Question 1

A company made the following merchandise purchases and sales during the current month:
There was no beginning inventory. If the company uses the last-in, first-out perpetual inventory system, what would be the cost of the ending inventory?

Accepted Answer

The answer of A company made the following merchandise purchases...

Question 2

Internal controls that should be applied when a business takes a physical count of inventory should include all of the following except:

Accepted Answer

A)   Prenumbered inventory tickets.
B)   A manager does not confirm that all inventories are ticketed once, and only once.
C)   Counters must confirm the validity of inventory existence, amounts, and quality.
D)   Second counts by a different counter.
E)   Counters of inventory should not be those who are responsible for the inventory.F) A) and E)
G) A) and D)

Question 3

Whether purchase costs are rising or falling, FIFO always will yield the highest gross profit and net income.

Accepted Answer

A) True 
 B)False

Question 4

Costs included in the Merchandise Inventory account can include all of the following except:

Accepted Answer

A)   Invoice price minus any discount.
B)   Transportation-in.
C)   Storage.
D)   Insurance.
E)   Damaged inventory that cannot be sold.F) B) and E)
G) A) and C)

Question 5

Companies are allowed to use FIFO for financial reporting and LIFO for tax reporting, according to IRS requirements.

Accepted Answer

A) True 
 B)False

Question 6

To avoid the time-consuming process of taking an inventory each year, most companies use the gross profit method to estimate ending inventory.

Accepted Answer

A) True 
 B)False

Question 7

In applying the lower of cost and net realizable value (NRV) to inventory valuation, NRV is defined as the current selling price.

Accepted Answer

A) True 
 B)False

Question 8

Georgia Peach Company reported net sales in June of the current year of $1,000,000. At the beginning of June, the company reported beginning inventory of $368,000. Cost of goods purchased during June amounted to $217,500. The company reported ending inventory at the end of June of $226,750. The company's gross profit rate for June of the current year was:

Accepted Answer

A)   35.9%
B)   18.8%
C)   81.2%
D)   64.1%
E)   Impossible to determine from the information provided.F) D) and E)
G) B) and D)

Question 9

The consistency concept:

Accepted Answer

A)   Prescribes a company to consistently apply the same accounting method of inventory valuation, an exception being when a change from one method to another will improve its financial reporting.
B)   Requires a company to use one method of inventory valuation exclusively.
C)   Requires that all companies in the same industry use the same accounting methods of inventory valuation.
D)   Is also called the full disclosure principle.
E)   Is also called the matching principle.F) D) and E)
G) C) and E)

Question 10

A company's store was destroyed by a fire on February 10 of the current year. The only information for the current period that could be salvaged included the following:
Beginning inventory, January 1: $34,000
Purchases to date: $118,000
Sales to date: $140,000
Historically, the company's gross profit ratio has been 30%. Estimate the value of the destroyed inventory using the gross profit method.

Accepted Answer

The answer of A company's store was destroyed by a...

Question 11

A company had inventory of 10 units at a cost of $20 each on November 1. On November 2, it purchased 10 units at $22 each. On November 6 it purchased 6 units at $25 each. On November 8, it sold 22 units for $54 each. Using the FIFO perpetual inventory method, what was the cost of the 22 units sold?

Accepted Answer

A)   $470.
B)   $490.
C)   $450.
D)   $570.
E)   $520.F) A) and B)
G) C) and D)

Question 12

The inventory manager's compensation includes a bonus plan based on gross profit. You discover that the inventory manager has knowingly overstated ending inventory by $2 million. What effect does this error have on the financial statements of the company and specifically gross profit? Why would the manager knowingly overstate ending inventory? Would this be considered an ethics violation?

Accepted Answer

By overstating ending inventory, the cos...

Question 13

A company made the following merchandise purchases and sales during the month of May:
There was no beginning inventory. If the company uses the weighted average inventory valuation method and the perpetual inventory system, what would be the cost of its ending inventory?

Accepted Answer

The answer of A company made the following merchandise purchases...

Question 14

A company sells a climbing kit and uses the periodic inventory system to account for its merchandise. The beginning balance of the inventory and its transactions during January were as follows: If the ending inventory is reported at $357, what inventory method was used?

Accepted Answer

A)   LIFO.
B)   FIFO.
C)   Weighted average.
D)   Specific identification.
E)   Retail inventory method.F) A) and D)
G) A) and E)

Question 15

A company has inventory of 15 units at a cost of $12 each on August 1. On August 5, it purchased 10 units at $13 per unit. On August 12 it purchased 20 units at $14 per unit. On August 15, it sold 30 units. Using the FIFO perpetual inventory method, what is the value of the inventory at August 12 after the sale?

Accepted Answer

A)   $140.
B)   $160.
C)   $210.
D)   $380.
E)   $590.F) C) and D)
G) A) and C)

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

Interim statements:

Accepted Answer

A)   Are always required under GAAP.
B)   Are always necessary to achieve full disclosure about a business's operations.
C)   Are usually monthly or quarterly statements prepared for periods of less than one year.
D)   Require the use of the perpetual method for inventories.
E)   Cannot be prepared if the company follows the conservatism principle.F) B) and C)
G) A) and C)

Question 18

If the _______________ is responsible for paying the freight, ownership of merchandise inventory passes when the goods arrive at their destination.

