Question 1

Which of the following statements is not a characteristic of the LIFO method of pricing inventory?

Accepted Answer

A)  During a period of rising prices, LIFO tends to minimize the amounts of income taxes owed. 
B)  The cost of goods sold is measured in relatively current costs. 
C)  Inventory is valued at relatively current costs. 
D)  During a period of falling prices, LIFO tends to maximize the amounts of income taxes owed. 
A)  During a period of rising prices, LIFO tends to minimize the amounts of income taxes owed. 
B)  The cost of goods sold is measured in relatively current costs. 
C)  Inventory is valued at relatively current costs. 
D)  During a period of falling prices, LIFO tends to maximize the amounts of income taxes owed.

Question 2

Estimate the cost of goods sold for May using the retail method.

Accepted Answer

A)  $137,400. 
B)  $150,400. 
C)  $205,236. 
D)  $319,600. 
A)  $137,400. 
B)  $150,400. 
C)  $205,236. 
D)  $319,600.

Question 3

In a perpetual inventory system, the flow of inventory cost is:

Accepted Answer

A)  First through the income statement, then through the balance sheet. 
B)  First through the balance sheet, then through the income statement. 
C)  Only through the balance sheet and not the income statement. 
D)  Only through the income statement and not the balance sheet. 
A)  First through the income statement, then through the balance sheet. 
B)  First through the balance sheet, then through the income statement. 
C)  Only through the balance sheet and not the income statement. 
D)  Only through the income statement and not the balance sheet.

Question 4

From an accounting point of view, one implication of an effective just-in-time inventory system is that:

Accepted Answer

A)  Sales transactions must be recorded using on-line point-of-sale terminals. 
B)  Inventories are less material in dollar amount and alternative inventory flow assumptions will produce more similar results. 
C)  The cost of goods sold is significantly reduced. 
D)  Purchases of merchandise are recorded as cash payments are made, and sales transactions are recorded as cash is received. 
A)  Sales transactions must be recorded using on-line point-of-sale terminals. 
B)  Inventories are less material in dollar amount and alternative inventory flow assumptions will produce more similar results. 
C)  The cost of goods sold is significantly reduced. 
D)  Purchases of merchandise are recorded as cash payments are made, and sales transactions are recorded as cash is received.

Question 5

A clothing store would logically have a higher inventory turnover rate than would a doughnut shop.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following results in the cost of goods sold being stated at the most current acquisition costs?

Accepted Answer

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

Question 7

Gross profit method
Horizon Company had sales of $1,750,000 during the current period and a gross profit rate of 40%. The company's cost of goods available for sale during the period was $1,400,000. The company's ending inventory must have amounted to $_______________.

Accepted Answer

Horizon's ending inv

Question 8

Which of the following will cause net income to be overstated for the following year?

Accepted Answer

A)  Current year's ending inventory is understated. 
B)  Current year's ending inventory is overstated. 
C)  Next year's beginning inventory is overstated. 
D)  Next year's ending inventory is understated. 
A)  Current year's ending inventory is understated. 
B)  Current year's ending inventory is overstated. 
C)  Next year's beginning inventory is overstated. 
D)  Next year's ending inventory is understated.

Question 9

During periods of inflation which method will yield the smallest ending inventory and the largest cost of goods sold?

Accepted Answer

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

Question 10

In July 2011, the accountant for LBJ Imports is in the process of preparing financial statements for the quarter ended June 30, 2011. The physical inventory, however, was last taken on June 5 and the accountant must establish the approximate cost at June 30 from the following data: The gross profit on sales has consistently averaged 40% of sales. Using the gross profit method, compute the approximate inventory cost at June 30, 2011.

Accepted Answer

A)  $420,000. 
B)  $880,000. 
C)  $480,000. 
D)  $1,360,000. 
A)  $420,000. 
B)  $880,000. 
C)  $480,000. 
D)  $1,360,000.

Question 11

Gross profit method
The Walnut Shop is a furniture company that uses a periodic inventory system. On February 8, 2009, a fire destroyed all the furniture on display in the company's main showroom. Fortunately, $35,000 of the company's inventory was located in a separate warehouse and was not damaged by the fire.
Walnut Shop now is attempting to determine the cost of the merchandise destroyed in the fire from the following information:
  
Compute the following (show computations):

Accepted Answer

The answer of Gross profit method
The Walnut Shop is a...

Question 12

Assuming that Ace Systems uses the FIFO flow assump?tion, the cost of goods sold on January 28 is:

Accepted Answer

A)  $509. 
B)  $341. 
C)  $499. 
D)  Some other amount. 
A)  $509. 
B)  $341. 
C)  $499. 
D)  Some other amount.

