Question 1

For the purpose of delaying income taxes, during an inflationary period, which method would be best?

Accepted Answer

A)  LIFO. 
B)  FIFO. 
C)  Average. 
D)  Taxes would be the same under each assumption. 
A)  LIFO. 
B)  FIFO. 
C)  Average. 
D)  Taxes would be the same under each assumption.

Question 2

For the last several years Conway Corporation has operated with a gross profit rate of 40%. On January 1 of the current year the company had on hand inventory with a cost of $600,000. Purchases of merchandise during January amounted to $150,000, and sales for the month were $360,000. Using the gross profit method, what is the estimated inventory at January 31?

Accepted Answer

A)  $144,000. 
B)  $216,000. 
C)  $360,000. 
D)  $534,000. 
A)  $144,000. 
B)  $216,000. 
C)  $360,000. 
D)  $534,000.

Question 3

In a periodic system, the only account in regard to inventory that is kept up-to-date is the inventory account.

Accepted Answer

A) True 
 B)False

Question 4

Assuming that Ace Systems uses the LIFO flow assump?tion, the 12 units of this product in inventory at January 31 have a total cost of:

Accepted Answer

A)  $499. 
B)  $331. 
C)  $509. 
D)  Some other amount. 
A)  $499. 
B)  $331. 
C)  $509. 
D)  Some other amount.

Question 5

Periodic inventory systems
Tres Chic uses a periodic inventory system. The beginning inventory of a particular product, and the purchases during the current year, were as follows:
  
At December 31, the ending inventory of this product consisted of 850 units.
Determine the cost of the year-end inventory and the cost of goods sold for this product under each of the following methods of inventory valuation (Rounded):

Accepted Answer

The answer of Periodic inventory systems
Tres Chic uses a periodic...

Question 6

In a periodic inventory system, understating the amount of ending inventory will cause an understatement of gross profit in the current year.

Accepted Answer

A) True 
 B)False

Question 7

Colonial uses the retail method to estimate its monthly cost of goods sold and month-end inventory. At August 31, the accounting records indicate the cost of goods available for sale during the month (beginning inventory plus purchases) totaled $270,000. These goods had been priced for resale at $675,000. Sales in August totaled $450,000. The estimated inventory at August 31 is:

Accepted Answer

A)  $48,000. 
B)  $90,000. 
C)  $120,000. 
D)  $270,000. 
A)  $48,000. 
B)  $90,000. 
C)  $120,000. 
D)  $270,000.

Question 8

With respect to the valuation of inventory and measurement of the cost of goods sold, the principle of consistency means that the same method should be applied:

Accepted Answer

A)  In successive accounting periods. 
B)  By all companies in a given industry. 
C)  To all products in the inventory. 
D)  In financial statements and income tax returns. 
A)  In successive accounting periods. 
B)  By all companies in a given industry. 
C)  To all products in the inventory. 
D)  In financial statements and income tax returns.

Question 9

During periods of inflation, when comparing LIFO with FIFO:

Accepted Answer

A)  LIFO inventory and cost of sales would be higher. 
B)  LIFO inventory and cost of sales would be lower. 
C)  LIFO inventory would be lower and cost of sales would be higher. 
D)  LIFO inventory would be higher and cost of sales would be lower. 
A)  LIFO inventory and cost of sales would be higher. 
B)  LIFO inventory and cost of sales would be lower. 
C)  LIFO inventory would be lower and cost of sales would be higher. 
D)  LIFO inventory would be higher and cost of sales would be lower.

Question 10

During a period of steadily rising prices, which of the following inventory valuation methods is likely to result in the lowest cost of goods sold?

Accepted Answer

A)  LIFO. 
B)  FIFO. 
C)  The retail method. 
D)  The gross profit method. 
A)  LIFO. 
B)  FIFO. 
C)  The retail method. 
D)  The gross profit method.

Question 11

Inventory turnover
In the spaces provided, indicate the likely effect of each of the following events or strategies upon the inventory turnover rate in the coming period. Use the following code letters: I for Increase, D for Decrease, and NE for No Effect.
____ (a) Reduced sales prices in order to increase sales volume.
____ (b) Ordered substantially larger amounts of merchandise in order to receive a volume discount from the supplier.
____ (c) Switched from the FIFO flow assumptions to LIFO during a period of rising prices.
____ (d) Placed sales clerks on commission, rather than a fixed monthly salary.
____ (e) Decided to offer customers a wider selection of merchandise available for immediate delivery.

Accepted Answer

The answer of Inventory turnover
In the spaces provided, indicate the...

Question 12

Companies with perpetual inventories need not take physical inventory counts because inventory amounts are perpetually available.

Accepted Answer

A) True 
 B)False

Question 13

Assuming that Beech Soda uses the average cost flow assumption, the cost of goods sold to be recorded at January 14 is (round cost per unit to nearest cent):

Accepted Answer

A)  $317.50. 
B)  $308.25. 
C)  $273.33 
D)  $673.00. 
A)  $317.50. 
B)  $308.25. 
C)  $273.33 
D)  $673.00.

