Accounting Test 2 (Chapter 6)

Which one of the following statements is true?

A manufacturing company will normally have raw materials, work in process, and finished goods as inventory account classifications.

When is a physical inventory usually taken?

At the end of the company's fiscal year

What accounting concept is employed when using the lower-of-cost-or-market valuation?

Conservatism

Which statement is true in a perpetual inventory system?

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

Two companies report the same cost of goods available for sale but each employs a different inventory costing method. If the price of goods has increased during the period, then the company using

FIFO will have the highest ending inventory

Ownership passes to the buyer when purchased goods are received from a public carrier if the goods are shipped

FOB destination

Which of the following is true of the FIFO inventory method?

It assumes that the cost of the earliest units purchased are the first to be allocated to cost of goods sold.

If there is an error in the ending inventory affecting the net income of the current period, what will happen to the net income of the next accounting period?

It will have the reverse effect on the net income during the next accounting period

Which one of the following methods is allowed under GAAP but not under IFRS?

LIFO

Ace Company is a retailer operating in an industry that experiences inflation (rising prices). Ace wants the most realistic cost of goods sold. Which inventory costing method should Ace consider using?

LIFO because cost of goods sold represents the latest costs.

With the assumption of costs and prices generally rising, which of the following is correct?

LIFO provides the closest valuation of cost of goods sold to replacement cost of inventory sold.

Which is true if the ending inventory is overstated?

Net income will be overstated and the stockholders' equity will be overstated.

Fran Company's ending inventory is understated by $4,000. What are the effects of this error on the current year's cost of goods sold and net income, respectively?

Overstated and understated

Two companies report the same cost of goods available for sale, but each employs a different inventory costing method. If the price of goods has increased during the period, which statement is true? The company using

The company using FIFO will have the highest ending inventory.

When a perpetual inventory system is used, which of the following is a purpose of taking a physical inventory?

To check the accuracy of the perpetual inventory records

Which of the following statements is correct with respect to inventories?

Under FIFO, the ending inventory is based on the latest units purchased.

Inventory turnover ratio is calculated by dividing cost of goods sold by

average inventory

An assumption about cost flow is necessary

because prices usually change, and tracking which units have been sold is difficult.

Cecil gives goods on consignment to Jerry who agrees to try to sell them for a 25% commission. At the end of the accounting period, which of the following parties includes in its inventory the consigned goods?

cecil

The specific identification method of costing inventories is used when the

company sells a limited quantity of high-unit cost items.

Which of the following is not an inventory account?

equipment

Which of the following is not an acceptable inventory costing method?

last in last out

In periods of rising prices, what will LIFO produce?

lower income than FIFO

Goods held on consignment are

never owned by the consignee.

The accounting principle that requires that the cost flow assumption be consistent with the physical movement of goods is

nonexistent; that is, there is no such accounting requirement.

If goods in transit are shipped FOB destination

the seller has legal title to the goods until they are delivered.