Question 1

The gross profit method of estimating inventory would not be useful when

Accepted Answer

A)  a periodic system is in use and inventories are required for interim statements. 
B)  inventories have been destroyed or lost by fire, theft, or other casualty, and the specific data required for inventory valuation are not available. 
C)  there is a significant change in the mix of products being sold. 
D)  the relationship between gross profit and sales remains stable over time. 
A)  a periodic system is in use and inventories are required for interim statements. 
B)  inventories have been destroyed or lost by fire, theft, or other casualty, and the specific data required for inventory valuation are not available. 
C)  there is a significant change in the mix of products being sold. 
D)  the relationship between gross profit and sales remains stable over time.

Question 2

Assume that a company records purchases net of discount. If the company bought merchandise valued at $10,000 on credit terms 3/15, net 30, the entry to record a payment for half of the purchase within the discount period would include a debit to

Accepted Answer

A)  Accounts Payable for $4,850 and a credit to Cash for $4,850. 
B)  Accounts Payable for $5,000 and a credit to Cash for $5,000. 
C)  Accounts Payable for $4,850 and to Interest Expense for $150, and a credit to Cash for $5,000. 
D)  Accounts Payable for $4,850 and to Interest Revenue for $150 and a credit to Cash for $5,000. 
A)  Accounts Payable for $4,850 and a credit to Cash for $4,850. 
B)  Accounts Payable for $5,000 and a credit to Cash for $5,000. 
C)  Accounts Payable for $4,850 and to Interest Expense for $150, and a credit to Cash for $5,000. 
D)  Accounts Payable for $4,850 and to Interest Revenue for $150 and a credit to Cash for $5,000.

Question 3

If ending inventory on December 31, 2010, is overstated by $30,000, what is the effect on net income for 2011?

Accepted Answer

A)  Net income is overstated by $30,000. 
B)  Net income is understated by $30,000. 
C)  Net income is overstated by $60,000. 
D)  The answer cannot be determined from the information given. 
A)  Net income is overstated by $30,000. 
B)  Net income is understated by $30,000. 
C)  Net income is overstated by $60,000. 
D)  The answer cannot be determined from the information given.

Question 4

Which of the following is not true of the perpetual inventory method?

Accepted Answer

A)  Purchases are recorded as debits to the inventory account. 
B)  The entry to record a sale includes a debit to Cost of Goods Sold and a credit to Inventory. 
C)  After a physical inventory count, Inventory is credited for any missing inventory. 
D)  Purchase returns are recorded by debiting Accounts Payable and crediting Purchase Returns and Allowances. 
A)  Purchases are recorded as debits to the inventory account. 
B)  The entry to record a sale includes a debit to Cost of Goods Sold and a credit to Inventory. 
C)  After a physical inventory count, Inventory is credited for any missing inventory. 
D)  Purchase returns are recorded by debiting Accounts Payable and crediting Purchase Returns and Allowances.

Question 5

The following information is available for Hudson Company:
 
Cost of goods sold was

Accepted Answer

A)  $325,000. 
B)  $305,000. 
C)  $275,000. 
D)  $255,000. 
A)  $325,000. 
B)  $305,000. 
C)  $275,000. 
D)  $255,000.

Question 6

Current generally accepted accounting principles state that a departure from the cost basis of pricing inventory is required when the utility of the goods is no longer as great as its cost. Accordingly, the lower-of-cost-or-market rule is applied to inventories such that, if market is less than cost, an adjustment is made to record the loss and to restate ending inventory at the lower value.
What effect would the failure to apply the lower-of-cost-or-market method have on the income statement in current and future periods?

Accepted Answer

Failure in the current period to apply t

Question 7

Campbell's Clothing Store sells jeans. During January 2011, its inventory records for one brand of designer jeans were as follows:
 
See information for Campbell's Clothing Store above. Using this information, periodic LIFO cost of goods sold is

Accepted Answer

A)  $360. 
B)  $300. 
C)  $330. 
D)  $430. 
A)  $360. 
B)  $300. 
C)  $330. 
D)  $430.

Question 8

The Steelers Company had its entire inventory destroyed when a fire swept through the company's warehouse. Fortunately, the accounting records were locked in a fireproof safe and were not damaged. The following information for the period up to the date of the fire was taken from the accounting records:

Accepted Answer

The answer of The Steelers Company had its entire inventory...

Question 9

During the year, The Hill Company purchased $1,920,000 of inventory. The cost of goods sold for the year was $1,800,000 and the ending inventory at December 31 was $360,000. What was the inventory turnover for the year?

