Accounting 201; Chapter 6 Quiz

T/F Accountants believe that the write down from cost to market should NOT be made in the period in which the price decline occurs

False

T/F If inventories are valued using the LIFO cost assumption, they should NOT be classified as a current asset on the balance sheet

False

T/F Management may choose any inventory costing method it desires as long as the cost flow assumption chosen is consistent with the physical movement of goods in the company

False

T/F Manufacturers usually classify inventory into two categories: Finished goods and work in progress

False

T/F Raw materials inventories are the goods that a manufacturer has completed and are ready to be sold to customers

False

T/F The expense recognition principle requires that the cost of goods sold be matched against the ending merchandise inventory in order to determine income

False

T/F The specific identification method of inventory valuation is desirable when a company sells a large number of low-unit cost items

False

T/F Use of the LIFO inventory valuation method enables a company to report paper or phantom profits

False

T/F A company may use more than one inventory costing method concurrently

True

T/F An error that overstates the ending inventory will also cause net income for the period to be overstated

True

T/F Goods that have been purchased FOB destination but are in transit, should be excluded from physical count of goods

True

T/F If a company has no beginning inventory and the unit price of inventory is increasing during a period, the cost of goods available for sale during the period will be the sale under the LIFE and FIFO inventory methods

True

T/F If a large company has no beginning inventory and the unit cost of inventory items does not change during the year, the value assigned to the ending inventory will be the same under LIFE and average cost flow assumptions

True

T/F If the unit price of inventory is increasing during a period, a company using the LIFO inventory method will show less gross profit for the period, than if it had used the FIFO inventory method

True

T/F Is a company changes its inventory valuation method, the effect of the change on net income should be disclosed in the financial statements

True

T/F The first-in, first-out (FIFO) inventory method results in an ending inventory valued at the most recent cost

True

T/F The specific identification method of costing inventories tracks the actual physical flow of the goods available for sale

True

T/F Transactions that affect inventories on hand have an effect on both the balance sheet and the income statement

True

T/F Under the lower-of-cost-or-market basis, market is defined as current replacement cost

True

T/F Work in progress is that portion of manufactured inventory that has been placed into the production process but is not yet complete

True

Items waiting to be used in production are considered to be a. raw materials b. work in process c. finished goods d. merchandise inventory

a. raw materials

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

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

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. managements judgement d. whether or not the purchase price has been paid

b. legal title

Inventories affect a. only the balance sheet b. only the income statement c. both the balance sheet and the income statement d. neither the balance sheet nor the income statement

c. both the balance sheet and the income statement

In a manufacturing company, inventory that is ready for sale is called a. raw materials inventory b. work in process inventory c. finished goods inventory d. store supplies inventory

c. finished goods inventory

Which of the following should be included in the physical inventory of a company? a. goods held on consignment from another company b. goods in transit to another company shipped FOB shipping point c. goods in transit from another company shipped FOB shipping point d. both b and c above

c. goods in transit from another company shipped FOB shipping point

Manufacturers usually classify inventory into all the following general categories except: a. work in process b. finished goods c. merchandise inventory d. raw materials

c. merchandise inventory

Inventory is a. reported under the classification of Property, Plant, and Equipment on the balance sheet b. often reported as a miscellaneous expense on the income statement c. reported as a current asset on the balance sheet d. generally valued at the price for which the goods can be sold

c. reported as a current asset on the balance sheet

An auto manufacturer would classify vehicles in various stages of production as a. finished goods b. merchandise inventory c. raw materials d. work in process

d. work in process