ACC – Chap 6 – Flashcards

Damaged and obsolete goods: A. Are never counted as inventory. B. Are included in inventory at their full cost. C. Are included in inventory at their net realizable value. D. Should be disposed of immediately. E. Are assigned a value of zero.

Merchandise inventory includes: A. All goods owned by a company and held for sale. B. All goods in transit. C. All goods on consignment. D. Only damaged goods. E. All of these.

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

Goods on consignment: 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

Regardless of the inventory costing system used, cost of goods available for sale must be allocated between A. beginning inventory and net purchases during the period. B. ending inventory and beginning inventory. C. net purchases during the period and ending inventory. D. ending inventory and cost of goods sold. E. beginning inventory and cost of goods sold.

On December 31 of the current year, Hewett Company reported an ending inventory balance of $215,000. The following additional information is also available: • Hewett sold goods costing $38,000 to Trump Enterprises on December 28 and shipped the goods on that date with shipping terms of FOB shipping point. The goods were not included in the ending inventory amount of $215,000 because they were not in Hewett's warehouse. • Hewett purchased goods costing $44,000 on December 29. The goods were shipped FOB destination and were received by Hewett on January 2 of the following year. The shipment was a rush order that was supposed to arrive by December 31. These goods were included in the ending inventory balance of $215,000. • Hewett's ending inventory balance of $215,000 included $15,000 of goods being held on consignment from Rumsfeld Company. (Hewett Company is the consignee.) • Hewett's ending inventory balance of $215,000 did not include goods costing $95,000 that were shipped to Hewett on December 27 with shipping terms of FOB destination and were still in transit at year-end. Based on the above information, the correct balance for ending inventory on December 31 is: A. $194,000 B. $209,000 C. $200,000 D. $171,000 E. $156,000

. Gotham Company reported a December 31 ending inventory balance of $412,000. The following additional information is also available: • The ending inventory balance of $412,000 included $72,000 of consigned inventory for which Gotham was the consignor. • The ending inventory balance of $412,000 included $22,000 of office supplies that were stored in the warehouse and were to be used by the company's supervisors and managers during the coming year. • The ending inventory balance of $412,000 did not include goods costing $48,000 that were purchased by Gotham on December 28 and shipped FOB destination on that date. Gotham did not receive the goods until January 2 of the following year. • The ending inventory balance of $412,000 included damaged goods at their original cost of $38,000. The net realizable value of the damaged goods was $10,000. • The ending inventory balance of $412,000 included $43,000 of consigned inventory for which Gotham was the consignee. Based on this information, the correct balance for ending inventory on December 31 is: A. $247,000 B. $341,000 C. $362,000 D. $309,000 E. $319,000

Costs included in the Merchandise Inventory account can include: A. Invoice price minus any discount. B. Transportation-in. C. Storage. D. Insurance. E. All of these.

. Internal controls that should be applied when a business takes a physical count of inventory should include A. Prenumbered inventory tickets. B. Counters of inventory should not be those who are responsible for the inventory. C. Counters must confirm the validity of inventory existence, amounts, and quality. D. Second counts by a different counter. E. All of these.

Physical counts of inventory: A. Are not necessary under the perpetual system. B. Are necessary to measure and adjust for inventory shrinkage. 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

Incidental and necessary costs of inventory: A. Can be assigned to each inventory unit. B. May be immaterial. C. Can be allocated to cost of goods sold. D. Are subject to the cost-to-benefit constraint when deciding how to account for them. E. All of these.

During a period of steadily rising costs, the inventory valuation method that yields the lowest reported net income is: A. Specific identification method. B. Average cost method. C. Weighted-average method. D. FIFO method. E. LIFO method.

The inventory valuation method that tends to smooth out erratic changes in costs is: A. FIFO. B. Weighted average. C. LIFO. D. Specific identification. E. WIFO

The inventory valuation method that has the advantages of assigning an amount to inventory on the balance sheet that approximates its current cost, and also mimics the actual flow of goods for most businesses is: A. FIFO. B. Weighted average. C. LIFO. D. Specific identification. E. All of these.

The inventory valuation method that results in the lowest taxable income in a period of inflation is: A. LIFO method. B. FIFO method. C. Weighted-average cost method. D. Specific identification method. E. Gross profit method.

