Chapter 9 - I hope these notes can help you. Study smart! PDF

Preview

Summary

I hope these notes can help you. Study smart!...

Description

Chapter 9—Inventories TRUE/FALSE 1. A business using the perpetual inventory system does not need to take a physical count. ANS: F

DIF: 1

OBJ: 01

2. Internal control procedures over inventory are not applicable to customer theft. ANS: F

DIF: 1

OBJ: 01

3. The inventory system employing accounting records that continuously show the amount of the inventory is called periodic. ANS: F

DIF: 1

OBJ: 01

4. A perpetual inventory system is an effective means of control over inventory. ANS: T

DIF: 5

OBJ: 01

5. Title to merchandise shipped FOB shipping point passes to the buyer upon delivery of the merchandise to the buyer's place of business. ANS: F

DIF: 1

OBJ: 01

6. Title to merchandise shipped FOB destination passes to the buyer upon delivery of the merchandise to the buyer's place of business. ANS: T

DIF: 1

OBJ: 01

7. Unsold consigned merchandise should be included in the consignee's inventory. ANS: F

DIF: 1

OBJ: 01

8. If ending inventory for the year is understated and there are no other errors, net income for the year is overstated. ANS: F

DIF: 5

OBJ: 02

9. If ending inventory for the year is overstated (no other errors), owner's equity reported on the balance sheet at the end of the year is understated. ANS: F

DIF: 5

OBJ: 02

10. An error in the determination of inventory at the end of the period will cause an equal misstatement of assets and owner's equity reported at the end of the period. ANS: T

DIF: 5

OBJ: 02

11. If ending inventory for the year is understated (no other errors), net income for the year is understated.

ANS: T

DIF: 5

OBJ: 02

12. If ending inventory for the year is overstated (no other errors), net income for the year will be overstated. ANS: T

DIF: 5

OBJ: 02

13. If ending inventory for the year is overstated (no other errors), liabilities reported on the balance sheet at the end of the year will be understated. ANS: F

DIF: 5

OBJ: 02

14. The fifo method of costing inventory is based on the assumption that costs should be charged against revenues in the reverse order in which they were incurred. ANS: F

DIF: 1

OBJ: 03

15. Of the three widely used inventory costing methods (fifo, lifo, and average), the lifo method of costing inventory is based on the assumption that costs are charged against revenues in the order in which they were incurred. ANS: F

DIF: 1

OBJ: 03

16. Cost is a method of inventory valuation. ANS: T

DIF: 1

OBJ: 03

17. If the perpetual inventory system is used and a physical count disclosed a shortage, the inventory shortages account should be debited and the merchandise inventory account credited. ANS: T

DIF: 5

OBJ: 04

18. If the perpetual inventory system is used, the account entitled Merchandise Inventory is debited for purchases of merchandise. ANS: T

DIF: 1

OBJ: 04

19. In the perpetual system, the merchandise inventory balance is the cost of merchandise sold. ANS: F

DIF: 1

OBJ: 04

20. If the perpetual system is used, a shortage in inventory is recorded by crediting the merchandise inventory account. ANS: T

DIF: 5

OBJ: 04

21. If the perpetual system is used, the cost of merchandise sold is generally included as an administrative expense on the income statement. ANS: F

DIF: 1

OBJ: 04

22. If the perpetual inventory system is used, an account entitled Cost of Merchandise Sold is included in the general ledger. ANS: T

DIF: 1

OBJ: 04

23. Purchases discounts reduce the purchase price of items in inventory. ANS: T

DIF: 1

OBJ: 05

24. Under the periodic inventory system, the merchandise inventory account continuously discloses the amount of inventory on hand. ANS: F

DIF: 1

OBJ: 05

25. Under the periodic inventory system, the average cost method is sometimes called the weighted average method. ANS: T

DIF: 1

OBJ: 05

26. Under the periodic inventory system, a physical inventory is taken to determine the cost of the inventory on hand and the cost of the merchandise sold. ANS: T

DIF: 1

OBJ: 05

27. During inflationary periods, the use of the fifo method of costing inventory will result in a greater amount of net income than would result from the use of the lifo cost method. ANS: T

