Question 1

The first-in, first-out (FIFO) cost formula assumes that the earliest (oldest) goods purchased are the last ones to be sold.

Accepted Answer

A) True 
 B)False

Question 2

The FIFO and average cost formula can be used in both the perpetual and periodic inventory systems.

Accepted Answer

A) True 
 B)False

Question 3

For a merchandising company, the net realizable value of its inventory is the

Accepted Answer

A)   original cost of the inventory.
B)   current selling price.
C)   current selling price less any costs required to make the goods ready for sale.
D)   original cost of the inventory less any costs required to make the goods ready for sale.E) B) and C)
F) C) and D)

Question 4

If the physical inventory is less than the amount calculated using the retail method, then there may be a theft problem.

Accepted Answer

A) True 
 B)False

Question 5

Determining ownership of goods is one of the steps in taking inventory.

Accepted Answer

A) True 
 B)False

Question 6

Use the following information for question 102-103.
During its December 31, 2014 year-end inventory count, Jefferson Company failed to count items in transit to which it had legal title. As a result of this error, ending inventory was understated by $30,000.
-As a result of this error, 2014 cost of goods sold will be

Accepted Answer

A)   understated by $30,000.
B)   overstated by $30,000.
C)   correct.
D)   greater when average cost is used.E) A) and D)
F) All of the above

Question 7

If ending inventory is overstated in 2014, then profit will be

Accepted Answer

A)   overstated in 2014 and understated in 2015.
B)   understated in 2014 and overstated in 2015.
C)   overstated in both 2014 and 2015.
D)   overstated in 2014 and correct in 2015.E) A) and D)
F) All of the above

Question 8

Hamil Company prepares monthly financial statements and uses the gross profit method to estimate ending inventories. Historically, the company has had a 40% gross profit margin. During June, net sales amounted to $50,000; the beginning inventory on June 1 was $15,000; and the cost of goods purchased during June amounted to $25,000. The estimated cost of Hamil Company's inventory on June 30 is

Accepted Answer

A)   $10,000.
B)   $30,000.
C)   $9,000.
D)   $20,000.E) B) and C)
F) A) and D)

Question 9

Passarant Company reports goods available for sale at cost, $156,000. Beginning inventory at retail is $60,000 and goods purchased during the period at retail were $180,000. Sales for the period amounted to $90,000.
Instructions
Determine the estimated cost of the ending inventory using the retail inventory method.

Accepted Answer

<img  loading="lazy" src="/assets/images/blured-textbook.svg" class="d-inline m-1" alt="blured image" width="139" height="30"> First calculate the cost to retail rati...

Question 10

When there is clear evidence of an increase in net realizable value because of changed economic circumstances, the amount of a previously recorded writedown is reversed.

Accepted Answer

A) True 
 B)False

Question 11

Deerfield Company developed the following information about its inventories in applying the lower of cost and net realizable value in valuing inventories:  After Deerfield Company values its inventory at the lower of cost or net realizable value, the value of the inventory reported on the balance sheet would be

Accepted Answer

A)   $227,000.
B)   $220,000.
C)   $225,000.
D)   $218,000.E) A) and B)
F) A) and C)

Question 12

"Goods on Approval"

Accepted Answer

A)   are considered sold when removed from the seller's premises regardless of whether or not legal title has transferred to the buyer.
B)   should be included in the seller's physical inventory unless legal title has passed to the buyer.
C)   would be considered inventory of the buyer
D)   are not considered to be sold until the buyer has paid a cash deposit to the seller.E) None of the above
F) A) and C)

Question 13

To use the retail inventory method, a company's records must show both the cost and the retail value of the goods available for sale.

Accepted Answer

A) True 
 B)False

Question 14

In periods of rising prices, the ending inventory using the FIFO cost formula will be

Accepted Answer

A)   higher than using the average cost method.
B)   can not be determined.
C)   lower than average cost.
D)   the same as average cost.E) B) and C)
F) A) and D)

Question 15

Errors in the cost of goods sold will affect the income statement.

Accepted Answer

A) True 
 B)False

Question 16

After the physical inventory is completed

Accepted Answer

A)   quantities are listed on inventory summary sheets.
B)   quantities are entered into various general ledger inventory accounts.
C)   the accuracy of the inventory summary sheets is checked by the person listing the quantities on the sheets.
D)   unit costs are determined by dividing the quantities on the summary sheets by the total inventory costs.E) B) and C)
F) A) and D)

Question 17

The controller of Lawn-Man Company is applying the lower of cost and net realizable value of valuing ending inventory. The following information is available:  Instructions 
a. Prepare a schedule which shows the value of the inventory by applying the lower of cost and net realizable value to each item in inventory.
b. Prepare the journal entry to record any inventory write down required.

