Question 1

One scheme for using inventory to increase reported income is to:

Accepted Answer

A) overstate ending inventory. 
B) understate ending inventory. 
C) overstate cost of goods sold. 
D) overstate purchases. 
A) overstate ending inventory. 
B) understate ending inventory. 
C) overstate cost of goods sold. 
D) overstate purchases. A

Question 2

Table 6-5
Assume the following data for Kruger Sales for November 2019: $\begin{array}{ll}
\text { Beginning inventory Nov. } 1 & 5 \text { units at } \$ 90 \text { each } \
\text { Sale Nov. } 3 & 3 \text { units at } \$ 120 \text { each } \
\text { Nov. } 6 \text { purchase } & 11 \text { units at } \$ 95 \text { each } \
\text { Sale Nov. } 8 & 4 \text { units at } \$ 120 \text { each } \
\text { Sale Nov. } 9 & 3 \text { units at } \$ 120 \text { each }
\end{array}$
 On November 30, a physical count reveals 6 units on hand.
-Refer to Table 6-5. Calculate gross profit for Kruger Sales assuming the periodic FIFO cost method is being used.

Accepted Answer

$\begin{array}{lccr}
\text { Cost of Goods Available: } & \text { Qty. } & \text { Cost Amt. } \
\hline \text { Nov. } 1 \quad \text { Beginning Bal. } & 5 & 90 & 450 \
\text { Nov. } 6 \quad \text { Purchase } & 11 & 95 & 1,045 \
\text { Goods Available } & & 16 & 1,495
\end{array}$
$\text { Ending Inventory }=6 \text { units } \times 95=570$

$\begin{array}{llcc}
  \underline{\text { Sales }} &  \
 \text { Nov. 3 } &3\
 \text {  Nov. 8} &4\
 \text { Nov. 9 } &\underline{3}\
& \text {  10×  120 = \$ 1,200} \
\end{array}$

$\text {Cost of goods sold:}$
$\text {Cost of goods av ailable 1,495}$
$\text {Less ending inventory }$ $\quad $(570)
$\text {Cost of goods sold}$$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $925
$\text {Gross profit}$$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $275

Question 3

Determine the effect on cost of goods sold and net income for the current year of the following inventory errors. Indicate your answer with either a + (overstated)or a - (understated). $\begin{array} { | l | l | l | l | } 
\hline \text { Item } & { \text { Error } } & \begin{array} { c } 
\text { Effect on } \
\text { Cost } \
\text { of Goods Sold }
\end{array} & \begin{array} { c } 
\text { Effect on } \
\text { Net Income }
\end{array} \
\hline \text { 1) } & \text { Beginning inventory is overstated. } & & \
\hline \text { 2) } & \text { Ending inventory is understated. } & & \
\hline \text { 3) } & \text { Beginning inventory is understated. } & & \
\hline \text { 4) } & \text { Ending inventory is overstated. } & & \
\hline
\end{array}$

Accepted Answer

$\begin{array} { | l | l | c | c | } 
\hline \text { Item } &{ \text { Error } } & \begin{array} { c } 
\text { Effect on } \
\text { Cost } \
\text { of Goods Sold }
\end{array} & \begin{array} { c } 
\text { Effect on } \
\text { Net Income }
\end{array} \
\hline \text { 1) } & \text { Beginning inventory is overstated. } & + & - \
\hline \text { 2) } & \text { Ending inventory is understated. } & + & - \
\hline \text { 3) } & \text { Beginning inventory is understated. } & - & + \
\hline \text { 4) } & \text { Ending inventory is overstated. } & - & + \
\hline
\end{array}$

Question 4

When prices are rising, the cost of goods sold on the income statement reported on a weighted-average basis is generally:

Accepted Answer

A) lower than on a FIFO basis. 
B) equal to ending inventory reported on a FIFO basis. 
C) greater than on a FIFO basis. 
D) equally likely to be higher or lower on a weighted-average basis as opposed to a FIFO basis. 
A) lower than on a FIFO basis. 
B) equal to ending inventory reported on a FIFO basis. 
C) greater than on a FIFO basis. 
D) equally likely to be higher or lower on a weighted-average basis as opposed to a FIFO basis.

Question 5

If ending inventory for the current accounting period is overstated by $3,500:

Accepted Answer

A) net income for the current period will be overstated by $3,500. 
B) ending inventory for the next period will be overstated by $3,500. 
C) cost of goods sold for the current period will be overstated by $3,500. 
D) owner's equity at the end of the next accounting period will be overstated by $3,500. 
A) net income for the current period will be overstated by $3,500. 
B) ending inventory for the next period will be overstated by $3,500. 
C) cost of goods sold for the current period will be overstated by $3,500. 
D) owner's equity at the end of the next accounting period will be overstated by $3,500.

