Question 1

Management must include which of the following considerations when accounting for inventory

Accepted Answer

A)  Costing method 
B)  Inventory system 
C)  Items to be included and their cost 
D)  Use of lower of cost and net realizable value 
E)  All of the above 
A)  Costing method 
B)  Inventory system 
C)  Items to be included and their cost 
D)  Use of lower of cost and net realizable value 
E)  All of the above

Question 2

The necessary financial statement disclosure is accomplished if the amount disclosed is properly calculated and the costing method used is stated.

Accepted Answer

A) True 
 B)False

Question 3

The advantage of FIFO is that it assigns the most recent costs to cost of goods sold, and better matches current costs with revenues on the income statement.

Accepted Answer

A) True 
 B)False

Question 4

The merchandise turnover ratio is calculated by dividing average merchandise inventory by cost of goods sold.

Accepted Answer

A) True 
 B)False

Question 5

Net realizable value for damaged or obsolete goods is sales price plus the cost of making the sale.

Accepted Answer

A) True 
 B)False

Question 6

The consistency principle helps ensure that financial statements are comparable across periods.

Accepted Answer

A) True 
 B)False

Question 7

The decline in merchandise inventory from cost to NRV is recorded in an adjusting entry at the end of the period.

Accepted Answer

A) True 
 B)False

Question 8

In applying the faithful representation principle, an accountant should choose the most realistic value available, so that the inventory value is not overstated.

Accepted Answer

A) True 
 B)False

Question 9

The principle of faithful representation is used by some companies to justify allocating incidental inventory costs to cost of goods sold.

Accepted Answer

A) True 
 B)False

Question 10

Trekking Company markets a climbing kit and uses a perpetual inventory system to account for its merchandise. The beginning balance of the inventory and transactions during January were as follows: $$\begin{array} { | l | r | } 
\hline \text { January 1: } & \text { Balance: } 18 \text { units  at } \$ 13 \
\hline \text { January 12: } & \text { Purchased } 30 \text { units  at } \$ 14 \
\hline \text { January 19: } & \text { Sold } 24 \text { units at } \$ 17 \
\hline \text { January 20: } & \text { Purchased } 24 \text { units at } \$ 17 \
\hline \text { January 27: } & \text { Sold } 27 \text { units } \
\hline
\end{array}$$ If the ending inventory is valued at $357, what inventory cost flow assumption was used?

Accepted Answer

A)  Average costing. 
B)  FIFO. 
C)  Weighted-average. 
D)  Specific identification. 
E)  Retail. 
A)  Average costing. 
B)  FIFO. 
C)  Weighted-average. 
D)  Specific identification. 
E)  Retail.

Question 11

Trekking Company's inventory in its River Oaks store was destroyed by a flood. Its gross profit ratio was 65% and net sales were $30,000. The estimated cost of goods available for sale was $32,500. The estimated value of the lost inventory was $18,000.

Accepted Answer

A) True 
 B)False

Question 12

Patel Packing had the following information for its inventory: Beginning inventory: cost $107,000; retail $130,000 Net purchases: cost $58,000; retail $120,000 Sales at retail: $145,000 What is the estimated cost of the ending inventory?

Accepted Answer

A)  $44,188 
B)  $57,102 
C)  $57,750 
D)  $69,300 
E)  $105,000 
A)  $44,188 
B)  $57,102 
C)  $57,750 
D)  $69,300 
E)  $105,000

Question 13

The assignment of costs to cost of goods sold and inventory using (moving) weighted average usually gives different results depending on whether a perpetual or periodic system is used.

Accepted Answer

A) True 
 B)False

Question 14

Trekking Company's total cost of inventory was $305,000. The net realizable value is $297,000. Under LCNRV, the amount reported should be $305,000.

Accepted Answer

A) True 
 B)False

Question 15

Assume that the 2020 errors are not discovered in 2021. However, ending inventory at the end of year 2021 is recorded at correct amount. By how much will 2021 net income be over or understated?

Accepted Answer

A)  $6,000 overstated 
B)  $4,000 understated 
C)  $4,000 overstated 
D)  $6,000 understated 
E)  There is no effect on net income. 
A)  $6,000 overstated 
B)  $4,000 understated 
C)  $4,000 overstated 
D)  $6,000 understated 
E)  There is no effect on net income.

Question 16

All businesses should take an inventory count once each year to identify inventory errors or shortages.

Accepted Answer

A) True 
 B)False

Question 17

A company's ability to pay its short-term obligations depends on how quickly it sells its merchandise inventory.

Accepted Answer

A) True 
 B)False

Question 18

During a period of steadily rising prices, which inventory cost flow assumption results in reporting the highest inventory value?

