ACC 303 CHAPTER 10

As a result of a thorough physical inventory, Railway Company determined that it had inventory worth $180,000 at December 31, 2017. This count did not take into consideration the following transactions:• 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. $193,000 $230,000 $215,000 $228,000

$215,000 180,000 + 35,000 = 215,000

Cost of goods purchased is $540,000, ending inventory is $20,000, and cost of goods sold is $560,000. How much is beginning inventory? $0 $40,000 $20,000 $20,000

$40,000 Beg Invent : 20,000 + 560,000 - 540,000

On May 1, 2022, Whispering Winds Corp. had beginning inventory consisting of 280 units with a unit cost of $6. During May, the company purchased inventory as follows:▪ 550 units at $6 830 units at $7 The company sold 1380 units during the month for $11 per unit. Whispering uses the average cost method. The average cost per unit for May is $6.6. $6.5. $6.0. $7.0.

$6.5.

Indicate whether each item should be included or excluded from the inventory taking. A. 900 units of inventory shipped on consignment by Peete to another company. B. 3,000 units of inventory in transit from a supplier shipped FOB destination. C. 1,200 units of inventory sold and in transit, shipped FOB shipping point. D. 500 units of inventory held on consignment from another company.

A. Include B. Excluded C.Excluded D. Excluded

When is a physical inventory usually taken? When goods are not being sold or received. At the end of the company's fiscal year. When a company has its greatest amount of inventory and when goods are not being sold or received. When the company has its greatest amount of inventory.

At the end of the company's fiscal year.

In its first month of operations, Wildhorse Co. made three purchases of merchandise in the following sequence: (1) 200 units at $5, (2) 300 units at $7, and (3) 400 units at $8. What is the Aver Unit Cost Compute the cost of the ending inventory under the average-cost method, assuming there are 100 units on hand at the end of the period?

Average Cost = 7 Cost of ending inventory = 700

What accounting concept is employed by valuing the inventory at the Lower-of-cost-or-net realizable value? Full disclosure Expense recognition Conservatism Revenue recognition

Conservatism

Goods held on consignment for Steele Corp. since December 12. Include in Inventory Do not include in Inventory

Do not include in Inventory

Goods purchased FOB destination from a supplier on January 25 that are still in transit. Include in Inventory Do not include in Inventory

Do not include in Inventory

Goods shipped to a customer, FOB shipping point, on January 29 that are still in transit. Include in Inventory Do not include in Inventory

Do not include in Inventory

Office supplies on hand at January 31. Include in Inventory Do not include in Inventory

Do not include in Inventory

Blue Spruce Corp. took a physical inventory on December 31 and determined that goods costing $229,500 were on hand. Not included in the physical count were $30,000 of goods purchased from Blossom Company, FOB, shipping point, and $25,500 of goods sold to Splish Brothers Inc. for $33,000, FOB destination. Both the Blossom purchase and the Splish Brothers sale were in transit at year-end. What amount should Blue Spruce report as its December 31 inventory?

Ending Inventory = 285000 Physical invent (229,500) + Good purchased from Blossom (30,000) + Goods sold to splash brothers (25,500) = 285000

A furniture factory's employees work overtime to finish an order that is sold on January 31. The office sends a statement to the customer in early February and payment is received by mid-February. The overtime wages should be expensed in: a. January. b. February. c. the period when the workers receive their checks. d. either January or February depending on when the pay period ends.