Question 6

When inventory prices are declining, the FIFO method will generally yield a gross margin that is:

Accepted Answer

A) less than the weighted-average method. 
B) equal to the gross margin of the weighted-average method. 
C) higher than the weighted-average method. 
D) FIFO does not generally cause a gross margin that is different from that of any other costing method. 
A) less than the weighted-average method. 
B) equal to the gross margin of the weighted-average method. 
C) higher than the weighted-average method. 
D) FIFO does not generally cause a gross margin that is different from that of any other costing method.

Question 7

Under the FIFO method, ending inventory is valued based on the most recent purchases.

Accepted Answer

A) True 
 B)False

Question 8

When prices are falling, the ending inventory balance reported on a FIFO basis is generally:

Accepted Answer

A) lower than on a weighted-average basis. 
B) greater than on a weighted-average basis. 
C) equal to ending inventory reported on a weighted-average basis. 
D) equally likely to be higher or lower on a weighted-average basis as opposed to a FIFO basis. 
A) lower than on a weighted-average basis. 
B) greater than on a weighted-average basis. 
C) equal to ending inventory reported on a weighted-average basis. 
D) equally likely to be higher or lower on a weighted-average basis as opposed to a FIFO basis.

Question 9

The FIFO method can result in misleading inventory costs on the balance sheet because the oldest prices are left in ending inventory.

Accepted Answer

A) True 
 B)False

Question 10

If ending inventory for the current period is understated, then owner's equity will be:

Accepted Answer

A) overstated at the end of the current period and understated at the end of the next period. 
B) understated at the end of the current period and overstated at the end of the next period. 
C) overstated at the end of the current period, but it will be correct at the end of the next period. 
D) understated at the end of the current period, but it will be correct at the end of the next period. 
A) overstated at the end of the current period and understated at the end of the next period. 
B) understated at the end of the current period and overstated at the end of the next period. 
C) overstated at the end of the current period, but it will be correct at the end of the next period. 
D) understated at the end of the current period, but it will be correct at the end of the next period.

Question 11

The specific-unit-cost method is useful for inventory items that have common characteristics, such as tonnes of ore or litres of paint.

Accepted Answer

A) True 
 B)False

Question 12

The following data are available for the month of March: $\text {March 1 balance}$ $\quad 20$ $\text {units at $\$ 15$ each}$
$\text {March 10 purchase}$  $\quad 40$ $\text {units at $\$ 16$ each}$
$\text {March 17 purchase}$ $\quad 30$ $\text {units at $\$ 17.50$ each}$
$\text {March 30 purchase }$ $\quad 25 $$\text {units at $\$ 18$ each}$ On March 31, 35 units are on hand.
Calculate cost of goods sold under the following methods:
a)FIFO b)weighted-average (round per unit cost to the nearest cent, round final answer to the nearest dollar, assume periodic inventory system)

Accepted Answer

115 units available - 35 ending units =

Question 13

The inventory costing method used must match the physical flow of goods in and out of inventory.

Accepted Answer

A) True 
 B)False

Question 14

The following data are available for three products of the Classic Company: $\begin{array} { l r r r } 
& \text { A } & \text { B } & \text { C } \
\text { Beginning inventory } & \$ 5,000 & \$ 20,000 & \$ 15,000 \
\text { Purchases } & 45,000 & 65,000 & 62,000 \
\text { Goods available for sale } & 50,000 & 85,000 & 77,000 \
\text { Ending inventory } & 18,000 & 13,000 & 9,000 \
\text { Cost of goods sold } & 32,000 & 72,000 & 68,000
\end{array}$ You discover the following errors:
a)Ending inventory for product A was overstated by $6,000.
b)Ending inventory for product B was understated by $5,000.
c)Beginning inventory for product C was overstated by $3,000.
Considering these errors, recalculate cost of goods sold for each product.

Accepted Answer

a)$50,000 - $12,000

Question 15

Under the perpetual system, ending inventory and cost of goods sold will be the same when FIFO inventory costing method is used.

Accepted Answer

A) True 
 B)False

Question 16

Table 6-1
Assume the following data for Burnette Merchandising for 2019: $\begin{array} { | l | l | } 
\hline\text { Beginning inventory } & 10 \text { units at } \$ 7 \text { each } \
\hline \text { March } 18 \text { purchase } & 15 \text { units at } \$ 9 \text { each } \
\hline \text { June } 10 \text { purchase } & 20 \text { units at } \$ 10 \text { each } \
\hline \text { October } 30 \text { purchase } & 12 \text { units at } \$ 11 \text { each } \
\hline
\end{array}$ On December 31, a physical count reveals 15 units in ending inventory.
-Refer to Table 6-1. Assume a periodic inventory system. Under the FIFO method, cost of goods sold on the income statement would be:

Accepted Answer

A) $294. 
B) $375. 
C) $462. 
D) $420. 
A) $294. 
B) $375. 
C) $462. 
D) $420.

Question 17

Once an inventory method is selected by a business, the consistency characteristic of accounting would require that this method be used from year to year.

