Deck 6: Reporting and Analyzing Inventory

Question 1

Under the periodic inventory system, both the sales amount and the cost of goods sold amount are recorded when each item of merchandise is sold.

Answer 1

False

Question 2

The specific identification method of inventory valuation is desirable when a company sells a large number of low-unit cost items.

Answer 2

False

Question 3

The specific identification method of costing inventories tracks the actual physical flow of the goods available for sale.

Answer 3

True

Question 4

Goods that have been purchased FOB destination but are in transit, should be excluded from a physical count of goods by the buyer.

Question 5

The First-in, First-out (FIFO) inventory method results in an ending inventory valued at the most recent cost.

Question 6

Goods held on consignment should be included in the consignor's ending inventory.

Question 7

If the ownership of merchandise passes to the buyer when the seller ships the merchandise, the terms are stated as FOB destination.

Question 8

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.

Question 9

When the terms of sale are FOB shipping point, legal title to the goods remains with the seller until the goods reach the buyer.

Question 10

Goods in transit shipped FOB shipping point should be included in the buyer's ending inventory.

Question 11

If prices never changed there would be no need for alternative inventory methods.

Question 12

Consigned goods are held for sale by one party although ownership of the goods is retained by another party.

Question 13

Inventory methods such as FIFO and LIFO deal more with flow of costs than with flow of goods.

Question 14

Under a periodic inventory system, the merchandise on hand at the end of the period is determined by a physical count of the inventory.

Question 15

Management may choose any inventory costing method it desires as long as the cost flow assumption chosen is consistent with the physical movement of goods in the company.

Question 16

Raw materials inventories are the goods that a manufacturing company has completed and are ready to be sold to customers.

Question 17

A manufacturer's inventory consists of raw materials, work in process, and finished goods.

Question 18

The average cost inventory method relies on a simple average calculation.

Question 19

The expense recognition principle requires that the cost of goods sold be matched against the ending merchandise inventory in order to determine income.

Question 20

In accounting for inventory, the assumed flow of costs must match the physical flow of goods.

Question 21

The FIFO reserve is a required disclosure for companies that use FIFO.

Question 22

If a company changes its inventory valuation method, the effect of the change on net income should be disclosed in the financial statements.

Question 23

A major criticism of the FIFO inventory method is that it magnifies the effects of the business cycle on business income.

Question 24

The inventory turnover is calculated as cost of goods sold divided by ending inventory.

Question 25

In periods of falling prices, FIFO will result in a larger net income than the LIFO method.

Question 26

A company may use more than one inventory cost flow method at the same time.

Question 27

Accountants believe that the write down from cost to market should not be made in the period in which the price decline occurs.

Question 28

The LIFO inventory method agrees with the actual physical movement of goods in most businesses.

Question 29

The LIFO reserve is the difference between ending inventory using LIFO and ending inventory if FIFO were used instead.

Question 30

Under the LCM basis, market is defined as selling price, not current replacement cost.

Question 31

The LIFO inventory method tends to smooth out the peaks and valleys of a business cycle.

Question 32

If a company has no beginning inventory and the unit price of inventory is increasing during a period, the cost of goods available for sale during the period will be the same under the LIFO and FIFO inventory methods.

Question 33

The lower-of-cost-or-market rule implies that it is unrealistic to carry inventory at a cost that is in excess of its market value.

Question 34

An inventory turnover that is too high may indicate that the company is losing sales opportunities because of inventory shortages.

Question 35

Computers has made the periodic inventory system more popular and easier to apply.

Question 36

In periods of falling prices, LIFO will result in a higher ending inventory valuation than FIFO.

Question 37

If the unit price of inventory is increasing during a period, a company using the LIFO inventory method will show less gross profit for the period, than if it had used the FIFO inventory method.

Question 38

When the market value of inventory is lower than its cost, the inventory is written down to its market value.

Question 39

The LIFO method is rarely used because most companies do not sell the last goods they purchase first.

Question 40

Use of the LIFO inventory valuation method enables a company to report paper or phantom profits.

Question 41

The term "FOB" denotes

A) free on board.
B) freight on board.
C) free only (to) buyer.
D) freight charge on buyer.

Question 42

Tidwell Company's goods in transit at December 31 include sales made (1) FOB destination
(2) FOB shipping point
And purchases made
(3) FOB destination
(4) FOB shipping point.
Which items should be included in Tidwell's inventory at December 31?

A) Sales made FOB shipping point and purchase made FOB destination
B) (1) and (4)
C) (1) and (3)
D) (2) and (4)

Question 43

Many companies use just-in-time inventory methods. Which of the following is not an advantage of this method?

A) It limits the risk of having obsolete items in inventory.
B) Companies may not have quantities to meet customer demand.
C) It lowers inventory levels and costs.
D) Companies can respond to individual customer requests.

