Question 1

Atomic Company did not record a December 2016 purchase of inventory on credit until January 2017. Assume that the December 31, 2016 ending inventory was correctly determined. What is the effect of this error on the financial statements for the year ended December 31, 2017?

Accepted Answer

A)  Net income is correct.
B)  Stockholders' equity is correct.
C)  Net income is overstated.
D)  Stockholders' equity is overstateD.Inventory related errors including purchase cutoff errors are self-correcting on the balance sheet after two periods.E) C) and D)
F) A) and B)

Question 2

The inventory turnover

Accepted Answer

A)  reflects how many times, on average, that the inventory balance was sold during the year.
B)  is increased when accounts receivable increases.
C)  is decreased if inventory balances decrease from the beginning of the year to the end of the year.
D)  is improved if cost of goods sold decrease and inventory balances increase from one year to the next.E) B) and C)
F) None of the above

Question 3

A decrease in the merchandise inventory account occurs when units of inventory purchased are greater than units of goods sold.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following statements is incorrect when inventory unit costs are increasing?

Accepted Answer

A)  LIFO's cost of goods sold will be the largest among the inventory costing methods.
B)  LIFO's income tax will be the lowest among the inventory costing methods.
C)  Ending inventory using the average cost method will be larger than the ending inventory when the LIFO method is used.
D)  Cost of goods sold using the average cost method will be less than cost of goods sold when the FIFO method is useD.FIFO has the lowest cost of goods sold during a period of increasing unit costs.E) B) and C)
F) A) and B)

Question 5

Iris Company has provided the following information regarding two of its items of inventory at year-end: • There are 100 units of Item A, having a cost of $20 per unit, a selling price of $24 and a cost to sell of $6 per unit.
• There are 50 units of Item B, having a cost of $50 per unit, a selling price of $56 and a cost to sell of $4 per unit.
How much is the ending inventory using lower of cost or net realizable value on an item-by-item basis?

Accepted Answer

A)  $4,100.
B)  $4,300.
C)  $4,400.
D)  $4,500.E) B) and D)
F) B) and C)

Question 6

A company provided the following disclosure note to the financial statements in its newest annual report:
During the current and prior year, the company reduced certain inventory quantities that were valued at lower LIFO costs prevailing in prior years. The effect of these physical reductions was to increase after-tax earnings this year by $90 million, $.30 per share, and $98 million, or $.327 per share last year.
Required:
1. Explain why the reduction in inventory quantity increased after-tax earnings for this company.
2. If the company had been using FIFO costing, would the reductions in inventory quantity during the two years have increased after-tax earnings? Explain.

Accepted Answer

1. The reduction of the physical level o...

Question 7

Which of the following statements is correct with respect to the determination of cash flows from operating activities?

Accepted Answer

A)  A decrease in inventory is subtracted from net income.
B)  An increase in accounts payable is subtracted from net income.
C)  An increase in inventory is subtracted from net income.
D)  A decrease in accounts payable is added to net income.E) A) and B)
F) None of the above

Question 8

The following income statement is complete except for a few missing titles (bold lines on the left), and amounts (dotted lines on the right).
Required:
Prepare a complete income statement using the format and amounts provided. Fill in all items that are missing titles and amounts (ignore income taxes).

Accepted Answer

The answer of The following income statement is complete except...

Question 9

The average days to sell inventory decreases as inventory turnover increases.

Accepted Answer

A) True 
 B)False

Question 10

The LIFO Reserve represents the excess of FIFO inventory costs over LIFO inventory costs.

Accepted Answer

A) True 
 B)False

Question 11

The lower of cost or market (LCM) rule is used due to the conservatism constraint, and therefore an inventory calculation may result in a departure from the historical cost principle.

Accepted Answer

A) True 
 B)False

Question 12

QV-TV, Inc. provided the following items in its notes to the financial statements for the year-end 2016: Cost of goods sold was $22 billion under FIFO costing and the inventory value under FIFO costing was $2.1 billion. The LIFO Reserve for year-end 2015 was $0.6 billion and at year-end 2016 it had increased to $0.8 billion. How much is the 2016 LIFO cost of goods sold?