January

Which of the following would most likely employ the specific identification method of inventory costing? Grocery store Jewelry store Hardware store Gasoline station

Jewelry store

A physical count of the inventory on August 31 reveals that there are 500 units on hand. What inventory method produces the lowest gross profit for August? Average cost method Not determinable FIFO method LIFO method

LIFO method

In periods of rising prices, what will LIFO produce? Higher net income than FIFO Lower net income than FIFO The same net income as FIFO Higher net income than average costing

Lower net income than FIFO

Kwantum Corporation has total assets of $3,600,000, common stock of $936,000, and retained earnings of $570,000 at December 31, 2022. What are the creditors' claims on their assets at that date? a. $3,234,000 b. $1,506,000 c. $2,094,000 d. $3,966,000

Solution: $3,600,000 - $936,000 - $570,000 = $2,094,000 (Assets - Com.st. - Ret.earn.) c. $2,094,000

Which of the following is not a legitimate business reason for taking a physical inventory? To determine if any inventory has been lost from waste, shoplifting, or employee theft To verify the profitability of individual inventory items To check the accuracy of the perpetual inventory records To determine cost of goods sold

To verify the profitability of individual inventory items

Given the data below for a firm in its first year of operation, determine net income under the accrual basis of accounting. Revenue recognized $19,000 Accounts receivable 3,000 Expenses incurred 7,250 Accounts payable (related to expenses) 750 Supplies purchased with cash 1,800 a. $11,750 b. $14,000 c. $9,500 d. $12,200

a. $11,750 19,000 - 7,250

Otto's Tune-Up Shop follows the revenue recognition principle. Otto services a car on August 31. The customer picks up the vehicle on September 1 and mails the payment to Otto on September 5. Otto receives the check in the mail on September 6. When should Otto show that the revenue was recognized? a. August 31 b. August 1 c. September 5 d. September 6

a. August 31 Service was done during that time

The cost flow method that often parallels the actual physical flow of merchandise is the: a. F I F O method. b. L I F O method. c. average cost method. d. gross profit method.

a. F I F O method.

Which of the following should not be included in the physical inventory of a company? a. Goods held on consignment from another company. b. Goods in transit from another company shipped FOB shipping point. c. Goods shipped on consignment to another company. d. All of these answer choices should be included.

a. Goods held on consignment from another company.

Which statement is incorrect? a. Periodic inventory systems provide better control over inventories than perpetual inventory systems. b. Computers and electronic scanners allow more companies to use a perpetual inventory system. c. Freight-in is debited to Inventory when a perpetual inventory system is used. d. Regardless of the inventory system that is used, companies should take a physical inventory count.

a. Periodic inventory systems provide better control over inventories than perpetual inventory systems.

A paid dividend a. decreases assets and stockholders' equity. b. increases assets and stockholders' equity. c. increases assets and decreases stockholders' equity. d. decreases assets and increases stockholders' equity.

a. decreases assets and stockholders' equity.

The term "FOB" denotes a. free on board. b. freight on board. c. free only (to) buyer. d. freight charge on buyer.

a. free on board.

Periodic inventory systems are used most commonly by companies that sell a. low-priced, high-volume merchandise. b. high-priced, high-volume merchandise. c. high-priced, low-volume merchandise. d. high-priced, low and high-volume merchandise.

a. low-priced, high-volume merchandise.

Receiving payment of a portion of an accounts receivable will a. not affect total assets. b. increase liabilities. c. increase stockholders' equity. d. decrease net income.

a. not affect total assets.

Expenses are recognized when: a. they contribute to the production of revenue. b. they are paid. c. they are billed by the supplier. d. the invoice is received.

a. they contribute to the production of revenue.

When collection is made on Accounts Receivable, a. total assets will remain the same. b. stockholders equity will increase. c. total assets will increase. d. total assets will decrease.

a. total assets will remain the same.

Tidwell Company's goods in transit at December 31 include sales made (1) FOB destination (2) FOB shipping point and purchases made (3) FOB destination (4) FOB shipping point. Which items should be included in Tidwell's inventory at December 31? a. (2) and (3) b. (1) and (4) c. (1) and (3) d. (2) and (4)

b. (1) and (4)

In a period of inflation, the cost flow method that results in the lowest income taxes is the: a. F I F O method. b. L I F O method. c. average cost method. d. gross profit method.

b. L I F O method.

