Chapter 6- Inventories PDF

Preview

Summary

Download Chapter 6- Inventories PDF

Description

Chapter 06 - Inventory and Cost of Goods Sold

5. If a company understates its count of ending inventory in Year 1, which of the following is true? A. Costs of good sold is understated at the end of Year 1. B. Profit is correct in Year 2. C. The balance of retained earnings is overstated at the end of Year 1. D. The balance of retained earnings is correct at the end of Year 2.

Chapter 06 Inventory and Cost of Goods Sold Multiple Choice Questions

1. Inventory does not include: A. Materials used in the production of goods to be sold. B. Assets intended to be sold in the normal course of business. C. Equipment used in the manufacturing of assets for sale. D. Assets currently in production for normal sales.

6. Bill Inc.'s correct ending balance for the inventory account at the end of 2012 should be $5,000, but the company incorrectly stated it as $3,000. In 2013, Bill correctly recorded its ending balance of the inventory account. Which one of the following is true? A. Gross profit is overstated by $2,000 in 2012. B. Retained earnings are understated by $2,000 in 2013. C. Gross profit is overstated by $2,000 in 2013. D. Cost of goods sold is understated by $2,000 in 2012.

2. The largest expense on a retailer's income statement is typically: A. Salaries. B. Cost of goods sold. C. Income tax expense. D. Depreciation expense. 3. If a company overstates its ending balance of inventory in year 1 and it records inventory correctly in year 2, which one of the following is true? A. Net income is overstated in year 2. B. Cost of goods sold is overstated in year 1. C. Net income is understated in year 1. D. Retained earnings is overstated in year 1.

7. Suppose that Hastings Corporation overstates its ending inventory for 2012. What effect will this have on the reported amount of cost of goods sold for 2012? A. Overstate cost of goods sold. B. Understate cost of goods sold. C. Have no effect on cost of goods sold. D. Cannot be determined given the information provided. 8. Cost of Goods Sold is: A. An asset account. B. A revenue account. C. An expense account. D. A permanent equity account.

4. If a company understates its ending balance of inventory in year 1 and it records inventory correctly in year 2, which one of the following is true? A. Net income is overstated in year 1. B. Cost of goods sold is understated in year 2. C. Net income is understated in year 2. D. Retained earnings is understated in year 2.

9. Cost of goods sold equals: A. Beginning inventory - net purchases + ending inventory. B. Beginning inventory + accounts payable - net purchases. C. Net purchases + ending inventory - beginning inventory. D. Beginning inventory + net purchases - ending inventory. 6-1

Chapter 06 - Inventory and Cost of Goods Sold

10. Baker Fine Foods has beginning inventory for the year of $12,000. During the year, Baker purchases inventory for $150,000 and ends the year with $20,000 of inventory. Baker will report cost of goods sold equal to: A. $150,000. B. $158,000. C. $142,000. D. $170,000.

13. Inventory records for Dunbar Incorporated revealed the following:

11. Tyler Toys has beginning inventory for the year of $18,000. During the year, Tyler purchases inventory for $230,000 and has cost of goods sold equal to $233,000. Tyler's ending inventory equals: A. $15,000. B. $18,000. C. $21,000. D. $19,000.

Dunbar sold 700 units of inventory during the month. Cost of goods sold assuming LIFO would be: A. $1,730. B. $1,700. C. $1,720. D. $1,710. 14. Inventory records for Dunbar Incorporated revealed the following:

12. Inventory records for Dunbar Incorporated revealed the following:

Dunbar sold 700 units of inventory during the month. Ending inventory assuming FIFO would be: A. $500. B. $490. C. $470. D. $480.

Dunbar sold 700 units of inventory during the month. Ending inventory assuming LIFO would be: A. $500. B. $490. C. $470. D. $480.

6-2

Chapter 06 - Inventory and Cost of Goods Sold

17. Inventory records for Dunbar Incorporated revealed the following:

15. Inventory records for Dunbar Incorporated revealed the following:

Dunbar sold 700 units of inventory during the month. Cost of goods sold assuming weightedaverage cost would be (round weighted-average unit cost to four decimals if necessary): A. $1,711. B. $1,700. C. $1,720. D. $1,708.

Dunbar sold 700 units of inventory during the month. Cost of goods sold assuming FIFO would be: A. $1,730. B. $1,700. C. $1,720. D. $1,710.

