Question 1

Which of the following inventory costing methods yields the lowest net income during a period of rising inventory costs?

Accepted Answer

A) Specific identification 
B) Weighted-average 
C) Last-in, first-out 
D) First-in, first-out

Question 2

A company discovers that its cost of goods sold is understated by an insignificant amount. They do not need to correct the error because of the materiality concept.

Accepted Answer

A) True 
 B)False

Question 3

An overstatement of ending merchandise inventory in the current period results in an understatement of net income in the current period.

Accepted Answer

A) True 
 B)False

Question 4

For inventories, market value generally means the current replacement cost.

Accepted Answer

A) True 
 B)False

Question 5

A company discovers that its cost of goods sold is understated by an insignificant amount. They do not need to correct the error because of the conservatism principle.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following inventory costing methods results in the highest value of ending inventory during a period of rising inventory costs?

Accepted Answer

A) Specific identification 
B) Weighted-average 
C) Last-in, first-out 
D) First-in, first-out

Question 7

Changing from the LIFO (Last-In, First-Out)to the specific identification method of valuing inventory ignores the principle of:

Accepted Answer

A) conservatism. 
B) consistency. 
C) disclosure. 
D) materiality.

Question 8

Golden Oak Antique Shop had the following account balances at the end of the current accounting period:  The normal gross profit for the company is $45%. What was the company's estimated cost of goods sold for the accounting period?

Accepted Answer

A) $40,150 
B) $32,038 
C) $48,125 
D) $39,375

Question 9

A company that uses the perpetual inventory system purchased 500 pallets of industrial soap for $7,000 and paid $800 for the freight-in. The company sold the whole lot to a supermarket chain for $12,000 on account. Which of the following entries correctly records the sale?

Accepted Answer

A)    
B)   
C)   
D)

Question 10

Susan Florists had the following account balances at the end of the current accounting period:  A normal gross profit percent is 30%. What is the estimated ending inventory as per the gross profit method?

Accepted Answer

A) $100,890 
B) $28,110 
C) $63,410 
D) $65,590

Question 11

A company that uses the perpetual inventory system sold goods for $1,000 to a customer on account. The company had purchased the inventory for $400. Which of the following journal entries correctly records the cost of goods sold?

Accepted Answer

A)   
B)   
C)   
D)

Question 12

The following data is available:  Using the gross profit method, the estimated ending inventory balance would be:

Accepted Answer

A) $15,000. 
B) $7,150. 
C) $10,200. 
D) $5,850.

Question 13

Henderson Sales purchased $6,000 of inventory on account. Provide the journal entry. (Assume a perpetual inventory system)

Accepted Answer

The answer of Henderson Sales purchased $6,000 of inventory on...

Question 14

Which of the following amounts will differ if a company, using the last-in, first-out (LIFO)method, shifts from a periodic inventory system to a perpetual inventory system?

Accepted Answer

A) ending merchandise inventory 
B) sales revenue 
C) purchases 
D) purchase returns

Question 15

Under the last-in, first-out (LIFO)method, the cost of goods sold is based on the oldest purchases.

Accepted Answer

A) True 
 B)False

Question 16

Collins Computers stored its inventory in a warehouse which suffered a fire in late November, 2014. Their sales office was at a different location. In order to file a claim with the insurance company, the owners ask you to estimate the inventory in the warehouse. The following information is available:  The company's gross profit has historically been 40% of Net sales revenue. Estimate the value of the inventory destroyed in the fire using the gross profit method.

Accepted Answer

A) $369,950 
B) $528,550 
C) $410,000 
D) $388,450

Question 17

Rodriguez Company had the following balances and transactions during 2015:  What would the Ending Merchandise Inventory amount be as reported on the balance sheet at December 31, 2015 if the perpetual first-in, first-out costing method is used?

Accepted Answer

A) $4,000 
B) $16,400 
C) $8,200 
D) $8,000

Question 18

Given the same purchase and sales data, the three major costing methods for inventory will result in three different amounts for sales revenue. Assume the cost of inventory is rising.

Accepted Answer

A) True 
 B)False

Question 19

Thomas Company provided the following particulars for year 2015:  Calculate Thomas's inventory turnover ratio for the year. (Round your answer to two decimal places.)

Accepted Answer

A) 5.53 times per year 
B) 3.69 times per year 
C) 2.76 times per year 
D) 1.85 times per year

Question 20

Which of the following inventory costing methods yields the highest net income during a period of rising inventory costs?

Accepted Answer

A) Specific identification 
B) Weighted-average 
C) Last-in, first-out 
D) First-in, first-out

Exam 6: Merchandise Inventory

Which of the following inventory costing methods yields the lowest net income during a period of rising inventory costs?

A company discovers that its cost of goods sold is understated by an insignificant amount. They do not need to correct the error because of the materiality concept.

An overstatement of ending merchandise inventory in the current period results in an understatement of net income in the current period.

For inventories, market value generally means the current replacement cost.

A company discovers that its cost of goods sold is understated by an insignificant amount. They do not need to correct the error because of the conservatism principle.

Which of the following inventory costing methods results in the highest value of ending inventory during a period of rising inventory costs?

Changing from the LIFO (Last-In, First-Out) to the specific identification method of valuing inventory ignores the principle of:

Golden Oak Antique Shop had the following account balances at the end of the current accounting period: The normal gross profit for the company is $45%. What was the company's estimated cost of goods sold for the accounting period?

A company that uses the perpetual inventory system purchased 500 pallets of industrial soap for $7,000 and paid $800 for the freight-in. The company sold the whole lot to a supermarket chain for $12,000 on account. Which of the following entries correctly records the sale?

Susan Florists had the following account balances at the end of the current accounting period: A normal gross profit percent is 30%. What is the estimated ending inventory as per the gross profit method?

A company that uses the perpetual inventory system sold goods for $1,000 to a customer on account. The company had purchased the inventory for $400. Which of the following journal entries correctly records the cost of goods sold?

The following data is available: Using the gross profit method, the estimated ending inventory balance would be:

Henderson Sales purchased $6,000 of inventory on account. Provide the journal entry. (Assume a perpetual inventory system)

Which of the following amounts will differ if a company, using the last-in, first-out (LIFO) method, shifts from a periodic inventory system to a perpetual inventory system?

Under the last-in, first-out (LIFO)method, the cost of goods sold is based on the oldest purchases.

Rodriguez Company had the following balances and transactions during 2015: What would the Ending Merchandise Inventory amount be as reported on the balance sheet at December 31, 2015 if the perpetual first-in, first-out costing method is used?

Given the same purchase and sales data, the three major costing methods for inventory will result in three different amounts for sales revenue. Assume the cost of inventory is rising.

Thomas Company provided the following particulars for year 2015: Calculate Thomas's inventory turnover ratio for the year. (Round your answer to two decimal places.)

Which of the following inventory costing methods yields the highest net income during a period of rising inventory costs?