Chapter 5 ACCY1

An error that results in overstating ending inventory would have what effect on the company's financial statements in the current year? Assets = Liabilities + Equity Revenue - Expenses = Net Inc. Cash A. + = NA + + NA - - = + NA B. - = NA + - NA - + = - NA C. + = NA + + NA - NA = NA +OA D. + = + + NA NA - + = - +OA

A

Blake Company purchased two identical inventory items. The item purchased first cost $16.00, and the item purchased second cost $18.00. Blake sold one of the items for $24.00. Which of the following statements is true? A. Ending inventory will be lower if Blake uses weighted average than if FIFO were used. B. Cost of goods sold will be higher if Blake uses FIFO than if weighted average were used. C. The dollar amount assigned to ending inventory will be the same no matter which cost flow method is used. D. Gross margin will be higher if Blake uses LIFO than it would be if FIFO were used.

A

Carson Company has an inventory turnover of 12.75, and its inventory amounts to $2,400,000. What is the amount of cost of goods sold? A. $30,600,000 B. $188,235 C. $26,666,667 D. $51,000

A

Chase Co. uses the perpetual inventory method. The inventory records for Chase reflected the following Jan 1 Beg Inv 300 @ 2.30 Jan 12 Purchase 400 @2.10 Jan 18 Sales 500 @ 3.80 Jan 21 Purchase 300 @ 2.40 Jan 25 Purchase 100 @ 2.20 Jan 31 Sales 450 @ 3.80 Assuming Chase uses a FIFO cost flow method, the cost of goods sold for the sales transaction on January 31 is: A. $1,020. B. $1,005. C. $1,045. D. $340.

A

Inventory turnover is calculated by dividing: A. cost of goods sold by inventory. B. sales by inventory. C. beginning inventory by the ending inventory. D. inventory by cost of goods sold.

A

Koontz Company uses the perpetual inventory method. On January 1, 2016, the company's first day of operations, Koontz purchased 400 units of inventory that cost $7.50 each. On January 10, 2016, the company purchased an additional 600 units of inventory that cost $9.00 each. If Koontz uses a weighted average cost flow method and sells 550 units of inventory, the amount of inventory appearing on balance sheet following the sale will be approximately: A. $3,780. B. $4,738. C. $3,080. D. $3,713.

A

Nelson Corporation is required to record an inventory write-down of $2,500 as a result of using the lower-of-cost-or-market rule. Which of the following answers correctly shows how this entry would affect the financial statements? Assets = Liabilities + Equity Revenue - Expenses = Net Inc. Cash A. (2,500) = NA + (2,500) NA - 2,500 = (2,500) NA B. (2,500) = (2,500) + NA NA - NA = NA NA C. NA = (2,500) + 2,500 2,500 - NA = 2,500 NA D. (2,500) = NA + (2,500) NA - 2,500 = (2,500) (2,500)

A

On December 31, 2015, Owings Corporation overstates the ending inventory account by $5,000. How will this affect Retained Earnings in the December 31, 2016 balance sheet? A. Retained Earnings will be correctly stated. B. Retained Earnings will be understated by $5,000. C. Retained Earnings will be overstated by $5,000. D. Cannot be determined with the above information.

A

Phipps Corporation overstated its ending inventory on December 31, 2015. Which of the following answers correctly identifies the effect of the error on 2016 financial statements? A. Cost of goods sold is overstated. B. Gross margin overstated. C. Ending inventory is understated. D. Net income is overstated.

A

Stubbs Company uses the perpetual inventory method. On January 1, 2016, Stubbs purchased 400 units of inventory that cost $8.00 each. On January 10, 2016, the company purchased an additional 600 units of inventory that cost $9.00 each. If Stubbs uses a weighted average cost flow method and sells 700 units of inventory for $16.00 each, the amount of gross margin reported on the income statement will be: A. $5,180. B. $5,250. C. $5,000. D. $6,020.

