Orion Ch 6: Reporting and Analyzing Inventory
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Q 6.1: Where is inventory reported? A : as a current asset on the balance sheet B : as finished goods on the income statement C : under the classification of Property, Plant, and Equipment on the balance sheet D : as raw materials on the income statement
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A : as a current asset on the balance sheet
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Q 6.2: ________ are items that will eventually be used in production. A : Finished goods B : Merchandise inventory C : Raw materials D : Work in process
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C : Raw materials
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Q 6.3: How is inventory ready for sale classified in a manufacturing company? A : finished goods inventory B : store supplies inventory C : work in process inventory D : raw materials inventory
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A : finished goods inventory
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Q 6.4: In the perpetual inventory system, which of the following is NOT a reason to take physical inventory? A : to determine ownership of the goods B : to check the accuracy of the records C : to determine losses due to employee theft D : to determine the amount of wasted raw materials
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A : to determine ownership of the goods
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Q 6.5: Which of the following is NOT considered an inventory cost? A : cost of goods purchased B : freight costs incurred when buying inventory C : costs of the purchasing and warehousing departments D : cost of the beginning inventory
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C : costs of the purchasing and warehousing departments
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Q 6.6: What is the beginning inventory plus the cost of goods purchased? A : total goods purchased B : net purchases C : cost of goods available for sale D : cost of goods sold
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C : cost of goods available for sale
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Q 6.7: A new company purchased three inventory items at the following costs: first purchase $60; second purchase $40; third purchase $50. If the company sells two units for $200, what would the gross profit for the period be, using FIFO costing? A : $100 B : $110 C : $90 D : $200
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A : $100
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Q 6.8: What does the LIFO inventory method assume about the cost of the latest units purchased? A : They are the last to be allocated to cost of goods sold. B : They are the first to be allocated to cost of goods sold. C : They are the first to be allocated to ending inventory. D : They are not allocated to cost of goods sold or ending inventory.
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B : They are the first to be allocated to cost of goods sold.
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Q 6.9: Which inventory flow assumption should a company choose if it is interested in the lowest amount of income tax expense in a period of increasing prices? A : FIFO. B : LIFO. C : Income expense for the period will be the same under all assumptions. D : Average Cost.
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B : LIFO.
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Q 6.10: Based on the net income of the shop, the sales staff at Francesca's Fashions receive performance bonuses. In periods of declining prices, which inventory costing method would bring the sales staff the most benefit? A : Average Cost B : LIFO C : physical inventory method D : FIFO
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B : LIFO
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Q 6.11: When determining the cost of inventory items before lower-of-cost-or-market is applied, which of the following costing methods cannot be used? A : All of the choices are correct. B : FIFO C : specific identification D : LIFO
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A : All of the choices are correct.
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Q 6.12: How is market defined under the lower-of-cost-or-market basis in valuing inventory? A : current replacement cost B : selling price less markup C : historical cost plus markup D : selling price
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A : current replacement cost
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Q 6.13: Simpson's Sandals, Inc. has five cases of flip-flops that just have not sold, remaining part of the inventory for more than two years. Each case cost $300 and originally retailed for $500. Each case has a current replacement cost of $200. What is the amount of loss that Simpson's should report for the year? A : $2,500 B : $1,500 C : $1,000 D : $500
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D : $500
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Q 6.14: If beginning inventory is understated, which of the following will also be understated? A : cost of goods sold B : stockholders' equity C : assets D : net income
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A : cost of goods sold
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Q 6.15: An error was made with the physical count of goods on hand at the end of a period that resulted in a $25,000 overstatement of the ending inventory. What is the effect of this error on cost of goods sold and net income, respectively? A : overstated, understated B : overstated, overstated C : understated, overstated D : understated, understated
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C : understated, overstated
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Q 6.16: American Supply sold merchandise on account to Decker Plumbing on March 31st. The sales price was $2,300, and the cost of goods sold was $1,500. Sales revenue was reported immediately, but the cost of goods sold was not reported until April 3rd. What happened to the net income for March as a result? A : It was overstated by $2,300. B : March is not affected, but the net income for April is understated. C : It was overstated by $1,500. D : It was overstated by $800.
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C : It was overstated by $1,500.
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Q 6.17: Managers at Birdie's Branch Removal, Inc. are confused because they maintain lower industry amounts than the industry average, but they are a highly successful company, outselling even the big box companies in the chain saw market. Which of the following is the best answer to the managers' confusion? A : The company has a just-in-time inventory system. B : The company sells unusually popular items. C : The company uses LIFO (assume rising purchase costs). D : The company offers its customers an unusually large selection of merchandise.
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A : The company has a just-in-time inventory system.
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Q 6.18: To compute the inventory turnover ratio, cost of goods sold should be divided by which of the following? A : beginning inventory B : ending inventory C : 365 days D : average inventory
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D : average inventory
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Q 6.19: On December 31st, 2012, Jameson reported the following numbers: beginning inventory $80,000; ending inventory $120,000; cost of goods sold $700,000; and sales $1,200,000. What was Jameson's inventory turnover in 2012? A : 8.8 times B : 5.8 times C : 12 times D : 7 times
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D : 7 times 700000/[(120000+80000)/2]=7 times
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Q 6.20: Phantom or paper profits can result in periods of inflation when a company is using the A : perpetual inventory method. B : LIFO costing assumption. C : FIFO costing assumption. D : periodic inventory method.
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C : FIFO costing assumption.