The cost of goods sold is determined and recorded each time a sale occurs in: a. periodic inventory system only. b. a perpetual inventory system only. c. both a periodic and perpetual inventory system. d. neither a periodic nor perpetual inventory system.

b. a perpetual inventory system only.

Understating ending inventory will overstate: a. assets. b. cost of goods sold. c. net income. d. owner's equity.

b. cost of goods sold.

Incurring an expense a. decreases assets and liabilities. b. decreases stockholders' equity. c. leaves stockholders' equity unchanged. d. is basically the same as a liability.

b. decreases stockholders' equity.

The factor which determines whether or not goods should be included in a physical count of inventory is a. physical possession. b. legal title. c. management's judgment. d. whether or not the purchase price has been paid.

b. legal title.

Management usually wants ________ financial statements while the IRS requires all businesses to file _________ tax returns. a. annual, annual b. monthly, annual c. quarterly, monthly d. monthly, monthly

b. monthly, annual

Buildings are classified on the balance sheet as a. a current asset. b. property, plant, and equipment. c. an intangible asset. d. a long-term investment.

b. property, plant, and equipment.

Gross profit equals the difference between a. net income and operating expenses. b. sales revenue and cost of goods sold. c. sales revenue and operating expenses. d. sales revenue and cost of goods sold plus operating expenses.

b. sales revenue and cost of goods sold.

When is a physical inventory usually taken? a. When goods are not being sold or received. b. When the company has its greatest amount of inventory. c. At the end of the company's fiscal year. d. When the company has its greatest amount of inventory and at the end of the company's fiscal year.

c. At the end of the company's fiscal year.

Which of the following transactions has no effect on retained earnings? a. Incurred expense b. Paid dividends c. Purchased land d. Earned revenue

c. Purchased land

Which of the following would not be an application of the revenue recognition or expense recognition principle? a. Recording accrued salaries and wages expense. b. Recording accrued interest revenue. c. Recording the collection of an advance customer payment as revenue. d. Recording prepaid expense adjustments.

c. Recording the collection of an advance customer payment as revenue.

If services are rendered on account, then a. assets will decrease. b. liabilities will increase. c. stockholders' equity will increase. d. liabilities will decrease.

c. stockholders' equity will increase.

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

costs.

At December 31, 2022, Mohling Company's inventory records indicated a balance of $632,000. Upon further investigation it was determined that this amount included the following: · $112,000 in inventory purchases made by Mohling shipped from the seller 12/27/22 terms FOB destination, but not due to be received until January 2 · $74,000 in goods sold by Mohling with terms FOB destination on December 27. The goods are not expected to reach their destination until January 6 · $6,000 of goods received on consignment from Dollywood Company What is Mohling's correct ending inventory balance at December 31, 2022? a. $520,000 b. $626,000 c. $440,000 d. $514,000

d. $514,000 $632,000 - $112,000 - $6,000 = $514,000

Which of the following is generally not classified as a current liability? a. Salaries and Wages Payable b. Accounts Payable c. Taxes Payable d. Bonds Payable

d. Bonds Payable

In a perpetual inventory system, a return of defective merchandise by a purchaser is recorded by crediting: a. Purchases b. Purchase Returns c. Purchase Allowance d. Inventory

d. Inventory

A company spends $20 million dollars for an office building. Over what period should the cost be written off? a. When the $20 million is expended in cash. b. All in the first year. c. After $20 million in revenue is earned. d. None of these answer choices are correct.

d. None of these answer choices are correct.

It is not true that current assets are resources that are expected to be a. realized in cash within one year. b. sold within one year. c. consumed within one year. d. acquired within one year.

d. acquired within one year.

The multiple-step income statement for a merchandiser shows each of the following features except: a. gross profit. b. cost of goods sold. c. a sales revenue section. d. investing activities section.

d. investing activities section.

Goods in transit should be included in the inventory of the buyer when the: a. public carrier accepts the goods from the seller. b. goods reach the buyer. c. terms of sale are F O B destination. d. terms of sale are F O B shipping point.

d. terms of sale are F O B shipping point.