Accepted Answer

A)  $22.2 billion.
B)  $19.8 billion.
C)  $22.8 billion.
D)  $19.2 billion.E) A) and B)
F) A) and C)

Question 13

An understatement of the ending inventory in Year 1, if not corrected, will cause which of the following?

Accepted Answer

A)  The year 1 net income to be understated and Year 2 net income to be overstated.
B)  The year 1 net income to be overstated and Year 2 net income to be overstated.
C)  The year 1 net income to be overstated and Year 2 net income will be correct.
D)  The year 1 net income to be overstated and Year 2 net income to be understateD.The understatement of the year 1 ending inventory causes the year 1 cost of goods sold to be overstated and the year 1 net income is therefore understated.The year 2 cost of goods sold is understated because beginning inventory is understated, which causes the year 2 net income to be overstated.E) B) and D)
F) B) and C)

Question 14

Which of the following statements is correct?

Accepted Answer

A)  The choice of an inventory costing method is dependent upon the actual physical flow of the goods in inventory.
B)  LIFO should be used during a period of increasing unit costs when the objective is to maximize the ending inventory value on the balance sheet.
C)  FIFO should be used during a period of decreasing unit costs when the objective is to maximize the gross profit reported on the balance sheet.
D)  The average cost method will result in an ending inventory balance which is somewhere between LIFO and FIFO when inventory unit costs are changing.E) A) and D)
F) None of the above

Question 15

On March 15, 2016, Ryan Company purchased $10,000 of merchandise on credit subject to terms of 2/10, n/30. Ryan Company records its purchases using the gross amount. The periodic inventory system is used. Which of the following journal entries is correct when Ryan Company pays for these goods on March 30, 2016?

Accepted Answer

A)   
B)   
C)   
D)   E) B) and C)
F) None of the above

Question 16

A company can use the LIFO inventory method for income tax purposes and the FIFO inventory method for financial reporting purposes during a given year.

Accepted Answer

A) True 
 B)False

Question 17

On March 15, 2016, Ryan Company purchased $10,000 of merchandise on credit subject to terms of 2/10, n/30. Ryan Company records its purchases using the gross amount. The periodic inventory system is used. Which of the following journal entries is correct when Ryan Company pays for these goods on March 20, 2016?

Accepted Answer

A)   
B)   
C)   
D)   E) A) and B)
F) A) and C)

Question 18

Which of the following statements is correct when inventory unit costs are increasing?

Accepted Answer

A)  LIFO will result in lower net income and a higher inventory valuation than will FIFO.
B)  LIFO will result in higher net income and lower inventory valuation than will FIFO.
C)  FIFO will result in lower net income and a lower inventory valuation than will LIFO.
D)  FIFO will result in higher net income and a higher inventory valuation than will LIFO.E) A) and D)
F) B) and C)

Question 19

Tinker's cost of goods sold in the year of sale (2016)  was $750,000 and 2015 cost of goods sold was $770,000. The inventory at the end of 2016 was $188,000 and at the end of 2015 the inventory was $208,000. Tinker's average number of days to sell its inventory during 2016 is closest to:

Accepted Answer

A)  96
B)  92
C)  95
D)  94E) None of the above
F) B) and C)

Question 20

Cassie Corporation has provided the following information for its most recent month of operation: sales $32,000, beginning inventory $8,000, purchases $16,000 and gross profit $20,000. How much was Cassie's ending inventory?

Accepted Answer

A)  $4,000.
B)  $8,000.
C)  $6,000.
D)  $12,000.E) A) and D)
F) B) and C)

Exam 7: Reporting and Interpreting Cost of Goods Sold and Inventory

Tinker's cost of goods sold in the year of sale (2016) was $750,000 and 2015 cost of goods sold was $770,000. The inventory at the end of 2016 was $188,000 and at the end of 2015 the inventory was $208,000. Tinker's average number of days to sell its inventory during 2016 is closest to:

Correct Answer
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The lower of cost or market (LCM) rule is used due to the conservatism constraint, and therefore an inventory calculation may result in a departure from the historical cost principle.