Question 14

Assuming a 365-day year, the number of days required for Carl Equipment to convert its average inventory into cash is:

Accepted Answer

A)  36.5. 
B)  45.6. 
C)  54.4. 
D)  292. 
A)  36.5. 
B)  45.6. 
C)  54.4. 
D)  292.

Question 15

During a period of steadily falling prices, which of the following methods of measuring the cost of goods sold is likely to result in the lowest taxable income?

Accepted Answer

A)  LIFO. 
B)  FIFO. 
C)  Average cost. 
D)  Specific identification. 
A)  LIFO. 
B)  FIFO. 
C)  Average cost. 
D)  Specific identification.

Question 16

Gross profit method
On April 30, Greenfield Sales, Inc. lost its entire inventory in a flood. The following information is available from the company's accounting records, which were recovered from the waterproof safe:
  
The gross profit of Greenfield Sales, Inc. over the past several years has consistently averaged 35% of net sales. Using the gross profit method, estimate the cost of the inventory lost in the flood on April 30.

Accepted Answer

The answer of Gross profit method
On April 30, Greenfield Sales,...

Question 17

When the LIFO costing method is in use, the seller:

Accepted Answer

A)  Must sell the most recently acquired units first. 
B)  Must sell the oldest unit in inventory first. 
C)  Assumes that the most recently acquired units are sold first. 
D)  Assumes that the oldest units in inventory are sold first. 
A)  Must sell the most recently acquired units first. 
B)  Must sell the oldest unit in inventory first. 
C)  Assumes that the most recently acquired units are sold first. 
D)  Assumes that the oldest units in inventory are sold first.

Question 18

Determine the cost ratio that should be used in estimating the May 31 inventory using the retail method.

Accepted Answer

A)  63.8%. 
B)  69.4% 
C)  66.0%. 
D)  68.4%. 
A)  63.8%. 
B)  69.4% 
C)  66.0%. 
D)  68.4%.

Question 19

Harris Corporation's inventory of a particular product includes 200 units purchased at a per-unit cost of $50, and another 100 units purchased at a unit cost of $60. If Harris sells 10 units of this product, the cost of goods sold will be:

Accepted Answer

A)  $500. 
B)  $550. 
C)  $660. 
D)  The answer will depend upon the inventory flow assumption in use. 
A)  $500. 
B)  $550. 
C)  $660. 
D)  The answer will depend upon the inventory flow assumption in use.

Question 20

Assuming that Beech Soda uses the LIFO flow assumption, the cost of goods sold to be recorded at January 14 is:

Accepted Answer

A)  $393. 
B)  $268. 
C)  $278. 
D)  $673. 
A)  $393. 
B)  $268. 
C)  $278. 
D)  $673.

Exam 8: Inventories and the Cost of Goods Sold

For the purpose of delaying income taxes, during an inflationary period, which method would be best?

In a periodic system, the only account in regard to inventory that is kept up-to-date is the inventory account.

Assuming that Ace Systems uses the LIFO flow assump?tion, the 12 units of this product in inventory at January 31 have a total cost of:

In a periodic inventory system, understating the amount of ending inventory will cause an understatement of gross profit in the current year.

With respect to the valuation of inventory and measurement of the cost of goods sold, the principle of consistency means that the same method should be applied:

During periods of inflation, when comparing LIFO with FIFO:

During a period of steadily rising prices, which of the following inventory valuation methods is likely to result in the lowest cost of goods sold?

Companies with perpetual inventories need not take physical inventory counts because inventory amounts are perpetually available.

Assuming that Beech Soda uses the average cost flow assumption, the cost of goods sold to be recorded at January 14 is (round cost per unit to nearest cent):

Assuming a 365-day year, the number of days required for Carl Equipment to convert its average inventory into cash is:

During a period of steadily falling prices, which of the following methods of measuring the cost of goods sold is likely to result in the lowest taxable income?

When the LIFO costing method is in use, the seller:

Determine the cost ratio that should be used in estimating the May 31 inventory using the retail method.

Harris Corporation's inventory of a particular product includes 200 units purchased at a per-unit cost of $50, and another 100 units purchased at a unit cost of $60. If Harris sells 10 units of this product, the cost of goods sold will be:

Assuming that Beech Soda uses the LIFO flow assumption, the cost of goods sold to be recorded at January 14 is:

Accounting: Information for Decision Making

Basic Financial Statements

The Accounting Cycle: Capturing Economic Events

The Accounting Cycle: Accruals and Deferrals

The Accounting Cycle: Reporting Financial Results

Merchandising Activities

Financial Assets

Plant and Intangible Assets

Liabilities

Stockholders Equity: Paid-In Capital

Income and Changes in Retained Earnings

Statement of Cash Flows

Financial Statement Analysis

Global Business and Accounting

Management Accounting: a Business Partner

Job Order Cost Systems and Overhead Allocations

Process Costing

Costing and the Value Chain

Cost-Volume-Profit Analysis

Incremental Analysis

Responsibility Accounting and Transfer Pricing

Operational Budgeting

Standard Cost Systems

Rewarding Business Performance

Capital Budgeting

Forms of Business Organization

The Time Value of Money: Future Amounts and Present Values Answer Key

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