and current-year prices.

Valuation of inventories requires the determination of all of the following except

the cost of goods held on consign¬ment from other companies.

Hudson, Inc. is a calendar-year corporation. Its financial statements for the years 2018 and 2017 contained errors as follows: 2018 2017 Ending inventory $9,000 overstated $24,000 overstated Depreciation expense $6,000 understated $18,000 overstated Assume that no correcting entries were made at December 31, 2017. Ignoring income taxes, by how much will retained earnings at December 31, 2018 be overstated or understated?

$ 3,000 understated

Hudson, Inc. is a calendar-year corporation. Its financial statements for the years 2018 and 2017 contained errors as follows: 2018 2017 Ending inventory $9,000 overstated $24,000 overstated Depreciation expense $6,000 understated $18,000 overstated Assume that no correcting entries were made at December 31, 2017, or December 31, 2018 and that no additional errors occurred in 2019. Ignoring income taxes, by how much will working capital at December 31, 2019 be overstated or understated?

$0

Winsor Co. records purchases at net amounts. On May 5 Winsor purchased merchandise on account, $80,000, terms 2/10, n/30. Winsor returned $6,000 of the May 5 purchase and received credit on account. At May 31 the balance had not been paid. By how much should the account payable be adjusted on May 31?

$1,480.

Checkers uses the periodic inventory system. For the current month, the beginning inventory consisted of 7,200 units that cost $12 each. During the month, the company made two purchases: 3,000 units at $13 each and 12,000 units at $13.50 each. Checkers also sold 12,900 units during the month. Using the LIFO method, what is the ending inventory?

$113,700.

Checkers uses the periodic inventory system. For the current month, the beginning inventory consisted of 7,200 units that cost $12 each. During the month, the company made two purchases: 3,000 units at $13 each and 12,000 units at $13.50 each. Checkers also sold 12,900 units during the month. Using the FIFO method, what is the ending inventory?

$125,550.

Hudson, Inc. is a calendar-year corporation. Its financial statements for the years 2018 and 2017 contained errors as follows: 2018 2017 Ending inventory $9,000 overstated $24,000 overstated Depreciation expense $6,000 understated $18,000 overstated Assume that the proper correcting entries were made at December 31, 2017. By how much will 2018 income before taxes be overstated or understated?

$15,000 overstated

Transactions for the month of June were: Purchases Sales June 1(balance) 3,200@ $3.20 June 2) 2,400 @ $5.50 3) 8,800 @ 3.10 6) 6,400 @ 5.50 7) 4,800 @ 3.30 9) 4,000 @ 5.50 15) 7,200 @ 3.40 10 1,600 @ 6.00 22) 2,000 @ 3.50 18) 5,600 @ 6.00 25) 800 @ 6.00 Assuming that perpetual inventory records are kept in units only, the ending inventory on a LIFO basis is

$16,440

Transactions for the month of June were: Purchases Sales June 1(balance) 3,200@ $3.20 June 2) 2,400 @ $5.50 3) 8,800 @ 3.10 6) 6,400 @ 5.50 7) 4,800 @ 3.30 9) 4,000 @ 5.50 15) 7,200 @ 3.40 10) 1,600 @ 6.00 22) 2,000 @ 3.50 18) 5,600 @ 6.00 25) 800 @ 6.00 Assuming that perpetual inventory records are kept in dollars, the ending inventory on a LIFO basis is

$17,160.

Transactions for the month of June were: Purchases Sales June 1) (balance) 3,200@ $3.20 June 2) 2,400 @ $5.50 3) 8,800 @ 3.10 6) 6,400 @ 5.50 7) 4,800 @ 3.30 9) 4,000 @ 5.50 15) 7,200 @ 3.40 10) 1,600 @ 6.00 22) 2,000 @ 3.50 18) 5,600 @ 6.00 25) 800 @ 6.00 Assuming that perpetual inventory records are kept in dollars, the ending inventory on a FIFO basis is

$17,880.

Morgan Manufacturing Company has the following account balances at year end: Office supplies $ 4,000 Raw materials 27,000 Work-in-process 59,000 Finished goods 97,000 Prepaid insurance 6,000 What amount should Morgan report as inventories in its balance sheet?

$183,000.

