ACCT 201 Ch. 6 quiz

Manufacturing companies usually classify inventory into three categories. True False

True. Manufacturing companies usually classify inventory into three categories: raw materials, work in process and finished goods inventory.

Which of the following statements is correct with respect to inventories? The FIFO method assumes that the costs of the earliest goods acquired are the last to be sold. FIFO seldom coincides with the actual physical flow of inventory. It is generally good business management to sell the most recently acquired goods first. Under FIFO, the ending inventory is based on the latest units purchased.

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

Goods in transit should be included in the inventory of the buyer when the terms of sale are FOB destination. terms of sale are FOB shipping point. public carrier accepts the goods from the seller. goods reach the buyer.

terms of sale are FOB shipping point. Goods in transit should be included in the buyer's inventory when the terms of sale are FOB shipping point.

Tinker Bell Company has the following: Units Unit Cost Inventory, Jan. 1 8,000 $11 Purchase, June 19 13,000 12 Purchase, Nov. 8 5,000 13 If Tinker Bell has 9,000 units on hand on December 31, the cost of the ending inventory under LIFO is $99,000. $113,000. $100,000. $108,000.

$100,000 Under LIFO, ending inventory will consist of 8,000 units from the inventory at Jan. 1 and 1,000 units from the June 19 purchase. Therefore, ending inventory is (8,000 X $11) + (1,000 X $12), or $100,000.

As a result of a thorough physical inventory, Railway Company determined that it had inventory worth $180,000 at December 31. This count did not take into consideration the following facts: Rogers Consignment store currently has goods worth $35,000 on its sales floor that belong to Railway but are being sold on consignment by Rogers. The selling price of these goods is $50,000. Railway purchased $13,000 of goods that were shipped on December 27, FOB destination, that will be received by Railway on January 3. Determine the correct amount of inventory that Railway should report. $230,000 $215,000 $228,000 $193,000

$215,000 The inventory held on consignment by Roger's should be included in Railway Company's inventory balance at cost ($35,000). The correct amount of inventory is $215,000 ($180,000 + $35,000).

Davidson Electronics has the following: Units Unit Cost Inventory, Jan. 1 5,000 $8 Purchase, April 2 15,000 $10 Purchase, Aug. 28 20,000 $12 If Davidson has 7,000 units on hand at December 31, the cost of ending inventory under the average-cost method is $84,000. $70,000. $56,000. $75,250.

$75,250. Under the average-cost method, total cost of goods available for sale needs to be calculated in order to determine average cost per unit. The total cost of goods available is $430,000 = (5,000 X $8) + (15,000 X $10) + (20,000 X $12). The average cost per unit = ($430,000/total units available for sale or 40,000) = $10.75. Therefore, ending inventory is ($10.75 X 7,000) or $75,250.

Euler Company made an inventory count on December 31, 2014. 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 Stockolders' Equity overstated overstated understated overstated understated overstated understated no effect understated overstated no effect overstated

- overstated no effect overstated Since ending inventory is an asset on the balance sheet, total assets would be overstated, and cost of goods sold would be understated on the income statement. Therefore net income would be overstated and stockholders' equity would be overstated.

Which of the following should not be included in the physical inventory of a company? Goods held on consignment from another company. Goods shipped on consignment to another company. Goods in transit from another company shipped FOB shipping point. None of these answer choices are correct.

Goods held on consignment from another company. ex. Goods held on consignment should not be included because another company has title (ownership) to the goods.

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? Cecil Jerry Both Cecil and Jerry Neither Cecil nor Jerry

cecil Ownership remains with Cecil so Cecil includes the goods in his inventory.

Understating ending inventory will overstate cost of goods sold. assets. stockholders' equity. net income.

cost of goods sold Understating ending inventory will overstate cost of goods sold and understate assets, net income, and stockholders' equity.

In a period of rising prices, FIFO will result in lower net income than LIFO. lower cost of goods sold than LIFO. lower income tax expense than LIFO. lower net purchases than LIFO.

lower cost of goods sold than LIFO In a period of rising prices, cost of goods sold will be less under FIFO than LIFO since the company is selling the older, less costly goods.