Question 1

The ____________________ ratio reflects how much inventory is available in terms of days' sales.

Accepted Answer

days' sale...

Question 2

The _____________________ method of assigning costs to inventory and cost of goods sold assumes that the inventory items are sold in the order acquired.

Accepted Answer

first in, ...

Question 3

The understatement of the ending inventory balance causes:

Accepted Answer

A)   Cost of goods sold to be overstated and net income to be understated.
B)   Cost of goods sold to be overstated and net income to be overstated.
C)   Cost of goods sold to be understated and net income to be understated.
D)   Cost of goods sold to be understated and net income to be overstated.
E)   Cost of goods sold to be overstated and net income to be correct.F) B) and E)
G) A) and D)

Question 4

Goods in transit are automatically included in a company's inventory account.

Accepted Answer

A) True 
 B)False

Question 5

The full disclosure principle:

Accepted Answer

A)   Requires that when a change in inventory valuation method is made, the notes to the financial statements report the type of change, why it was made, and its effect on net income.
B)   Requires that companies use the same accounting method for inventory valuation period after period.
C)   Is not subject to the materiality principle.
D)   Is only applied to retailers.
E)   Is also called the consistency principle.F) A) and B)
G) A) and C)

Question 6

The FIFO inventory method assumes that costs for the most recently purchased items are the first to be charged to the cost of goods sold.

Accepted Answer

A) True 
 B)False

Question 7

During a period of steadily rising costs, the inventory valuation method that yields the lowest reported net income is:

Accepted Answer

A)   Specific identification method
B)   Average cost method
C)   Weighted-average method
D)   FIFO method
E)   LIFO methodF) B) and E)
G) C) and D)

Question 8

A company had inventory of 5 units at a cost of $20 each on November 1. On November 2, they purchased 10 units at $22 each. On November 6, they purchased 6 units at $25 each. On November 8, they sold 18 units for $54 each. Using the LIFO perpetual inventory method, what was the cost of the 18 units sold?

Accepted Answer

A)   $395
B)   $410
C)   $450
D)   $510
E)   $520F) C) and D)
G) A) and C)

Question 9

Neither GAAP nor IFRS allow inventory to be adjusted upward beyond the original cost.

Accepted Answer

A) True 
 B)False

Question 10

Given the following information, determine the cost of goods sold for December 31 using the FIFO perpetual inventory method. December 2: 5 units were purchased at $7 per unit.
December 9: 10 units were purchased at $9.40 per unit.
December 11: 12 units were sold at $35 per unit.
December 15: 20 units were purchased at $10.15 per unit.
December 22: 18 units were sold at $35 per unit.

Accepted Answer

A)   $282.15
B)   $332.10
C)   $281.25
D)   $290.70
E)   $210.30F) A) and D)
G) C) and D)

Question 11

Explain the difference between the retail inventory method and gross profit inventory method for valuing inventory.

Accepted Answer

The retail method is generally used to p...

Question 12

In applying the lower of cost or market method to inventory valuation, market is defined as the current replacement cost.

Accepted Answer

A) True 
 B)False

Question 13

A company that has operated with a 30% average gross profit ratio for a number of years had $100,000 in sales during the first quarter of this year. If it began the quarter with $18,000 of inventory at cost and purchased $72,000 of inventory during the quarter, its estimated ending inventory using the gross profit method is:

Accepted Answer

A)   $30,000
B)   $21,000
C)   $20,000
D)   $18,000
E)   $27,000F) B) and D)
G) A) and B)

Question 14

Goods on consignment:

Accepted Answer

A)   Are goods shipped by the owner to the consignee who sells the goods for the owner.
B)   Are reported in the consignee's books as inventory.
C)   Are goods shipped to the consignor who sells the goods for the owner.
D)   Are not reported in the consignor's inventory since they do not have possession of the inventory.
E)   Are always paid for by the consignee when they take possession of the goods.F) A) and B)
G) A) and D)

Question 15

How do the consistency concept and the full disclosure principle affect inventory valuation?

Accepted Answer

The consistency concept requires that co...

Question 16

Given the following information, determine the cost of goods sold at December 31 using the LIFO periodic inventory method: December 2: 5 units were purchased at $7 per unit.
December 9: 10 units were purchased at $9.40 per unit.
December 11: 12 units were sold at $35 per unit.
December 15: 20 units were purchased at $10.15 per unit.
December 22: 18 units were sold at $35 per unit.

Accepted Answer

A)   $284.70
B)   $332.10
C)   $281.25
D)   $290.70
E)   $297.00F) B) and C)
G) A) and B)

Question 17

A company has inventory of 10 units at a cost of $10 each on June 1. On June 3, they purchased 20 units at $12 each. 12 units are sold on June 5. Using the FIFO perpetual inventory method, what is the cost of the 12 units that were sold?

Accepted Answer

A)   $120
B)   $124
C)   $128
D)   $130
E)   $140F) All of the above
G) B) and E)

Question 18

Incidental costs most commonly added to the costs of inventory include import duties, freight, storage, and insurance.

