Question 1

Incidental costs added to the value of inventory include import duties, transportation-in, storage, and insurance.

Accepted Answer

A) True 
 B)False

Question 2

In applying LCNRV, net realizable value is defined as the sales price less costs incurred to make the sale.

Accepted Answer

A) True 
 B)False

Question 3

Because an inventory error causes an offsetting error in the next period,

Accepted Answer

A)  Managers can ignore the error. 
B)  It is sometimes said to be self-correcting. 
C)  It affects only income statement accounts. 
D)  If affects only balance sheet accounts. 
E)  Managers can ignore the error and it is sometimes said to be self-correcting.

Question 4

Days' sales in inventory

Accepted Answer

A)  Is a ratio that estimates how many days it will take to convert inventory on hand to accounts receivable or cash 
B)  Is a ratio that tells us how much inventory a firm has on hand in terms of days' sales 
C)  Is the number of days we can sell from inventory if no new items are purchased 
D)  All of the above 
E)  Is a ratio that estimates how many days it will take to convert inventory on hand to accounts receivable or cash and is a ratio that tells us how much inventory a firm has on hand in terms of days' sales

Question 5

The merchandise turnover ratio

Accepted Answer

A)  Is used to analyze profitability 
B)  Is used to measure solvency 
C)  Measures how quickly a firm sells its merchandise inventory 
D)  Validates the acid-test ratio 
E)  Depends on the type of inventory valuation method

Question 6

The consistency principle allows companies to use different inventory valuation methods period to period as long as the changes are fully disclosed.

Accepted Answer

A) True 
 B)False

Question 7

Goods on consignment are goods shipped by their owner, called the consignee, to another party called the consignor.

Accepted Answer

A) True 
 B)False

Question 8

The three methods of inventory valuation that are most often used in Canada are specific identification, FIFO, and (moving) weighted average.

Accepted Answer

A) True 
 B)False

Question 9

Most businesses use expected sales price minus the cost of making the sale as the definition of net realizable value.

Accepted Answer

A) True 
 B)False

Question 10

Trekking Company has inventory with a net realizable value of $217,000 and a cost of $241,000. According to the guidance provided by the principle of faithful representation, the inventory should be written down to $217,000.

Accepted Answer

A) True 
 B)False

Question 11

The consistency principle means that one costing method, such as FIFO or moving weighted average, has to be used exclusively.

Accepted Answer

A) True 
 B)False

Question 12

Most businesses apply the lower of cost and net realizable value rule to groups of similar or related items.

Accepted Answer

A) True 
 B)False

Question 13

If an inventory amount is reported in error, it can cause a misstatement in

Accepted Answer

A)  Cost of goods sold 
B)  Gross profit 
C)  Net income 
D)  Current assets 
E)  All of the above

Question 14

What special cases are sometimes seen when dealing with ownership of merchandise inventory?

Accepted Answer

The answer of What special cases are sometimes seen when...

Question 15

Apply the retail method to the following information and calculate the cost of the ending inventory:
 $$\begin{array} { | l | r | r | } 
\hline & \text { Cost } & \text { Retail } \
\hline \text { Beginnuing inventory } & \$ 16,800 & \$ 31,600 \
\hline \text { Net purchases } & 47,500 & 97,000 \
\hline \text { Bales } & 89,000 & \
\hline
\end{array}$$

Accepted Answer

The answer of Apply the retail method to the following...

Question 16

DVDs usually sell for $14 per unit, and have a profit margin of 25%. However, the expected selling price has fallen to $7 per unit. The Movie Company's current inventory includes 200 units purchased at $10 per unit. Calculate the value of the inventory at the lower of cost and net realizable value.

Accepted Answer

A)  $1,350 
B)  $1,400 
C)  $1,500 
D)  $1,800 
E)  $2,000

Question 17

Toys "R" Ltd. had cost of goods sold of $6,000 million, ending inventory of $2,500 million, and average inventory turnover of $2,000 million. The days' sales in inventory is

Accepted Answer

A)  152.1 
B)  121.7 
C)  87 
D)  1,095 
E)  30.5

Question 18

A business that has inventory items that are ordinarily interchangeable may use either the FIFO or moving weighted average methods to assign costs to inventory.

Accepted Answer

A) True 
 B)False

Question 19

The inventory cost flow assumption that assigns the highest cost to cost of goods sold in a period of rising prices is FIFO.

Accepted Answer

A) True 
 B)False

Question 20

Which ratio measures the portion of net sales that is gross profit?

Accepted Answer

A)  Gross margin ratio 
B)  Net sales ratio 
C)  Gross profit ratio 
D)  Gross margin ratio and gross profit ratio 
E)  All of the above

Exam 6: Inventory Costing and Valuation

Incidental costs added to the value of inventory include import duties, transportation-in, storage, and insurance.

In applying LCNRV, net realizable value is defined as the sales price less costs incurred to make the sale.

Because an inventory error causes an offsetting error in the next period,

Days' sales in inventory

The merchandise turnover ratio

The consistency principle allows companies to use different inventory valuation methods period to period as long as the changes are fully disclosed.

Goods on consignment are goods shipped by their owner, called the consignee, to another party called the consignor.

The three methods of inventory valuation that are most often used in Canada are specific identification, FIFO, and (moving) weighted average.

Most businesses use expected sales price minus the cost of making the sale as the definition of net realizable value.

Trekking Company has inventory with a net realizable value of $217,000 and a cost of $241,000. According to the guidance provided by the principle of faithful representation, the inventory should be written down to $217,000.

The consistency principle means that one costing method, such as FIFO or moving weighted average, has to be used exclusively.

Most businesses apply the lower of cost and net realizable value rule to groups of similar or related items.

If an inventory amount is reported in error, it can cause a misstatement in

What special cases are sometimes seen when dealing with ownership of merchandise inventory?

DVDs usually sell for $14 per unit, and have a profit margin of 25%. However, the expected selling price has fallen to $7 per unit. The Movie Company's current inventory includes 200 units purchased at $10 per unit. Calculate the value of the inventory at the lower of cost and net realizable value.

Toys "R" Ltd. had cost of goods sold of $6,000 million, ending inventory of $2,500 million, and average inventory turnover of $2,000 million. The days' sales in inventory is

A business that has inventory items that are ordinarily interchangeable may use either the FIFO or moving weighted average methods to assign costs to inventory.

The inventory cost flow assumption that assigns the highest cost to cost of goods sold in a period of rising prices is FIFO.

Which ratio measures the portion of net sales that is gross profit?