A

The inventory records for Radford Co reflected the following Beg Inv May 1 100 units @ 4.00 First Purchase @ May 7 300 units @ 4.40 Second Purchase @ May 17 500 units @ 4.60 Third Purchase @ May 23 100 units @ 4.80 Sales @ May 31 900 units @ 7.80 Determine the amount of cost of goods sold assuming the LIFO cost flow method. A. $4,100 B. $4,320 C. $2,360 D. $3,600

A

The inventory records for Radford Co reflected the following Beg Inv May 1 100 units @ 4.00 First Purchase @ May 7 300 units @ 4.40 Second Purchase @ May 17 500 units @ 4.60 Third Purchase @ May 23 100 units @ 4.80 Sales @ May 31 900 units @ 7.80 Determine the amount of ending inventory assuming the FIFO cost flow method. A. $480 B. $440 C. $400 D. $940

A

Vargas Company uses the perpetual inventory method. Vargas purchased 400 units of inventory that cost $15.00 each. At a later date the company purchased an additional 800 units of inventory that cost $18.00 each. Vargas sold 500 units of inventory for $27.00. If Vargas uses a FIFO cost flow method, the amount of cost of goods sold appearing on the income statement will be: A. $7,800. B. $6,000. C. $4,500. D. $5,700.

A

When prices are rising, which method of inventory, if any, will result in the lowest relative net cash outflow (including the effects of taxes, if any)? A. LIFO. B. FIFO. C. Weighted average D. None of these; inventory methods cannot affect cash flows.

A

Which of the following businesses is most likely to use a specific identification cost flow method? A. Car dealership B. Grocery store C. Hardware store D. Roofing company

A

Which of the following circumstances is not a reason to compute an estimate of the amount of inventory? A. To complete the company's annual income tax return. B. To evaluate the accuracy of a physical count of goods. C. To prepare monthly or quarterly financial statements without incurring the expense of taking a physical inventory. D. To support an insurance claim for a loss due to theft of inventory.

A

Which of the following statements is not correct in regard to the importance of inventory turnover to a company's profitability? A. Most companies prefer to have a low inventory turnover than a high inventory turnover. B. It is sometimes more desirable to sell a large amount of merchandise with a small amount of gross margin than a small amount of merchandise with a large amount of gross margin. C. A company's profitability is affected by how rapidly inventory sells. D. A company's profitability is affected by the spread between cost and selling price.

A

Account Comp X Comp Y Comp Z CGS 1980000 4338000 3234000 Inventory 175000 295000 250500 The average number of days to sell inventory for Company Y is approximately: A. 15.3 B. 24.8 C. 23.9 D. 25.6

B

An overstatement of ending inventory results in which of the following in the present period? A. Overstatement of cost of goods sold. B. Overstatement of total assets. C. Understatement of net income . D. Understatement of retained earnings.

B

Chase Co. uses the perpetual inventory method. The inventory records for Chase reflected the following Jan 1 Beg Inv 300 @ 2.30 Jan 12 Purchase 400 @2.10 Jan 18 Sales 500 @ 3.80 Jan 21 Purchase 300 @ 2.40 Jan 25 Purchase 100 @ 2.20 Jan 31 Sales 450 @ 3.80 Assuming Chase uses a FIFO cost flow method, the ending inventory on January 31 is: A. $345. B. $340. C. $330. D. $1,020.

B

Glasgow Enterprises started the period with 80 units in beginning inventory that cost $7.50 each. During the period, the company purchased inventory items as follows Purchase 1 200 @ 9.00 Purchase 2 150 @ 9.30 Purchase 3 50 @ 10.50 Glasgow sold 220 units after purchase 3 for $17.00 each. Glasgow's cost of goods sold under FIFO would be: A. $1,650. B. $1,860. C. $2,310. D. $2,100.

B

Glasgow Enterprises started the period with 80 units in beginning inventory that cost $7.50 each. During the period, the company purchased inventory items as follows Purchase 1 200 @ 9.00 Purchase 2 150 @ 9.30 Purchase 3 50 @ 10.50 Glasgow sold 220 units after purchase 3 for $17.00 each. Glasgow's ending inventory under weighted average would be approximately: A. $2,361. B. $2,340. C. $1,980. D. $1,998.

