Question 1

Goods in transit are automatically included in inventory.

Accepted Answer

A) True 
 B)False

Question 2

A company that has operated with a 30% average gross profit ratio for a number of years had $110,000 in net sales during the first quarter of this year. If it began the quarter with $28,000 in inventory at cost and purchased $75,000 of merchandise during the quarter, its estimated ending inventory by the gross profit method is

Accepted Answer

A)  $20,000 
B)  $21,000 
C)  $24,000 
D)  $25,000 
E)  $26,000 
A)  $20,000 
B)  $21,000 
C)  $24,000 
D)  $25,000 
E)  $26,000

Question 3

If the supplier pays freight charges, then ownership of inventory passes when goods arrive at their destination.

Accepted Answer

A) True 
 B)False

Question 4

During January, a company that uses a perpetual inventory system had beginning inventory, purchases, and sales as follows:
 $$\begin{array} { | l | r | r | r | } 
\hline & \text { Units } & \begin{array} { r } 
\text { Cast per } \
\text { unit }
\end{array} \
\hline & \text { Begin Inventory } & 100 & 12 \
\hline \text { Jan } 5 & \text { Sale } & 50 & \
\hline 10 & \text { Purchase } & 70 & 16 \
\hline 15 & \text { Sale } & 25 & \
\hline 25 & \text { Sale } & 35 & \
\hline
\end{array}$$ Prepare a schedule to show the cost of goods sold and ending inventory using the FIFO cost flow assumption.

Accepted Answer

The answer of During January, a company that uses a...

Question 5

The principle of faithful representation requires that information be complete, neutral and free from error so that assets and income are not overstated and liabilities and expenses are not understated.

Accepted Answer

A) True 
 B)False

Question 6

Generally accepted accounting principles require that the inventory of a company be reported at:

Accepted Answer

A)  Net realizable value 
B)  Historical cost 
C)  Lower of cost and net realizable value 
D)  Replacement cost 
E)  Purchase price 
A)  Net realizable value 
B)  Historical cost 
C)  Lower of cost and net realizable value 
D)  Replacement cost 
E)  Purchase price

Question 7

An understatement of ending inventory will understate cost of goods sold and overstate net income.

Accepted Answer

A) True 
 B)False

Question 8

Interim statements

Accepted Answer

A)  Are required by CRA 
B)  Are necessary to achieve full disclosure about a business's operation 
C)  Are usually monthly or quarterly statements prepared in between the traditional, annual statements 
D)  Are required by CRA and are necessary to achieve full disclosure about a business's operations 
E)  All of the above 
A)  Are required by CRA 
B)  Are necessary to achieve full disclosure about a business's operation 
C)  Are usually monthly or quarterly statements prepared in between the traditional, annual statements 
D)  Are required by CRA and are necessary to achieve full disclosure about a business's operations 
E)  All of the above

Question 9

Use of the FIFO cost flow assumption means that

Accepted Answer

A)  Ending inventory items are the ones most recently purchased 
B)  Goods are removed from inventory at their average cost 
C)  The periodic costing system is used 
D)  The beginning inventory contains the oldest costs 
E)  All of these are correct answers. 
A)  Ending inventory items are the ones most recently purchased 
B)  Goods are removed from inventory at their average cost 
C)  The periodic costing system is used 
D)  The beginning inventory contains the oldest costs 
E)  All of these are correct answers.

Question 10

One of the most important decisions in accounting for inventory is determining the per-unit costs assigned to inventory items.

Accepted Answer

A) True 
 B)False

Question 11

Trekking Company's cost of goods sold was $15,550. Its average merchandise inventory was $4,575. Its merchandise turnover was 3.4.

Accepted Answer

A) True 
 B)False

Question 12

Would an entry be needed if the calculation of LCNRV was made on a group basis? If so, make the entry. If not, state why.

Accepted Answer

On a group basis, no entry wou

Question 13

The accepted method for valuing inventory includes

Accepted Answer

A)  Counting the units of each product on hand 
B)  Multiplying the count for each product by its cost per unit 
C)  Adding the costs for all products 
D)  Counting the units of each product on hand and multiplying the count for each product by its cost per unit 
E)  All of the above 
A)  Counting the units of each product on hand 
B)  Multiplying the count for each product by its cost per unit 
C)  Adding the costs for all products 
D)  Counting the units of each product on hand and multiplying the count for each product by its cost per unit 
E)  All of the above

Question 14

On September 30, Stark Company needed to estimate its ending inventory in order to prepare its third-quarter financial statements. The following information is available: (1) Inventory, July 1: $12,500 (2) Third quarter net sales: $40,000 (3) Third quarter net purchases: $17,500 Stark's gross profit ratio is 15%. Estimated cost of goods sold would be

Accepted Answer

A)  $6,000 
B)  $34,000 
C)  $36,000 
D)  $40,000 
E)  $57,500 
A)  $6,000 
B)  $34,000 
C)  $36,000 
D)  $40,000 
E)  $57,500

Question 15

Errors in inventory valuation only affect the current period's records and financial statements.

