In a period of rising costs, the LIFO Reserve account would be deducted from the ending inventory under LIFO costing to convert it to ending inventory under FIFO costing... Beginning Inv
Trang 1True / False Questions
3 The weighted average method of inventory costing results in a valuation between that determined
by the FIFO and LIFO costing methods
Trang 25 LIFO will always result in highest income when costs are rising in comparison to specific
identification, FIFO and weighted average
Trang 39 If Dell Computer has 10,000 Pentium disks in stock at a cost of $300 per chip when they can be purchased at a replacement cost of $250 each Dell will recognize this decline in cost when the chips are sold as part of their computers
Trang 413 If a company has a decrease in inventory equal to $3 million and a decrease in accounts payable
of $2 million, then cash flow from operating activities will increase by $1 million
15 In a period of rising costs, the LIFO Reserve account would be deducted from the ending
inventory under LIFO costing to convert it to ending inventory under FIFO costing
Trang 517 An understatement error in the ending inventory causes an overstatement of both net income and current assets in that year
19 When a perpetual inventory system is used, the purchases returns and allowances account will not
be part of the general ledger accounts
Trang 6Multiple Choice Questions
21 Which of the following best describes inventory?
A They are held for resale
B They are tangible property
C They are used in the operations of the company
D They are held for resale and are tangible property
AACSB Tag: Relative Thinking
Difficulty: Medium
L.O.: 1
22 Which of the following statements about inventory is true?
A It is acquired for use in operating the company
B It is intangible property
C It is a current asset on the balance sheet
D Manufacturers have four inventory accounts
AACSB Tag: Relative Thinking
Difficulty: Easy
L.O.: 1
23 Rockwell Company reported the following amounts on its 2009 income statement: Purchases,
$100,000; Beginning inventory, $20,000; and Cost of goods sold, $110,000 Therefore, the 2009 ending inventory was
Trang 724 The 2009 records of Coleman Company showed beginning inventory, $100,000; cost of goods sold, $450,000; and ending inventory, $80,000 The purchases for 2009 equal
25 When goods are sold on credit, revenue usually should be recognized at the date of
A receipt of the sales order
B passage of title from the seller to the buyer
C receipt of the goods by the buyer
D manufacture of the goods
AACSB Tag: Relative Thinking
Difficulty: Medium
L.O.: 1
26 Which of the following types of inventory usually is not held by a manufacturing business?
A Finished goods inventory
B Raw material inventory
Trang 827 Which of the following is true about a manufacturing company's inventory?
A Components purchased from vendors will be added to a raw material inventory account
B Direct labor and factory overhead are added to the materials in the raw material inventory account
C Cost of storing finished units in a separate warehouse will be added to the finished goods
28 Thorton Co reported the following data at year-end Sales, $500,000; beginning inventory,
$40,000; ending inventory, $45,000; cost of goods sold, $350,000; and gross margin, $150,000 What was the amount of merchandise purchased during the year?
Trang 930 The following information was taken from the 2010 income statement of Milburn Company: Pretax income, $12,000; Total operating expenses (not including income taxes), $20,000; Sales revenue, $120,000; Beginning inventory, $8,000; and Purchases, $90,000 Compute the amount of the ending inventory
31 Which of the following is true?
A Factory overhead consists of manufacturing costs other than direct materials and direct labor
B Net realizable value is the expected sales price plus selling costs
C LIFO Reserve is a contra sales account for the excess of LIFO over FIFO inventory
D Purchases discounts increase sales revenue to arrive at net sales
Trang 1033 On March 10, Anthony Company received merchandise for resale from its normal supplier The price was $3,600 with terms of 2/10, n/30 for 100 units of Part #345 The invoice was paid on March
17 Freight costs were $120 and the company paid $108 of interest on a loan to buy the inventory What is the unit cost that should be recorded for each of the 100 units of Part # 345?
