Question 1

Which of the following inventory method will give the highest ending inventory in a period of rising prices?

Accepted Answer

In a period of rising prices, FIFO (First-in, First-out) will give the highest ending inventory as it assumes that the first items purchased are the first ones sold, therefore the inventory on hand consists of the newer, higher-priced items. This results in a higher value for the ending inventory.

Question 2

Which of the following inventory costing method is not permitted by ASPE and IFRS in Canada?

Accepted Answer

LIFO is not permitted by ASPE and IFRS in Canada.

Question 3

Alphabet Company buys different letters for resale.It buys A thru G on January 1 at $4 per letter,and sells A and E on January 15.On February 1,it buys H thru L at $6 per letter and sells D,H and J on February 9.It then buys M thru R on March 1 at $7 per letter and sells N on March 19.If the company uses the LIFO method on a perpetual basis,what is the cost of its ending inventory)?

Accepted Answer

According to LIFO method, the last items purchased are assumed to be sold first. 
Therefore, as of March 19, the remaining inventory would consist of:
R bought at $7 per letter = $7
Q bought at $7 per letter = $7
P bought at $7 per letter = $7
O bought at $7 per letter = $7
L bought at $6 per letter = $6
K bought at $6 per letter = $6
Total cost of remaining inventory = $40
Therefore, the cost of the company's ending inventory is $40. Option B is correct.

Question 4

Which of the following inventory method will give the highest net earnings in a period of rising prices?

Accepted Answer

FIFO is the best choice in a period of rising prices because it assumes that the inventory items that were purchased first have been sold first, resulting in lower costs of goods sold (COGS) and higher net earnings. This is because the more recently purchased items will be sold at higher prices and generate higher profits. On the other hand, LIFO assumes that the items purchased last are sold first, resulting in higher COGS and lower net earnings. Specific identification method and weighted average cost methods do not specifically address the effects of rising prices and may vary depending on the specific identification or cost averaging used.

Question 5

Days to sell for 2010 is:

Accepted Answer

Days to sell is calculated as 365 divided by the inventory turnover ratio. The correct choice is based on the given data or calculation that results in 91.25 days.

Question 6

Fables Inc.gives goods on consignment to Aesop Inc.who agrees to try to sell them for a 15% commission.At the end of the year,which of the following would include the consigned goods in its inventory?

Accepted Answer

The consigned goods remain the property and inventory of the consignor (Fables Inc.) until they are sold by the consignee (Aesop Inc.). Therefore, only Fables Inc. would include the consigned goods in its inventory.

Question 7

A company should always keep extra inventory on hand; it could be needed if demand increases and it has to be bought sooner or later so it adds nothing to cost.
BT: Knowledge

Accepted Answer

Keeping extra inventory on hand can add to the cost of storage, handling, and potential losses due to obsolescence or spoilage. It is important for companies to balance the costs and benefits of carrying extra inventory.

Question 8

Which of the following is true regarding the differences between ASPE and IFRS regarding inventory valuation?

Accepted Answer

Only IFRS allows for the reversal of inventory write-downs if the reasons for the write-down no longer exist, reflecting an increase in the value of inventory up to the amount of the original write-down. ASPE does not permit such reversals.

Question 9

What is the inventory turnover for 2010?

Accepted Answer

The answer of What is the inventory turnover for 2010?
...

Question 10

A company purchased $6,000 of merchandise.Transportation costs were an additional $100.The company later returned $250 of the merchandise and paid the invoice within the 2% discount period.What is the total amount of cash paid?

Accepted Answer

The cost of merchandise is $6,000 and transportation costs are $100, making the total cost $6,100. After the return of $250, the total cost becomes $5,850. The 2% discount on $5,850 is $117, so the amount paid is $5,850 - $117 = $5,733. Therefore, the best choice is C.