Correct Answer
verified

An understatement of the ending inventory in Year 1, if not corrected, will cause which of the following?

Correct Answer
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Correct Answer
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A company can use the LIFO inventory method for income tax purposes and the FIFO inventory method for financial reporting purposes during a given year.

Correct Answer
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Which of the following statements is correct when inventory unit costs are increasing?

Correct Answer
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Atomic Company did not record a December 2016 purchase of inventory on credit until January 2017. Assume that the December 31, 2016 ending inventory was correctly determined. What is the effect of this error on the financial statements for the year ended December 31, 2017?

Correct Answer
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Which of the following statements is correct with respect to the determination of cash flows from operating activities?

Correct Answer
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Which of the following statements is incorrect when inventory unit costs are increasing?

Correct Answer
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The average days to sell inventory decreases as inventory turnover increases.

Correct Answer
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Correct Answer
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1. The reduction of the physical level o...
View Answer

Correct Answer
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A decrease in the merchandise inventory account occurs when units of inventory purchased are greater than units of goods sold.

Correct Answer
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Correct Answer
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The inventory turnover

Correct Answer
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Which of the following statements is correct?

Correct Answer
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Correct Answer
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Cassie Corporation has provided the following information for its most recent month of operation: sales $32,000, beginning inventory $8,000, purchases $16,000 and gross profit $20,000. How much was Cassie's ending inventory?

Correct Answer
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Correct Answer
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The LIFO Reserve represents the excess of FIFO inventory costs over LIFO inventory costs.

Correct Answer
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Exam 7: Reporting and Interpreting Cost of Goods Sold and Inventory

Tinker's cost of goods sold in the year of sale (2016) was $750,000 and 2015 cost of goods sold was $770,000. The inventory at the end of 2016 was $188,000 and at the end of 2015 the inventory was $208,000. Tinker's average number of days to sell its inventory during 2016 is closest to:

Correct AnswerverifiedShow Answer

The lower of cost or market (LCM) rule is used due to the conservatism constraint, and therefore an inventory calculation may result in a departure from the historical cost principle.

Correct AnswerverifiedShow Answer

An understatement of the ending inventory in Year 1, if not corrected, will cause which of the following?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A company can use the LIFO inventory method for income tax purposes and the FIFO inventory method for financial reporting purposes during a given year.

Correct AnswerverifiedShow Answer

Which of the following statements is correct when inventory unit costs are increasing?

Correct AnswerverifiedShow Answer

Atomic Company did not record a December 2016 purchase of inventory on credit until January 2017. Assume that the December 31, 2016 ending inventory was correctly determined. What is the effect of this error on the financial statements for the year ended December 31, 2017?

Correct AnswerverifiedShow Answer

Which of the following statements is correct with respect to the determination of cash flows from operating activities?

Correct AnswerverifiedShow Answer

Which of the following statements is incorrect when inventory unit costs are increasing?

Correct AnswerverifiedShow Answer

The average days to sell inventory decreases as inventory turnover increases.

Correct AnswerverifiedShow Answer

Correct Answerverified1. The reduction of the physical level o...View AnswerShow Answer

Correct AnswerverifiedShow Answer

A decrease in the merchandise inventory account occurs when units of inventory purchased are greater than units of goods sold.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The inventory turnover

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Cassie Corporation has provided the following information for its most recent month of operation: sales $32,000, beginning inventory $8,000, purchases $16,000 and gross profit $20,000. How much was Cassie's ending inventory?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The LIFO Reserve represents the excess of FIFO inventory costs over LIFO inventory costs.

Correct AnswerverifiedShow Answer

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1. The reduction of the physical level o...
View Answer

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