34 Which of the following is correct?
A Beginning Inventory + Purchases Cost of Goods Sold = Ending Inventory
B Sales + Cost of Goods Sold = Gross Margin
C Beginning Inventory + Ending Inventory Purchases = Cost of Goods Sold
D Income Before Taxes Operating Expenses = Cost of Goods Sold
Trang 1136 Which of the following costs would not be part of product inventory costs for a manufacturer such as Harley Davidson?
A Costs to advertise the newest model
B Kickstands purchased for use in manufacturing the motorcycles
C The factory manager's salary and benefits
D The wages and benefits of an employee in the welding department
Trang 1239 Lauer Corporation uses the periodic inventory system and the following information about their laptop computer is available:
During the year, 750 laptop computers were sold
What was ending inventory and cost of goods sold on 12/31 under the FIFO cost flow assumption?
What was ending inventory and cost of goods sold on 12/31 under the LIFO cost flow assumption?
Trang 1341 Under the FIFO cost flow assumption during a period of inflation, which of the following is false?
A Income tax expense will be higher than under LIFO
B Gross margin will be higher than under LIFO
C Ending inventory will be lower than under LIFO
D Cost of goods sold will be lower than under LIFO
A Cost of goods sold will be lower than under FIFO
B Gross margin will be lower than under FIFO
C Income tax expense will be lower than under FIFO
D Ending inventory will be lower than under FIFO
AACSB Tag: Relative Thinking
Difficulty: Hard
L.O.: 2
43 When prices are rising:
A LIFO will result in lower net income and a higher inventory valuation than will FIFO
B LIFO will result in higher net income and lower inventory valuation than will FIFO
C FIFO will result in lower net income and a lower inventory valuation than will LIFO
D FIFO will result in higher net income and a higher inventory valuation than will LIFO
Trang 1444 When prices are rising, the method of inventory valuation that results in the highest relative net cash inflow is:
45 Which of the following statements is correct?
A FIFO reports lower income amounts than LIFO when prices are rising
B LIFO reports a higher income amount than FIFO when prices are rising
C LIFO reports a higher income amount than FIFO when prices are decreasing
D LIFO reports the same amount of income as FIFO when prices are rising
AACSB Tag: Relative Thinking
Difficulty: Medium
L.O.: 3
46 Which of the following statements is true?
A Applying the lower of cost or market (LCM) rule is optional and depends on whether a company wants to write off inventory when it loses its value or prefers to delay the write off until the inventory
is sold
B The LIFO conformity rule requires use of LIFO for financial reports if it is adopted for tax
purposes
C LIFO liquidation occurs when a company switches from LIFO to another cost method
D The LIFO conformity rule requires use of LIFO for taxes if it is adopted for financial reports
Trang 1547 The LIFO costing method is more costly and time consuming than a FIFO system Which of the following would be a valid justification for choosing LIFO?
A It usually provides for more control over inventory
B It usually provides managers with more useful information about the level of inventory by
monitoring the cost level in the inventory account
C The tax savings from using LIFO during an inflationary period exceeds the cost of using a LIFO
48 Moore Company purchased an item for inventory that cost $20 per unit and was marked to sell at
$30 It was determined that the replacement cost is $18 per unit No purchases in the near future are anticipated Using the lower-of-cost-or- market rule, the per unit valuation for inventory should be
Trang 1650 Under the lower-of-cost-or-market basis for valuing inventory if replacement cost of an item in inventory has declined during a given accounting period,
A pretax income and the amount of ending inventory will be reduced for the period in which the merchandise is sold
B pretax income and the amount of ending inventory will be reduced for the period during which the
decline in market value occurred
C pretax income will be reduced for the period during which the decline in market value occurred and the amount of ending inventory will decline for the period in which the merchandise is sold
D pretax income will be reduced for the period during which the merchandise is sold and the amount
of ending inventory will decline for the period in which the decline in market value occurred
AACSB Tag: Relative Thinking
Difficulty: Medium
L.O.: 4
51 Which of the following is a true statement about lower of cost or market (LCM)?
A It is optional under generally accepted accounting principles, whether you apply LCM in the year
in which net realizable value declines below cost or the company waits until the inventory is sold
B LCM can be applied to all cost methods under generally accepted accounting principles except for LIFO
C For tax purposes, the LIFO cost flow method cannot have LCM applied
D Under LCM, market equals the current selling price to the retail customer
Trang 1753 Tinker's Toys had cost of goods sold in 2009 of $7,506 million and $7,646 million in 2008 Their merchandise inventory in 2009 was $1,884 million and $2,094 million in 2008 How long were their average days to sell inventory in 2009?
