Question 1

Describe the internal controls that must be applied when taking a physical count of inventory.

Accepted Answer

The internal controls should include (1)...

Question 2

McCarthy Company has inventory of 8 units at a cost of $200 each on October 1. On October 2, it purchased 20 units at $205 each. 11 units are sold on October 4. Using the FIFO perpetual inventory method, what amount will be reported in cost of goods sold for the 11 units that were sold?

Accepted Answer

A)  $2,239.
B)  $2,255.
C)  $2,200.
D)  $2,228.
E)  $2,215.F) B) and D)
G) All of the above

Question 3

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 confirms that all inventories are ticketed only once.
C)  Counters confirm the validity of inventory existence, amounts, and quality.
D)  Second counts by a different counter.
E)  Counters of inventory should be those who are responsible for the inventory.F) A) and E)
G) B) and D)

Question 4

An error in the period-end inventory balance will cause an error in the calculation of cost of goods sold.

Accepted Answer

A) True 
 B)False

Question 5

An advantage of FIFO is that it assigns the most recent costs to cost of goods sold, and does a better job of matching current costs with revenues on the income statement.

Accepted Answer

A) True 
 B)False

Question 6

The reliability of the gross profit method depends on a good estimate of the gross profit ratio.

Accepted Answer

A) True 
 B)False

Question 7

IFRS reporting currently does not allow which method of inventory costing?

Accepted Answer

A)  Specific identification.
B)  FIFO.
C)  LIFO.
D)  Weighted average.
E)  Lower of cost or market.F) A) and B)
G) A) and E)

Question 8

Identify and describe the four inventory valuation methods.

Accepted Answer

The specific identification method assig...

Question 9

Explain the reason a company might use the retail inventory method for valuing inventory.

Accepted Answer

The retail method is generally used to p...

Question 10

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

Accepted Answer

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

Question 11

When costs to purchase inventory regularly decline, which method of inventory costing will yield the lowest cost of goods sold?

Accepted Answer

A)  FIFO.
B)  LIFO.
C)  Weighted average.
D)  Specific identification.
E)  Gross margin.F) C) and E)
G) All of the above

Question 12

The Inventory account is a controlling account for the inventory subsidiary ledger that contains a separate record for each separate product.

Accepted Answer

A) True 
 B)False

Question 13

A company has inventory with a selling price of $451,000, a market value of $223,000 and a cost of $241,000. According to the lower of cost or market, the inventory should be written down to $223,000.

Accepted Answer

A) True 
 B)False

Question 14

If a period-end inventory amount is reported in error, it can cause a misstatement in all of the following except:

Accepted Answer

A)  Cost of goods sold.
B)  Gross profit.
C)  Net sales.
D)  Current assets.
E)  Net income.F) D) and E)
G) B) and D)

Question 15

Physical counts of inventory:

Accepted Answer

A)  Are not necessary under the perpetual system.
B)  Are necessary to adjust the Inventory account to the actual inventory available.
C)  Must be taken at least once a month.
D)  Requires the use of hand-held portable computers.
E)  Are not necessary under the cost-to-benefit constraint.F) A) and B)
G) A) and E)

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

A company's current inventory consists of 5,000 units purchased at $6 per unit. Replacement cost has now fallen to $5 per unit. What is the entry the company must record to adjust inventory to market?

Accepted Answer

A)  Debit Merchandise Inventory $25,000; credit Cost of Goods Sold $25,000.
B)  Debit Cost of Goods Sold $30,000; credit Merchandise Inventory $30,000.
C)  Debit Cost of Goods Sold $5,000; credit Merchandise Inventory $5,000.
D)  Debit Loss on Inventory $5,000; credit Cost of Goods Sold $5,000.
E)  Debit Merchandise Inventory $30,000; credit Cost of Goods Sold $25,000.F) C) and D)
G) A) and B)

Question 18

An inventory error is sometimes said to be self-correcting because it yields an offsetting error in the next period.

Accepted Answer

A) True 
 B)False

Question 19

Interim financial statements:

Accepted Answer

A)  Are required by the Congress.
B)  Are necessary to achieve full disclosure about a business's operations.
C)  Are 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) C) and E)
G) C) and D)

Question 20

Goods in transit are included in a purchaser's inventory:

Accepted Answer

A)  At any time during transit.
B)  When the purchaser is responsible for paying freight charges.
C)  When the supplier is responsible for freight charges.
D)  If the goods are shipped FOB destination.
E)  After the half-way point between the buyer and seller.F) A) and D)
G) All of the above

Exam 5: Inventories and Cost of Sales

Goods in transit are included in a purchaser's inventory:

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When costs to purchase inventory regularly decline, which method of inventory costing will yield the lowest cost of goods sold?

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An error in the period-end inventory balance will cause an error in the calculation of cost of goods sold.

Correct AnswerverifiedShow Answer

The reliability of the gross profit method depends on a good estimate of the gross profit ratio.

Correct AnswerverifiedShow Answer

Interim financial statements:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

McCarthy Company has inventory of 8 units at a cost of $200 each on October 1. On October 2, it purchased 20 units at $205 each. 11 units are sold on October 4. Using the FIFO perpetual inventory method, what amount will be reported in cost of goods sold for the 11 units that were sold?

Correct AnswerverifiedShow Answer

An inventory error is sometimes said to be self-correcting because it yields an offsetting error in the next period.

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

IFRS reporting currently does not allow which method of inventory costing?

Correct AnswerverifiedShow Answer

Identify and describe the four inventory valuation methods.

Correct AnswerverifiedThe specific identification method assig...View AnswerShow Answer

An advantage of FIFO is that it assigns the most recent costs to cost of goods sold, and does a better job of matching current costs with revenues on the income statement.

Correct AnswerverifiedShow Answer

Physical counts of inventory:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A company has inventory with a selling price of $451,000, a market value of $223,000 and a cost of $241,000. According to the lower of cost or market, the inventory should be written down to $223,000.

Correct AnswerverifiedShow Answer

A company's current inventory consists of 5,000 units purchased at $6 per unit. Replacement cost has now fallen to $5 per unit. What is the entry the company must record to adjust inventory to market?

Correct AnswerverifiedShow Answer

The Inventory account is a controlling account for the inventory subsidiary ledger that contains a separate record for each separate product.

Correct AnswerverifiedShow Answer

Describe the internal controls that must be applied when taking a physical count of inventory.

Correct AnswerverifiedThe internal controls should include (1)...View AnswerShow Answer

If a period-end inventory amount is reported in error, it can cause a misstatement in all of the following except:

Correct AnswerverifiedShow Answer

Explain the reason a company might use the retail inventory method for valuing inventory.

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

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The specific identification method assig...
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The internal controls should include (1)...
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The retail method is generally used to p...
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