303 5,6,7

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.

Which of the following costs should not be included on the statement of financial position as part of the cost of inventory?

Abnormal freight.

Computers For You is a retailer specializing in selling computers and related equipment. During 2011, Computers For You sells $200,000 of merchandise to Sandcastles, Inc. Computers For You incurs $24,000 of freight costs associated with these sales. Which of the following is true regarding how this $24,000 is treated on the financial statements

Computers For You will report the $24,000 as part of operating expenses on the income statement

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

Cost of goods sold is recorded with each sale.

Tang, Inc. sells collectible jewelry on consignment from various manufacturers. Additionally, Tang sells its own line of specialty jewelry manufactured in-house. On December 31, 2011, during Tang, Inc 's annual inventory count, an inexperienced new staff member included in Tang's ending inventory $350,000 worth of inventory held on consignment from Metcalf Associates. Which of the following is correct regarding the impact of this error on Tang's income statement and statement of financial position at December 31, 2011

Retained earnings is overstated by $350,000

T/F: Freight costs incurred by the seller to ship merchandise to the purchaser are accounted for by the seller as part of inventory on the statement of financial position

False

T/F: If a supplier ships goods f.o.b. destination, title passes to the buyer when the supplier delivers the goods to the common carrier

False

T/F: Interest costs incurred to manufacture large quantities of inventory that are produced routinely should be capitalized

False

T/F: LIFO liquidation often distorts net income, but usually leads to substantial tax savings.

False

T/F: Many companies use LIFO for both tax and internal reporting purposes.

False

T/F: Tang, Inc. sells collectible jewelry on consignment from various manufacturers and should include this consigned inventory on its statement of financial position

False

T/F: The International Accounting Standards Board requires the specific identification method when unit price is low, inventory turnover is high, and inventory quantities are large

False

T/F: The cost flow assumption adopted must be consistent with the physical movement of the goods.

False

T/F: The dollar-value LIFO method measures any increases and decreases in a pool in terms of total dollar value and physical quantity of the goods

False

T/F: When using a perpetual inventory system, freight charges on goods purchased are debited to Freight-In.

False

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

Finished goods.

Which of the following is a period cost?

Selling costs.

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.

Computers For You is a retailer specializing in selling computers and related equipment. Which of the following would not be reported in the merchandise inventory account reported on the statement of financial position for Computers For You at December 31, 2011?

Shelving materials purchased during December 2011

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

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.

What is a LIFO reserve?

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

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

On June 15, 2010, Wynne Corporation accepted delivery of merchandise which it purchased 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 statement of financial position for June 30, 2010 would be

none of these.

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 2010 and the statement of financial position at December 31, 2010. Pryor uses the periodic inventory system. The January 1, 2010 merchandise inventory balance will appear

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

Costs which are inventoriable include all of the following except

selling costs of a sales department.

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

the cost of goods held on consignment from other companies.

Homes 4 You builds single-family homes throughout the United States and Europe. The International Accounting Standards Board (IASB) Requires Homes 4 You to use which of the following cost flow assumptions for its inventory?

Specific identification.

What happens when inventory in base year dollars decreases?

LIFO layer is liquidated.

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.

T/F: Both merchandising and manufacturing companies normally have multiple inventory accounts.

False

T/F: Freight charges on goods purchased are considered a period cost and therefore are not part of the cost of the inventory.

False

T/F: The LIFO perpetual method results in the same ending inventory and cost of goods sold amounts as under the LIFO periodic method.

False

T/F: Use of LIFO provides a tax benefit in an industry where unit costs tend to decrease as production increases.

False

When using a perpetual inventory system,

all of these.

Why are inventories included in the computation of net income?

To determine cost of goods sold.

Jarvis, Inc. manufactures cruise ships for sale. Each ship costs approximately $25,000,000 to build and takes 3 years to fully construct. During the time it takes to construct one cruise ship, Jarvis incurs $2,400,000 in interest cost related to the construction. The interest cost is incurred evenly throughout the construction period. During the first year of construction, Jarvis builds a shell that can be customized for any purchaser according to specifications; construction during the final 2 years is all based on client specification. The International Accounting Standards Board requires that Jarvis account for this interest cost as

$2,400,000 is capitalized to the cruise ship.

How might a company obtain a price index in order to apply dollar-value LIFO?

All of the above.

Which inventory costing method most closely approximates current cost for ending inventory

FIFO

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

When inventory is misstated, its presentation lacks?

Faithful representation.

T/F: A disadvantage of LIFO is that it does not match more recent costs against current revenues as well as FIFO.

False

Oats Company offers a trade discount to its customers as a reward for large orders. According to the International Accounting Standards Board (IASB) how should the customers of Oats Company account for these trade discounts?

As a reduction in the cost of inventory.

T/F: A trade discount that is granted as an incentive for a first-time customer or as a reward for large order should be accounted for by the purchaser as revenue

False

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

Down

Which of the following accounts is not reported in inventory?