The consistency concept: A. Requires 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

The full disclosure principle: A. Requires that when a change in inventory valuation method is made, the notes to the statements report the type of change, its justification 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

Which of the following inventory costing methods will always result in the same values for ending inventory and cost of goods sold regardless of whether a perpetual or periodic inventory system is used? A. FIFO and LIFO B. LIFO and weighted-average cost C. Specific identification and FIFO D. FIFO and weighted-average cost E. LIFO and specific identification

If a period-end inventory amount is reported in error, it can cause a misstatement in: A. Cost of goods sold. B. Gross profit. C. Net income. D. Current assets. E. All of these.

An error in the period-end inventory causes an offsetting error in the next period and therefore: A. Managers can ignore the error. B. It is sometimes said to be self-correcting. C. It affects only income statement accounts. D. If affects only balance sheet accounts. E. Is immaterial for managerial decision making.

The understatement of the ending inventory balance causes: 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.

The understatement of the beginning inventory balance causes: A. Cost of goods sold to be understated and net income to be understated. B. Cost of goods sold to be understated and net income to be overstated. C. Cost of goods sold to be overstated and net income to be overstated. D. Cost of goods sold to be overstated and net income to be understated. E. Cost of goods sold to be overstated and net income to be correct.

An overstatement of ending inventory will cause A. An overstatement of assets and equity on the balance sheet. B. An understatement of assets and equity on the balance sheet. C. An overstatement of assets and an understatement of equity on the balance sheet. D. An understatement of assets and an overstatement of equity on the balance sheet. E. No effect on the balance sheet.

The inventory turnover ratio: A. Is used to analyze profitability. B. Is used to measure solvency. C. Reveals how many times a company turns over (sells) its merchandise inventory. D. Validates the acid-test ratio. E. Calculation depends on the company's inventory valuation method.

Days' sales in inventory: A. Is also called days' stock on hand. B. Focuses on average inventory rather than ending inventory. C. Is used to measure solvency. D. Is calculated by dividing cost of goods sold by ending inventory. E. Is a substitute for the acid-test ratio.

The inventory turnover ratio is calculated as: A. Cost of goods sold divided by average merchandise inventory. B. Sales divided by cost of goods sold. C. Ending inventory divided by cost of goods sold. D. Cost of goods sold divided by ending inventory. E. Cost of goods sold divided by ending inventory times 365.

Days' sales in inventory is calculated as: A. Ending inventory divided by cost of goods sold. B. Cost of goods sold divided by ending inventory. C. Ending inventory divided by cost of goods sold times 365. D. Cost of goods sold divided by ending inventory times 365. E. Ending inventory times cost of goods sold.

Toys "R" Us had cost of goods sold of $9,421 million, ending inventory of $2,089 million, and average inventory of $1,965 million. Its inventory turnover equals: A. 0.21. B. 4.51 C. 4.79. D. 76.1 days. E. 80.9 days.

Toys "R" Us had cost of goods sold of $9,421 million, ending inventory of $2,089 million, and average inventory turnover of $1,965 million. Its days' sales in inventory equals: A. 0.21. B. 4.51. C. 4.79. D. 76.1 days. E. 80.9.days.

Acceptable inventory methods include: A. LIFO method. B. FIFO method. C. Specific identification method. D. Weighted average method. E. All of these.

Management must confront which of the following considerations when accounting for inventory: A. Costing (valuation) method. B. Inventory system (perpetual or periodic). C. Items to be included and their cost. D. Use of lower of cost or market or other estimate. E. All of these.

The inventory valuation method that identifies each item in ending inventory with a specific purchase and invoice is the: A. Weighted average inventory method. B. First-in, first-out method. C. Last-in, first-out method. D. Specific identification method E. Retail inventory method.

A company had inventory on November 1 of 5 units at a cost of $20 each. On November 2, they purchased 10 units at $22 each. On November 6 they purchased 6 units at $25 each. On November 8, 8 units were sold for $55 each. Using the LIFO perpetual inventory method, what was the value of the inventory on November 8 after the sale? A. $304 B. $296 C. $288 D. $280 E. $276

Acme-Jones Corporation uses a weighted-average perpetual inventory system. August 2, 10 units were purchased at $12 per unit. August 18, 15 units were purchased at $14 per unit. August 29, 12 units were sold. What was the amount of the cost of goods sold for this sale? A. $148.00. B. $150.50. C. $158.40. D. $210.00. E. $330.00.