Lawson Manufacturing Company has the following account balances at year end: Office supplies $ 4,000 Raw materials 27,000 Work-in-process 59,000 Finished goods 109,000 Prepaid insurance 6,000 What amount should Lawson report as inventories in its balance sheet?

$195,000.

Black Corporation uses the FIFO method for internal reporting purposes and LIFO for external reporting purposes. The balance in the LIFO Reserve account at the end of 2017 was $280,000. The balance in the same account at the end of 2018 is $420,000. Black's Cost of Goods Sold account has a balance of $2,100,000 from sales transactions recorded during the year. What amount should Black report as Cost of Goods Sold in the 2018 income statement?

$2,240,000.

The following information is available for Naab Company for 2017: Freight-in $ 60,000 Purchase returns 150,000 Selling expenses 460,000 Ending inventory 520,000 The cost of goods sold is equal to 400% of selling expenses. What is the cost of goods available for sale?

$2,360,000.

Risers Inc. reported total assets of $2,400,000 and net income of $320,000 for the current year. Risers determined that inventory was overstated by $24,000 at the beginning of the year (this was not corrected). What is the corrected amount for total assets and net income for the year?

$2,400,000 and $344,000.

White Corporation uses the FIFO method for internal reporting purposes and LIFO for external reporting purposes. The balance in the LIFO Reserve account at the end of 2017 was $320,000. The balance in the same account at the end of 2018 is $480,000. White's Cost of Goods Sold account has a balance of $2,400,000 from sales transactions recorded during the year. What amount should White report as Cost of Goods Sold in the 2018 income statement?

$2,560,000.

Emley Company has been using the LIFO method of inventory valuation for 10 years, since it began operations. Its 2017 ending inventory was $60,000, but it would have been $90,000 if FIFO had been used. Thus, if FIFO had been used, Emley's income before income taxes would have been

$30,000 greater over the 10-year period.

Winsor Co. records purchases at net amounts. On May 5 Winsor purchased merchandise on account, $80,000, terms 2/10, n/30. Winsor returned $6,000 of the May 5 purchase and received credit on account. At May 31 the balance had not been paid. The amount to be recorded as a purchase return is

$5,880.

Risers Inc. reported total assets of $6,400,000 and net income of $510,000 for the current year. Risers determined that inventory was understated by $138,000 at the beginning of the year and $60,000 at the end of the year. What is the corrected amount for total assets and net income for the year?

$6,460,000 and $432,000.

June Corp. sells one product and uses a perpetual inventory system. The beginning inventory consisted of 80 units that cost $20 per unit. During the current month, the company purchased 480 units at $20 each. Sales during the month totaled 360 units for $43 each. What is the cost of goods sold using the LIFO method?

$7,200.

Chess Top uses the periodic inventory system. For the current month, the beginning inventory consisted of 480 units that cost $65 each. During the month, the company made two purchases: 720 units at $68 each and 360 units at $70 each. Chess Top also sold 1,200 units during the month. Using the FIFO method, what is the amount of cost of goods sold for the month?

$80,160.

Nichols Company had 600 units of "Dink" in its inventory at a cost of $12 each. It purchased 900 more units of "Dink" at a cost of $18 each. Nichols then sold 1,050 units at a selling price of $30 each. The LIFO liquidation overstated normal gross profit by

$900

Bell Inc. took a physical inventory at the end of the year and determined that $780,000 of goods were on hand. In addition, Bell, Inc. determined that $60,000 of goods that were in transit that were shipped f.o.b. shipping point were actually received two days after the inventory count and that the company had $90,000 of goods out on consignment. What amount should Bell report as inventory at the end of the year?

$930,000.

During 2017, which was the first year of operations, Oswald Company had merchandise purchases of $985,000 before cash discounts. All purchases were made on terms of 2/10, n/30. Three-fourths of the items purchased were paid for within 10 days of purchase. All of the goods available had been sold at year end. Which of the following recording procedures would result in the highest cost of goods sold for 2017? 1. Recording purchases at gross amounts 2. Recording purchases at net amounts, with the amount of discounts not taken shown under "other expenses" in the income statement

1

June Corp. sells one product and uses a perpetual inventory system. The beginning inventory consisted of 80 units that cost $20 per unit. During the current month, the company purchased 480 units at $20 each. Sales during the month totaled 360 units for $43 each. What is the number of units in the ending inventory?

200 units.

