Question 1

If year-end inventory is reduced from cost to a lower replacement cost, which of the following accurately depicts the results?

Accepted Answer

A)  The capital account balance is increased and beginning inventory of the next period is reduced by the same amount.
B)  Cost of goods sold is reduced and beginning inventory of the next period is reduced by the same amount.
C)  Year-end inventory is reduced and cost of goods sold is reduced by the same amount.
D)  Cost of goods sold is increased and ending inventory is decreased by the same amount.

Question 2

The gross profit rate is calculated as:

Accepted Answer

A)  cost of goods sold divided by net sales revenue.
B)  net sales revenue minus gross profit on sales.
C)  net sales revenue minus cost of goods sold.
D)  gross profit divided by net sales revenue.

Question 3

A periodic inventory system:

Accepted Answer

A)  is used for inexpensive goods.
B)  is not expensive to maintain.
C)  does not keep a running record of inventory on hand.
D)  is all of the above.

Question 4

If ending inventory on December 31, 2010, is overstated, then:

Accepted Answer

A)  cost of goods sold for the year ended December 31, 2011, will be understated.
B)  cost of goods sold for the year ended December 31, 2010, will be overstated.
C)  gross profit for the year ended December 31, 2010, will be understated.
D)  gross profit for the year ended December 31, 2011, will be understated.

Question 5

Given the following data, calculate the value of ending inventory using the average-cost method.

Accepted Answer

A)  $ 284.00
B)  $ 851.71
C)  $1,164.00
D)  $1,419.12

Question 6

Net sales is computed as:

Accepted Answer

A)  sales revenue less freight-out.
B)  sales revenue less sales returns and allowances plus sales discounts.
C)  sales less cost of goods sold.
D)  sales revenue less sales returns and allowances less sales discounts.

Question 7

Given the following data, what would the net income after taxes be if the company uses LIFO?

Accepted Answer

A)  $ 6,800
B)  $ 8,960
C)  $12,720
D)  $13,440

Question 8

Given the following data, by how much would taxable income change if LIFO is used rather than FIFO?

Accepted Answer

A)  Decrease by $15,000
B)  Decrease by $19,000
C)  Increase by $15,000
D)  Increase by $19,000

Question 9

In a perpetual inventory system, businesses maintain a continuous record for each inventory item.

Accepted Answer

A) True 
 B)False

Question 10

Given the following data, what is the value of the gross profit as determined by the LIFO method?

Accepted Answer

A)  $2,880
B)  $600
C)  $540
D)  $1,560

Question 11

If a company estimates its ending inventory using the gross profit method, it does not have to take a physical inventory at the end of the year.

Accepted Answer

A) True 
 B)False

Question 12

When prices are rising, a company using the FIFO costing method will generally pay less taxes than if the company had been using the LIFO method.

Accepted Answer

A) True 
 B)False

Question 13

Ending inventory for the year ended December 31, 2010, is understated. How will this error affect net income for 2010 and 2011?

Accepted Answer

A)  2010 overstated; 2011 understated
B)  2010 understated; 2011 overstated
C)  2010 overstated; 2011 no effect
D)  2010 understated; 2011 no effect

Question 14

The weighted-average cost per unit is calculated as the cost of goods sold divided by the number of units actually sold.

Accepted Answer

A) True 
 B)False

Question 15

The cost of inventory is the:

Accepted Answer

A)  purchase price.
B)  sum of all the costs incurred to bring the inventory to its intended use.
C)  sum of all the costs incurred to bring the inventory to its intended use, plus any discounts and allowances.
D)  sum of all the costs incurred to bring the inventory to its intended use, less any discounts and allowances.

Question 16

Under the disclosure principle, the inventory accounting method must be disclosed.

Accepted Answer

A) True 
 B)False

Question 17

Harmon Fraiser Industries had beginning inventory of 20,000 candles and an ending inventory of 15,000 candles. Harmon originally paid $1.80 each when it purchased the candles. The current replacement cost of the candles is $2.20 each. Each candle retails for $3.00. Harmon uses the LIFO method to account for its inventory. How did the LIFO liquidation affect the company's taxable income?

Accepted Answer

A)  Taxable income increased because of the liquidation.
B)  Taxable income decreased because of the liquidation.
C)  Taxable income remained the same despite the liquidation.
D)  You cannot determine taxable income from the given data.

Question 18

A purchase return is a decrease in the cost of purchases because the purchaser returned goods to the supplier.