B

Hoover Company purchased two identical inventory items. The item purchased first cost $33.00. The item purchased second cost $35.00. Then Hoover sold one of the inventory items for $62.00. Based on this information: A. the amount of ending inventory is $35.00 if Hoover uses the LIFO cost flow method. B. the amount of gross margin is $28.00 if Hoover uses the weighted average cost flow method. C. the amount of cost of goods sold is $35.00 if Hoover uses the FIFO cost flow method. D. the amount of cost of goods sold is $33.00 if Hoover uses the LIFO cost flow method.

B

If prices are rising, which inventory cost flow method will produce the lowest amount of cost of goods sold? A. LIFO B. FIFO C. Weighted average D. LIFO, FIFO, and weighted average will all produce equal amounts.

B

Landis Company is preparing its financial statements. Gross margin is normally 40% of sales. Information taken from the company's records revealed sales of $25,000; beginning inventory of $2,500 and purchases of $17,500. The estimated amount of ending inventory would be: A. $15,000. B. $5,000. C. $8,000 . D. $10,000.

B

Misty Mountain Outfitters is a merchandiser of specialized fly fishing gear. Its cost of goods sold for 2016 was $295,000, and sales were $690,000. The amount of merchandise on hand was $50,000, and total assets amounted to $585,000. Using this information, which of the following answers correctly states the average days in inventory ratio? Round to the nearest day. A. 26 days B. 62 days C. 31 days D. 40 days

B

Poole Company purchased two identical inventory items. One of the items, purchased in January, cost $4.50. The other, purchased in February, cost $4.75. One of the items was sold in March at a selling price of $7.50. Select the correct answer assuming that Poole uses a LIFO cost flow. A. The balance in ending inventory would be $4.75. B. The amount of gross margin would be $2.75. C. The amount of ending inventory would be $4.625 . D. The amount of cost of goods sold would be $4.50.

B

The Bradford Company was recently required to record an inventory write-down of $5,200 because the market value of its inventory was less than cost. Assuming the amount of the write-down is not material (the total inventory was over $9,750,000), which of the following is the appropriate journal entry? A. Sales DR 5200 Inventory CR 5200 B. CGS DR 5200 Inventory CR 5200 C. Inventory DR 5200 Sales CR 5200 D. CGS DR 5200 Sales CR 5200

B

The gross margin method requires all but which of the following elements of information? A. Total sales for the present period. B. The ending inventory for the present period . C. Amount of purchases during the present period. D. The beginning inventory for the present period.

B

The inventory records for Radford Co reflected the following Beg Inv May 1 100 units @ 4.00 First Purchase @ May 7 300 units @ 4.40 Second Purchase @ May 17 500 units @ 4.60 Third Purchase @ May 23 100 units @ 4.80 Sales @ May 31 900 units @ 7.80 Determine the weighted average cost per unit (rounded) for May. A. $4.45 B. $4.50 C. $5.12 D. $6.34

B

Under the perpetual inventory system, the best estimate of the amount of inventory is: A. shown on the previous period's financial statements. B. the book balance in the inventory account. C. provided by application of the gross margin method. D. the beginning inventory balance minus sales for the period.

B

Account Comp X Comp Y Comp Z CGS 1980000 4338000 3234000 Inventory 175000 295000 250500 Given that longer inventory holding periods act to increase expenses, which of the three companies would be expected to have the lowest inventory holding cost? A. All three companies have equal holding costs B. Company X C. Company Y D. Company Z

C

At a time of declining prices, which cost flow assumption will result in the highest ending inventory? A. Weighted average B. FIFO C. LIFO D. Either weighted average or FIFO

C

Chase Co. uses the perpetual inventory method. The inventory records for Chase reflected the following Jan 1 Beg Inv 300 @ 2.30 Jan 12 Purchase 400 @2.10 Jan 18 Sales 500 @ 3.80 Jan 21 Purchase 300 @ 2.40 Jan 25 Purchase 100 @ 2.20 Jan 31 Sales 450 @ 3.80 Assuming Chase uses a LIFO cost flow method, the amount of cost of goods sold for the sales transaction on January 18 is (round the final result to the nearest whole dollar): A. $1,150. B. $1,050. C. $1,070 . D. $1,130.