DIF: 5

OBJ: 06

28. During inflationary periods, the use of the fifo method of costing inventory will yield an inventory amount for the balance sheet approximating the current replacement cost. ANS: T

DIF: 5

OBJ: 06

29. During inflationary periods, the use of the lifo method of costing inventory will result in a greater amount of net income than would result from the use of the average method. ANS: F

DIF: 5

OBJ: 06

30. During deflationary periods, the use of the lifo method of costing inventory will result in a lower amount of net income than would result from the use of the fifo method. ANS: F

DIF: 5

OBJ: 06

31. During deflationary periods, the use of the lifo method of costing inventory will result in a lower amount of current assets than would result from the use of the fifo method. ANS: F

DIF: 5

OBJ: 06

32. The net realizable value is used for purposes of valuing obsolete merchandise in inventory. ANS: T

DIF: 1

OBJ: 07

33. In valuing damaged merchandise for inventory purposes, net realizable value is the estimated selling price less any direct cost of disposition. ANS: T

DIF: 1

OBJ: 07

34. The lower of cost or market is a method of inventory valuation. ANS: T

DIF: 1

OBJ: 07

35. "Market," as used in the phrase "lower of cost or market" for valuing inventory, refers to the price at which the inventory is being offered for sale by its owner. ANS: F

DIF: 1

OBJ: 07

36. The use of the lower of cost or market method of inventory valuation increases the gross profit for the period in which the inventory replacement price declined. ANS: F

DIF: 5

OBJ: 07

37. Merchandise inventory is presented on the balance sheet in the current liabilities section. ANS: F

DIF: 1

OBJ: 08

38. If the retail inventory method is used, inventory figures can be provided for interim statements without the necessity of taking a physical inventory. ANS: T

DIF: 1

OBJ: 09

39. If a fire destroys the merchandise inventory, the gross profit method can be used to estimate the cost of merchandise destroyed. ANS: T

DIF: 1

OBJ: 09

40. The retail method is a way of estimating an inventory's cost. ANS: T

DIF: 1

OBJ: 09

41. The gross profit method is a method of estimating the cost of inventory. ANS: T

DIF: 1

OBJ: 09

42. Generally, the lower the number of days' sales in inventory, the better. ANS: T

DIF: 2

OBJ: 10

43. One negative effect of carrying too much inventory is risk that customers will change their buying habits. ANS: T

DIF: 2

OBJ: 10

44. Average inventory is computed by adding the inventory at the beginning of the period to the inventory at the end of the period and dividing by two.

ANS: T

DIF: 3

OBJ: 10

MULTIPLE CHOICE 1. The term "inventory" indicates: a. merchandise held for sale in the normal course of business b. materials in the process of production or held for production c. both a and b d. neither a nor b ANS: C

DIF: 1

OBJ: 01

2. Under a perpetual inventory system, the amount of each type of merchandise on hand is available in the: a. customer's ledger b. creditor's ledger c. inventory ledger d. merchandise inventory account ANS: C

DIF: 1

OBJ: 01

3. Taking a physical count of inventory: a. is not necessary when a periodic inventory system is used b. is a detective control c. has no internal control relevance d. is not necessary when a perpetual inventory system is used ANS: B

DIF: 1

OBJ: 01

4. If title to merchandise purchases passes to the buyer when the goods are delivered to the buyer, the terms are: a. consigned b. n/30 c. FOB shipping point d. FOB destination ANS: D

DIF: 1

OBJ: 01

5. If title to merchandise purchases passes to the buyer when the goods are shipped from the seller, the terms are: a. n/30 b. FOB shipping point c. FOB destination d. consigned ANS: B

DIF: 1

OBJ: 01

6. If a manufacturer ships merchandise to a retailer on consignment, the unsold merchandise should be included in the inventory of the: a. consignee b. retailer c. manufacturer d. shipper ANS: C

DIF: 1

OBJ: 01

7. If the merchandise costs $4,000, insurance in transit costs $200, tariff costs $50, processing the purchase order by the purchasing department costs $35, and the company receiving dock personnel costs $15, what is the total cost charged to the merchandise? a. $4,250 b. $4,285 c. $4,300 d. $4,000 ANS: A