Accepted Answer

A) True 
 B)False

Question 18

Table 6-6 Sam's Wholesale Bikes $\begin{array} { | l | l | } 
\hline  \text { January } 1 \text { inventory balance } & 15 \text { units at } \$ 350 \text { per unit } \
\hline \text { January } 4 \text { purchase } & 50 \text { units at } \$ 375 \text { per unit } \
\hline \text { January } 15 \text { sale } & 40 \text { units at } \$ 550 \text { per unit } \
\hline \text { February } 8 \text { purchase } & 80 \text { units at } \$ 405 \text { per unit } \
\hline \text { February } 15 \text { sale } & 70 \text { units at } \$ 550 \text { per unit } \
\hline
\end{array}$
-Refer to Table 6-6. What is the value of the February ending inventory assuming that Sam's uses the periodic weighted-average inventory method?

Accepted Answer

A) $12,845 
B) $17,408 
C) $13,614 
D) $10,603 
A) $12,845 
B) $17,408 
C) $13,614 
D) $10,603

Question 19

When inventory prices are rising, the FIFO method will generally yield a gross margin that is:

Accepted Answer

A) less than the weighted average method. 
B) equal to the gross margin of the weighted-average method. 
C) higher than the weighted-average method. 
D) FIFO does not generally cause a gross margin that is different from that of any other costing method. 
A) less than the weighted average method. 
B) equal to the gross margin of the weighted-average method. 
C) higher than the weighted-average method. 
D) FIFO does not generally cause a gross margin that is different from that of any other costing method.

Question 20

A jeweller selling unique, high-priced items of jewellery would most likely use which method of inventory costing?

Accepted Answer

A) FIFO 
B) average cost 
C) specific-unit-cost 
D) weighted-average cost 
A) FIFO 
B) average cost 
C) specific-unit-cost 
D) weighted-average cost

One scheme for using inventory to increase reported income is to:

When prices are rising, the cost of goods sold on the income statement reported on a weighted-average basis is generally:

If ending inventory for the current accounting period is overstated by $3,500:

When inventory prices are declining, the FIFO method will generally yield a gross margin that is:

Under the FIFO method, ending inventory is valued based on the most recent purchases.

When prices are falling, the ending inventory balance reported on a FIFO basis is generally:

The FIFO method can result in misleading inventory costs on the balance sheet because the oldest prices are left in ending inventory.

If ending inventory for the current period is understated, then owner's equity will be:

The specific-unit-cost method is useful for inventory items that have common characteristics, such as tonnes of ore or litres of paint.

The inventory costing method used must match the physical flow of goods in and out of inventory.

Under the perpetual system, ending inventory and cost of goods sold will be the same when FIFO inventory costing method is used.

Once an inventory method is selected by a business, the consistency characteristic of accounting would require that this method be used from year to year.

When inventory prices are rising, the FIFO method will generally yield a gross margin that is:

A jeweller selling unique, high-priced items of jewellery would most likely use which method of inventory costing?

Accounting and the Business Environment

Recording Business Transactions

Measuring Business Income: The Adjusting Process

Completing the Accounting Cycle

Merchandising Operations and the Accounting Cycle

Accounting Information Systems

Internal Control and Cash

Receivables

Property, Plant, and Equipment; Goodwill; and Intangibles

Current Liabilities and Payroll

Filters

Exam 6: Accounting for Merchandise Inventory

One scheme for using inventory to increase reported income is to:

When prices are rising, the cost of goods sold on the income statement reported on a weighted-average basis is generally:

If ending inventory for the current accounting period is overstated by $3,500:

When inventory prices are declining, the FIFO method will generally yield a gross margin that is:

Under the FIFO method, ending inventory is valued based on the most recent purchases.

When prices are falling, the ending inventory balance reported on a FIFO basis is generally:

The FIFO method can result in misleading inventory costs on the balance sheet because the oldest prices are left in ending inventory.

If ending inventory for the current period is understated, then owner's equity will be:

The specific-unit-cost method is useful for inventory items that have common characteristics, such as tonnes of ore or litres of paint.

The inventory costing method used must match the physical flow of goods in and out of inventory.

Under the perpetual system, ending inventory and cost of goods sold will be the same when FIFO inventory costing method is used.

Once an inventory method is selected by a business, the consistency characteristic of accounting would require that this method be used from year to year.

When inventory prices are rising, the FIFO method will generally yield a gross margin that is:

A jeweller selling unique, high-priced items of jewellery would most likely use which method of inventory costing?

Accounting and the Business Environment

Recording Business Transactions

Measuring Business Income: The Adjusting Process

Completing the Accounting Cycle

Merchandising Operations and the Accounting Cycle

Accounting Information Systems

Internal Control and Cash

Receivables

Property, Plant, and Equipment; Goodwill; and Intangibles

Current Liabilities and Payroll

Filters