ACG Chapter 6

Which situation requires using the lower-of-cost-or-market basis to valuing inventory instead of the cost basis? -Paying for inventory within the discount period -An increase in the price charged to customers -A decline in the current replacement cost of the inventory -A decrease in the price charged to customers -An increase in the current replacement cost of the inventory

-A decline in the current replacement cost of the inventory

In a period of declining inventory costs, which inventory flow assumption will result in the lowest net income? -Accelerated method -LIFO -FIFO -Average cost method -Net income is not affected by inventory method cost flow assumptions.

-FIFO

Which inventory method usually results in ending inventory being the closest to the current cost of replacing inventory? -LIFO method -All of these inventory methods result in the ending inventory value being reported on financial reports -Average-cost method -FIFO method -Specific identification method

-FIFO method

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

-Goods held on consignment from another company

Which of the following should be included in the physical inventory of a company? -Goods held on consignment from another company -None of these choices is correct. -All of the answer choices are correct. -Goods in transit from another company shipped FOB destination -Goods shipped on consignment to another company

-Goods shipped on consignment to another company

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? -Cannot be determined from the information given. -It will have no effect on the net income of the next accounting period. -If net income was overstated in the current period, it will be overstated in the next period. -It will have the reverse effect on the net income during the next accounting period.

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

Which of the following would most likely employ the specific identification method of inventory costing? -Grocery store -Hardware store -All of these are equally likely to use specific identification -Gasoline station -Jewelry store

-Jewelry store

In a period of declining inventory costs, which inventory flow assumption will result in the highest net income? -Accelerated method -FIFO -Net income is not affected by inventory method cost flow assumptions. -Average cost method -LIFO

-LIFO

In periods of rising prices, what will LIFO produce? -Higher retained earnings than FIFO -Lower total assets than FIFO -Higher net income than FIFO -All of these -Lower cost of goods sold

-Lower total assets than FIFO

Which of the following is an inventory account? -Cash -Accounts receivable -Raw materials -Equipment -All of these are inventory accounts

-Raw materials

All of the following statements are true regarding the LIFO reserve except: -Companies using LIFO are required to report the LIFO reserve. -To adjust LIFO inventory to FIFO inventory requires adding the LIFO reserve from LIFO inventory. -The LIFO reserve normally decreases the longer a company uses LIFO. -Current ratios and the inventory turnover can be significantly affected if a company has a large LIFO reserves. -None of these

-The LIFO reserve normally decreases the longer a company uses LIFO.

A company uses the periodic inventory method. An overstatement of the beginning inventory results in -no effect on the period's net income. -an understatement of net income. -an overstatement of taxes. -an overstatement of net income. -None of these

-an understatement of net income.

When applying the lower of cost or market rule to inventory valuation, market generally means -original cost. -operating margin. -gross margin. -amount owed. -current replacement cost.

-current replacement cost.

When terms are FOB shipping point -ownership of the goods remains with the seller until the goods are sold by the buyer. -ownership of the goods transfer to the seller when the buyer pays for them. -ownership of the goods passes to the buyer when the public carrier accepts the goods from the seller. -ownership of the goods remains with the seller until the goods reach the buyer. -ownership of the goods transfer to the seller at the end of the year.

-ownership of the goods passes to the buyer when the public carrier accepts the goods from the seller.

A low number of days in inventory may indicate -the company has a relatively large amount of funds tied up in inventory. -there is a relatively high chance of inventory becoming obsolete before it can be sold. -All of these -there is a relatively high chance that sales opportunities may be lost because of inventory shortages. -None of these

-there is a relatively high chance that sales opportunities may be lost because of inventory shortages.

Manufactured inventory that has begun the production process but is not yet completed is called -merchandise inventory. -finished goods. -all of these -work in process. -raw materials.

-work in process.

Beginning Inventory equation

Beginning Inventory+ Purchases- Ending Inventory = COGS

COGS

GP=Net sales-COGS

lower of cost of market

LCM - take the lower of two number listed when adding them all up

Gross Margin/ Gross Profit =

Net sales (units sold times the cost) - COGS

Inventory Turnover Ratio

cost of goods sold/average inventory

Inventory costing methods place primary reliance on assumptions about the flow of -values. -margins. -costs. -goods. -resale prices.

costs