54 A company reports its 2010 cost of goods sold at $15.0 million Its ending inventory for 2010 is
$1.6 million and for 2009, ending inventory was $1.2 million How much inventory did the company purchase during 2009?
Trang 1856 A company reports its cost of goods sold as $15.0 billion in 2009 It has $2.9 billion in inventory and reports accounts payable at $1.2 billion at the end of 2009 At the end of 2008 ending inventory was reported at $3.1 billion and accounts payable was $1.4 billion How much cash was paid to suppliers for 2009?
58 In 2010, Terry Inc provided the following items in their footnotes Their cost of goods sold was
$22 billion under FIFO costing and their inventory value under FIFO costing was $2.1 billion Their LIFO Reserve account balance for year end 2009 had a $0.6 billion credit balance and then at year end 2010, it had a credit balance of $0.8 billion How much would they report as LIFO cost of goods sold?
Trang 1959 Which of the following statements is false?
A The LIFO Reserve is a contra-asset account for the excess of FIFO over LIFO inventory costs
B When the LIFO Reserve account increases from one year to the next, then FIFO cost of goods sold will be less than LIFO cost of goods sold
C The LIFO Reserve account balance at the end of the year would be deducted from ending LIFO
inventory cost to convert to FIFO ending inventory cost
D We want to convert LIFO cost of goods sold and LIFO inventory balances to FIFO cost of goods sold and inventory balances to obtain a more realistic inventory turnover ratio
AACSB Tag: Relative Thinking
Difficulty: Hard
L.O.: 6
60 A $25,000 overstatement of the 2010 ending inventory was discovered after the financial
statements for 2010 were prepared The effect of the inventory error on the 2010 financial statements was
A current assets were overstated and net income was understated
B current assets were understated and net income was understated
C current assets were overstated and net income was overstated
D current assets were understated and net income was overstated
Trang 2062 At the end of 2009, a $5,000 understatement was discovered in the amount of the 2009 ending inventory as reflected in the perpetual inventory records What were the 2009 effects of the $5,000 inventory error (before correction)?
A Assets (inventory) were understated by $5,000 and pretax income was understated by $5,000
B Assets (inventory) were understated by $5,000 and pretax income was overstated by $5,000
C Cost of goods sold was understated by $5,000 and pretax income was understated by $5,000
D Cost of goods sold was overstated by $5,000 and pretax income was overstated by $5,000
AACSB Tag: Analytic
Difficulty: Medium
L.O.: 7
63 An understatement of the ending inventory in Year 1, if not corrected, will cause
A Year 1 net income to be understated and Year 2 net income to be overstated
B Year 1 net income to be overstated and Year 2 net income to be overstated
C Year 1 net income to be overstated and Year 2 net income will be correct
D Year 1 net income to be overstated and Year 2 net income to be understated
Trang 2165 On December 15, 2009, Transport Company accepted delivery of merchandise which it
purchased on credit As of December 31, 2009, the company had neither recorded the transaction nor included the merchandise in its ending inventory amount because the seller's invoice had not been received The effect of this omission on its balance sheet at December 31, 2009, (end of the
accounting period) was that
A assets and stockholder's equity were overstated but liabilities were not affected
B stockholder's equity was the only item affected by the omission
C assets and liabilities were understated but stockholders' equity was not affected
D assets and stockholders' equity were understated but liabilities were not affected
A understatement of both net income and assets
B overstatement of inventory, purchases, and accounts payable
C understatement of inventory, purchases, and accounts payable
D overstatement of net income and assets
A goods available for sale, cost of goods sold, and income to be overstated
B ending inventory, cost of goods sold, and retained earnings to be understated
C ending inventory, goods available for sale, and retained earnings to be understated
D no effect on income, working capital, or retained earnings
Trang 2268 Hollander Company hired some students to help count inventory during their semester break Unfortunately, the students added incorrectly and ending inventory was overstated by $5,000 What would be the effect of this error in ending inventory?