Accepted Answer

A) True 
 B)False

Question 19

Which inventory method gives the most realistic net income?

Accepted Answer

A)  FIFO, because it uses cost in the order in which they were incurred
B)  LIFO, because it includes the most recent costs in cost of goods sold
C)  Average-cost, because it averages old and recent costs
D)  The answer depends on whether prices are rising or falling.

Question 20

The gross profit percentage expresses the relationship between gross profit and net sales revenue.

Accepted Answer

A) True 
 B)False

Exam 6: Inventory and Cost of Goods Sold

Given the following data, calculate the value of ending inventory using the average-cost method.

Correct Answer
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The gross profit percentage expresses the relationship between gross profit and net sales revenue.

Correct Answer
verified

A periodic inventory system:

Correct Answer
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Ending inventory for the year ended December 31, 2010, is understated. How will this error affect net income for 2010 and 2011?

Correct Answer
verified

Net sales is computed as:

Correct Answer
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When prices are rising, a company using the FIFO costing method will generally pay less taxes than if the company had been using the LIFO method.

Correct Answer
verified

Given the following data, what would the net income after taxes be if the company uses LIFO?

Correct Answer
verified

Which inventory method gives the most realistic net income?

Correct Answer
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If a company estimates its ending inventory using the gross profit method, it does not have to take a physical inventory at the end of the year.

Correct Answer
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Given the following data, what is the value of the gross profit as determined by the LIFO method?

Correct Answer
verified

If ending inventory on December 31, 2010, is overstated, then:

Correct Answer
verified

In a perpetual inventory system, businesses maintain a continuous record for each inventory item.

Correct Answer
verified

The gross profit rate is calculated as:

Correct Answer
verified

If year-end inventory is reduced from cost to a lower replacement cost, which of the following accurately depicts the results?

Correct Answer
verified

Given the following data, by how much would taxable income change if LIFO is used rather than FIFO?

Correct Answer
verified

Correct Answer
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The cost of inventory is the:

Correct Answer
verified

A purchase return is a decrease in the cost of purchases because the purchaser returned goods to the supplier.

Correct Answer
verified

The weighted-average cost per unit is calculated as the cost of goods sold divided by the number of units actually sold.

Correct Answer
verified

Under the disclosure principle, the inventory accounting method must be disclosed.

Correct Answer
verified

Exam 6: Inventory and Cost of Goods Sold

Given the following data, calculate the value of ending inventory using the average-cost method.

Correct AnswerverifiedShow Answer

The gross profit percentage expresses the relationship between gross profit and net sales revenue.

Correct AnswerverifiedShow Answer

A periodic inventory system:

Correct AnswerverifiedShow Answer

Ending inventory for the year ended December 31, 2010, is understated. How will this error affect net income for 2010 and 2011?

Correct AnswerverifiedShow Answer

Net sales is computed as:

Correct AnswerverifiedShow Answer

When prices are rising, a company using the FIFO costing method will generally pay less taxes than if the company had been using the LIFO method.

Correct AnswerverifiedShow Answer

Given the following data, what would the net income after taxes be if the company uses LIFO?

Correct AnswerverifiedShow Answer

Which inventory method gives the most realistic net income?

Correct AnswerverifiedShow Answer

If a company estimates its ending inventory using the gross profit method, it does not have to take a physical inventory at the end of the year.

Correct AnswerverifiedShow Answer

Given the following data, what is the value of the gross profit as determined by the LIFO method?

Correct AnswerverifiedShow Answer

If ending inventory on December 31, 2010, is overstated, then:

Correct AnswerverifiedShow Answer

In a perpetual inventory system, businesses maintain a continuous record for each inventory item.

Correct AnswerverifiedShow Answer

The gross profit rate is calculated as:

Correct AnswerverifiedShow Answer

If year-end inventory is reduced from cost to a lower replacement cost, which of the following accurately depicts the results?

Correct AnswerverifiedShow Answer

Given the following data, by how much would taxable income change if LIFO is used rather than FIFO?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The cost of inventory is the:

Correct AnswerverifiedShow Answer

A purchase return is a decrease in the cost of purchases because the purchaser returned goods to the supplier.

Correct AnswerverifiedShow Answer

The weighted-average cost per unit is calculated as the cost of goods sold divided by the number of units actually sold.

Correct AnswerverifiedShow Answer

Under the disclosure principle, the inventory accounting method must be disclosed.

Correct AnswerverifiedShow Answer

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