Chapter 6

Ayayai Corp. had the following inventory transactions occur during 2017: Units Cost/unit Feb. 1, 2017 Purchase 106 $106 Mar. 14, 2017 Purchase 183 $111 May 1, 2017 Purchase 130 $116 The company sold 301 units at $149 each and has a tax rate of 30%. Assuming that a periodic inventory system is used, what is the company's gross profit using FIFO? (rounded to whole dollars) a. $11908 b. $10788 c. $34061 d. $32941

a. $11908

Pharoah Company sells three different products. The following information is available on December 31: Inventory item Units Cost per unit Market value per unit X 230 $3.00 $2.50 Y 450 $2.00 $1.00 Z 1130 $2.00 $3.00 When applying the lower of cost or market rule to each item, what will Pharoah total ending inventory balance be? a. $3285 b. $4290 c. $3620 d. $3850

a. $3285

In periods of rising prices, which is an advantage of using the LIFO inventory costing method? a. Cost of goods sold will include latest (most recent) costs and thus will be more realistic. b. Net income will be the highest and thus reflect the prosperity of the company. c. Phantom profits are reported. d. Ending inventory will include latest (most recent) costs and thus be more realistic.

a. Cost of goods sold will include latest (most recent) costs and thus will be more realistic.

In periods of inflation, phantom or paper profits may be reported as a result of using the a. FIFO costing assumption. b. LIFO costing assumption. c. perpetual inventory method. d. periodic inventory method.

a. FIFO costing assumption.

In a period of increasing prices, which inventory flow assumption will result in the lowest amount of income tax expense? a. LIFO b. Average cost method c. Income tax expense for the period will be the same under all assumptions d. FIFO

a. LIFO

When a perpetual inventory system is used, which of the following is a purpose of taking a physical inventory? a. To check the accuracy of the perpetual inventory records. b. To determine cost of goods sold for the accounting period. c. To compute inventory ratios. d. All are a purpose of taking a physical inventory when a perpetual inventory system is used.

a. To check the accuracy of the perpetual inventory records.

An overstatement of ending inventory in one period results in a. an understatement of net income of the next period. b. no effect on net income of the next period. c. an overstatement of the ending inventory of the next period. d. an overstatement of net income of the next period.

a. an understatement of net income of the next period.

Goods held on consignment are a. never owned by the consignee. b. included in the consignee's ending inventory. c. included as part of no one's ending inventory. d. kept for sale on the premises of the consignor.

a. never owned by the consignee.

The LIFO inventory method assumes that the cost of the latest units purchased are a. the first to be allocated to cost of goods sold. b. the first to be allocated to ending inventory. c. not allocated to cost of goods sold or ending inventory. d. the last to be allocated to cost of goods sold.

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

A company just began business and made the following four inventory purchases in June: June 1 210 units $1260 June 10 260 units 1497 June 15 260 units 1664 June 28 210 units 1407 $5828 A physical count of merchandise inventory on June 30 reveals that there are 270 units on hand. Using the average-cost method, the amount allocated to the ending inventory (rounded to whole dollar) on June 30 is a. $1605. b. $1674. c. $1809. d. $1620.

b. $1674.

The following information was available for Ayayai Corp. at December 31, 2017: beginning inventory $93000; ending inventory $124000; cost of goods sold $600000; and sales $824000. Ayayai inventory turnover ratio (rounded) in 2017 was a. 6.5 times. b. 5.5 times. c. 4.8 times. d. 7.6 times.

b. 5.5 times.

The following information was available for Oriole Company at December 31, 2017: beginning inventory $100000; ending inventory $104000; cost of goods sold $716000; and sales $1072000. Oriole inventory turnover ratio in 2017 was (Use 365 days for calculation.) a. 34.8 days. b. 52.1 days. c. 50.7 days. d. 52.9 days.

b. 52.1 days.

Two companies report the same cost of goods available for sale but each employs a different inventory costing method. If the price of goods has increased during the period, then the company using a. FIFO will have the highest cost of goods sold. b. FIFO will have the highest ending inventory. c. LIFO will have the lowest cost of goods sold. d. LIFO will have the highest ending inventory.

b. FIFO will have the highest ending inventory.

Nash's Trading Post, LLC has the following inventory data: July 1 Beginning inventory 22 units at $14 $308 7 Purchases 78 units at $15 1170 22 Purchases 11 units at $16 176 $1654 A physical count of merchandise inventory on July 30 reveals that there are 36 units on hand. Using the FIFO inventory method, the amount allocated to cost of goods sold for July is a. $518. b. $551. c. $1103. d. $1136.

c. $1103.

Tamarisk, Inc. just began business and made the following four inventory purchases in June: June 1 120 units $828 June 10 170 units 1190 June 15 170 units 1224 June 28 120 units 900 $4142 A physical count of merchandise inventory on June 30 reveals that there are 160 units on hand. Using the LIFO inventory method, the value of the ending inventory (rounded to whole dollar) on June 30 is a. $1188. b. $1104. c. $1108. d. $1200.

c. $1108.

Skysong, Inc. has the following inventory data: July 1 Beginning inventory 41 units at $98 5 Purchases 246 units at $92 14 Sale 164 units 21 Purchases 123 units at $94 30 Sale 115 units Assuming that a periodic inventory system is used, what is the amount allocated to ending inventory on a LIFO basis? a. $25914 b. $12355 c. $12298 d. $25123

c. $12298

Bramble Corp. just began business and made the following four inventory purchases in June: June 1 200 units $1260 June 10 250 units 1750 June 15 200 units 1460 June 28 200 units 1520 $5990 A physical count of merchandise inventory on June 30 reveals that there are 240 units on hand. Using the FIFO inventory method, the amount allocated to ending inventory (rounded to whole dollar) for June is a. $1512. b. $1540. c. $1812. d. $1824.

c. $1812.

Splish Brothers Inc. has the following inventory data: Nov. 1 Inventory 36 units @ $7.20 each 8 Purchase 144 units @ $7.75 each 17 Purchase 72 units @ $7.55 each 25 Purchase 108 units @ $7.90 each A physical count of merchandise inventory on November 30 reveals that there are 120 units on hand. Cost of goods sold (rounded) under LIFO is a. $1828. b. $910. c. $1862. d. $944

c. $1862.

Splish Brothers Inc. had beginning inventory of $18000 at March 1, 2017. During the month, the company made purchases of $78000. The inventory at the end of the month is $20760. What is cost of goods sold for the month of March? a. $96000 b. $98760 c. $75240 d. $78000

c. $75240

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

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

An assumption about cost flow is used a. because it is required by the income tax regulation. b. only when the flow of goods cannot be determined. c. because prices usually change, and tracking which units have been sold is difficult. d. even when there is no change in the purchase price of inventory.

c. because prices usually change, and tracking which units have been sold is difficult.

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

c. free on board.

If goods in transit are shipped FOB destination a. no one has legal title to the goods until they are delivered. b. the buyer has legal title to the goods until they are delivered. c. the seller has legal title to the goods until they are delivered. d. the transportation company has legal title to the goods while the goods are in transit.

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

The selection of an appropriate inventory cost flow assumption for an individual company is made by a. the SEC. b. the internal auditors. c. the external auditors. d. management.

d. management.