Chapter 6 Quiz Questions

T/F: A company can use different inventory methods for different categories of inventory and can elect to use a different inventory method each period

False

T/F: A physical count of inventory at year-end is required for a perpetual but not a periodic inventory system

False

T/F: In accounting for inventory, the assumed flow of costs must match the physical flow of goods

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 in the company

False

T/F: Net realizable value is defined as cost less depreciation

False

T/F: Net realizable value is defined as cost less depreciation.

False

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

False

T/F: Raw materials inventories are the goods that a manufacturing company has completed and are ready to be sold to customers.

False

T/F: The FIFO reserve is a required disclosure for companies that use FIFO

False

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

False

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

False

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

False

T/F: When terms of sale are FOB shipping point, legal title to the goods remains with the seller until the goods reach the buyer

False

What does the inventory turnover measure?

How quickly a company sells its good

Reporting which one of the following allows analysts to make adjustments to compare companies using different cost flow methods?

LIFO reserve

Which of the following is an inventory cost flow method?

Specific identification

What is LIFO reserve?

The difference between the inventory value under LIFO and FIFO

T/F: A company may use more than one inventory cost flow method at the same time for different categories of inventory

True

T/F: A manufacturer's inventory consists of raw materials, work in process, and finished goods

True

T/F: An inventory turnover that is too high may indicate that the company is losing sales opportunities because of inventory shortages

True

T/F: Goods held on consignment should not be included in the ending inventory

True

T/F: The FIFO inventory method results in an ending inventory valued at the most recent cost

True

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

True

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

True

T/F: Under a periodic inventory system, the merchandise on hand at the end of the period is determined by a physical count of the inventory.

True

A departure from the cost basis of accounting to the lower-of-cost-or-net realizable value basis in valuing inventory is required when there has been

a decline in the value of the inventory

Independent internal verification of the physical inventory process occurs when

a second employee counts the inventory and compares the result to the count made by the first employee

For companies such as Target that use perpetual inventory systems, all of the following are purposes for taking a physical inventory except to a) determine ownership of goods b) determine the amount of waster raw materials c) check the accuracy of the records d) determine losses die to employee theft

a) determine ownership of goods

Apple uses just-in-time inventory methods. Which of the following is not an advantage of this method? a)It limits the risk of having obsolete items in inventory. b)Companies may not have quantities to meet customer demand. c)It lowers inventory levels and costs. d)Companies can respond to individual customer requests.

b) Companies may not have quantities to meet customer demand

The term FOB denotes

free on board

The factor which determines whether or not goods should be included in a physical count of inventory is

legal title

In periods of rising prices, what will LIFO produce

lower income taxes than FIFO

A problem with the specific identification is that

management can manipulate income

A problem with the specific identification method is that

management can manipulate income

Manufacturers such as TREK Bicycle Company usually classify inventory into each of the following categories except

merchandise inventory

In a period of declining prices, which of the following inventory methods generally results in the lowest balance sheet figure for inventory?

FIFO method

In periods of rising prices, the inventory cost flow assumption which results in the inventory value on the balance sheet that is closest to current costs

FIFO method

Assume that Walmart anticipates inflation in future periods. In a period of rising prices, which inventory method will result in the largest amount of net income

FIFO

Assume that Walmart anticipates inflation in future periods. In a period of rising prices, which inventory method will result in the largest amount of net income.

FIFO

Given equal circumstances and generally rising costs, which in inventory method will increase income tax expense the most?

FIFO

Which inventory cost flow assumption generally results in costs allocated to ending inventory that will approximate their current cost?

FIFO

What best describes the assumption made in applying the four inventory methods?

Cost flow

The consistent application of an inventory costing method enhances

comparability

If two companies have the same inventoriable costs but use different inventory flow assumptions when the price of goods have not been constant, then the

cost of goods purchased during the year will be identical

Inventory costing methods place primary reliance on assumptions about the flow of

costs

An employee assigned to counting head sets in boxes should

determine that each box contains a headset

When applying the Lower-of-Cost-or-Net-Realizable Value rule to inventory valuation, note realizable value refers to

estimated selling price less cost to complete and sell

A low number of days in inventory may indicate all of the following except

sales opportunities may be lost because of inventory shortages

What is LIFO reserve

the difference between the inventory value under LIFO and FIFO

What is a LIFO reserve?

the difference between the inventory value under LIFO and FIFO

Selection of an inventory costing method by management does not unusually depend on

the fiscal year end

Selection of an inventory costing method by management does not usually depend on

the fiscal year end

If goods in transit are shipped FOB destination

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

Walmart uses a perpetual inventory system. Which of the following is a reason why Walmart needs to take a physical inventory?

to check the accuracy of the perpetual inventory records

Patagonia's inventory that has begun the production process but is not yet completed is classified as

work in process