Accepted Answer

A) True 
 B)False

Question 19

A company's ability to pay its short-term obligations depends on many factors including how quickly it is able to sell its merchandise inventory.

Accepted Answer

A) True 
 B)False

Question 20

Using the retail inventory method, if the cost to retail ratio is 60% and ending inventory at retail is $45,000, then estimated ending inventory at cost is $27,000.

Accepted Answer

A) True 
 B)False

Exam 5: Accounting for Inventories

Correct Answer
verified

The _____________________ method of assigning costs to inventory and cost of goods sold assumes that the inventory items are sold in the order acquired.

Correct Answer
verified
first in, ...
View Answer

Correct Answer
verified

Neither GAAP nor IFRS allow inventory to be adjusted upward beyond the original cost.

Correct Answer
verified

Incidental costs most commonly added to the costs of inventory include import duties, freight, storage, and insurance.

Correct Answer
verified

The FIFO inventory method assumes that costs for the most recently purchased items are the first to be charged to the cost of goods sold.

Correct Answer
verified

The ____________________ ratio reflects how much inventory is available in terms of days' sales.

Correct Answer
verified
days' sale...
View Answer

A company has inventory of 10 units at a cost of $10 each on June 1. On June 3, they purchased 20 units at $12 each. 12 units are sold on June 5. Using the FIFO perpetual inventory method, what is the cost of the 12 units that were sold?

Correct Answer
verified

Correct Answer
verified

A company's ability to pay its short-term obligations depends on many factors including how quickly it is able to sell its merchandise inventory.

Correct Answer
verified

The understatement of the ending inventory balance causes:

Correct Answer
verified

The full disclosure principle:

Correct Answer
verified

Correct Answer
verified

In applying the lower of cost or market method to inventory valuation, market is defined as the current replacement cost.

Correct Answer
verified

Goods in transit are automatically included in a company's inventory account.

Correct Answer
verified

How do the consistency concept and the full disclosure principle affect inventory valuation?

Correct Answer
verified
The consistency concept requires that co...
View Answer

Using the retail inventory method, if the cost to retail ratio is 60% and ending inventory at retail is $45,000, then estimated ending inventory at cost is $27,000.

Correct Answer
verified

Goods on consignment:

Correct Answer
verified

Explain the difference between the retail inventory method and gross profit inventory method for valuing inventory.

Correct Answer
verified
The retail method is generally used to p...
View Answer

During a period of steadily rising costs, the inventory valuation method that yields the lowest reported net income is:

Correct Answer
verified

Exam 5: Accounting for Inventories

Correct AnswerverifiedShow Answer

The _____________________ method of assigning costs to inventory and cost of goods sold assumes that the inventory items are sold in the order acquired.

Correct Answerverifiedfirst in, ...View AnswerShow Answer

Correct AnswerverifiedShow Answer

Neither GAAP nor IFRS allow inventory to be adjusted upward beyond the original cost.

Correct AnswerverifiedShow Answer

Incidental costs most commonly added to the costs of inventory include import duties, freight, storage, and insurance.

Correct AnswerverifiedShow Answer

The FIFO inventory method assumes that costs for the most recently purchased items are the first to be charged to the cost of goods sold.

Correct AnswerverifiedShow Answer

The ____________________ ratio reflects how much inventory is available in terms of days' sales.

Correct Answerverifieddays' sale...View AnswerShow Answer

A company has inventory of 10 units at a cost of $10 each on June 1. On June 3, they purchased 20 units at $12 each. 12 units are sold on June 5. Using the FIFO perpetual inventory method, what is the cost of the 12 units that were sold?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A company's ability to pay its short-term obligations depends on many factors including how quickly it is able to sell its merchandise inventory.

Correct AnswerverifiedShow Answer

The understatement of the ending inventory balance causes:

Correct AnswerverifiedShow Answer

The full disclosure principle:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

In applying the lower of cost or market method to inventory valuation, market is defined as the current replacement cost.

Correct AnswerverifiedShow Answer

Goods in transit are automatically included in a company's inventory account.

Correct AnswerverifiedShow Answer

How do the consistency concept and the full disclosure principle affect inventory valuation?

Correct AnswerverifiedThe consistency concept requires that co...View AnswerShow Answer

Using the retail inventory method, if the cost to retail ratio is 60% and ending inventory at retail is $45,000, then estimated ending inventory at cost is $27,000.

Correct AnswerverifiedShow Answer

Goods on consignment:

Correct AnswerverifiedShow Answer

Explain the difference between the retail inventory method and gross profit inventory method for valuing inventory.

Correct AnswerverifiedThe retail method is generally used to p...View AnswerShow Answer

During a period of steadily rising costs, the inventory valuation method that yields the lowest reported net income is:

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified
first in, ...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
days' sale...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The consistency concept requires that co...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The retail method is generally used to p...
View Answer

Correct Answer
verified