A company has inventory of 10 units at a cost of $10 each on June 1. On June 3, it 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? A. $120. B. $124. C. $128. D. $130. E. $140.

. 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? A. $140. B. $160. C. $210. D. $380. E. $590.

A company had inventory of 5 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 18 units for $54 each. Using the LIFO perpetual inventory method, what was the cost of the 18 units sold? A. $395. B. $410. C. $450. D. $510. E. $520.

In applying the lower of cost or market method to inventory valuation, market is defined as: A. Historical cost. B. Current replacement cost. C. Current sales price. D. FIFO. E. LIFO.

Generally accepted accounting principles require that the inventory of a company be reported at: A. Market value. B. Historical cost. C. Lower of cost or market. D. Replacement cost. E. Retail value.

The conservatism constraint: A. Requires that when multiple estimates of amounts to be received or paid in the future are equally likely, then the least optimistic amount should be used. B. Requires that a company use the same accounting methods period after period. C. Requires that revenues and expenses be reported in the period in which they are earned or incurred. D. Requires that all items of a material nature be included in financial statements. E. Requires that all inventory items be reported at full cost.

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. Replacement cost has now fallen to $13 per unit. Calculate the value of this company's inventory at the lower of cost or market. A. $2,550. B. $2,600. C. $2,700. D. $3,000. E. $3,200.

A company has inventory of 10 units at a cost of $10 each on June 1. On June 3, it purchased 20 units at $12 each. 12 units are sold on June 5. Using the FIFO periodic inventory method, what is the cost of the 12 units that were sold? A. $120. B. $124. C. $128. D. $130. E. $140.

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 periodic inventory method, what is the value of the inventory at August 15 after the sale? A. $140. B. $160. C. $210. D. $380. E. $590.

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? A. $470. B. $490. C. $450. D. $570. E. $520.

On September 30 a company needed to estimate its ending inventory to prepare its third quarter financial statements. The following information is available: Beginning inventory, July 1: $4,000 Net sales: $40,000 Net purchases: $41,000 The company's gross margin ratio is 15%. Using the gross profit method, the cost of goods sold would be: A. $ 4,000. B. $ 5,000. C. $21,000. D. $25,000. E. $34,000.

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 by the gross profit method is: A. $30,000. B. $21,000. C. $20,000. D. $18,000. E. $27,000.

On December 31, a company needed to estimate its ending inventory to prepare its fourth quarter financial statements. The following information is currently available: Inventory as of October 1: $12,500 Net sales for fourth quarter: $40,000 Net purchases for fourth quarter: $27,500 This company typically achieves a gross profit ratio of 15%. Ending Inventory under the gross profit method would be: A. $ 4,000. B. $ 6,000. C. $10,000. D. $16,000. E. $34,000.

Interim statements: A. Are required by the Congress. B. Are necessary to achieve full disclosure about a business's operations. C. Are usually monthly or quarterly statements prepared for periods less than the traditional, annual statements. D. Require the use of the perpetual method for inventories. E. Cannot be prepared if the company follows the conservatism principle.

The Jackson Company has sales of $300,000 and cost of goods available for sale of $270,000. If the gross profit ratio is typically 30%, the estimated cost of the ending inventory under the gross profit method would be: A. $60,000 B. $180,000 C. $30,000 D. $90,000 E. Impossible to determine from the information provided.

The 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: A. 35.9% B. 18.8% C. 81.2% D. 64.1% E. Impossible to determine from the information provided.

On July 24 of the current year, The Georgia Peach Company experienced a natural disaster that destroyed the company's entire inventory. At the beginning of July, the company reported beginning inventory of $226,750. Inventory purchased during July (until the date of the disaster) was $197,800. Sales for the month of July through July 24 were $642,500. Assuming the company's typical gross profit ratio is 50%, estimate the amount of inventory destroyed in the natural disaster. A. $212,275 B. $103,300 C. $217,950 D. $321,250 E. $157,788