18. Inventory records for Marvin Company revealed the following: 16. Inventory records for Dunbar Incorporated revealed the following:

Marvin sold 2,300 units of inventory during the month. Ending inventory assuming LIFO would be: A. $5,040. B. $5,055. C. $5,075. D. $5,135.

Dunbar sold 700 units of inventory during the month. Ending inventory assuming weightedaverage cost would be (round weighted-average unit cost to four decimals if necessary): A. $502. B. $490. C. $489. D. $480.

6-3

Chapter 06 - Inventory and Cost of Goods Sold

21. Inventory records for Marvin Company revealed the following:

19. Inventory records for Marvin Company revealed the following:

Marvin sold 2,300 units of inventory during the month. Cost of goods sold assuming LIFO would be: A. $16,800. B. $16,760. C. $16,540. D. $16,660.

Marvin sold 2,300 units of inventory during the month. Ending inventory assuming FIFO would be: A. $5,140. B. $5,080. C. $5,060. D. $5,050. 20. Inventory records for Marvin Company revealed the following:

22. Inventory records for Marvin Company revealed the following:

Marvin sold 2,300 units of inventory during the month. Ending inventory assuming weightedaverage cost would be (round weighted-average unit cost to four decimals if necessary): A. $5,087. B. $5,107. C. $5,077. D. $5,005.

Marvin sold 2,300 units of inventory during the month. Cost of goods sold assuming FIFO would be: A. $16,800. B. $16,760. C. $16,540. D. $16,660.

6-4

Chapter 06 - Inventory and Cost of Goods Sold

25. The following information pertains to Julia & Company:

23. Inventory records for Marvin Company revealed the following:

What's the ending balance of inventory for Julia & Company assuming that it uses FIFO? A. $125 B. $100 C. $110 D. $85 Marvin sold 2,300 units of inventory during the month. Cost of goods sold assuming weightedaverage cost would be (round weighted-average unit cost to four decimals if necessary): A. $16,733. B. $17,408. C. $16,713. D. $16,089.

26. Consider the following inventory transactions for September:

For the month of September, the company sold 35 units. What is the cost of good sold under the weighted-average cost method (round the weightedaverage unit cost to four decimals if necessary)? A. $121. B. $116. C. $124. D. $131.

24. The following information pertains to Julia & Company:

What is the cost of goods sold for Julia & Company assuming it uses LIFO? A. $125. B. $100. C. $110. D. $85.

27. The following information relates to inventory for Shoeless Joe Inc.

At what amount would Shoeless report gross profit using LIFO cost flow assumptions? A. $105. B. $80. C. $175. D. $120. 6-5

Chapter 06 - Inventory and Cost of Goods Sold

28. The following information relates to inventory for Shoeless Joe Inc.

29. The following information relates to inventory for Shoeless Joe Inc.

At what amount would Shoeless report cost of goods sold using the weighted-average cost flow assumption? (Round your answer to the nearest dollar) A. $110. B. $73. C. $70. D. $105.

At what amount would Shoeless report ending inventory using FIFO cost flow assumptions? A. $55. B. $170. C. $110. D. $70.

30. In a period when inventory costs are rising, the inventory method that most likely results in the highest ending inventory is: A. Lower-of-cost-or-market method. B. Weighted-average cost. C. FIFO. D. LIFO. 31. In a period when inventory costs are falling, the lowest taxable income is most likely reported by using the inventory method of: A. Weighted average. B. LIFO. C. Moving average. D. FIFO. 32. Which of the following is true regarding LIFO and FIFO? A. In a period of decreasing costs, LIFO results in lower total assets than FIFO. B. In a period of decreasing costs, LIFO results in lower net income than FIFO. C. In a period of rising costs, LIFO results in lower net income than FIFO. D. The amount reported for COGS is based on market value of inventory if LIFO is used.

6-6

Chapter 06 - Inventory and Cost of Goods Sold

33. During periods when inventory costs are rising, cost of goods sold will most likely be: A. Higher under FIFO than LIFO. B. Higher under FIFO than average cost. C. Lower under average cost than LIFO. D. Lower under LIFO than FIFO.

38. Which inventory method is better described as having an income statement focus and why is it considered as such? A. FIFO; better approximates the value of ending inventory. B. LIFO; better approximates the value of ending inventory. C. LIFO; better approximates inventory cost necessary to generate revenue. D. FIFO; better approximates inventory cost necessary to generate revenue.

34. In a period of rising prices, which inventory valuation method would a company likely choose if they want to have the highest possible balance of inventory on the balance sheet? A. Average cost. B. FIFO. C. LIFO. D. Periodic.