Accepted Answer

A)  5.0 
B)  5.3 
C)  6.0 
D)  6.4 
A)  5.0 
B)  5.3 
C)  6.0 
D)  6.4

Question 10

Management of the Davidson Company is currently considering the possibility of changing from the FIFO method to the LIFO method of inventory valuation for income tax and financial reporting purposes. The company's president, Dan Davidson, is concerned that using LIFO will tend to distort the company's balance sheet over time. He believes that the difference between the current cost of the company's inventory and the reported LIFO valuation will tend to grow larger each year, and that the company's reported LIFO inventory valuation will be progressively understated in relation to current cost. Davidson Company relies heavily on short-term bank credit, and Mr. Davidson feels that the company's bankers will tend to downgrade the company's short-term debt-paying ability if a switch to LIFO is made.
Required:

Accepted Answer

The answer of Management of the Davidson Company is currently...

Question 11

On May 17, it was discovered that a material amount of inventory had been stolen. A physical count discloses that $55,000 of merchandise was on hand as of May 17. The following additional data is available from the accounting records:
   
Records indicate that the company's gross profit has averaged 40 percent of selling prices.
Required:
Estimate the amount of loss due to theft.

Accepted Answer

The answer of On May 17, it was discovered that...

Question 12

Which of the following will result if the current year's ending inventory amount is understated in the cost of goods sold calculation?

Accepted Answer

A)  Cost of goods sold will be overstated. 
B)  Total assets will be overstated. 
C)  Net income will be overstated. 
D)  Both cost of goods sold and net income will be overstated. 
A)  Cost of goods sold will be overstated. 
B)  Total assets will be overstated. 
C)  Net income will be overstated. 
D)  Both cost of goods sold and net income will be overstated.

Question 13

Selected information from the 2011 and 2010 financial statements of BN Company is presented below:
 
BN Company's merchandise inventory turnover for 2011 is

Accepted Answer

A)  3.43. 
B)  5.68. 
C)  6.63. 
D)  6.79. 
A)  3.43. 
B)  5.68. 
C)  6.63. 
D)  6.79.

Question 14

From the following information, determine the amount of ending inventory.

Accepted Answer

A)  $23,000 
B)  $32,000 
C)  $33,000 
D)  $22,000 
A)  $23,000 
B)  $32,000 
C)  $33,000 
D)  $22,000

Question 15

Two reasons often advanced for the adoption of LIFO inventory costing for financial reporting are the improved matching of current costs with current revenue during periods of rising prices and the reduction of income tax payments. Nonetheless, the number of companies using LIFO has not increased over the last several years. Some companies actually have switched from LIFO to FIFO over the last several years.
Identify reasons why a company would change from LIFO to FIFO for financial reporting purposes.

Accepted Answer

There are at least four reasons why a co

Question 16

Which of the following would not be included in the cost of work in process inventory?

Accepted Answer

A)  Cost of electricity to operate factory equipment 
B)  Maintenance costs of factory equipment 
C)  Depreciation on office equipment in the sales manager's office 
D)  Depreciation on factory equipment 
A)  Cost of electricity to operate factory equipment 
B)  Maintenance costs of factory equipment 
C)  Depreciation on office equipment in the sales manager's office 
D)  Depreciation on factory equipment

Question 17

Which inventory pricing method best approximates specific identification in most manufacturing situations?

Accepted Answer

A)  Activity-based costing 
B)  FIFO 
C)  Average cost 
D)  LIFO 
A)  Activity-based costing 
B)  FIFO 
C)  Average cost 
D)  LIFO

Question 18

What is the maximum amount at which inventory can be valued when the goods have experienced a permanent decline in value?

Accepted Answer

A)  Historical cost 
B)  Sales price 
C)  Net realizable value 
D)  Net realizable value reduced by a normal profit margin 
A)  Historical cost 
B)  Sales price 
C)  Net realizable value 
D)  Net realizable value reduced by a normal profit margin

Question 19

When using the periodic inventory method, which of the following generally would not be separately accounted for in the computation of cost of goods sold?

Accepted Answer

A)  Trade discounts applicable to purchases during the period 
B)  Cash (purchase) discounts taken during the period 
C)  Purchase returns and allowances of merchandise during the period 
D)  Cost of transportation-in for merchandise purchases during the period 
A)  Trade discounts applicable to purchases during the period 
B)  Cash (purchase) discounts taken during the period 
C)  Purchase returns and allowances of merchandise during the period 
D)  Cost of transportation-in for merchandise purchases during the period

Question 20

Barlow Company's Accounts Payable balance at December 31, 2011, was $1,800,000 before considering the following transactions:
 
In its December 31, 2011, balance sheet, Barlow should report Accounts Payable of

Accepted Answer

A)  $1,950,000. 
B)  $1,900,000. 
C)  $1,850,000. 
D)  $1,800,000. 
A)  $1,950,000. 
B)  $1,900,000. 
C)  $1,850,000. 
D)  $1,800,000.