Accepted Answer

a.

b.

To record ...

Question 18

A company had sales of $150,000 and cost of goods available for sale of $300,000 during January. If its gross profit margin is estimated to be 40%, the ending inventory value at January 31 is estimated to be

Accepted Answer

A)   $90,000.
B)   $210,000.
C)   $180,000.
D)   $120,000.E) A) and B)
F) A) and C)

Question 19

The managers of Tong Company receive performance bonuses based on the profit of the firm. Which cost formula are they likely to favour in periods of declining prices?

Accepted Answer

A)   Estimating inventory method
B)   Average
C)   FIFO
D)   Physical inventory methodE) A) and C)
F) A) and B)

Question 20

Which of the following statements is correct?

Accepted Answer

A)   Errors can only occur in a perpetual inventory system.
B)   Errors can only occur in a periodic inventory system.
C)   Errors can occur either in a perpetual or periodic inventory system.
D)   Errors will not occur if you are using a perpetual inventory system.E) B) and C)
F) A) and B)

Exam 6: Inventory Costing

Correct Answer
verified
a.
b.
To record ...
View Answer

Correct Answer
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After the physical inventory is completed

Correct Answer
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When there is clear evidence of an increase in net realizable value because of changed economic circumstances, the amount of a previously recorded writedown is reversed.

Correct Answer
verified

Which of the following statements is correct?

Correct Answer
verified

"Goods on Approval"

Correct Answer
verified

If ending inventory is overstated in 2014, then profit will be

Correct Answer
verified

The managers of Tong Company receive performance bonuses based on the profit of the firm. Which cost formula are they likely to favour in periods of declining prices?

Correct Answer
verified

The first-in, first-out (FIFO) cost formula assumes that the earliest (oldest) goods purchased are the last ones to be sold.

Correct Answer
verified

Correct Answer
verified
First calculate the cost to retail rati...
View Answer

If the physical inventory is less than the amount calculated using the retail method, then there may be a theft problem.

Correct Answer
verified

Determining ownership of goods is one of the steps in taking inventory.

Correct Answer
verified

Correct Answer
verified

Errors in the cost of goods sold will affect the income statement.

Correct Answer
verified

Correct Answer
verified

A company had sales of $150,000 and cost of goods available for sale of $300,000 during January. If its gross profit margin is estimated to be 40%, the ending inventory value at January 31 is estimated to be

Correct Answer
verified

To use the retail inventory method, a company's records must show both the cost and the retail value of the goods available for sale.

Correct Answer
verified

In periods of rising prices, the ending inventory using the FIFO cost formula will be

Correct Answer
verified

The FIFO and average cost formula can be used in both the perpetual and periodic inventory systems.

Correct Answer
verified

For a merchandising company, the net realizable value of its inventory is the

Correct Answer
verified

Exam 6: Inventory Costing

Correct Answerverifieda. b. To record ...View AnswerShow Answer

Correct AnswerverifiedShow Answer

After the physical inventory is completed

Correct AnswerverifiedShow Answer

When there is clear evidence of an increase in net realizable value because of changed economic circumstances, the amount of a previously recorded writedown is reversed.

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

"Goods on Approval"

Correct AnswerverifiedShow Answer

If ending inventory is overstated in 2014, then profit will be

Correct AnswerverifiedShow Answer

The managers of Tong Company receive performance bonuses based on the profit of the firm. Which cost formula are they likely to favour in periods of declining prices?

Correct AnswerverifiedShow Answer

The first-in, first-out (FIFO) cost formula assumes that the earliest (oldest) goods purchased are the last ones to be sold.

Correct AnswerverifiedShow Answer

Correct Answerverified First calculate the cost to retail rati...View AnswerShow Answer

If the physical inventory is less than the amount calculated using the retail method, then there may be a theft problem.

Correct AnswerverifiedShow Answer

Determining ownership of goods is one of the steps in taking inventory.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Errors in the cost of goods sold will affect the income statement.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A company had sales of $150,000 and cost of goods available for sale of $300,000 during January. If its gross profit margin is estimated to be 40%, the ending inventory value at January 31 is estimated to be

Correct AnswerverifiedShow Answer

To use the retail inventory method, a company's records must show both the cost and the retail value of the goods available for sale.

Correct AnswerverifiedShow Answer

In periods of rising prices, the ending inventory using the FIFO cost formula will be

Correct AnswerverifiedShow Answer

The FIFO and average cost formula can be used in both the perpetual and periodic inventory systems.

Correct AnswerverifiedShow Answer

For a merchandising company, the net realizable value of its inventory is the

Correct AnswerverifiedShow Answer

Correct Answer
verified
a.
b.
To record ...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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First calculate the cost to retail rati...
View Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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