Goods in transit should be included in the inventory of the buyer when the: a. public carrier accepts the goods from the seller. b. goods reach the buyer. c. terms of sale are F O B destination. d. terms of sale are FOB shipping point

d. terms of sale are FOB shipping point

If a company determines cost of goods sold each time a sale occurs, it a. must have a computerized accounting system. b. uses a combination of the perpetual and periodic inventory systems. c. uses a periodic inventory system. d. uses a perpetual inventory system.

d. uses a perpetual inventory system.

Winnebago Industries, Inc. is a leading manufacturer of motor homes. Suppose Winnebago Industries, Inc. reported ending inventory at August 29, 2017, of $44,935,000 under the LIFO inventory method. In the notes to its financial statements, assume Winnebago Industries, Inc. reported a LIFO reserve of $29,474,000 at August 29, 2017.What would Winnebago Industries, Inc.'s ending inventory have been if it had used FIFO?

ending inventory using LIFO $44,935,000 2017 LIFO reserve 29,474,000 = $74,409,000

If a company such as Leslie Fay, overstates closing inventory on its books, it will result in an increase in its cash flow. have no impact on the company's earnings. result in lower reported earnings. result in higher reported earnings.

result in higher reported earnings.

When the Japanese tsunami caused a disruption in the manufacturing of parts by suppliers, its effect was felt by car companies in Japan because is led to a reduction in demand for cars. it resulted in a change of suppliers. they had very little inventory on hand as they followed the just-in-time inventory management practices. it raised their cost of goods sold.

they had very little inventory on hand as they followed the just-in-time inventory management practices.

Farley Bains, an auditor with Nolls CPAs, is performing a review of Pearl Company's Inventory account. Pearl Company did not have a good year, and top management is under pressure to boost reported income. According to its records, the inventory balance at year-end was $772,340. However, the following information was not considered when determining that amount.Prepare a schedule to determine the correct inventory amount. Ending inventory-as reported 1.Included in the company's count were goods with a cost of $237,660 that the company is holding on consignment. The goods belong to Nader Corporation 2.The physical count did not include goods purchased by Pearl Company with a cost of $39,730 that were shipped FOB shipping point on December 28 and did not arrive at Pearl Company's warehouse until January .Included in the Inventory account was $16,890 of office supplies that were stored in the warehouse and were to be used by the company's supervisors and managers during the coming year. 4. The company received an order on December 29 that was boxed and was sitting on the loading dock awaiting pick-up on December 31. The shipper picked up the goods on January 1 and delivered them on January 6. The shipping terms were FOB shipping point. The goods had a selling price of $43,940 and a cost of $28,550. The goods were not included in the count because they were sitting on the dock 6.Included in the count was $54,200 of goods that were parts for a machine that the company no longer made. Given the high-tech nature of Pearl Company's products, it was unlikely that these obsolete parts had any other use. However, management would prefer to keep them on the books at cost, "since that is what we paid for them, after all." Correct Inventory

Ending inventory- as reported - 772.340 1. (237,660_ 2. 39,730 3. (16,890) 4. 28,550 6. 54,200 Correct Inventory: 531870

Ownership passes to the buyer when purchased goods are received from a public carrier if the goods are shipped FOB destination. FOB shipping point. FOB shipper. FOB buyer.

FOB destination.

Which of the following should not be included in the physical inventory of a company? Goods held on consignment from another company Goods in transit from another company shipped FOB shipping point Goods shipped on consignment to another company All of the answer choices are correct

Goods held on consignment from another company

Goods purchased FOB shipping point from a supplier on January 25 that are still in transit. Include in Inventory Do not include in Inventory

Include in Inventory

Goods shipped on consignment to Logan Holdings Inc. on January 5. Include in Inventory Do not include in Inventory

Include in Inventory

Goods shipped to a customer, FOB destination, on January 29 that are still in transit. Include in Inventory Do not include in Inventory

Include in Inventory

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

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