DIF: 5

OBJ: 01

8. If the merchandise costs $5,000, insurance in transit costs $100, tariff costs $50, and the company receiving dock personnel costs $15, what is the total cost charged to the merchandise? a. $5,100 b. $5,150 c. $5,165 d. $5,000 ANS: B

DIF: 5

OBJ: 01

9. Merchandise inventory at the end of the year was inadvertently overstated. Which of the following statements correctly states the effect of the error? a. net income is understated b. net income is overstated c. cost of merchandise sold is overstated d. gross profit is understated ANS: B

DIF: 5

OBJ: 02

10. Merchandise inventory at the end of the year was inadvertently overstated. Which of the following statements correctly states the effect of the error on net income, assets, and owner's equity? a. net income is overstated, assets are overstated, owner's equity is understated b. net income is overstated, assets are overstated, owner's equity is overstated c. net income is understated, assets are understated, owner's equity is understated d. net income is understated, assets are understated, owner's equity is overstated ANS: B

DIF: 5

OBJ: 02

11. Merchandise inventory at the end of the year was understated. Which of the following statements correctly states the effect of the error? a. gross profit is understated b. net income is overstated c. cost of merchandise sold is understated d. merchandise inventory reported on the balance sheet is overstated ANS: A

DIF: 5

OBJ: 02

12. Merchandise inventory at the end of the year is overstated. Which of the following statements correctly states the effect of the error? a. owner's equity is overstated b. cost of merchandise sold is overstated c. gross profit is understated d. net income is understated ANS: A

DIF: 5

OBJ: 02

13. The inventory method that considers the inventory to be composed of the units of merchandise acquired earliest is called: a. first-in, first-out b. last-in, first-out c. average cost d. retail method ANS: B

DIF: 5

OBJ: 03

14. When merchandise sold is assumed to be in the order in which the expenditures were made, the inventory method is called: a. first-in, last-out b. last-in, first-out c. first-in, first-out d. average cost ANS: C

DIF: 1

OBJ: 03

15. The two most widely used methods for determining the cost of inventory are: a. fifo and lifo b. fifo and average c. lifo and average d. gross profit and average ANS: A

DIF: 1

OBJ: 03

16. Under which method of cost flows is the inventory assumed to be composed of the most recent costs? a. average cost b. last-in, first-out c. first-in, first-out d. weighted average ANS: C

DIF: 1

OBJ: 03

17. Under which method of inventory cost flows is the cost flow assumed to be in the reverse order in which the expenditures were made? a. weighted average b. last-in, first-out c. first-in, first-out d. average cost ANS: B

DIF: 1

OBJ: 03

18. The inventory data for an item for November are: Nov.

1 4 10 17 30

Inventory......... Sold.............. Purchased......... Sold.............. Purchased.........

20 10 30 20 10

units at $20 units units at $21 units units at $22

Using the perpetual system, costing by the first-in, first-out method, what is the cost of the merchandise inventory of 30 units on November 30?

a. b. c. d.

$640 $610 $620 $630

ANS: A

DIF: 3

OBJ: 04

19. Under a perpetual inventory system, when a shortage is discovered: a. Merchandise Inventory is debited b. Cost of Merchandise Sold is credited c. Inventory Shortages is credited d. Merchandise Inventory is credited ANS: D

DIF: 1

OBJ: 04

20. In recording the cost of merchandise sold for cash, based on data available from perpetual inventory records, the journal entry is: a. debit Cost of Merchandise Sold; credit Sales b. debit Cost of Merchandise Sold; credit Merchandise Inventory c. debit Merchandise Inventory; credit Cost of Merchandise Sold d. debit Accounts Receivable; credit Sales ANS: B

DIF: 5

OBJ: 04

21. Under the perpetual inventory system, all purchases of merchandise are debited to the account entitled: a. Merchandise Inventory b. Cost of Merchandise Sold c. Cost of Merchandise Available for Sale d. Purchases ANS: A

DIF: 1

OBJ: 04

22. Under a perpetual inventory system, the cost of all sales of merchandise are credited to the account entitled: a. Accounts Receivable b. Cost of Merchandise Sold c. Cost of Merchandise Available for Sale d. Merchandise Inventory ANS: D

