Financial Accounting Ch. 6
Cecil gives goods on consignment to Jerry who agrees to try to sell them for a 20% commission. At the end of the accounting period, which of the following parties includes the consigned goods in its inventory? A. Cecil. B. Jerry. C. Both Cecil and Jerry. D. neither Cecil nor Jerry.
A
In a period of inflation, which cost flow method produces the highest net income? A. FIFO method. B. LIFO method. C. average-cost method. D. gross profit method.
A
In periods of rising prices, the inventory method which results in the inventory value on the balance sheet that is closest to current cost is the A. FIFO method. B. LIFO method. C. average cost method. D. tax method.
A
The cost flow method that often parallels the actual physical flow of merchandise is the A. FIFO method. B. LIFO method. C. average-cost method. D. gross profit method.
A
The gross profit method can be used for all of the following reasons except A. preparation of annual financial statements. B. estimating inventory losses due to some casualty. C. testing the reasonableness of the physical inventory count. D. preparation of interim financial statements.
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 these.
A
A new average cost is computed each time a purchase is made in the A. average cost method. B. moving-average cost method. C. weighted-average cost method. D. all of these methods.
B
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 A. understated, overstated. B. overstated, understated. C. overstated, overstated. D. understated, understated.
B
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 these.
B
Harold Company overstated its inventory by $15,000 at December 31, 2012. It did not correct the error in 2012 or 2013. As a result, Harold's stockholders' equity was A. overstated at December 31, 2012, and understated at December 31, 2013. B. overstated at December 31, 2012, and properly stated at December 31, 2013. C. understated at December 31, 2012, and understated at December 31, 2013. D. overstated at December 31, 2012, and overstated at December 31, 2013.
B
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.
B
In a period of rising prices, FIFO will have A. lower net income than LIFO. B. lower cost of goods sold than LIFO. C. lower income tax expense than LIFO. D. lower net purchases than LIFO.
B
Inventory costing methods place primary reliance on assumptions about the flow of A. goods. B. costs. C. resale prices. D. values.
B
Inventory items on an assembly line in various stages of production are classified as A. finished goods. B. work in process. C. raw materials. D. merchandise inventory.
B
Overstating beginning inventory will overstate A. assets. B. cost of goods sold. C. net income. D. stockholders' equity.
B
The first costs assigned to ending inventory are the costs of the beginning inventory under the A. FIFO method. B. LIFO method. C. average-cost method. D. gross profit method.
B
Understating beginning inventory will understate A. assets. B. cost of goods sold. C. net income. D. owner's equity.
B
Understating ending inventory will overstate A. assets. B. cost of goods sold. C. net income. D. Stockholders' equity.
B
All of the following would be classified as inventory except A. inventory. B. raw materials. C. supplies. D. work in process.
C
Companies using a periodic inventory system take a physical inventory for each of the following purposes except to determine the A. cost of goods sold for the period. B. inventory on hand at the balance sheet date. C. amount of inventory lost due to shoplifting or employee theft D. all of these are correct.
C
Euler Company made an inventory count on December 31, 2012. During the count, one of the clerks made the error of counting an inventory item twice. For the balance sheet at December 31, the effects of this error are Assets/Liabilities/Owner's Equity a) Overstated/understated/overstated b) Understated/no effect/understated c) Overstated/no effect/Overstated d) Overstated/overstated/Understated A. Row A B. Row B C. Row C D. Row D
C
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 costing.
C
Inventory turnover is calculated by dividing cost of goods sold by A. beginning inventory. B. ending inventory. C. average inventory. D. 365 days.
C
The inventory turnover ratio is computed by dividing cost of goods sold by A. beginning inventory. B. ending inventory. C. average inventory. D. 365 days.
C
The lower of cost or market basis of valuing inventories is an example of A. comparability. B. the cost principle. C. conservatism. D. consistency.
C
Under the LCM approach market value is defined as A. FIFO cost. B. LIFO cost. C. current replacement cost. D. selling price.
C
Under the LCM approach, the market value is defined as A. FIFO cost. B. LIFO cost. C. current replacement cost. D. selling price.
C
When the current replacement cost of inventory is less than its cost, it is written down to A. FIFO value. B. LIFO value. C. market value. D. average-cost value.
C
When the terms of sale are FOB destination, ownership of the goods remains with the seller until the goods A. are accepted by the public carrier. B. are shipped. C. reach the buyer. D. are paid for by the buyer.
C
Which of the following statements is correct with respect to inventories? A. The FIFO method assumes that the costs of the earliest goods acquired are the last to be sold. B. Under the FIFO method, cost of goods sold is based on the latest units purchased. C. Under FIFO, the ending inventory is based on the latest units purchased. D. FIFO seldom coincides with the actual physical flow of inventory.
C
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
Goods in transit should be included in the inventory of the buyer when the A. public carrier accepts the goods from the seller. B. goods reach the buyer. C. terms of sale are FOB destination. D. terms of sale are FOB shipping point.
D
In a perpetual inventory system, A. LIFO cost of goods sold will be the same as in a periodic inventory system. B. moving-average costs are based entirely on unit cost averages. C. a new average is computed under the moving-average cost method after each sale. D. FIFO cost of goods sold will be the same as in a periodic inventory system.
D
Which of these would cause the inventory turnover ratio 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
An error in the ending inventory of the current period will have no effect on net income of the next accounting period. A. True B. False
FALSE
Some argue that the use of FIFO in a period of inflation enables a company to avoid reporting paper (phantom) profit as economic gain. A. True B. False
FALSE
There is an accounting requirement that the cost flow assumption be consistent with the physical movement of the goods. A. True B. False
FALSE
Under LIFO, companies obtain the cost of the ending inventory by taking the cost of the most recently purchased goods and working backward until all the units have been costed. A. True B. False
FALSE
When the terms of sale are FOB shipping point, ownership of the goods remains with the seller until the goods reach the buyer. A. True B. False
FALSE
Days in inventory measures the average number of days inventory is held. A. True B. False
TRUE
Manufacturing companies usually classify inventory into three categories. A. True B. False
TRUE
The FIFO method assumes that the earliest goods purchased are the first to be sold. A. True B. False
TRUE
The results under FIFO in a perpetual system are the same as in a periodic system. A. True B. False
TRUE
Under the lower-of-cost-or-market basis, market is defined as current replacement cost. A. True B. False
TRUE