A Income would be overstated
B Income would be understated
C Ending retained earnings would be understated
D Cost of goods sold would be overstated
70 Under the periodic method, cost of goods sold is computed by
A adding the cost of purchases during the period to the cost of the inventory on hand at the
beginning of the period and adding this figure to the cost of the inventory on hand at the end of the period
B adding the cost of purchases during the period to the cost of the inventory on hand at the end of the period and subtracting the inventory on hand at the beginning of the period
C subtracting the cost of the inventory on hand at the ending of the period from the cost of goods
available for sale
D carefully matching selling and administrative expenses with the sales to which they are related and then reporting these expenses in the same period the associated revenue is reported
Trang 2371 Under the perpetual inventory system:
A one entry is required to record a sales return
B cost of goods sold cannot be determined unless a physical inventory is taken
C one entry is required to record a sale
D a separate account for purchases is not required
AACSB Tag: Relative Thinking
Difficulty: Medium
L.O.: 7
72 Under the periodic inventory system:
A a transaction by transaction unit inventory record is maintained
B the cost of goods sold for each sale is recorded at the time each sale is made
C a separate account for purchases is used
D a continuous inventory record provides the amount of ending inventory and the cost of goods sold throughout the period
Trang 2474 On March 15, 2009, Ryan Company purchased $10,000 of merchandise on credit subject to terms, 2/10, n/30 Ryan Company records its purchases using the gross amount The periodic
inventory system is used If Ryan Company pays for these goods on March 30, the entry made to record the payment should include
A $200 credit to Purchase discounts
B debit of $9,800 to Accounts payable
C debit of $10,000 to Accounts payable
75 Two systems are used in accounting for inventory—perpetual and periodic Which of the
following statements is correct?
A In a perpetual inventory system, the inventory account is not changed for each purchase during the accounting period
B In a perpetual inventory system, cost of goods sold is recorded at the time of each sale during the
A The periodic system uses a purchases account
B Inventory controls are only needed for the periodic inventory systems
C None of the accounting entries vary between the two systems
D Due to advances in computers, many businesses recently have begun to use the periodic inventory system
Trang 2577 When a company uses the periodic inventory system in accounting for its merchandise inventory, which of the following is true?
A Purchases are recorded in the cost of goods sold account
B The inventory account is updated after each sale
C Cost of goods sold is computed at the end of the accounting periods rather than at each sale
D The inventory account is updated throughout the year as purchases are made
AACSB Tag: Relative Thinking
Difficulty: Medium
L.O.: 7
78 A LIFO liquidation occurs when a company
A goes out of business
B converts from LIFO to FIFO
C converts from the periodic to the perpetual inventory system
D sells more units than it purchased during the year
Trang 2679 Carrie Company sold merchandise with an invoice price of $1,000 to Underwood, Inc., with terms of 2/10, n/30 Which of the following is the correct entry to record the payment by Underwood Inc., within the 10 days if the company uses the periodic inventory system and the gross method to record purchases?
A $200 debit to Purchases discounts
B $10,000 debit to Accounts payable
Trang 27Essay Questions
81 McMillan Company uses the periodic inventory system It has compiled the following
information in order to prepare the financial statements at December 31, 2009:
Calculate (A.) Goods available for sale (B.) Cost of goods sold and (C.) Gross margin on sales
82 The records of Jimmy Company show 2009 purchases of $90,000 An actual count revealed a
2009 ending inventory of $8,000 The 2009 beginning inventory was $5,000 What was cost of goods sold for 2009?
Trang 28and amounts with dotted lines on the right You are to fill in the most likely captions and amounts (ignore income taxes):