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Q 6.21: Inventory costing methods are based on ________ about the flow of goods. A : projections B : knowledge C : assumptions D : concerns
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C : assumptions
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Q 6.22: In a period of falling prices, LIFO will result in a lower ending inventory valuation than FIFO. A : True B : False
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B : False
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Q 6.23: Reporting the LIFO reserve allows analysts to make adjustments to compare companies using different cost flow methods. A : True B : False
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A : True
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Q 6.24: How is a company's LIFO cost of goods sold adjusted to FIFO cost of goods sold? A : The ending LIFO reserve is subtracted from LIFO cost of goods sold. B : The ending LIFO reserve is added to LIFO cost of goods sold. C : An increase in the LIFO reserve is subtracted from LIFO cost of goods sold. D : A decrease in the LIFO reserve is subtracted from LIFO cost of goods sold.
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D A decrease in the LIFO reserve is subtracted from LIFO cost of goods sold.
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Q 6.25: At year end, The Pet Stop Inc. reported the following numbers: beginning inventory $50,000; ending inventory $30,000; cost of goods sold $150,000; and sales $200,000. Calculate their inventory turnover for the year. A : 8.75 times B : 6 times C : 3.75 times D : 5 times
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C : 3.75 times 150000 / [(50000 + 30000) / 2] = 7 times
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Q 6.26: The executive team at Carousel-Go-Round, Inc. are proud to carry a lower inventory than the industry average because they are a highly successful company, outselling even the chain stores in the horse candle market. Which of the following best describes the reason the company can be successful with lower than industry average inventory? A : They offer their customers an unusually small selection of merchandise. B : They have a just-in-time inventory system. C : They offer their customers an unusually large selection of merchandise. D : They sell unusually popular items.
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B They have a just-in-time inventory system.
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Q 6.27: Which of the following is divided into the cost of goods sold to compute the inventory turnover? A : 365 days B : ending inventory C : average inventory D : beginning inventory
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C : average inventory
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Q 6.28: To adjust a company's LIFO cost of goods sold to FIFO cost of goods sold, a ______ in the LIFO reserve is subtracted from LIFO cost of goods sold. A) Increase B) Decrease
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B) Decrease
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Q 6.29: The ________ is the difference between ending inventory using LIFO and ending inventory if FIFO were used instead. A : LIFO reserve B : LIFO adjustment C : FIFO reserve D : FIFO adjustment
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A : LIFO reserve
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Q 6.30: Subtracting the ending inventory using FIFO from the ending inventory using LIFO results in the A : inventory reserve. B : LIFO reserve. C : periodic reserve. D : FIFO reserve.
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B LIFO reserve.
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Q 6.31: The LIFO reserve is a required disclosure for companies that use A : inventory reserve. B : LIFO. C : periodic inventory. D : FIFO.
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B LIFO.
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Q 6.32: Jenkins Inc. reported the following numbers on December 31st, 2012: beginning inventory $80,000; ending inventory $120,000; cost of goods sold $700,000; and sales $1,200,000. Which of the following was Jenkins' inventory turnover in 2012? A : 7 times B : 3.8 times C : 7.8 times D : 12 times
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A : 7 times 700000/[(120000+80000)/2]=7 times
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Q 6.33: What explains how a company that carries a lower than industry average amount of inventory can still achieve success, even outselling its competition? A : They offer their customers an unusually large selection of merchandise. B : They sell unusually popular items. C : They offer their customers an unusually small selection of merchandise D : They have a just-in-time inventory system.
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D They have a just-in-time inventory system.
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Q 6.34: On December 31st, 2012, Larry's Luggage Boutique reported the following numbers: beginning inventory $10,500; ending inventory $27,800; cost of goods sold $76,000; and sales $142,000. What was Larry's inventory turnover for 2012? A : 2.7 times B : 4.6 times C : 1.8 times D : 3.97 times
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D : 3.97 times
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Q 6.35: If a company carries a lower inventory than the industry average, but are still a highly successful company, outselling the competition, what can explain their success? A : They have a just-in-time inventory system. B : They sell unusually popular items. C : They use the LIFO method (assume rising purchase costs). D : They offer their customers an unusually large selection of merchandise.
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A : They have a just-in-time inventory system.
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Q 6.36: On December 31st, 2012, Larry's Luggage Boutique reported the following numbers: beginning inventory $10,500; ending inventory $27,800; cost of goods sold $76,000; and sales $142,000. What was Larry's inventory turnover for 2012? A : 2.7 times B : 4.6 times C : 1.8 times D : 3.97 times
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D : 3.97 times
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Q 6.37: If a company reported the following numbers at year end, then what is their inventory turnover for the same period? beginning inventory $2,000 ending inventory $1,200 cost of goods sold $5,500 sales $8,500. A : 3.44 times B : 21.25 times C : 3.8 times D : 1.7 times
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A : 3.44 times
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Q 6.38: Reporting which of the following allows analysts to make adjustments to compare companies using different cost flow methods? A : inventory turnover B : LIFO reserve C : FIFO reserve D : current replacement cost
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B : LIFO reserve
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Q 6.39: The executive team at a Country Candles, Inc. is proud because it outsells the chain stores in the candle market even though it carries lower inventory amounts than the industry average. Which of the following best describes the reason the company is successful even though it carries low amounts of inventory? A : They use the LIFO method (assume rising purchase costs). B : They sell unusually popular items. C : They offer their customers an unusually large selection of merchandise. D : They have a just-in-time inventory system.
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D They have a just-in-time inventory system.
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Q 6.40: The inventory turnover is the cost of goods sold divided by A : 365 days. B : beginning inventory. C : average inventory. D : ending inventory.
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C : average inventory.