Accepted Answer

A) True 
 B)False

Question 16

The full disclosure principle

Accepted Answer

A)  Requires that when a change in inventory cost flow assumption is made, the notes to the statements report the type of change 
B)  Requires that when a change in inventory cost flow assumption is made, the notes to the statements report the justification for the change 
C)  Requires that any change in net income due to changes in the inventory cost assumption be disclosed 
D)  Does not require a company to use one cost flow assumption exclusively 
E)  All of the above 
A)  Requires that when a change in inventory cost flow assumption is made, the notes to the statements report the type of change 
B)  Requires that when a change in inventory cost flow assumption is made, the notes to the statements report the justification for the change 
C)  Requires that any change in net income due to changes in the inventory cost assumption be disclosed 
D)  Does not require a company to use one cost flow assumption exclusively 
E)  All of the above

Question 17

There is no difference in the amount of inventory calculated by the periodic and perpetual inventory systems when using the FIFO cost flow assumption.

Accepted Answer

A) True 
 B)False

Question 18

Trekking Company's cost of inventory was $317,500. Due to phenomenal demand the net realizable value has increased to $323,000. Trekking Company should write up the value of inventory under the LCNRV rule.

Accepted Answer

A) True 
 B)False

Question 19

In a period of inflation, FIFO usually gives a lower taxable income and thus a tax advantage.

Accepted Answer

A) True 
 B)False

Question 20

Bakstreet Company wants to estimate inventory destroyed by flood. Its average gross profit percentage is 37%. The following information is available:
   Instructions: Calculate the value of the destroyed ending inventory using the gross profit method. Round numbers to the nearest dollar, if necessary.

Accepted Answer

Net sales:

Goods in transit are automatically included in inventory.

If the supplier pays freight charges, then ownership of inventory passes when goods arrive at their destination.

The principle of faithful representation requires that information be complete, neutral and free from error so that assets and income are not overstated and liabilities and expenses are not understated.

Generally accepted accounting principles require that the inventory of a company be reported at:

An understatement of ending inventory will understate cost of goods sold and overstate net income.

Interim statements

Use of the FIFO cost flow assumption means that

One of the most important decisions in accounting for inventory is determining the per-unit costs assigned to inventory items.

Trekking Company's cost of goods sold was $15,550. Its average merchandise inventory was $4,575. Its merchandise turnover was 3.4.

Would an entry be needed if the calculation of LCNRV was made on a group basis? If so, make the entry. If not, state why.

The accepted method for valuing inventory includes

Errors in inventory valuation only affect the current period's records and financial statements.

The full disclosure principle

There is no difference in the amount of inventory calculated by the periodic and perpetual inventory systems when using the FIFO cost flow assumption.

Trekking Company's cost of inventory was $317,500. Due to phenomenal demand the net realizable value has increased to $323,000. Trekking Company should write up the value of inventory under the LCNRV rule.

In a period of inflation, FIFO usually gives a lower taxable income and thus a tax advantage.

Bakstreet Company wants to estimate inventory destroyed by flood. Its average gross profit percentage is 37%. The following information is available: Instructions: Calculate the value of the destroyed ending inventory using the gross profit method. Round numbers to the nearest dollar, if necessary.

Accounting in Business

Analyzing and Recording Transactions

Adjusting Accounts for Financial Statements

Completing the Accounting Cycle and Classifying Accounts

Accounting for Merchandising Activities

Internal Control and Cash

Receivables

Property, Plant and Equipment Intangibles

Payroll Liabilities

Accounting Information Systems

Filters

Exam 6: Inventory Costing and Valuation

Goods in transit are automatically included in inventory.

If the supplier pays freight charges, then ownership of inventory passes when goods arrive at their destination.

The principle of faithful representation requires that information be complete, neutral and free from error so that assets and income are not overstated and liabilities and expenses are not understated.

Generally accepted accounting principles require that the inventory of a company be reported at:

An understatement of ending inventory will understate cost of goods sold and overstate net income.

Interim statements

Use of the FIFO cost flow assumption means that

One of the most important decisions in accounting for inventory is determining the per-unit costs assigned to inventory items.

Trekking Company's cost of goods sold was $15,550. Its average merchandise inventory was $4,575. Its merchandise turnover was 3.4.

Would an entry be needed if the calculation of LCNRV was made on a group basis? If so, make the entry. If not, state why.

The accepted method for valuing inventory includes

Errors in inventory valuation only affect the current period's records and financial statements.

The full disclosure principle

There is no difference in the amount of inventory calculated by the periodic and perpetual inventory systems when using the FIFO cost flow assumption.

Trekking Company's cost of inventory was $317,500. Due to phenomenal demand the net realizable value has increased to $323,000. Trekking Company should write up the value of inventory under the LCNRV rule.

In a period of inflation, FIFO usually gives a lower taxable income and thus a tax advantage.

Bakstreet Company wants to estimate inventory destroyed by flood. Its average gross profit percentage is 37%. The following information is available: Instructions: Calculate the value of the destroyed ending inventory using the gross profit method. Round numbers to the nearest dollar, if necessary.

Accounting in Business

Analyzing and Recording Transactions

Adjusting Accounts for Financial Statements

Completing the Accounting Cycle and Classifying Accounts

Accounting for Merchandising Activities

Internal Control and Cash

Receivables

Property, Plant and Equipment Intangibles

Payroll Liabilities

Accounting Information Systems

Filters