C

Glasgow Enterprises started the period with 80 units in beginning inventory that cost $7.50 each. During the period, the company purchased inventory items as follows Purchase 1 200 @ 9.00 Purchase 2 150 @ 9.30 Purchase 3 50 @ 10.50 Glasgow sold 220 units after purchase 3 for $17.00 each. Glasgow's ending inventory under LIFO would be: A. $2,730. B. $2,460. C. $2,220. D. $1,950.

C

Taylor Co. had beginning inventory of $400 and ending inventory of $600. Taylor Co. had cost of goods sold amounting to $1,800. Based on this information, Taylor Co. must have purchased inventory amounting to: A. $1,600 B. $2,800 C. $2,000 D. $2,400

C

Tetra Company purchased 2,000 units of inventory that cost $4.00 each on January 1, 2016. An additional 3,000 units of inventory were purchased on January 12, 2016 at a cost of $4.20 each. Tetra Company sold 4,000 units of inventory on January 20, 2016. Which of the following entries would be required to recognize the cost of goods sold assuming that Tetra Co. uses the perpetual inventory method and a FIFO cost flow method? A. Inventory DR 16400 CGS CR 16400 B. CGS DR 16600 Inventory CR 16600 C. CGS DR 16400 Inventory CR 16400 D. Inventory DR 16600 CGS CR 16600

C

The inventory records for Radford Co reflected the following Beg Inv May 1 100 units @ 4.00 First Purchase @ May 7 300 units @ 4.40 Second Purchase @ May 17 500 units @ 4.60 Third Purchase @ May 23 100 units @ 4.80 Sales @ May 31 900 units @ 7.80 Determine the amount of gross margin assuming the FIFO cost flow method. A. $2,920 B. $3,420 C. $3,000 D. $4,020

C

What is meant by "market" in lower-of-cost-or-market calculations? A. The amount of gross margin earned by selling merchandise. B. The amount the goods were sold for during the period. C. The amount that would have to be paid to replace the merchandise. D. The amount originally paid for the merchandise.

C

When preparing its quarterly financial statements, Pace Co. uses the gross margin method to estimate ending inventory. The following information is available for the 1st quarter of 2016: Beg Inv 110,000 Purchases 385,000 Sales 525,000 Estimated gross margin percentage 45% What was Pace's estimated inventory on March 31, 2016? A. $236,250 B. $288,750 C. $206,250 D. $258,750

C

When prices are falling: A. LIFO will result in lower income and a lower inventory valuation than will FIFO. B. LIFO will result in lower income and a higher inventory valuation than will FIFO. C. LIFO will result in higher income and a higher inventory valuation than will FIFO. D. LIFO will result in higher income and a lower inventory valuation than will FIFO.

C

When the cost of purchasing inventory is declining, which inventory cost flow method will produce the highest amount of cost of goods sold? A. Weighted average B. LIFO C. FIFO D. LIFO, FIFO, and weighted average will all produce the same amount of cost of goods sold.

C

Which inventory costing method will produce an amount for cost of goods sold that is closest to current market value? A. Weighted average. B. Specific identification. C. LIFO . D. FIFO.

C

Why are the inventory and cost of goods sold accounts attractive targets for managerial fraud? A. There are few if any procedures that can check for fraud in these accounts. B. There are no adequate methods of record keeping for inventory. C. These accounts are more significant than most other accounts. D. Cost of goods sold and Inventory accounts are not attractive targets of fraud.

C

Anton Co. uses the perpetual inventory method. Anton purchased 400 units of inventory that cost $12.00 each. At a later date the company purchased an additional 600 units of inventory that cost $16.00 each. If Anton uses the FIFO cost flow method and sells 700 units of inventory, the amount of cost of goods sold will be: A. $11,200 . B. $10,400. C. $8,400. D. $9,600.

D

At the end of the 2016 accounting period DeYoung Company determined that the market value of its inventory was $79,800. The historical cost of this inventory was $81,400. DeFazio uses the perpetual inventory method. The entry necessary to reduce the inventory to the lower of cost or market will A. decrease assets and decrease gross margin. B. decrease assets and decrease net income. C. increase assets and increase net income. D. decrease assets, gross margin, and net income.