Question 44

Manufactured inventory that has begun the production process but is not yet completed is

A) work in process.
B) raw materials.
C) merchandise inventory.
D) finished goods.

Question 45

Which statement is false?

A) Taking a physical inventory involves actually counting, weighing, or measuring each kind of inventory on hand.
B) No matter whether a periodic or perpetual inventory system is used, all companies need to determine inventory quantities at the end of each accounting period.
C) An inventory count is generally more accurate when goods are not being sold or received during the counting.
D) Companies that use a perpetual inventory system must take a physical inventory to determine inventory on hand on the balance sheet date and to determine cost of goods sold for the accounting period.

Question 46

An error in the ending inventory of the current period will have a similar effect on net income of the next accounting period.

Question 47

Independent internal verification of the physical inventory process occurs when

A) the employee is required to count all items twice for sake of verification.
B) the items counted are compared to the inventory account balance.
C) a second employee counts the inventory and compares the result to the count made by the first employee.
D) all prenumbered inventory tags are accounted for.

Question 48

Reeves Company is taking a physical inventory on March 31, the last day of its fiscal year. Which of the following must be included in this inventory count?

A) Goods in transit to Reeves, FOB destination
B) Goods that Reeves is holding on consignment for Parker Company
C) Goods in transit that Reeves has sold to Smith Company, FOB shipping point
D) Goods that Reeves is holding in inventory on March 31 for which the related Accounts Payable is 15 days past due

Question 49

An error that overstates the ending inventory will also cause net income for the period to be overstated.

Question 50

Which of the following should not be included in the physical inventory of a company?

A) Goods held on consignment from another company.
B) Goods in transit from another company shipped FOB shipping point.
C) Goods shipped on consignment to another company.
D) All of these answer choices should be included.

Question 51

When the average cost method is applied in a perpetual inventory system, the sale of goods will change the unit cost that remains in inventory.

Question 52

If goods in transit are shipped FOB destination

A) the seller has legal title to the goods until they are delivered.
B) the buyer has legal title to the goods until they are delivered.
C) the transportation company has legal title to the goods while the goods are in transit.
D) no one has legal title to the goods until they are delivered.

Question 53

The factor which determines whether or not goods should be included in a physical count of inventory is

A) physical possession.
B) legal title.
C) management's judgment.
D) whether or not the purchase price has been paid.

Question 54

When is a physical inventory usually taken?

A) When goods are not being sold or received.
B) When the company has its greatest amount of inventory.
C) At the end of the company's fiscal year.
D) When the company has its greatest amount of inventory and at the end of the company's fiscal year.

Question 55

An employee assigned to counting computer monitors in boxes should

A) estimate the number if there is a large quantity to be counted.
B) read each box and rely on the box description for the contents.
C) determine that the box contains a monitor.
D) rely on the warehouse records of the number of computer monitors.

Question 56

After the physical inventory is completed,

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.

Question 57

When the average cost method is applied to a perpetual inventory system, a moving average cost per unit is computed with each purchase.

Question 58

When a perpetual inventory system is used, which of the following is a purpose of taking a physical inventory?

A) To check the accuracy of the perpetual inventory records
B) To determine cost of goods sold for the accounting period
C) To compute inventory ratios
D) All are a purpose of taking a physical inventory when a perpetual inventory system is used.

Question 59

At December 31, 2014 Mohling Company's inventory records indicated a balance of $602,000. Upon further investigation it was determined that this amount included the following:
-$112,000 in inventory purchases made by Mohling shipped from the seller 12/27/14 terms FOB destination, but not due to be received until January 2nd
-$74,000 in goods sold by Mohling with terms FOB destination on December 27^th. The goods are not expected to reach their destination until January 6^th.
-$6,000 of goods received on consignment from Dollywood Company
What is Mohling's correct ending inventory balance at December 31, 2014?

A) $490,000
B) $596,000
C) $410,000
D) $484,000

Question 60

Goods held on consignment are

A) never owned by the consignee.
B) included in the consignee's ending inventory.
C) kept for sale on the premises of the consignor.
D) included as part of no one's ending inventory.

Question 61

Noise Makers Inc has the following inventory data: A physical count of merchandise inventory on July 30 reveals that there are 32 units on hand. Using the average cost method, the value of ending inventory is

A) $620.
B) $640.
C) $651.
D) $660.

Question 62

The LIFO inventory method assumes that the cost of the latest units purchased are

A) the last to be allocated to cost of goods sold.
B) the first to be allocated to ending inventory.
C) the first to be allocated to cost of goods sold.
D) not allocated to cost of goods sold or ending inventory.