Accepted Answer

The answer of If the _______________ is responsible for paying...

Question 19

In a period of rising purchase costs, FIFO usually gives a lower taxable income and therefore, yields a tax advantage.

Accepted Answer

A) True 
 B)False

Question 20

A company normally sells its product for $20 per unit. However, the selling price has fallen to $15 per unit. This company's current inventory consists of 200 units purchased at $16 per unit. Net realizable value has now fallen to $13 per unit. Calculate the value of this company's inventory at the lower of cost and net realizable value.

Accepted Answer

A)   $2,550.
B)   $2,600.
C)   $2,700.
D)   $3,000.
E)   $3,200.F) None of the above
G) C) and D)

Exam 6: Inventories and Cost of Sales

Correct Answer
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Correct Answer
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By overstating ending inventory, the cos...
View Answer

A company sells a climbing kit and uses the periodic inventory system to account for its merchandise. The beginning balance of the inventory and its transactions during January were as follows: If the ending inventory is reported at $357, what inventory method was used?

Correct Answer
verified

A company made the following merchandise purchases and sales during the month of May: There was no beginning inventory. If the company uses the weighted average inventory valuation method and the perpetual inventory system, what would be the cost of its ending inventory?

Correct Answer
verified

A company had inventory of 10 units at a cost of $20 each on November 1. On November 2, it purchased 10 units at $22 each. On November 6 it purchased 6 units at $25 each. On November 8, it sold 22 units for $54 each. Using the FIFO perpetual inventory method, what was the cost of the 22 units sold?

Correct Answer
verified

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

Correct Answer
verified

In a period of rising purchase costs, FIFO usually gives a lower taxable income and therefore, yields a tax advantage.

Correct Answer
verified

Correct Answer
verified

A company made the following merchandise purchases and sales during the current month: There was no beginning inventory. If the company uses the last-in, first-out perpetual inventory system, what would be the cost of the ending inventory?

Correct Answer
verified

The consistency concept:

Correct Answer
verified

In applying the lower of cost and net realizable value (NRV) to inventory valuation, NRV is defined as the current selling price.

Correct Answer
verified

Internal controls that should be applied when a business takes a physical count of inventory should include all of the following except:

Correct Answer
verified

If the _______________ is responsible for paying the freight, ownership of merchandise inventory passes when the goods arrive at their destination.

Correct Answer
verified

Companies are allowed to use FIFO for financial reporting and LIFO for tax reporting, according to IRS requirements.

Correct Answer
verified

Whether purchase costs are rising or falling, FIFO always will yield the highest gross profit and net income.

Correct Answer
verified

Interim statements:

Correct Answer
verified

Costs included in the Merchandise Inventory account can include all of the following except:

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

To avoid the time-consuming process of taking an inventory each year, most companies use the gross profit method to estimate ending inventory.

Correct Answer
verified

Exam 6: Inventories and Cost of Sales

Correct AnswerverifiedShow Answer

Correct AnswerverifiedBy overstating ending inventory, the cos...View AnswerShow Answer

A company sells a climbing kit and uses the periodic inventory system to account for its merchandise. The beginning balance of the inventory and its transactions during January were as follows: If the ending inventory is reported at $357, what inventory method was used?

Correct AnswerverifiedShow Answer

A company made the following merchandise purchases and sales during the month of May: There was no beginning inventory. If the company uses the weighted average inventory valuation method and the perpetual inventory system, what would be the cost of its ending inventory?

Correct AnswerverifiedShow Answer

A company had inventory of 10 units at a cost of $20 each on November 1. On November 2, it purchased 10 units at $22 each. On November 6 it purchased 6 units at $25 each. On November 8, it sold 22 units for $54 each. Using the FIFO perpetual inventory method, what was the cost of the 22 units sold?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In a period of rising purchase costs, FIFO usually gives a lower taxable income and therefore, yields a tax advantage.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A company made the following merchandise purchases and sales during the current month: There was no beginning inventory. If the company uses the last-in, first-out perpetual inventory system, what would be the cost of the ending inventory?

Correct AnswerverifiedShow Answer

The consistency concept:

Correct AnswerverifiedShow Answer

In applying the lower of cost and net realizable value (NRV) to inventory valuation, NRV is defined as the current selling price.

Correct AnswerverifiedShow Answer

Internal controls that should be applied when a business takes a physical count of inventory should include all of the following except:

Correct AnswerverifiedShow Answer

If the _______________ is responsible for paying the freight, ownership of merchandise inventory passes when the goods arrive at their destination.

Correct AnswerverifiedShow Answer

Companies are allowed to use FIFO for financial reporting and LIFO for tax reporting, according to IRS requirements.

Correct AnswerverifiedShow Answer

Whether purchase costs are rising or falling, FIFO always will yield the highest gross profit and net income.

Correct AnswerverifiedShow Answer

Interim statements:

Correct AnswerverifiedShow Answer

Costs included in the Merchandise Inventory account can include all of the following except:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

To avoid the time-consuming process of taking an inventory each year, most companies use the gross profit method to estimate ending inventory.

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified
By overstating ending inventory, the cos...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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