D

Barker Company paid cash to purchase two identical inventory items. The first purchase cost $18.00 cash and the second cost $20.00 cash. Barker sold one inventory item for $30.00 cash. Based on this information alone, without considering the effect of income tax,: A. cash flow from operating activities is $11.00 assuming a weighted average cost flow. B. cash flow from operating activities is $12.00 assuming a FIFO cost flow. C. cash flow from operating activities is $10.00 assuming a LIFO cost flow. D. the amount of cash flow from operating activities is not affected by the cost flow method.

D

If a firm is using the lower-of-cost-or-market rule and if a write-down entry is required, which of the following effects will apply? A. Net income will increase. B. Gross margin will decrease. C. Assets will decrease. D. Ggross margin will decrease and assets will also decrease .

D

In an inflationary environment, A. a company's net income will be higher if it uses LIFO than if it uses FIFO. B. a company's cost of goods sold will be lower if it uses LIFO as opposed to FIFO. C. a company's net income will be the same regardless of whether LIFO or FIFO is used. D. a company's assets will be lower if it uses LIFO as opposed to FIFO cost flow.

D

Melbourne Company uses the perpetual inventory method. Melbourne purchased 500 units of inventory that cost $4.00 each. At a later date the company purchased an additional 600 units of inventory that cost $5.00 each. If Melboune uses a LIFO cost flow method, and sells 800 units of inventory, the amount of ending inventory appearing on the balance sheet will be: A. $3,800. B. $1.350. C. $1,500. D. $1,200.

D

Rowan Company has four different categories of inventory. Quantity, cost, market value for each inventory category is shown below: Item, Quantity, Cost Per Unit, Market Value Per Unit 1 220 $4.40 $4.60 2 130 $6.20 $6.00 3 100 $10.00 $9.25 4 25 $20.50 $25.00 The company carries inventory at lower-of-cost-or-market applied to the inventory in aggregate. The implementation of the lower-of-cost-or-market rule would: A. increase assets and equity by $55.50. B. reduce assets and equity by $101.00. C. reduce assets and equity by $79.00. D. leave total assets and equity unchanged.

D

The inventory records for Radford Co reflected the following Beg Inv May 1 100 units @ 4.00 First Purchase @ May 7 300 units @ 4.40 Second Purchase @ May 17 500 units @ 4.60 Third Purchase @ May 23 100 units @ 4.80 Sales @ May 31 900 units @ 7.80 Determine the amount of gross margin assuming the weighted average cost flow method. A. $3,015 B. $2,412 C. $1,314 D. $2,970

D

The lower-of-cost-or-market rule: can be applied to A. can be applied to major classes or categories of inventory. B. can be applied to the entire stock of inventory in aggregate. C. can be applied to each individual inventory item D. can be applied to any of these answer choices.

D

West Corporation's 2015 ending inventory was overstated by $20,000; however, ending inventory for 2016 was correct. Which of the following statements is correct? A. Net income for 2015 is understated. B. Retained earnings at the end of 2016 is overstated. C. Cost of goods sold for 2015 is overstated. D. Cost of goods sold for 2016 is overstated.

D

When using the gross margin method to estimate inventory, which of the following is a step in the computation? A. Add the amount goods available for sale to estimated cost of goods sold. B. Add estimated gross margin to sales. C. Subtract estimated goods available for sale from beginning inventory. D. Subtract estimated cost of goods sold from the amount of goods available for sale.

D

Which of the following methods of applying the lower-of-cost-or-market rule will result in the fewest write-downs of inventory? A. Each individual inventory item. B. Average of cost of goods sold for the past three years. C. Major classes or categories of inventory. D. The entire stock of inventory in aggregate.

D

Zirkle Company understated its ending inventory. Which of the following answers correctly states the effect of the error in the present period? A. Overstatement of total assets and cost of goods sold. B. Overstatement of cost of goods sold and retained earnings. C. Understatement of liabilities and retained earnings. D. Understatement of total assets and gross margin.

D