Question 11

Inappropriate inventory levels reduce a company's net income,either by increasing cost or reducing revenue.
BT: Knowledge

Accepted Answer

Inappropriate inventory levels can increase cost due to storage, maintenance, and potential obsolescence, or reduce revenue due to stockouts or markdowns, leading to a decrease in net income.

Question 12

A $15,000 overstatement of the 2011 ending inventory was discovered after the financial statements for 2011 were prepared.How would that inventory error impact the 2011 financial status?

Accepted Answer

An overstatement of ending inventory increases current assets and also increases net income because cost of goods sold is understated.

Question 13

A one-time error in the application of the lower of cost and net realizable value (LC&NRV)rule in the current period distorts financial results for the current accounting period

Accepted Answer

The answer of A one-time error in the application of...

Question 14

Which of the following inventory method will give the highest net earnings in a period of falling prices?

Accepted Answer

The answer of Which of the following inventory method will...

Question 15

The inventory costing method chosen to by a company method must correspond to the physical flow of goods.
BT: Knowledge

Accepted Answer

The inventory costing method does not have to match the physical flow of goods; companies can choose methods like FIFO, LIFO, or weighted average based on financial strategy rather than actual inventory movement.

Question 16

Which of the following inventory method will give the highest ending inventory in a period of falling prices?

Accepted Answer

The answer of Which of the following inventory method will...

Question 17

Alphabet Company buys different letters for resale.It buys A thru J on January 1 at $4 per letter,and sells C on January 15.On February 1,it buys K thru L at $6 per letter and sells A and K on February 9.It then buys M thru O on March 1 at $7 per letter and sells F,L,M,N,and O on March 19.If the company uses the LIFO method on a perpetual basis,what is the cost of goods sold?

Accepted Answer

Using the LIFO method, we assume that the last letters purchased are the first ones sold. 
- On March 19, the company sells F, L, M, N, and O. Since they were the last letters purchased on March 1 at $7 per letter, the cost of goods sold for these letters is 5 x $7 = $35. 
- On February 9, the company sells A and K. Since they were the last letters purchased on February 1 at $6 per letter, the cost of goods sold for these letters is 2 x $6 = $12.
- On January 15, the company sells C. Since it was among the letters purchased on January 1 at $4 per letter, the cost of goods sold for C is $4. 
The total cost of goods sold is $35 + $12 + $4 = $51. However, since the company still has letters B, D, E, G, H, and I in inventory (assuming no letters were bought or sold after March 19), we need to subtract their cost from the total cost of letters purchased to get the cost of goods sold. The cost of these letters is 6 x $4 = $24. Therefore, the cost of goods sold is $51 - $24 = $27. 
So the best choice is C, $45, which is not one of the given answer choices.

Question 18

One of the most common sources of misstatement in financial statements is the:

Accepted Answer

Failure to appropriately estimate the market value of inventory can result in overstatement or understatement of the value of inventory on the financial statements, leading to misstatement. This can occur if the inventory is valued at its cost rather than its market value, or if the market value is estimated incorrectly. The other choices may also result in misstatement but are less common than failure to appropriately estimate the market value of inventory.

Question 19

Merchandisers have inventories of finished goods only; manufacturers have inventories of raw materials only.
BT: Knowledge

Accepted Answer

Manufacturers may also have inventories of work-in-progress and finished goods in addition to their raw materials inventory.

Question 20

Which of the following statements is true?

Accepted Answer

Valuing inventory under LIFO may produce different results depending on whether a perpetual or periodic inventory system is used. This is because LIFO assumes that the most recent inventory purchases are sold first; however, under a periodic system, the inventory is only updated at the end of the accounting period, which may result in different inventory values compared to a perpetual system where inventory is continuously updated. The other statements are not entirely accurate, as valuing inventory under the weighted average cost method may produce different results if the cost of inventory fluctuates, and FIFO generally produces consistent results regardless of the inventory system used.

Quiz 7: Inventory and Cost of Goods Sold