Question 63

Alpha First Company just began business and made the following four inventory purchases in June: A physical count of merchandise inventory on June 30 reveals that there are 210 units on hand. Using the LIFO inventory method, the value of the ending inventory on June 30 is

A) $1,092
B) $1,131
C) $1,386
D) $1,368

Question 64

Radical Radials Company has the following inventory data: A physical count of merchandise inventory on July 30 reveals that there are 32 units on hand. Using the LIFO inventory method, the amount allocated to ending inventory for July is

A) $620
B) $608
C) $640
D) $704.

Question 65

A company just began business and made the following four inventory purchases in June: A physical count of merchandise inventory on June 30 reveals that there are 200 units on hand. Using the average-cost method, the amount allocated to the ending inventory on June 30 is

A) $1,134.
B) $1,180.
C) $1,100.
D) $1,120.

Question 66

Inventory costing methods place primary reliance on assumptions about the flow of

A) goods.
B) costs.
C) resale prices.
D) values.

Question 67

Peach Pink Inc. has the following inventory data: A physical count of merchandise inventory on July 30 reveals that there are 25 units on hand. Using the FIFO inventory method, the amount allocated to cost of goods sold for July is

A) $1,555
B) $1,585
C) $1,505.
D) $1,540.

Question 68

Baker Bakery Company just began business and made the following four inventory purchases in June: A physical count of merchandise inventory on June 30 reveals that there are 210 units on hand. Using the FIFO inventory method, the amount allocated to ending inventory for June is

A) $1,092
B) $1,131
C) $1,368
D) $1,386

Question 69

Quark Inc. just began business and made the following four inventory purchases in June: A physical count of merchandise inventory on June 30 reveals that there are 200 units on hand. Using the FIFO inventory method, the amount allocated to ending inventory for June is

A) $1,105.
B) $1,100.
C) $1,170.
D) $1,180.

Question 70

A company purchased inventory as follows: 200 units at $5.00
300 units at $5.50
The average unit cost for inventory is

A) $5.00.
B) $5.25.
C) $5.30.
D) $5.50.

Question 71

Orange-Aide Company has the following inventory data: A physical count of merchandise inventory on July 30 reveals that there are 25 units on hand. Using the average cost method, the value of ending inventory is

A) $535
B) $523 c $525
D $550

Question 72

Quiet Phones Company has the following inventory data: A physical count of merchandise inventory on July 30 reveals that there are 32 units on hand. Using the LIFO inventory method, the amount allocated to cost of goods sold for July is

A) $620.
B) $660.
C) $1,340.
D) $1,380.

Question 73

Charlene Cosmetics Company just began business and made the following four inventory purchases in June: A physical count of merchandise inventory on June 30 reveals that there are 210 units on hand. Using the average cost method, the amount allocated to the ending inventory on June 30 is

A) $1,229.
B) $1,368.
C) $1,323.
D) $1,260.

Question 74

Olympus Climbers Company has the following inventory data: A physical count of merchandise inventory on July 30 reveals that there are 32 units on hand. Using the FIFO inventory method, the amount allocated to cost of goods sold for July is

A) $620.
B) $660.
C) $1,340.
D) $1,380.

Question 75

Echo Sound Company just began business and made the following four inventory purchases in June: A physical count of merchandise inventory on June 30 reveals that there are 210 units on hand. The inventory method which results in the highest gross profit for June is

A) the FIFO method.
B) the LIFO method.
C) the average cost method.
D) not determinable.

Question 76

At December 31, 2014 Howell Company's inventory records indicated a balance of $858,000. Upon further investigation it was determined that this amount included the following:
-$168,000 in inventory purchases made by Howell shipped from the seller 12/27/14 terms FOB destination, but not due to be received until January 2nd
-$111,000 in goods sold by Howell with terms FOB destination on December 27^th. The goods are not expected to reach their destination until January 6^th.
-$9,000 of goods received on consignment from Westwood Company
What is Howell's correct ending inventory balance at December 31, 2014?

A) $690,000
B) $849,000
C) $570,000
D) $681,000

Question 77

Manufacturers usually classify inventory into all the following general categories except:

A) work in process
B) finished goods
C) merchandise inventory
D) raw materials

Question 78

Pop-up Party Favors Inc has the following inventory data: A physical count of merchandise inventory on July 30 reveals that there are 32 units on hand. Using the FIFO inventory method, the amount allocated to ending inventory for July is

A) $620.
B) $660.
C) $640.
D) $704.

Question 79

Atom Company just began business and made the following four inventory purchases in June: A physical count of merchandise inventory on June 30 reveals that there are 200 units on hand. Using the LIFO inventory method, the value of the ending inventory on June 30 is

A) $1,105.
B) $1,100.
C) $1,170.
D) $1,180.

Question 80

For companies that use a perpetual inventory system, all of the following are purposes for taking a physical inventory except to:

A) check the accuracy of the records.
B) determine the amount of wasted raw materials.
C) determine losses due to employee theft.
D) determine ownership of the goods.