accy chapter 8

Risers Inc. reported total assets of $1,600,000 and net income of $85,000 for the current year. Risers determined that inventory was understated by $23,000 at the beginning of the year and $10,000 at the end of the year. What is the corrected amount for total assets and net income for the year?

$1,610,000 and $72,000

inventory is less and cogs is greater under

LIFO

What is the effect of a $50,000 overstatement of last year's inventory on current years ending retained earning balance?

No effect

perpetual journal entries for sale, purchase, returns

(sale) dr: A/r cr: sales rev dr: cogs cr: inv (purchase) dr: inv cr: A/P (return) dr: A/P cr: Inv

perpetual inventory system

- no purchase account is used -a COGS account is used -two entries are required to record a sale

LIFO

-ending inv is really old prices -favors the income statement -matches current sales price with current cost of goods -net income is lower, taxes are lower

90. Risers Inc. reported total assets of $1,200,000 and net income of $135,000 for the current year. Risers determined that inventory was overstated by $10,000 at the beginning of the year (this was not corrected). What is the corrected amount for total assets and net income for the year?

1,200,000 and 145,000

89. Bell Inc. took a physical inventory at the end of the year and determined that $475,000 of goods were on hand. In addition, the following items were not included in the physical count. Bell, Inc. determined that $60,000 of goods were in transit that were shipped f.o.b. destination (goods were actually received by the company three days after the inventory count).The company sold $25,000 worth of inventory f.o.b. destination. What amount should Bell report as inventory at the end of the year?

500,000

Bell Inc. took a physical inventory at the end of the year and determined that $650,000 of goods were on hand. In addition, Bell, Inc. determined that $50,000 of goods that were in transit that were shipped f.o.b. shipping were actually received two days after the inventory count and that the company had $75,000 of goods out on consignment. What amount should Bell report as inventory at the end of the year?

775,000

On June 15, 2010, Wynne Corporation accepted delivery of merchandise which it pur-chased on account. As of June 30, Wynne had not recorded the transaction or included the merchandise in its inventory. The effect of this on its balance sheet for June 30, 2010 would be

Assets and liabilities were understated but stockholders' equity was not affected.

cogs formula periodic

BI +purchases ------------- goods avail - EI --------- cogs

Which of the following is true regarding the use of LIFO for inventory valuation? a. If LIFO is used for external financial reporting, then it must also be used for internal reports. b. For purposes of external financial reporting, LIFO may not be used with the lower of cost or market approach. c. If LIFO is used for external financial reporting, then it cannot be used for tax purposes. D. If LIFO is used for tax purposes, then it must also be used for external financial reporting.

D. If LIFO is used for tax purposes, then it must also be used for external financial reporting.

in FIFO, periodic and perpetual result in the same

EI and cogs

An inventory pricing procedure in which the oldest costs incurred rarely have an effect on the ending inventory valuation is

FIFO

In a period of rising prices which inventory method generally provides the greatest amount of net income?

FIFO

In a period of rising prices, the inventory method which tends to give the highest reported net income is

FIFO

The acquisition cost of a certain raw material changes frequently. The book value of the inventory of this material at year end will be the same if perpetual records are kept as it would be under a periodic inventory method only if the book value is computed under the

FIFO method

where should raw materials be classified on the balance sheet?

Inventory

What happens when inventory in base year dollars decreases?

LIFO layer is liquidated.

Which of the following is included in inventory costs?

Product costs.

a company reports the cost assigned to goods and materials on hand but not yet placed into production as

Raw material

What is a LIFO reserve?

The difference between the LIFO inventory and the amount used for internal reporting purposes.