Equipment

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 declining prices, the inventory method which tends to give the highest reported cost of goods sold is

FIFO

In a period of falling prices which inventory method generally provides the lowest reported inventory?

FIFO

In a period of falling prices, which inventory method generally provides the lowest 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 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

Where should raw materials be classified on the statement of financial position?

Inventory

Mineral Makers (MM) Company keeps its inventory records using a perpetual system. At December 31, 2011, the unadjusted balance in the inventory account is $64,000. Through a physical count on December 31, 2011, MM determines that its actual merchandise inventory at year-end is $62,500. Which of the following is true regarding the statement of financial position and the income statement of MM at December 31, 2011?

Inventory is decreased and cost of goods sold is increased by $1,500

The International Accounting Standards Board requires the specific identification method in certain circumstances. Which of the following is likely to be a circumstance where the specific identification criteria can be met?

Inventory turnover is low.

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

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

Oats and Honey Company produces healthy snacks for sale throughout the United States and Europe. The International Accounting Standards Board (IASB) prohibits Oats and Honey from using which of the following cost flow assumptions for its inventory?

LIFO (last-in, first-out).

Which of the following is correct?

Manufacturing overhead costs are product costs.

Culver Company purchases the majority of its inventory from three primary suppliers for re-sale to customers around the world. Culver Company's statement of financial position will include

Merchandise inventory.

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

Net method and Gross method

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 is true regarding the use of LIFO for inventory valuation?

None of these.

Which of the following items should be included in a company's inventory at the statement of financial position date

None of these.

Where should goods in transit that were recently purchased f.o.b. destination be included on the statement of financial position?

Not on the statement of financial position

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 average cost method?

Prices decreased

Companies must allocate the cost of all the goods available for sale (or use) between

The income statement and the statement of financial position

How is a significant amount of consignment inventory reported in the statement of financial position?

The inventory is reported separately on the consignor's statement of financial position

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

The inventory will be overstated.

Amazon.com (USA) and other e-tailers account for certain selling costs--fulfillment costs related to inventory shipping and warehousing--as part of administrative expenses, instead of as cost of goods sold. Which of the following is incorrect regarding this treatment?

The practice does not affect gross margins.

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

T/F: A manufacturing concern would report the cost of units only partially processed as inventory in the statement of financial position.

True

T/F: Abnormal freight costs are not included on the statement of financial position as part of the cost of inventory.

True

T/F: Companies must allocate the cost of all the goods available for sale (or use) between the income statement and the statement of financial position

True

T/F: Goods in transit, shipped FOB shipping point, are included in the buyer's statement of financial position at the time of delivery to the common carrier

True

T/F: IFRS requires manufacturers to disclose their inventory components on the statement of financial position or in related notes

True

T/F: If both purchases and ending inventory are overstated by the same amount, net income is not affected

True

T/F: In all cases when FIFO is used, the cost of goods sold would be the same whether a perpetual or periodic system is used.

True

T/F: LIFO is inappropriate where unit costs tend to decrease as production increases.

True

T/F: LIFO liquidations can occur frequently when using a specific-goods approach.

True

T/F: Purchase Discounts Lost is a financial expense and is reported in the "other income and expense" section of the income statement

True

T/F: The International Accounting Standards Board (IASB) requires the specific identification method of inventory costing where individual items of inventory can be identified and costed

True

T/F: The LIFO conformity rule requires that if a company uses LIFO for tax purposes, it must also use LIFO for financial accounting purposes.

True

T/F: The change in the LIFO Reserve from one period to the next is recorded as an adjustment to Cost of Goods Sold.

True

T/F: Under IFRS, agricultural inventories, such as wheat, oranges, etc., are recorded at their fair value less estimated selling costs at the point of harvest

True

During 2010, 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 a. Which of the following recording procedures would result in the highest cost of goods sold for 2010? 1. Recording purchases at gross amounts 2. Recording purchases at net amounts, with the amount of discounts not taken shown under "other income and expense" in the income statement b. Which of the following recording procedures would result in the highest net income for 2010?

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

The failure to record a purchase of merchandise on account even though the goods are properly included in the physical inventory results in

an understatement of liabilities and an overstatement of equity.

During 2010 Carne Corporation transferred inventory to Nolan Corporation and agreed to repurchase the merchandise early in 2011. Nolan then used the inventory as collateral to borrow from Norwalk Bank, remitting the proceeds to Carne. In 2011 when Carne repurchased the inventory, Nolan used the proceeds to repay its bank loan a. This transaction is known as a(n) b. On whose books should the cost of the inventory appear at the December 31, 2010 statement of financial position date?

a. product financing arrangement. b. Carne Corporation

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

first-in, first-out.

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.

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

invoice price.

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.

If the beginning inventory for 2010 is overstated, the effects of this error on cost of goods sold for 2010, net income for 2010, and assets at December 31, 2011, respectively, are

overstatement, understatement, no effect.