Accepted Answer

A)  Specific identification 
B)  Average cost 
C)  Moving weighted average 
D)  FIFO 
E)  Any of the above 
A)  Specific identification 
B)  Average cost 
C)  Moving weighted average 
D)  FIFO 
E)  Any of the above

Question 19

The cost of an inventory item includes its invoice price plus any added or incidental costs necessary to put it in a place and condition for sale.

Accepted Answer

A) True 
 B)False

Question 20

The necessary financial statement disclosure is accomplished if the amount presented is properly calculated.

Accepted Answer

A) True 
 B)False

Management must include which of the following considerations when accounting for inventory

The necessary financial statement disclosure is accomplished if the amount disclosed is properly calculated and the costing method used is stated.

The advantage of FIFO is that it assigns the most recent costs to cost of goods sold, and better matches current costs with revenues on the income statement.

The merchandise turnover ratio is calculated by dividing average merchandise inventory by cost of goods sold.

Net realizable value for damaged or obsolete goods is sales price plus the cost of making the sale.

The consistency principle helps ensure that financial statements are comparable across periods.

The decline in merchandise inventory from cost to NRV is recorded in an adjusting entry at the end of the period.

In applying the faithful representation principle, an accountant should choose the most realistic value available, so that the inventory value is not overstated.

The principle of faithful representation is used by some companies to justify allocating incidental inventory costs to cost of goods sold.

Trekking Company's inventory in its River Oaks store was destroyed by a flood. Its gross profit ratio was 65% and net sales were $30,000. The estimated cost of goods available for sale was $32,500. The estimated value of the lost inventory was $18,000.

Patel Packing had the following information for its inventory: Beginning inventory: cost $107,000; retail $130,000 Net purchases: cost $58,000; retail $120,000 Sales at retail: $145,000 What is the estimated cost of the ending inventory?

The assignment of costs to cost of goods sold and inventory using (moving) weighted average usually gives different results depending on whether a perpetual or periodic system is used.

Trekking Company's total cost of inventory was $305,000. The net realizable value is $297,000. Under LCNRV, the amount reported should be $305,000.

Assume that the 2020 errors are not discovered in 2021. However, ending inventory at the end of year 2021 is recorded at correct amount. By how much will 2021 net income be over or understated?

All businesses should take an inventory count once each year to identify inventory errors or shortages.

A company's ability to pay its short-term obligations depends on how quickly it sells its merchandise inventory.

During a period of steadily rising prices, which inventory cost flow assumption results in reporting the highest inventory value?

The cost of an inventory item includes its invoice price plus any added or incidental costs necessary to put it in a place and condition for sale.

The necessary financial statement disclosure is accomplished if the amount presented is properly calculated.

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

Management must include which of the following considerations when accounting for inventory

The necessary financial statement disclosure is accomplished if the amount disclosed is properly calculated and the costing method used is stated.

The advantage of FIFO is that it assigns the most recent costs to cost of goods sold, and better matches current costs with revenues on the income statement.

The merchandise turnover ratio is calculated by dividing average merchandise inventory by cost of goods sold.

Net realizable value for damaged or obsolete goods is sales price plus the cost of making the sale.

The consistency principle helps ensure that financial statements are comparable across periods.

The decline in merchandise inventory from cost to NRV is recorded in an adjusting entry at the end of the period.

In applying the faithful representation principle, an accountant should choose the most realistic value available, so that the inventory value is not overstated.

The principle of faithful representation is used by some companies to justify allocating incidental inventory costs to cost of goods sold.

Trekking Company's inventory in its River Oaks store was destroyed by a flood. Its gross profit ratio was 65% and net sales were $30,000. The estimated cost of goods available for sale was $32,500. The estimated value of the lost inventory was $18,000.

Patel Packing had the following information for its inventory: Beginning inventory: cost $107,000; retail $130,000 Net purchases: cost $58,000; retail $120,000 Sales at retail: $145,000 What is the estimated cost of the ending inventory?

The assignment of costs to cost of goods sold and inventory using (moving) weighted average usually gives different results depending on whether a perpetual or periodic system is used.

Trekking Company's total cost of inventory was $305,000. The net realizable value is $297,000. Under LCNRV, the amount reported should be $305,000.

Assume that the 2020 errors are not discovered in 2021. However, ending inventory at the end of year 2021 is recorded at correct amount. By how much will 2021 net income be over or understated?

All businesses should take an inventory count once each year to identify inventory errors or shortages.

A company's ability to pay its short-term obligations depends on how quickly it sells its merchandise inventory.

During a period of steadily rising prices, which inventory cost flow assumption results in reporting the highest inventory value?

The cost of an inventory item includes its invoice price plus any added or incidental costs necessary to put it in a place and condition for sale.

The necessary financial statement disclosure is accomplished if the amount presented is properly calculated.

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