How might a company obtain a price index in order to apply dollar-value LIFO?

a. Calculate an index based on recent inventory purchases. b. Use a general price level index published by the government. c. Use a price index prepared by an industry group.

errors in understated inventory affect the balance sheet by

assets- U Liabilities- NE Stockholders-U

errors in overstated inventory affect the balance sheet by

assets-O Liabilities-NE stockholders-O

LIFO approximates current cost for

cogs

Elkins Corporation uses the perpetual inventory method. On March 1, it purchased $10,000 of inventory, terms 2/10, n/30. On March 3, Elkins returned goods that cost $1,000. On March 9, Elkins paid the supplier. On March 9, Elkins should credit a. purchase discounts for $200. b. inventory for $200. c. purchase discounts for $180. d. inventory for $180.

d. inventory for $180.

Tanner Corporation's inventory cost on its balance sheet was lower using first-in, first-out than it would have been using last-in, first-out. Assuming no beginning inventory, in what direction did the cost of purchases move during the period?

down

end of month closing entry for periodic

dr: inv (ending) dr: cogs cr: purchases cr: inv (beginning)

FIFO approximates current cost for

ending inventory

Which of the following inventories carried by a manufacturer is similar to the merchandise inventory of a retailer?

finished goods

Goods in transit which are shipped f.o.b. shipping point should be included

included in the inventory of the buyer

Goods in transit which are shipped f.o.b. destination should be

included in the inventory of the seller

When cost of goods sold is understated

inventory and net income are overstated

When cost of goods sold is overstated

inventory and net income are understated

The use of a Discounts Lost account implies that the recorded cost of a purchased inventory item is its

invoice price less the purchase discount allowable whether taken or not.

107. Milford Company had 500 units of "Tank" in its inventory at a cost of $4 each. It purchased, for $2,800, 300 more units of "Tank". Milford then sold 400 units at a selling price of $10 each, resulting in a gross profit of $1,600. The cost flow assumption used by Johnson

is weighted average.

inventory on hand is a very good price

lifo liquidation

Dolan Co. received merchandise on consignment. As of March 31, Dolan had recorded the transaction as a purchase and included the goods in inventory. The effect of this on its financial statements for March 31 would be

net income was correct and current assets and current liabilities were overstated.

Which of the following items should be included in a company's inventory at the balance sheet date? a. Goods in transit which were purchased f.o.b. destination. b. Goods received from another company for sale on consignment. c. Goods sold to a customer which are being held for the customer to call for at his or her convenience. d. None of these.

none of these. should be: Goods in transit which were purchased f.o.b. shipping point

Assuming no beginning inventory, what can be said about the trend of inventory prices if cost of goods sold computed when inventory is valued using the FIFO method exceeds cost of goods sold when inventory is valued using the LIFO method?

prices decrease

compute GP under periodic

sales -cogs

Which of the following accounts is not reported in inventory? a. Raw materials. b. Equipment. c. Finished goods. d. Supplies.

supplies

finished goods

the cost identified with the competed but unsold units on hand at the end of the fiscal period.

WIP inventory

the cost of raw materials for these unfinished units, plus the direct labor costs applied specifically to this material and a ratable share of manufacturing overhead costs

If goods in transit are shipped FOB destination

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

Why are inventories included in the computation of net income?

to determine COGS

an overstatement to ending inventory overstates net income, but next year, since ending inventory becomes beginning inventory, it

understates net income

The pricing of issues from inventory must be deferred until the end of the accounting period under the following method of inventory valuation:

weighted-average

Which method of inventory pricing best approximates specific identification of the actual flow of costs and units in most manufacturing situations?

First-in, first-out

What is consigned inventory?

Goods that are shipped, but title remains with the shipper

Checkers uses the periodic inventory system. For the current month, the beginning inventory consisted of 1,200 units that cost $12 each. During the month, the company made two purchases: 500 units at $13 each and 2,000 units at $13.50 each. Checkers also sold 2,150 units during the month. Using the average cost method, what is the amount of cost of goods sold for the month?

