ACC 304 Week 2 Quiz – Strayer NEW
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CHAPTER 8
VALUATION OF INVENTORIES:A COST-BASIS APPROACH
IFRS questions are available at the end of this chapter.
TRUE FALSE—Conceptual
1. A
manufacturing concern would report the cost of units only partially processed
as inventory in the balance sheet.
2. Both
merchandising and manufacturing companies normally have multiple inventory
accounts.
3. When
using a perpetual inventory system, freight charges on goods purchased are debited
to Freight-In.
4. If
a supplier ships goods f.o.b. destination, title passes to the buyer when the
supplier delivers the goods to the common carrier.
5. If
ending inventory is understated, then net income is understated.
6. If
both purchases and ending inventory are overstated by the same amount, net income is not affected.
7. Freight
charges on goods purchased are considered a period cost and therefore are not
part of the cost of the inventory.
8. Purchase
Discounts Lost is a financial expense and is reported in the “other expenses
and losses” section of the income statement.
9. The
cost flow assumption adopted must be consistent with the physical movement of
the goods.
10. In
all cases when FIFO is used, the cost of goods sold would be the same whether a
perpetual or periodic system is used.
11. The
change in the LIFO Reserve from one period to the next is recorded as an
adjustment to Cost of Goods Sold.
12. Many
companies use LIFO for both tax and internal reporting purposes.
13. LIFO
liquidation often distorts net income, but usually leads to substantial tax
savings.
14. LIFO
liquidations can occur frequently when using a specific-goods approach.
15. Dollar-value
LIFO techniques help protect LIFO layers from erosion.
16. The
dollar-value LIFO method measures any increases and decreases in a pool in
terms of total dollar value and physical quantity of the goods.
17. A
disadvantage of LIFO is that it does not match more recent costs against
current revenues as well as FIFO.
18. The
LIFO conformity rule requires that if a company uses LIFO for tax purposes, it
must also use LIFO for financial accounting purposes.
19. Use
of LIFO provides a tax benefit in an industry where unit costs tend to decrease
as production increases.
20. LIFO
is inappropriate where unit costs tend to decrease as production increases.
True False Answers—Conceptual
MULTIPLE CHOICE—Conceptual
21. Which of the following inventories carried by a manufacturer is
similar to the merchandise inventory of a retailer?
a. Raw materials.
b. Work-in-process.
c. Finished goods.
d. Supplies.
22. Where should raw materials be classified on the balance sheet?
a. Prepaid expenses.
b. Inventory.
c. Equipment.
d. Not on the balance sheet.
23. Which of the following accounts is not reported in inventory?
a. Raw materials.
b. Equipment.
c. Finished goods.
d. Supplies.
24. Why are inventories included in the computation of net income?
a. To determine cost of goods sold.
b. To determine sales revenue.
c. To determine merchandise returns.
d. Inventories are not included in the
computation of net income.
25. Which of the following is a characteristic of a perpetual
inventory system?
a. Inventory purchases are debited to a
Purchases account.
b. Inventory records are not kept for every
item.
c. Cost of goods sold is recorded with each
sale.
d. Cost of goods sold is determined as the
amount of purchases less the change in inventory.
26. How is a significant amount of consignment inventory reported in
the balance sheet?
a. The inventory is reported separately on the
consignor's balance sheet.
b. The inventory is combined with other
inventory on the consignor's balance sheet.
c. The inventory is reported separately on the
consignee's balance sheet.
d. The inventory is combined with other
inventory on the consignee's balance sheet.
27. Where should goods in transit that were recently purchased
f.o.b. destination be included on the balance sheet?
a. Accounts payable.
b. Inventory.
c. Equipment.
d. Not on the balance sheet.
28. If a company uses the periodic inventory system, what is the
impact on net income of including goods in transit f.o.b. shipping point in
purchases, but not ending inventory?
a. Overstate net income.
b. Understate net income.
c. No effect on net income.
d. Not sufficient information to determine
effect on net income.
29. If a company uses the periodic inventory system, what is the
impact on the current ratio of including goods in transit f.o.b. shipping point
in purchases, but not ending inventory?
a. Overstate the current ratio.
b. Understate the current ratio.
c. No effect on the current ratio.
d. Not sufficient information to determine
effect on the current ratio.
30. What is consigned inventory?
a. Goods that are shipped, but title transfers
to the receiver.
b. Goods that are sold, but payment is not
required until the goods are sold.
c. Goods that are shipped, but title remains
with the shipper.
d. Goods that have been segregated for shipment
to a customer.
31. When using a perpetual inventory system,
a. no Purchases account is used.
b. a Cost of Goods Sold account is used.
c. two entries are required to record a sale.
d. all of these.
32. Goods in transit which are shipped f.o.b. shipping point should
be
a. included in the inventory of the seller.
b. included in the inventory of the buyer.
c. included in the inventory of the shipping
company.
d. none of these.