39. Which inventory method is better described as having a balance sheet focus and why is it considered as such? A. FIFO; better approximates the value of ending inventory. B. LIFO; better approximates the value of ending inventory. C. LIFO; better approximates inventory cost necessary to generate revenue. D. FIFO; better approximates inventory cost necessary to generate revenue.

35. During periods when inventory costs are rising, ending inventory will most likely be: A. Greater under LIFO than FIFO. B. Less under average cost than LIFO. C. Greater under average cost than FIFO. D. Greater under FIFO than LIFO. 36. The LIFO conformity rule states that if LIFO is used for: A. One class of inventory, it must be used for all classes of inventory. B. Tax purposes, it must be used for financial reporting. C. One company in an affiliated group, it must be used by all companies in an affiliated group. D. Domestic companies, it must be used by foreign partners.

40. Which inventory cost flow assumption generally results in the highest reported amount for cost of goods sold when inventory costs are falling? A. FIFO. B. LIFO. C. Weighted-average cost. D. Straight-line. 41. Which of the following is true concerning inventory cost flow assumptions? A. LIFO produces higher net income than FIFO in a period of rising prices. B. FIFO is an income statement focus. C. LIFO is a balance sheet focus. D. None of the above are true.

37. The primary reason for the popularity of LIFO is that it gives: A. Better matching of physical flow and cost flow. B. A lower income tax obligation. C. Simplified recordkeeping. D. A simpler method to apply.

6-7

Chapter 06 - Inventory and Cost of Goods Sold

46. Ace Bonding Company purchased inventory on account. The inventory costs $2,000 and is expected to sell for $3,000. How should Ace record the purchase using a perpetual inventory system?

42. In a perpetual inventory system, the purchase of inventory is debited to: A. Purchases. B. Cost of Goods Sold. C. Inventory. D. Accounts Payable.

A.

43. In a perpetual inventory system, at the time of a sale the cost of inventory sold is: A. Debited to Accounts Receivable. B. Credited to Cost of Goods Sold. C. Debited to Cost of Goods Sold. D. Not recorded at the time.

B. C.

44. Good, Inc. sold inventory for $1,200 that was purchased for $700. Good records which of the following when it sells inventory using a perpetual inventory system? A. No entry is required for cost of goods sold and inventory. B. Debit Cost of Goods Sold $700; credit Inventory $700. C. Debit Cost of Goods Sold $1,200; credit Inventory $1,200. D. Debit Inventory $700; credit Cost of Goods Sold $700.

D. 47. Merchandise sold FOB destination indicates that: A. The seller holds title until the merchandise is received at the buyer's location. B. The merchandise has not yet been shipped. C. The merchandise will not be shipped until payment has been received. D. The seller transfers title to the buyer once the merchandise is shipped.

45. Davis Hardware Company uses a perpetual inventory system. How should Davis record the sale of inventory costing $620 for $960 on account?

48. Merchandise sold FOB shipping point indicates that: A. The seller holds title until the merchandise is received at the buyer's location. B. The merchandise has not yet been shipped. C. The merchandise will not be shipped until payment has been received. D. The seller transfers title to the buyer once the merchandise is shipped.

A.

49. If A sells to B, and B obtains title while goods are in transit, the goods were shipped. If C sells to D, and C maintains title until the goods arrive at D's door then the goods were shipped. A. FOB shipping point, FOB destination. B. FOB destination, FOB shipping point. C. FOB destination, FOB destination. D. FOB shipping point, FOB shipping point.

B.

C.

D.

6-8

Chapter 06 - Inventory and Cost of Goods Sold

50. Ending inventory is equal to the cost of items on hand plus: A. Items in transit sold FOB shipping point. B. Sales discounts. C. Items in transit sold FOB destination. D. Advertising expense.

53. On May 1, Ace Bonding Company purchased inventory costing $2,000 on account with terms 2/10, n/30. On May 8, Ace pays for this inventory and records which of the following using a perpetual inventory system? A.

51. Suppose Company A places an order with Company B on May 12. On May 14, Company B ships the ordered goods to Company A with terms FOB destination. The goods arrive at Company A on May 17. Company A begins selling the goods to customers on May 19 and pays Company B on May 20. When would Company B record the sale of goods to Company A? A. May 12 B. May 14 C. May 19 D. May 17

B.

C. D.

52. Davis Hardware Company uses a perpetual inventory system. How should Davis record the return of inventory previously purchased on account for $200?