$27,843

periodic journal entries for sale, purchase, returns,

(sale) dr: A/R cr: sales rev (purchase) dr: Purchases cr:A/P (Returns) dr: A/P cr: purchase returns and allow

Valuation of inventories requires the determination of

- the costs to be included in inventory -the physical goods to be included in inventory -the cost flow Assumption to be adopted

FIFO

-flow of goods doesn't have to match cost flow assumption -favors balance sheet -most recent costs

During 2010 Carne Corporation transferred inventory to Nolan Corporation and agreed to repurchase the merchandise early in 2011. Nolan then used the inventory as collateral to borrow from Norwalk Bank, remitting the proceeds to Carne. In 2011 when Carne repurchased the inventory, Nolan used the proceeds to repay its bank loan. On whose books should the cost of the inventory appear at the December 31, 2010 balance sheet date?

Carne Corporation

108. Nichols Company had 500 units of "Dink" in its inventory at a cost of $5 each. It purchased, for $2,400, 300 more units of "Dink". Nichols then sold 600 units at a selling price of $10 each, resulting in a gross profit of $2,100. The cost flow assumption used by Kingman

LIFO

In a period of falling prices, which inventory method generally provides the greatest amount of net income?

LIFO

In a period of rising prices, the inventory method which tends to give the highest reported cost of goods sold is

LIFO

Which of the following is a period cost?

Selling costs.

In the context of dollar-value LIFO, what is a LIFO layer?

The LIFO value of an increase in the inventory for a given year.

How is a significant amount of consignment inventory reported in the balance sheet?

The inventory is reported separately on the consignor's balance sheet.

If a company uses the periodic inventory system, what is the impact on net income of including goods in transit f.o.b. shipping point in purchases, but not ending inventory?

Understate net income

If a company uses the periodic inventory system, what is the impact on the current ratio of including goods in transit f.o.b. shipping point in purchases, but not ending inventory?

Understate the current ratio

Which of the following statements is not true as it relates to the dollar-value LIFO inventory method? a. It is easier to erode LIFO layers using dollar-value LIFO techniques than it is with specific goods pooled LIFO. b. Under the dollar-value LIFO method, it is possible to have the entire inventory in only one pool. c. Several pools are commonly employed in using the dollar-value LIFO inventory method. d. Under dollar-value LIFO, increases and decreases in a pool are determined and measured in terms of total dollar value, not physical quantity.

a. It is easier to erode LIFO layers using dollar-value LIFO techniques than it is with specific goods pooled LIFO.

Which of the following is not considered an advantage of LIFO when prices are rising? a. The inventory will be overstated. b. The more recent costs are matched against current revenues. c. There will be a deferral of income tax. d. A company's future reported earnings will not be affected substantially by future price declines.

a. The inventory will be overstated.

When using the periodic inventory system, which of the following generally would notbe separately accounted for in the computation of cost of goods sold? a. Trade discounts applicable to purchases during the period b. Cash (purchase) discounts taken during the period c. Purchase returns and allowances of merchandise during the period d. Cost of transportation-in for merchandise purchased during the period

a. Trade discounts applicable to purchases during the period

The failure to record a purchase of merchandise on account even though the goods are properly included in the physical inventory results in

an understatement of liabilities and an overstatement of owners' equity.

In situations where there is a rapid turnover, an inventory method which produces a balance sheet valuation similar to the first-in, first-out method is

average cost

Which of the following types of interest cost incurred in connection with the purchase or manufacture of inventory should be capitalized as a product cost? a. Purchase discounts lost b. Interest incurred during the production of discrete projects such as ships or real estate projects c. Interest incurred on notes payable to vendors for routine purchases made on a repetitive basis d. All of these should be capitalized.

b. Interest incurred during the production of discrete projects such as ships or real estate projects

computation of ending inv

beg inv +purchases ------------- units avail -units sold ----------- units in EI

Which of the following is a characteristic of a perpetual inventory system? a. Inventory purchases are debited to a Purchases account. b. Inventory records are not kept for every item. c. Cost of goods sold is recorded with each sale. d. Cost of goods sold is determined as the amount of purchases less the change in inventory.

c. Cost of goods sold is recorded with each sale.

