Chapter 6 Questions*

A company just starting business made the following four inventory purchases in June: June 1 150 units @ $5.20/unit = $ 780 June 10 200 units @ $5.85/unit = 1,170 June 15 200 units @ $6.30/unit = 1,260 June 28 150 units @ $6.60/unit = 990 A physical count of merchandise inventory on June 30 reveals that there are 200 units on hand. Using the FIFO inventory method, the amount allocated to cost of goods sold for June is A. $2,895 B. $2,545 C. $3,128 D. $1,305

A. $2,895

As a result of a physical inventory, Horace Company determined that it had inventory worth $320,000 at December 31, 2015. This count did not take into consideration the following facts: Bretton Consignment currently has goods worth $47,000 on its sales floor that belong to Horace but are being sold on consignment by Bretton. The selling price of these goods is $75,000. Horace purchased $22,000 of goods that were shipped on December 27, FOB Destination, that will be received by Horace on January 3. Determine the correct amount of inventory that Horace should report. A. $367,000 B. $387,000 C. $320,000 D. $340,000

A. $367,000

A company just starting business made the following four inventory purchases in June: Total Cost June 1.............150 units........................... $ 390 June 10...........200 units............................ 585 June 15...........200 units........................... 630 June 28...........150 units........................... 510 = $2115 A physical count of merchandise inventory on June 30 reveals that there are 250 units on hand. Using the average-cost method, the amount allocated to the ending inventory on June 30 is (round to the nearest dollar) A. $755 B. $825 C. $1360 D. $683

A. $755

Beginning inventory plus net cost of purchases equals A. Cost of Goods Available for Sale B. Cost of Goods Sold C. Freight In D. Ending Inventory

A. Cost of Goods Available for Sale

When using inventory cost flow assumptions such as FIFO, LIFO and Average Cost, the cost of goods available for sale is allocated between A. ending inventory and cost of goods sold B. beginning inventory and ending inventory C. beginning inventory and cost of goods purchased. D. beginning inventory and cost of goods on hand

A. ending inventory and cost of goods sold

A company just starting business made the following four inventory purchases in June: June 1 150 units @ $5.20/unit = $ 780 June 10 200 units @ $5.85/unit = 1,170 June 15 200 units @ $6.30/unit = 1,260 June 28 150 units @ $6.60/unit = 990 A physical count of merchandise inventory on June 30 reveals that there are 200 units on hand. Using the LIFO inventory method, the value of the ending inventory on June 30 (rounded to the nearest dollar) is A. $1,305 B. $1,073 C. $2,895 D. $3,128

B. $1,073

A company just starting business made the following four inventory purchases in June: Total Cost June 1.............150 units........................... $ 390 June 10...........200 units............................ 585 June 15...........200 units........................... 630 June 28...........150 units........................... 510 $2115 A physical count of merchandise inventory on June 30 reveals that there are 250 units on hand. Using FIFO, the amount allocated to cost of goods sold for June is (round to the nearest dollar) A. $683 B. $1290 C. $1432 D. $825

B. $1290

Cost of Goods Sold is computed from the following equation: A. Sales - Cost of Goods Purchased + Beginning Inventory - Ending Inventory B. Beginning Inventory + Cost of Goods Purchased - Ending Inventory C. Sales + Gross Profit - Ending Inventory + Beginning Inventory D. Beginning Inventory - Cost of Goods Purchased + Ending Inventory

B. Beginning Inventory + Cost of Goods Purchased - Ending Inventory

The LIFO inventory method assumes that the cost of the latest units purchased are A. the last to be allocated to cost of goods sold B. the first to be allocated to cost of goods sold C. not allocated to cost of goods sold or ending inventory D. the first to be allocated to ending inventory

B. the first to be allocated to cost of goods sold

A company just starting business made the following four inventory purchases in June: June 1 150 units @ $5.20/unit = $ 780 June 10 200 units @ $5.85/unit = 1,170 June 15 200 units @ $6.30/unit = 1,260 June 28 150 units @ $6.60/unit = 990 A physical count of merchandise inventory on June 30 reveals that there are 200 units on hand. Using the average cost method, the amount allocated to the ending inventory on June 30 is A. $3,000 B. $4,200 C. $1,200 D. $1,150

C. $1,200

Allister Company developed the following information about its inventories in applying the lower-of-cost-or-market (LCM) basis in valuing inventories: Product Cost Market A $112,000 $120,000 B 80,000 76,000 C 155,000 162,000 If Allister applies the LCM basis, the value of the inventory reported on the balance sheet would be: A. $358,000 B. $362,000 C. $343,000 D. $347,000

C. $343,000

A company just starting in business purchased three merchandise inventory items at the following prices. First purchase $64; second purchase $76; third purchase $68. If the company sold two units for a total of $200 and used FIFO costing, the gross profit for the period would be A. $56 B. $62 C. $60 D. $68

C. $60

A company just starting business made the following four inventory purchases in June: Total Cost June 1.............150 units........................... $ 390 June 10...........200 units............................ 585 June 15...........200 units........................... 630 June 28...........150 units........................... 510 $2115 A physical count of merchandise inventory on June 30 reveals that there are 250 units on hand. Using the average-cost method, the amount allocated to the ending inventory on June 30 is (round to the nearest dollar) A. $683 B. $1360 C. $825 D. $755

D. $755

The primary basis of accounting for inventories is market value. (t/f)

False

Under the terms FOB destination, ownership of the goods passes to the buyer when the public carrier accepts the goods from the seller. (t/f)

False; FOB Destination = ownership of goods remains with the seller until the goods actually reach the buyer

In periods of rising prices, the FIFO method reports the highest net income, LIFO the lowest, and average cost falls in the middle. (t/f)

True

The FIFO inventory method results in an ending inventory valued at the most recent costs. (t/f)

True

The inventory method of specific identification is appropriate for costly, easily distinguishable items such as pianos, automobiles, fur coats, and antiques. (t/f)

True

Freight terms of FOB Destination means that the seller pays the freight costs. (t/f)

True; FOB Destination = ownership of goods remains with the seller until the goods actually reach the buyer