Assuming no beginning inventory, what can be said about the trend of inventory prices if cost of goods sold computed when inventory is valued using the FIFO method exceeds cost of goods sold when inventory is valued using the LIFO method?

Prices decreased.

Which of the following is included in inventory costs?

Product costs.

Which of the following is a product cost as it relates to inventory?

Raw materials.

Which of the following is a reason why the specific identification method may be considered ideal for assigning costs to inventory and cost of goods sold?

The cost flow matches the physical flow.

What is a LIFO reserve?

The difference between the LIFO inventory and the amount used for internal reporting purposes.

How is a significant amount of consignment inventory reported in the balance sheet?

The inventory is reported separately on the consignor's balance sheet.

Which of the following is not considered an advantage of LIFO when prices are rising?

The inventory will be overstated.

Which of the following statements is true about specific-goods pooled LIFO approach?

The reduction of one quantity in the pool may be offset by an increase in another.

Which of the following statements is not valid as it applies to inventory costing methods?

The use of FIFO permits some control by management over the amount of net income for a period through controlled purchases, which is not true with LIFO.

In a period of rising prices, the inventory method which tends to give the highest reported net income is

first-in, first-out.

Which method may be used to record cash discounts a company receives for paying suppliers promptly?

Both the net method and the gross method.

Which of the following is a characteristic of a perpetual inventory system?

Cost of goods sold is recorded with each sale.

Tanner Corporation's inventory on its balance sheet was lower using first-in, first-out than it would have been using last-in, first-out. Assuming no beginning inventory, in what direction did the cost of purchases move during the period?

Down

During 2017, which was the first year of operations, Oswald Company had merchandise purchases of $985,000 before cash discounts. All purchases were made on terms of 2/10, n/30. Three-fourths of the items purchased were paid for within 10 days of purchase. All of the goods available had been sold at year end. Which of the following recording procedures would result in the highest net income for 2017? 1. Recording purchases at gross amounts 2. Recording purchases at net amounts, with the amount of discounts not taken shown under "other expenses" in the income statement

Either 1 or 2 will result in the same net income.

Which inventory costing method most closely approximates current cost for each of the following:

Ending Inventory Cost of Goods Sold FIFO LIFO

The acquisition cost of a certain raw material changes frequently. The book value of the inventory of this material at year end will be the same if perpetual records are kept as it would be under a periodic inventory method only if the book value is computed under the

FIFO method.

An inventory pricing procedure in which the oldest costs incurred rarely have an effect on the ending inventory valuation is

FIFO.

In a period of rising prices which inventory method generally provides the greatest amount of net income?

FIFO.

In a period of rising prices, the inventory method which tends to give the highest reported inventory is

FIFO.

Which of the following inventories carried by a manufacturer is similar to the merchandise inventory of a retailer?

Finished goods.

Which method of inventory pricing best approximates specific identification of the actual flow of costs and units in most manufacturing situations?

First-in, first-out

What is consigned inventory?

Goods that are shipped, but title remains with the shipper.

Which of the following types of interest cost incurred in connection with the purchase or manufacture of inventory should be capitalized as a product cost?

Interest incurred during the production of discrete projects such as ships or real estate projects

Which of the following statements is not true as it relates to the dollar-value LIFO inven-tory method?

It is easier to erode LIFO layers using dollar-value LIFO techniques than it is with specific goods pooled LIFO.

In a period of falling prices, which inventory method generally provides the greatest amount of net income?

LIFO.

Which of the following is correct?

Manufacturing overhead costs are product costs.

What is the effect of a $50,000 overstatement of last year's inventory on current years ending retained earning balance?

No effect.

Which of the following items should be included in a company's inventory at the balance sheet date?

None of these answer choices are correct.

Which of the following is true regarding the use of LIFO for inventory valuation?

None of these answers are correct.

Where should goods in transit that were recently purchased f.o.b. destination be included on the balance sheet?

Not on the balance sheet.

Which of the following methods is also referred as "parking transactions"?

Sales with buyback agreement.

Which of the following is a period cost?

Selling costs.

Why are inventories included in the computation of net income?

To determine cost of goods sold.

When using the periodic inventory system, which of the following generally would not be separately accounted for in the computation of cost of goods sold?

Trade discounts applicable to purchases during the period

If a company uses the periodic inventory system, what is the impact on net income of including goods in transit f.o.b. shipping point in purchases, but not ending inventory?

Understate net income.

If a company uses the periodic inventory system, what is the impact on the current ratio of including goods in transit f.o.b. shipping point in purchases, but not ending inventory?

Understate the current ratio.

Under what circumstances should a company with high rate of return on sales consider the inventory sold?

When it can reasonably estimate the amount of returns

The failure to record a purchase of mer¬chandise on account even though the goods are properly included in the physical inven¬tory results in

an understatement of liabilities and an overstatement of owners' equity.

On June 15, 2017, Wynne Corporation accepted delivery of merchandise which it pur-chased on account. As of June 30, Wynne had not recorded the transaction or included the merchandise in its inventory. The effect of this on its balance sheet for June 30, 2017 would be

assets and liabilities were understated but stockholders' equity was not affected.

In situations where there is a rapid turnover, an inventory method which produces a balance sheet valuation similar to the first-in, first-out method is

average cost.

All of the following costs should be charged against revenue in the period in which costs are incurred except for

costs of normal shrinkage and scrap incurred for the manufacture of a product in ending inventory.

Nichols Company had 500 units of "Dink" in its inventory at a cost of $5 each. It purchased, for $2,400, 300 more units of "Dink". Nichols then sold 600 units at a selling price of $10 each, resulting in a gross profit of $2,100. The cost flow assumption used by Nichols.

is LIFO.

Milford Company had 500 units of "Tank" in its inventory at a cost of $4 each. It purchased, for $2,800, 300 more units of "Tank". Milford then sold 400 units at a selling price of $10 each, resulting in a gross profit of $1,600. The cost flow assumption used by Milford

is weighted average.

Dolan Co. received merchandise on consignment. As of March 31, Dolan had recorded the transaction as a purchase and included the goods in inventory. The effect of this on its financial statements for March 31 would be

net income was correct and current assets and current liabilities were overstated.

Green Co. received merchandise on consignment. As of January 31, Green included the goods in inventory, but did not record the transaction. The effect of this on its financial statements for January 31 would be

net income, current assets, and retained earnings were overstated.

Feine Co. accepted delivery of merchandise which it purchased on account. As of December 31, Feine had recorded the transaction, but did not include the merchandise in its inventory. The effect of this on its financial statements for December 31 would be

net income, current assets, and retained earnings were understated.

When using a perpetual inventory system,

no Purchases account is used, a Cost of Goods Sold account is used., and two entries are required to record a sale. (all the above)

When a company uses LIFO for external reporting purposes and FIFO for internal reporting purposes, an Allowance to Reduce Inventory to LIFO account is used. This account should be reported

on the balance sheet in the Current Assets section.

The accountant for the Pryor Sales Company is preparing the income statement for 2017 and the balance sheet at December 31, 2017. Pryor uses the periodic inventory system. The January 1, 2017 merchandise inventory balance will appear

only in the cost of goods sold section of the income statement.

If the beginning inventory for 2017 is overstated, the effects of this error on cost of goods sold for 2017, net income for 2017, and assets at December 31, 2018, respectively, are

overstatement, understatement, no effect.

During 2017 Carne Corporation transferred inventory to Nolan Corporation and agreed to repurchase the merchandise early in 2018. Nolan then used the inventory as collateral to borrow from Norwalk Bank, remitting the proceeds to Carne. In 2018 when Carne repurchased the inventory, Nolan used the proceeds to repay its bank loan. This transaction is known as a(n)

product financing arrangement.

Goods on consignment are

included in the consignor's inventory.

Goods in transit which are shipped f.o.b. shipping point should be

included in the inventory of the buyer.

Goods in transit which are shipped f.o.b. destination should be

included in the inventory of the seller.

Malone Corporation uses the perpetual inventory and the gross method. On March 1, it purchased $80,000 of inventory, terms 2/10, n/30. On March 3, Malone returned goods that cost $8,000. On March 9, Malone paid the supplier. On March 9, Malone should credit

inventory for $1,440.

Elkins Corporation uses the perpetual inventory and the gross method. On March 1, it purchased $50,000 of inventory, terms 2/10, n/30. On March 3, Elkins returned goods that cost $5,000. On March 9, Elkins paid the supplier. On March 9, Elkins should credit

inventory for $900.

The use of a Purchase Discounts account implies that the recorded cost of a purchased inventory item is its

invoice price.