Question 1

The merchandise turnover ratio is used to measure profitability.

Accepted Answer

A) True 
 B)False

Question 2

There is no difference in the amount of inventory calculated by the periodic and perpetual inventory systems when using the FIFO cost flow assumption.

Accepted Answer

A) True 
 B)False

Question 3

Using the perpetual system, what are the three types of inventory cost flow assumptions?

Accepted Answer

The answer of Using the perpetual system, what are the...

Question 4

Majik Carpet was having problem selling inventory item #371 so the owner decided to place that item with a consignee to see if they could sell it. Theconsignee still had the carpet at June 30, 2017 and it was mistakenly notincluded in the ending inventory count. Indicate the amount of any over or understatement of net income for the month of June as a result of this error

Accepted Answer

The answer of Majik Carpet was having problem selling inventory...

Question 5

Explain the effect of an error in inventory valuation on financial statements.

Accepted Answer

The answer of Explain the effect of an error in...

Question 6

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 7

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 8

Explain why the lower of cost and net realizable value rule is used to valueinventory.

Accepted Answer

The answer of Explain why the lower of cost and...

Question 9

On September 30, Stark Company needed to estimate its ending inventory in order to prepare its third-quarter financial statementsInventory, July 1Third quarter net salesThird quarter net purchases: $17,500Stark's gross profit ratio is 15%. Estimated cost of goods sold would be:

Accepted Answer

A) $6,000. 
B) $36,000. 
C) $40,000. 
D) $34,000. 
E) $57,500.

Question 10

An understatement of beginning inventory will understate cost of goods sold and overstate net income.

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

Coronado Company sells two types of inventory, MP3 players and Blu Ray players. The MP3 players originally cost $2,250 and have a net realizable value $1,075 while the Blu Ray players had an original cost of $500 and have a net realizable value of $700.Calculate the year end adjustment to inventory when applying the lower of cost and net realizable value on an item by item basis.

Accepted Answer

A) $375. 
B) $1,175. 
C) $1,112. 
D) $2,950. 
E) $1,575.

Question 13

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 14

A business that has inventory items that are ordinarily interchangeable is required to use the specific identification method of assigning costs to inventory.

Accepted Answer

A) True 
 B)False

Question 15

In a period of inflation, FIFO usually gives a lower taxable income and thus a tax advantage.

Accepted Answer

A) True 
 B)False

Question 16

A company's ability to pay its short-term obligations depends on how quickly it sells its merchandise inventory.

Accepted Answer

A) True 
 B)False

Question 17

When preparing the financial statements, management can choose the inventory cost flow assumption it will use for a particular year in order to impact the reported netincome.

Accepted Answer

A) True 
 B)False

Question 18

Martock Company uses the periodic inventory systemSalesBeginning inventoryEnding inventoryPurchases: $10,000The cost of goods sold for the period is:

Accepted Answer

A) $21,500. 
B) $25,100. 
C) $26,000. 
D) $24,500. 
E) $19,500.

Question 19

Normandy Company has collected the following inventory data prior topreparing financial statements for the month of OctoberThe October 6 purchaseThe October 12 sale.(C)The entries to close the October income statement items to Income Summary.(Assume that sales revenue and the elements of cost of goods sold are the only income statement items.)

Accepted Answer

The answer of Normandy Company has collected the following inventory...

Question 20

The cost of an inventory item includes its invoice price plus any added or incidental costs necessary to put it in a place and condition for sale.

Accepted Answer

A) True 
 B)False

Exam 6: Inventory Costing and Valuation

The merchandise turnover ratio is used to measure profitability.

There is no difference in the amount of inventory calculated by the periodic and perpetual inventory systems when using the FIFO cost flow assumption.

Using the perpetual system, what are the three types of inventory cost flow assumptions?

Explain the effect of an error in inventory valuation on financial statements.

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.

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.

Explain why the lower of cost and net realizable value rule is used to valueinventory.

On September 30, Stark Company needed to estimate its ending inventory in order to prepare its third-quarter financial statementsInventory, July 1Third quarter net salesThird quarter net purchases: $17,500Stark's gross profit ratio is 15%. Estimated cost of goods sold would be:

An understatement of beginning inventory will understate cost of goods sold and overstate net income.

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

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

A business that has inventory items that are ordinarily interchangeable is required to use the specific identification method of assigning costs to inventory.

In a period of inflation, FIFO usually gives a lower taxable income and thus a tax advantage.

A company's ability to pay its short-term obligations depends on how quickly it sells its merchandise inventory.

When preparing the financial statements, management can choose the inventory cost flow assumption it will use for a particular year in order to impact the reported netincome.

Martock Company uses the periodic inventory systemSalesBeginning inventoryEnding inventoryPurchases: $10,000The cost of goods sold for the period is:

The cost of an inventory item includes its invoice price plus any added or incidental costs necessary to put it in a place and condition for sale.