Which of the following is a reason why the specific identification method may be considered ideal for assigning costs to inventory and cost of goods sold? a. The potential for manipulation of net income is reduced. b. There is no arbitrary allocation of costs. c. The cost flow matches the physical flow. d. Able to use on all types of inventory.

c. The cost flow matches the physical flow.

If inventory levels are stable or increasing, an argument which is notan advantage of the LIFO method as compared to FIFO is a. income taxes tend to be reduced in periods of rising prices. b. cost of goods sold tends to be stated at approximately current cost on the income statement. c. cost assignments typically parallel the physical flow of goods. d. income tends to be smoothed as prices change over time.

c. cost assignments typically parallel the physical flow of goods.

If the beginning inventory for 2010 is overstated, the effects of this error on cost of goods sold for 2010, net income for 2010, and assets at December 31, 2011, respectively, are

cogs- overstatement net income-understatement assets- no effect.

Beginning inventory plus the cost of goods purchased equals

cost of goods available for sale

Which of the following statements is notvalid as it applies to inventory costing methods? a. If inventory quantities are to be maintained, part of the earnings must be invested (plowed back) in inventories when FIFO is used during a period of rising prices. b. LIFO tends to smooth out the net income pattern by matching current cost of goods sold with current revenue, when inventories remain at constant quantities. c. When a firm using the LIFO method fails to maintain its usual inventory position (reduces stock on hand below customary levels), there may be a matching of old costs with current revenue. d. The use of FIFO permits some control by management over the amount of net income for a period through controlled purchases, which is not true with LIFO.

d. The use of FIFO permits some control by management over the amount of net income for a period through controlled purchases, which is not true with LIFO.

All of the following costs should be charged against revenue in the period in which costs are incurred exceptfor a. manufacturing overhead costs for a product manufactured and sold in the same accounting period. b. costs which will not benefit any future period. c. costs from idle manufacturing capacity resulting from an unexpected plant shutdown. d. costs of normal shrinkage and scrap incurred for the manufacture of a product in ending inventory.

d. costs of normal shrinkage and scrap incurred for the manufacture of a product in ending inventory.

When a company uses LIFO for external reporting purposes and FIFO for internal reporting purposes, an Allowance to Reduce Inventory to LIFO account is used. This account should be reported a. on the income statement in the Other Revenues and Gains section. b. on the income statement in the Cost of Goods Sold section. c. on the income statement in the Other Expenses and Losses section. d. on the balance sheet in the Current Assets section.

d. on the balance sheet in the Current Assets section.

Costs which are inventoriable include all of the following except a. costs that are directly connected with the bringing of goods to the place of business of the buyer. b. costs that are directly connected with the converting of goods to a salable condition. c. buying costs of a purchasing department. d. selling costs of a sales department.

d. selling costs of a sales department.

Green Co. received merchandise on consignment. As of January 31, Green included the goods in inventory, but did not record the transaction. The effect of this on its financial statements for January 31 would be

net income, current assets, and retained earnings were overstated.

Feine Co. accepted delivery of merchandise which it purchased on account. As of December 31, Feine had recorded the transaction, but did not include the merchandise in its inventory. The effect of this on its financial statements for December 31 would be

net income, current assets, and retained earnings were understated.

Where should goods in transit that were recently purchased f.o.b. destination be included on the balance sheet?

not on the balance sheet

The accountant for the Pryor Sales Company is preparing the income statement for 2010 and the balance sheet at December 31, 2010. Pryor uses the periodic inventory system. The January 1, 2010 merchandise inventory balance will appear

only in the cost of goods sold section of the income statement

Manufacturing overhead costs

product costs

During 2010 Carne Corporation transferred inventory to Nolan Corporation and agreed to repurchase the merchandise early in 2011. Nolan then used the inventory as collateral to borrow from Norwalk Bank, remitting the proceeds to Carne. In 2011 when Carne repurchased the inventory, Nolan used the proceeds to repay its bank loan. This transaction is known as a(n)

product financing arrangement.

Goods on consignment are

recorded in a Consignment Out account which is an inventory account.

Merchandise inventory is

reported as a current asset on the balance sheet