54. On May 1, Ace Bonding Company purchased inventory costing $2,000 on account with terms 2/10, n/30. On May 18, Ace pays for this inventory and records which of the following using a perpetual inventory system?

A.

A.

B.

B.

C. C. D. D.

55. The distinction between operating and nonoperating income relates to: A. Continuity of income. B. Principal activities of the reporting entity. C. Consistency of income stream. D. Reliability of measurements.

6-9

Chapter 06 - Inventory and Cost of Goods Sold

58. Given the information in the table below, what is the company's gross profit?

56. Given the information below, what is the gross profit?

A. $280,000. B. $170,000. C. $50,000. D. $100,000.

A. $250,000 B. $70,000 C. $220,000 D. $50,000

59. LeGrand Corporation reported the following amounts in its income statement:

57. Consider the following year-end information for Spitzer Corporation:

What amount will Spitzer report for operating income? A. $200,000 B. $210,000 C. $380,000 D. $120,000

What was LeGrand's gross profit? A. $260,000. B. $180,000. C. $220,000. D. $120,000.

6-10

Chapter 06 - Inventory and Cost of Goods Sold

63. Niva Company has the following information for their inventories A, B, C, and D:

60. LeGrand Corporation reported the following amounts in its income statement:

The necessary adjustment associated with the lower-of-cost-or-market method would be:

What was LeGrand's operating income? A. $120,000. B. $260,000. C. $110,000. D. $65,000.

A. B.

61. LeGrand Corporation reported the following amounts in its income statement:

C. D. 64. On April 1, Robert LLC purchased two units of inventory, A and B. The cost of unit A was $650, and the cost of unit B was $625. On April 30, Robert LLC had not sold the inventory. The market value of unit A was now $685 while the market value of unit B was $550. The adjustment associated with the lower-of-cost-or-market method on April 30 will be:

What was LeGrand's net income? A. $120,000. B. $60,000. C. $110,000. D. $65,000.

A. B.

62. Wildwood, an outdoors clothing store, reports the following information for June:

C. D.

What is Wildwood's gross profit for June? A. $18,000. B. $39,000. C. $104,00. D. $17,000. 6-11

Chapter 06 - Inventory and Cost of Goods Sold

65. Consider the following information pertaining to OldWest's inventory:

66. Under the principle of lower-of-cost-or-market, when a company has 10 units of inventory A with market value of $50 and a cost of $60, what is the adjustment? A. Debit Inventory $100; credit Cost of Goods Sold $100. B. Debit Inventory $500; credit Cost of Goods Sold $500. C. Debit Cost of Goods Sold $100; credit Inventory $100. D. Debit Cost of Goods Sold $500; credit Inventory $500.

At what amount should OldWest report its inventory? A. $3,213. B. $3,386. C. $2,996. D. $2,906.

67. What effect would an adjustment to record inventory at the lower-of-cost-or-market have on the company's financial statements? A. An increase to assets. B. An increase to stockholders' equity. C. A decrease to revenue. D. An increase to expense. 68. The practice of using the lower-of-cost-ormarket to evaluate inventory reflects which of the following accounting principles? A. Matching principle. B. Revenue recognition. C. Conservatism. D. Materiality. 69. At the end of a reporting period, Gamble Corporation determines that its ending inventory has a cost of $300,000 and a market value of $230,000. What would be the effect(s) of the adjustment to write down inventory to market value? A. Decrease total assets. B. Decrease net income. C. Increase retained earnings. D. a and b.

6-12

Chapter 06 - Inventory and Cost of Goods Sold

70. Using the information below, determine the ending inventory value applying the lower-of-costor-market method.

73. Company A is identical to Company B in every regard except that Company A uses FIFO and Company B uses LIFO. In an extended period of rising inventory costs, Company A's gross profit and inventory turnover, compared to Company B's, would be:

A. $13,300. B. $12,000. C. $11,600. D. $13,700.

A. Option a B. Option b C. Option c D. Option d

71. After applying the lower-of-cost-or-market method, the accountant prepares a year-end adjustment. That adjustment would: A. Decrease the company's cost of goods sold. B. Reduce the company's stockholders' equity. C. Increase the company's inventory. D. Increase the company's total assets.

74. Nu Company reported the following data for its first year of operations:

72. Northern Town Equipment has four types of products in its inventory. Northern applies the rules under lower-of-cost or market (LCM) to its inventory at the end of each year as shown below: What is Nu's gross profit ratio? A. 80%. B. 49%...