Question 1

Which of the following would be in the raw materials inventory of a company making cheese?
A) Milk and cream used to make the cheese
B) Cheese that has been made but is curing before being ready to sell
C) Cured cheese that is waiting to be shipped to retailers
D) Partially processed cheese

Accepted Answer

The answer of Which of the following would be in...

Question 2

An overstatement of ending inventory will cause an overstatement of assets and an understatement of stockholders' equity on the balance sheet.

Accepted Answer

If ending inventory is overstated,then assets will be overstated.Cost of goods sold will be understated,so net income will be overstated and stockholders' equity will be overstated.

Question 3

Which of the following would be considered merchandise inventory?
A) Work in progress
B) Raw materials
C) Purchased finished goods
D) Cost of goods sold

Accepted Answer

Merchandise inventory refers to the products that a company has purchased or produced and is intended for resale to customers. Purchased finished goods qualify as merchandise inventory. Work in progress and raw materials are considered inventory, but they are not yet finished products that can be sold. Cost of goods sold refers to the cost of the products that have already been sold and is therefore not considered inventory.

Question 4

Which of the following statements about an auto manufacturer's inventory is not correct?
A) Tires, batteries, glass, paint, headlamp bulbs, and electric wiring would be included in raw materials inventory.
B) Incomplete cars that are still being processed would be included in work in process inventory.
C) Finished cars ready to be shipped to dealers would be included in finished goods inventory.
D) Cars that have been sold to dealers would be included in finished goods inventory.

Accepted Answer

Cars that have been sold to dealers would not be included in finished goods inventory. Once a product has been sold, it is no longer part of inventory but becomes cost of goods sold. Therefore, sold cars would be part of cost of goods sold and not finished goods inventory.

Question 5

Which of the following is merchandise inventory?
A) Goods held for sale in the normal course of business
B) Office supplies that a company plans to use in the next few months
C) Equipment used to manufacture products which will be sold later
D) Raw materials and work in process

Accepted Answer

Merchandise inventory refers to goods that a company holds for sale in the normal course of business. Option B refers to office supplies and option C refers to equipment used for manufacturing, while option D refers to raw materials and work in process, which are not yet finished goods available for sale.

Question 6

Goods that a company holds that are not reported on the company's balance sheet are called:
A) finished goods.
B) consignment inventory.
C) raw materials.
D) work in process.

Accepted Answer

Consignment inventory is held by a company but is not owned by the company and therefore is not reported on the company's balance sheet. Finished goods, raw materials, and work in process are all types of inventory that would be reported on a company's balance sheet.

Question 7

Inventory levels increase by 10% at your company during the fourth quarter.Based on this increase,which of the following statements must be correct?
A) This must be good news because inventories are an asset to the company.
B) This could be good news if the company is ordering more goods because sales appear to be rising.
C) This could be bad news if the company is ordering more goods because unit costs are falling.
D) This must be bad news because higher inventories mean higher costs.

Accepted Answer

An increase in inventory levels could be good news if it is a result of the company ordering more goods because sales appear to be rising. However, it could be bad news if it is a result of the company ordering more goods because unit costs are falling. Therefore, options A, C, and D are not necessarily correct.

Question 8

Which of the following would be in the finished goods inventory of a company making cheese?
A) Milk and cream used to make the cheese
B) Cheese that has been made but is curing before being ready to sell
C) Cured cheese that is waiting to be shipped to customers
D) Cured cheese that has been sold to customers

Accepted Answer

The finished goods inventory includes products that are ready to be sold or shipped to customers. Therefore, only cured cheese that is waiting to be shipped to customers (choice C) would be included in the finished goods inventory. Milk and cream (choice A) would be considered raw materials, and cheese that is still curing (choice B) would be considered work in progress or goods in process. Cured cheese that has already been sold (choice D) would not be in the company's inventory.

Question 9

Angus Company agreed to sell goods for Longhorn Company on consignment,but wasn't willing to take ownership of the goods in case they were difficult to sell.Which of the following statements is true?
A) Angus owns the inventory and should report it on its balance sheet.
B) Longhorn owns the inventory, but should not report it on its balance sheet because Angus actually holds the inventory.
C) Angus owns the inventory, since possession is nineteenths of the law, but should not report it on its balance sheet.
D) Longhorn owns the inventory and should report it on its balance sheet.

Accepted Answer

When goods are held on consignment, the consignor (Longhorn Company) retains ownership until the goods are sold. Therefore, Longhorn Company should report the inventory on its balance sheet. Angus Company is simply holding the goods for Longhorn Company and does not take ownership.

Question 10

Which of the following is not a primary goal of inventory management?
A) Obtaining the lowest cost of inventory
B) Ensuring sufficient quantities of inventory are available to meet customers' needs
C) Ensuring inventory quality meets customers' expectations and company standards
D) Minimizing the costs of acquiring and carrying inventory

Accepted Answer

Obtaining the lowest cost of inventory is frequently counterproductive.It may mean having lower quality than customer expectations.In addition,it may result from having extremely large production,runs which requires unusually large quantities of items to be warehoused at a large expense to a company.

Question 11

The assignment of costs to cost of goods sold and to inventory using the weighted average method usually yields different results depending on whether a perpetual or a periodic system is used.

Accepted Answer

In a perpetual system, inventory and cost of goods sold are updated continuously, while in a periodic system, these accounts are updated only at the end of the accounting period. Therefore, the use of the weighted average method may result in different costs assigned to cost of goods sold and inventory depending on the system used.