Question 13

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)  73.0. 
C)  24.3. 
D)  304.2. 
A)  36.5. 
B)  73.0. 
C)  24.3. 
D)  304.2.

Question 14

The amount of goods transferred from the Inventory account to the Cost of Goods Sold account during January was:

Accepted Answer

A)  $0. 
B)  $84,000. 
C)  $102,000. 
D)  $56,000. 
A)  $0. 
B)  $84,000. 
C)  $102,000. 
D)  $56,000.

Question 15

Compute the cost of the ending inventory based on the FIFO method of inventory valuation.

Accepted Answer

A)  $12,500. 
B)  $29,175. 
C)  $10,975. 
D)  $27,650. 
A)  $12,500. 
B)  $29,175. 
C)  $10,975. 
D)  $27,650.

Question 16

Compute the cost of goods sold for the current year based on the LIFO method of inventory valuation.

Accepted Answer

A)  $12,500. 
B)  $29,175. 
C)  $10,975. 
D)  $27,650 
A)  $12,500. 
B)  $29,175. 
C)  $10,975. 
D)  $27,650

Question 17

The primary purpose of an inventory flow assumption is to:

Accepted Answer

A)  Increase inventory turnover. 
B)  Increase gross profit. 
C)  Determine which unit costs are assigned to inventory and which are assigned to the cost of goods sold. 
D)  Minimize taxable income during periods of rising prices. 
A)  Increase inventory turnover. 
B)  Increase gross profit. 
C)  Determine which unit costs are assigned to inventory and which are assigned to the cost of goods sold. 
D)  Minimize taxable income during periods of rising prices.

Question 18

Determine the cost of the 45 units in inventory at January 31 using each of the following flow assumptions:
(1) LIFO $_____________
(2) FIFO $_____________
(3) Average cost $_____________

Accepted Answer

Inventory at Jan. 31

Question 19

In a periodic inventory system, the cost of goods sold is determined by:

Accepted Answer

A)  Multiplying net sales for the period by a cost ratio. 
B)  Journal entries made at the time of each sales transaction. 
C)  Physically counting the quantities of merchandise sold each day, and determining the cost of these items at year-end. 
D)  Subtracting the cost assigned to the ending inventory from the cost of goods available for sale during the period. 
A)  Multiplying net sales for the period by a cost ratio. 
B)  Journal entries made at the time of each sales transaction. 
C)  Physically counting the quantities of merchandise sold each day, and determining the cost of these items at year-end. 
D)  Subtracting the cost assigned to the ending inventory from the cost of goods available for sale during the period.

Question 20

The Valley Garden Company had the following transactions:
 
(A) Prepare journal entries for Valley Garden assuming the Company uses the gross method when accounting for purchases and a perpetual inventory.
(B) Prepare journal entries for Valley Garden assuming the Company uses the gross method and a periodic inventory.

Accepted Answer

The answer of The Valley Garden Company had the following...

Exam 8: Inventories and the Cost of Goods Sold

Which of the following statements is not a characteristic of the LIFO method of pricing inventory?

Estimate the cost of goods sold for May using the retail method.

In a perpetual inventory system, the flow of inventory cost is:

From an accounting point of view, one implication of an effective just-in-time inventory system is that:

A clothing store would logically have a higher inventory turnover rate than would a doughnut shop.

Which of the following results in the cost of goods sold being stated at the most current acquisition costs?

Gross profit method Horizon Company had sales of $1,750,000 during the current period and a gross profit rate of 40%. The company's cost of goods available for sale during the period was $1,400,000. The company's ending inventory must have amounted to $_______________.

Which of the following will cause net income to be overstated for the following year?

During periods of inflation which method will yield the smallest ending inventory and the largest cost of goods sold?

Assuming that Ace Systems uses the FIFO flow assump?tion, the cost of goods sold on January 28 is:

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

The amount of goods transferred from the Inventory account to the Cost of Goods Sold account during January was:

Compute the cost of the ending inventory based on the FIFO method of inventory valuation.

Compute the cost of goods sold for the current year based on the LIFO method of inventory valuation.

The primary purpose of an inventory flow assumption is to:

Determine the cost of the 45 units in inventory at January 31 using each of the following flow assumptions: (1) LIFO $_____________ (2) FIFO $_____________ (3) Average cost $_____________

In a periodic inventory system, the cost of goods sold is determined by:

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

Filters

Determine the cost of the 45 units in inventory at January 31 using each of the following flow assumptions: (1) LIFO $_______ (2) FIFO $_ (3) Average cost $_______