DIF: 1

OBJ: 04

23. The inventory system employing accounting records that continuously disclose the amount of inventory is called: a. retail b. periodic c. physical d. perpetual ANS: D

DIF: 1

OBJ: 04

24. When the perpetual inventory system is used, the inventory sold is shown on the income statement as: a. cost of merchandise sold b. cost or market, whichever is lower c. merchandise inventory

d. administrative expense ANS: A

DIF: 1

OBJ: 04

25. The inventory data for an item for November are: Nov.

1 4 10 17 30

Inventory......... Sold.............. Purchased......... Sold.............. Purchased.........

20 10 30 20 10

units at $20 units units at $21 units units at $22

Using the perpetual system, costing by the last-in, first-out method, what is the cost of the merchandise inventory of 30 units on November 30? a. $640 b. $630 c. $660 d. $610 ANS: B

DIF: 3

OBJ: 04

26. Under a perpetual inventory system: a. accounting records continuously disclose the amount of inventory b. increases in inventory resulting from purchases are debited to Purchases c. there is no need for a year-end physical count d. the purchase returns and allowances account is credited when goods are returned to vendors ANS: A

DIF: 1

OBJ: 04

27. The following lots of a particular commodity were available for sale during the year: Beginning inventory........ First purchase............. Second purchase............ Third purchase.............

10 25 30 15

units units units units

at at at at

$50 $53 $54 $60

The firm uses the periodic system and there are 20 units of the commodity on hand at the end of the year. What is the amount of inventory at the end of the year according to the first-in, first-out method? a. $1,030 b. $1,140 c. $1,170 d. $1,060 ANS: C

DIF: 3

OBJ: 05

28. The following lots of a particular commodity were available for sale during the year: Beginning inventory........ First purchase............. Second purchase............ Third purchase.............

10 25 30 15

units units units units

at at at at

$61 $63 $64 $73

The firm uses the periodic system and there are 25 units of the commodity on hand at the end of the year. What is the amount of the inventory at the end of the year according to the first-in, first-out method? a. $1,600 b. $1,555 c. $1,735 d. $1,235 ANS: C

DIF: 3

OBJ: 05

29. The inventory data for an item for the month of May are as follows: May

1 5 10 20 29

Inventory......... Sold.............. Purchased......... Sold.............. Purchased.........

20 15 30 30 20

units at $50 units units at $55 units units at $60

What is the cost of the merchandise inventory of 25 units on May 31 by the first-in, first-out method if the periodic system is used? a. $1,500 b. $1,275 c. $1,475 d. $1,250 ANS: C

DIF: 3

OBJ: 05

30. The inventory data for an item for the month of May are as follows: May

1 5 10 20 29

Inventory......... Sold.............. Purchased......... Sold.............. Purchased.........

20 15 30 30 20

units at $50 units units at $55 units units at $60

What is the cost of the merchandise inventory of 25 units on May 31 by the last-in, first-out method if the periodic system is used? a. $1,750 b. $1,275 c. $1,450 d. $1,700 ANS: B

DIF: 3

OBJ: 05

31. The following lots of a particular commodity were available for sale during the year: Beginning inventory......... First purchase.............. Second purchase............. Third purchase..............

10 25 30 15

units units units units

at at at at

$60 $63 $64 $70

The firm uses the periodic system and there are 20 units of the commodity on hand at the end of the year. What is the amount of this inventory according to the first-in, first-out method? a. $1,200 b. $1,230 c. $1,370 d. $1,400 ANS: C

DIF: 3

OBJ: 05

32. The following lots of a particular commodity were available for sale during the year: Beginning inventory........ First purchase............. Second purchase............ Third purchase.............

10 25 30 10

units units units units

at at at at

$60 $63 $64 $70

The firm uses the periodic system and there are 20 units of the commodity on hand at the end of the year. What is the amount of inventory at the end of the year according to the last-in, firstout method? a. $1,230 b. $1,220 c. $1,240 d. $1,340 ANS: A

DIF: 3

OBJ: 05
...