The gross profit method of estimating inventory would not be useful when

Assume that a company records purchases net of discount. If the company bought merchandise valued at $10,000 on credit terms 3/15, net 30, the entry to record a payment for half of the purchase within the discount period would include a debit to

If ending inventory on December 31, 2010, is overstated by $30,000, what is the effect on net income for 2011?

Which of the following is not true of the perpetual inventory method?

The following information is available for Hudson Company: Cost of goods sold was

Campbell's Clothing Store sells jeans. During January 2011, its inventory records for one brand of designer jeans were as follows: See information for Campbell's Clothing Store above. Using this information, periodic LIFO cost of goods sold is

During the year, The Hill Company purchased $1,920,000 of inventory. The cost of goods sold for the year was $1,800,000 and the ending inventory at December 31 was $360,000. What was the inventory turnover for the year?

Which of the following will result if the current year's ending inventory amount is understated in the cost of goods sold calculation?

Selected information from the 2011 and 2010 financial statements of BN Company is presented below: BN Company's merchandise inventory turnover for 2011 is

From the following information, determine the amount of ending inventory.

Which of the following would not be included in the cost of work in process inventory?

Which inventory pricing method best approximates specific identification in most manufacturing situations?

What is the maximum amount at which inventory can be valued when the goods have experienced a permanent decline in value?

When using the periodic inventory method, which of the following generally would not be separately accounted for in the computation of cost of goods sold?

Barlow Company's Accounts Payable balance at December 31, 2011, was $1,800,000 before considering the following transactions: In its December 31, 2011, balance sheet, Barlow should report Accounts Payable of

Financial Reporting

A Review of the Accounting Cycle

The Balance Sheet and Notes to the Financial Statements

The Income Statement

Statement of Cash Flows and Articulation

Earnings Management

The Revenuereceivablescash Cycle

Revenue Recognition

Investments in Noncurrent Operating Assets-Acquisition

Investments in Noncurrent Operating Assets-Utilization and Retirement

Debt Financing

Equity Financing

Investments in Debt and Equity Securities

Leases

Income Taxes

Employee Compensation-Payroll, Pensions, Other Comp Issues

Earnings Per Share

Derivatives, Contingencies, Business Segments, and Interim Reports

Accounting Changes and Error Corrections

Statement of Cash Flows Revisited

Accounting in a Global Market

Analysis of Financial Statements

Filters

Exam 9: Inventory and Cost of Goods Sold

The gross profit method of estimating inventory would not be useful when

Assume that a company records purchases net of discount. If the company bought merchandise valued at $10,000 on credit terms 3/15, net 30, the entry to record a payment for half of the purchase within the discount period would include a debit to

If ending inventory on December 31, 2010, is overstated by $30,000, what is the effect on net income for 2011?

Which of the following is not true of the perpetual inventory method?

The following information is available for Hudson Company: Cost of goods sold was

Campbell's Clothing Store sells jeans. During January 2011, its inventory records for one brand of designer jeans were as follows: See information for Campbell's Clothing Store above. Using this information, periodic LIFO cost of goods sold is

During the year, The Hill Company purchased $1,920,000 of inventory. The cost of goods sold for the year was $1,800,000 and the ending inventory at December 31 was $360,000. What was the inventory turnover for the year?

Which of the following will result if the current year's ending inventory amount is understated in the cost of goods sold calculation?

Selected information from the 2011 and 2010 financial statements of BN Company is presented below: BN Company's merchandise inventory turnover for 2011 is

From the following information, determine the amount of ending inventory.

Which of the following would not be included in the cost of work in process inventory?

Which inventory pricing method best approximates specific identification in most manufacturing situations?

What is the maximum amount at which inventory can be valued when the goods have experienced a permanent decline in value?

When using the periodic inventory method, which of the following generally would not be separately accounted for in the computation of cost of goods sold?

Barlow Company's Accounts Payable balance at December 31, 2011, was $1,800,000 before considering the following transactions: In its December 31, 2011, balance sheet, Barlow should report Accounts Payable of

Financial Reporting

A Review of the Accounting Cycle

The Balance Sheet and Notes to the Financial Statements

The Income Statement

Statement of Cash Flows and Articulation

Earnings Management

The Revenuereceivablescash Cycle

Revenue Recognition

Investments in Noncurrent Operating Assets-Acquisition

Investments in Noncurrent Operating Assets-Utilization and Retirement

Debt Financing

Equity Financing

Investments in Debt and Equity Securities

Leases

Income Taxes

Employee Compensation-Payroll, Pensions, Other Comp Issues

Earnings Per Share

Derivatives, Contingencies, Business Segments, and Interim Reports

Accounting Changes and Error Corrections

Statement of Cash Flows Revisited

Accounting in a Global Market

Analysis of Financial Statements

Filters