Accounting Chapter 6 Test Questions
Unlock all answers in this set
Unlock answersquestion
Delmar Company had beginning inventory of $90,000, ending inventory of $110,000, cost of goods sold of $500,000, and sales of $800,000. Delmar's days in inventory is
answer
73.0 days.
question
In periods of inflation, phantom or paper profits may be reported as a result of using the
answer
FIFO costing assumption.
question
The following information is available for Everett Company at December 31, 2013: beginning inventory $80,000; ending inventory $120,000; cost of goods sold $700,000; and sales $1,200,000. Everette's inventory turnover in 2013 is
answer
7 times
question
The inventory turnover ratio is computed by dividing cost of goods sold by
answer
average inventory
question
Over the last few years, Mohawk Industries has operated with a gross profit rate of 35%. On January 1, 2012, the company had inventory on hand with a cost of $750,000. Purchases of merchandise during January amounted to $215,000, and sales for the month were $480,000. Using the gross profit method, what is the estimated inventory at January 31
answer
$653,000
question
Inventory items on an assembly line in various stages of production are classified as
answer
Work in Process
question
Netta Shutters has the following inventory information. Nov. 1 Inventory 15 units @ $8.00 8 Purchase 60 units @ $8.30 17 Purchase 30 units @ $8.40 25 Purchase 45 units @ $8.80 A physical count of merchandise inventory on November 30 reveals that there are 45 units on hand. Assume a periodic inventory system is used. Cost of goods sold (rounded to the nearest dollar) under the average-cost method is
answer
$886
question
Romanoff Industries had the following inventory transactions occur during 2013: Units Cost/unit 2/1/13 Purchase 18 $45 3/14/13 Purchase 31 $47 5/1/13 Purchase 22 $49 The company sold 50 units at $70 each and has a tax rate of 30%. Assuming that a periodic inventory system is used, what is the company's after-tax income using FIFO? (rounded to whole dollars)
answer
$829
question
Which of the following statements is correct with respect to inventories?
answer
Under FIFO, the ending inventory is based on the latest units purchased.
question
Under the LCM approach, the market value is defined as
answer
Current replacement cost
question
The cost of goods available for sale is allocated between
answer
ending inventory and cost of goods sold
question
Indrisano's Used Cars uses the specific identification method of costing inventory. During March, Indrisano purchased three cars for $6,000, $7,200, and $9,600, respectively. During March, two cars are sold for a total of $17,300. Indrisano determines that at March 31, the $7,200 car is still on hand. What is Indrisano's gross profit for March?
answer
$1,7000
question
The consistent application of an inventory costing method is essential for
answer
comparability
question
The manager of Brick Company is given a bonus based on income before income taxes. Net income, after taxes, is $5,600 for FIFO and $4,900 for LIFO. The tax rate is 30%. The bonus rate is 20%. How much higher is the manager's bonus if FIFO is adopted instead of LIFO?
answer
$200
question
Effie Company uses a periodic inventory system. Details for the inventory account for the month of January, 2013 are as follows: Units Per unit price Total Balance, 1/1/13 200 $5.00 $1,000 Purchase, 1/15/13 100 5.30 530 Purchase, 1/28/13 100 5.50 550 An end of the month (1/31/13) inventory showed that 140 units were on hand. If the company uses FIFO and sells the units for $10 each, what is the gross profit for the month?
answer
$1,282
question
For companies that use a perpetual inventory system, all of the following are purposes for taking a physical inventory except:
answer
to determine ownership of the goods
question
Nick's Place recorded the following data: Units Unit Date Received Sold On Hand Cost 1/1 Inventory 600 $2.00 1/8 Purchased 1,000 1,600 2.40 1/12 Sold 1,200 300 The weighted average unit cost of the inventory at January 31 is
answer
$2.25
question
TB Nelson Company prepares monthly financial statements and uses the gross profit method to estimate ending inventories. Historically, the company has had a 40% gross profit rate. During June, net sales amounted to $60,000; the beginning inventory on June 1 was $18,000; and the cost of goods purchased during June amounted to $30,000. The estimated cost of TB Nelson Company's inventory on June 30 is
answer
$12,000
question
In a manufacturing company, inventory that is ready for sale is called
answer
finished goods inventory
question
Days in inventory is calculated by dividing
answer
365 days by the inventory turnover ratio.
question
The cost of goods available for sale consists of the beginning inventory plus the cost of goods purchased.
answer
True
question
Use of the LIFO inventory valuation method enables a company to report paper or phantom profits.
answer
False
question
In a perpetual inventory system, the cost of goods sold under the FIFO method is based on the cost of the latest goods on hand during the period.
answer
False
question
In a period of falling prices, the LIFO method results in a lower cost of goods sold than the FIFO method.
answer
True
question
Accountants believe that the write down from cost to market should not be made in the period in which the price decline occurs.
answer
False
question
On July 31, Tractor Supplies sold merchandise to J. Robson on account. The sales price was $8,400, and the cost of goods sold was $6,300. The sales revenue was recorded immediately, but the entry recording the cost of goods sold was dated August 2. As a results , net income for July was
answer
Overstated by $6,300
question
The accountant at Almira Company is figuring out the difference in income taxes the company will pay depending on the choice of either FIFO or LIFO as an inventory costing method. The tax rate is 30% and the FIFO method will result in income before taxes of $5,460. The LIFO method will result in income before taxes of $4,860. What is the difference in tax that would be paid between the two methods?
answer
$180
question
Which costing method cannot be used to determine the cost of inventory items before lower-of-cost-or-market is applied?
answer
Specific Identification, Fifo, and LIFO can all be used
question
Towson Products uses the retail method to estimate ending inventory in its monthly financial statement. The following information is available for the month ended March 31 Cost Retail Sales $320,000 Inventory, March 1 $136,000 219,000 Net purchases 182,000 273,000 Goods available for sale $318,000 $492,000 The cost of the March 31 inventory using the retail method is
answer
$111,112
question
The first-in, first-out (FIFO) inventory method results in an ending inventory valued at the most recent cost.
answer
True
question
The retail inventory method requires a company to value its inventory on the balance sheet at retail prices.
answer
False, trick question. Both retail and cost prices are required.
question
The average-cost method in a perpetual inventory system is called the moving-average method.
answer
True
question
If a company has no beginning inventory and the unit cost of inventory items does not change during the year, the value assigned to the ending inventory will be the same under LIFO and average cost flow assumptions.
answer
True
question
A company may use more than one inventory costing method concurrently.
answer
True