Question 12

Which of the following is not one of the primary goals of inventory management?
A) Maintain a sufficient quantity of inventory to meet customer needs.
B) Ensure inventory quality meets customers' expectations and company standards
C) Minimize the cost of acquiring and carrying inventory (including costs related to purchasing, production, storage, spoilage, theft, obsolescence, and financing).
D) Minimize the quantity of ending inventory.

Accepted Answer

Minimizing the quantity of ending inventory is not one of the primary goals of inventory management. The primary goals of inventory management are to maintain a sufficient quantity of inventory to meet customer needs, ensure inventory quality meets customers' expectations and company standards, and minimize the cost of acquiring and carrying inventory.

Question 13

Inventory shipped FOB destination and in transit on the last day of the year should be included in:
A) the inventory balance of the seller.
B) the inventory balance of the buyer.
C) neither the inventory balance of the buyer or the seller.
D) both the inventory balance of the buyer and the seller.

Accepted Answer

If a sale is made FOB destination,goods in transit belong to the seller until they reach their destination (the customer).

Question 14

Acme Company's balance sheet shows three inventory accounts-raw materials,work in process,and finished goods.Acme Company must be a:
A) manufacturer.
B) merchandiser.
C) service business.
D) wholesale distributor.

Accepted Answer

The presence of raw materials, work in process, and finished goods inventory accounts indicates that Acme Company is a manufacturer, which means they produce goods by processing raw materials into finished products. Merchandisers typically only have a single inventory account for finished goods, while service businesses and wholesale distributors do not have inventory accounts at all.

Question 15

An understatement of beginning inventory causes net income to be understated.

Accepted Answer

The answer of An understatement of beginning inventory causes net...

Question 16

Inventory shipped FOB shipping point and in transit on the last day of the year should be included in:
A) the inventory balance of the seller.
B) the inventory balance of the buyer.
C) neither the inventory balance of the buyer or the seller.
D) both the inventory balance of the buyer and the seller.

Accepted Answer

If a sale is made FOB shipping point,goods in transit belong to the customer at the point of shipping (from the seller's premises).

Question 17

Goods placed in inventory are initially recorded at:
A) market value.
B) the amount paid to acquire the asset.
C) the amount paid to prepare the asset for sale to customers.
D) the amount paid to acquire the asset and prepare it for sale.

Accepted Answer

Goods placed in inventory are initially recorded at the amount paid to acquire the asset and prepare it for sale. This includes purchase price, shipping costs, and other related expenses.

Question 18

The cost assigned to cost of goods sold and to inventory under the FIFO method will be the same whether the perpetual or the periodic inventory system is used.

Accepted Answer

The cost assigned to cost of goods sold and to inventory under the FIFO method is based on the order in which the inventory is purchased. This remains the same whether the perpetual or periodic inventory system is used.

Question 19

Mountain People's Coop offers herbal tea for sale on consignment from Green Heron Company.Which company should report the inventory of unsold tea on its balance sheet?
A) Green Heron Company
B) Mountain People's Coop
C) Both companies
D) Neither company

Accepted Answer

Green Heron Company should report the inventory of unsold tea on its balance sheet because they are the ones who own the tea and are selling it on consignment to Mountain People's Coop.

Question 20

Carrying insufficient quantities of inventory on hand:
A) would not affect the company's profitability.
B) may result in lost sales.
C) has little effect on customer satisfaction.
D) will increase the costs of carrying inventory.

Accepted Answer

Carrying insufficient quantities of inventory on hand may result in lost sales as the company may not have enough product available to meet customer demand. This can lead to dissatisfied customers and a decrease in revenue.

Quiz 7: Reporting and Interpreting Inventories and Cost of Goods Sold

Which of the following would be in the raw materials inventory of a company making cheese?

An overstatement of ending inventory will cause an overstatement of assets and an understatement of stockholders' equity on the balance sheet.

Which of the following would be considered merchandise inventory?

Which of the following statements about an auto manufacturer's inventory is not correct?

Which of the following is merchandise inventory?

Goods that a company holds that are not reported on the company's balance sheet are called:

Inventory levels increase by 10% at your company during the fourth quarter.Based on this increase,which of the following statements must be correct?

Which of the following would be in the finished goods inventory of a company making cheese?

Angus Company agreed to sell goods for Longhorn Company on consignment,but wasn't willing to take ownership of the goods in case they were difficult to sell.Which of the following statements is true?

Which of the following is not a primary goal of inventory management?

The assignment of costs to cost of goods sold and to inventory using the weighted average method usually yields different results depending on whether a perpetual or a periodic system is used.

Which of the following is not one of the primary goals of inventory management?

Inventory shipped FOB destination and in transit on the last day of the year should be included in:

Acme Company's balance sheet shows three inventory accounts-raw materials,work in process,and finished goods.Acme Company must be a:

An understatement of beginning inventory causes net income to be understated.

Inventory shipped FOB shipping point and in transit on the last day of the year should be included in:

Goods placed in inventory are initially recorded at:

The cost assigned to cost of goods sold and to inventory under the FIFO method will be the same whether the perpetual or the periodic inventory system is used.

Mountain People's Coop offers herbal tea for sale on consignment from Green Heron Company.Which company should report the inventory of unsold tea on its balance sheet?

Carrying insufficient quantities of inventory on hand: