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)