33. Goods in transit which are shipped f.o.b. destination should be
a. included in the inventory of the seller.
b. included in the inventory of the buyer.
c. included in the inventory of the shipping
company.
d. none of these.
34. Which of the following items should be included in a company's
inventory at the balance sheet date?
a. Goods in transit which were
purchased f.o.b. destination.
b. Goods received from another
company for sale on consignment.
c. Goods sold to a customer which
are being held for the customer to call for at his or her convenience.
d. None of these.
Use the following information
for questions 35 and 36.
During 2012 Carne Corporation transferred inventory to Nolan Corporation
and agreed to repurchase the merchandise early in 2013. Nolan then used the
inventory as collateral to borrow from Norwalk Bank, remitting the proceeds to Carne.
In 2013 when Carne repurchased the inventory, Nolan used the proceeds to repay
its bank loan.
35. This transaction is known as a(n)
a. consignment.
b. installment sale.
c. assignment for the benefit of creditors.
d. product financing arrangement.
36. On whose books should the cost of the inventory appear at the
December 31, 2012 balance sheet date?
a. Carne Corporation
b. Nolan Corporation
c. Norwalk Bank
d. Nolan Corporation, with Carne making
appropriate note disclosure of the transaction
37. Goods on consignment are
a. included in the consignee's inventory.
b. recorded in a Consignment Out account which
is an inventory account.
c. recorded in a Consignment In account which is
an inventory account.
d. all of these
S38. Valuation
of inventories requires the determination of all of the following except
a. the costs to be included in inventory.
b. the physical goods to be included in
inventory.
c. the cost of goods held on consignment from
other companies.
d. the cost flow assumption to be adopted.
P39. The
accountant for the Pryor Sales Company is preparing the income statement for
2012 and the balance sheet at December 31, 2012. Pryor uses the periodic
inventory system. The January 1, 2012 merchandise inventory balance will appear
a. only as an asset on the balance sheet.
b. only in the cost of goods sold section of the
income statement.
c. as a deduction in the cost of goods sold
section of the income statement and as a current asset on the balance sheet.
d. as an addition in the cost of goods sold
section of the income statement and as a current asset on the balance sheet.
P40. If
the beginning inventory for 2012 is overstated, the effects of this error on
cost of goods sold for 2012, net income for 2012, and assets at December 31, 2013,
respectively, are
a. overstatement, understatement, overstatement.
b. overstatement, understatement, no effect.
c. understatement, overstatement, overstatement.
d. understatement, overstatement, no effect.
S41. The
failure to record a purchase of merchandise on account even though the goods
are properly included in the physical inventory results in
a. an overstatement of assets and net income.
b. an understatement of assets and net income.
c. an understatement of cost of goods sold and
liabilities and an overstatement of assets.
d. an understatement of liabilities and an
overstatement of owners' equity.
42. Dolan Co. received merchandise on consignment. As of March 31,
Dolan had recorded the transaction as a purchase and included the goods in
inventory. The effect of this on its financial statements for March 31 would be
a. no effect.
b. net income was correct and current assets and
current liabilities were overstated.
c. net income, current assets, and current
liabilities were overstated.
d. net income and current liabilities were
overstated.
43. Green Co. received merchandise on consignment. As of January 31,
Green included the goods in inventory, but did not record the transaction. The
effect of this on its financial statements for January 31 would be
a. net income, current assets, and retained
earnings were overstated.
b. net income was correct and current assets
were understated.
c. net income and current assets were overstated
and current liabilities were understated.
d. net income, current assets, and retained
earnings were understated.
44. Feine Co. accepted delivery of merchandise which it purchased on
account. As of December 31, Feine had recorded the transaction, but did not
include the merchandise in its inventory. The effect of this on its financial
statements for December 31 would be
a. net income, current assets, and retained
earnings were understated.
b. net income was correct and current assets
were understated.
c. net income was understated and current
liabilities were overstated.
d. net income was overstated and current assets
were understated.
45. On June 15, 2012, Wynne Corporation accepted delivery of
merchandise which it pur-chased on account. As of June 30, Wynne had not
recorded the transaction or included the merchandise in its inventory. The
effect of this on its balance sheet for June 30, 2012 would be
a. assets and stockholders' equity were
overstated but liabilities were not affected.
b. stockholders' equity was the only item
affected by the omission.
c. assets, liabilities, and stockholders' equity
were understated.
d. none of these.
46. What is the effect of a $50,000 overstatement of last year's
inventory on current years ending retained earning balance?
a. Understated by $50,000.
b. No effect.
c. Overstated by $50,000.
d. Need more information to determine.
47. Which of the following is a product cost as it relates to
inventory?
a. Selling costs.
b. Interest costs.
c. Raw materials.
d. Abnormal spoilage.
48. Which of the following is a period cost?
a. Labor costs.
b. Freight in.
c. Production costs.
d. Selling costs.
49. Which method may be used to record cash discounts a company
receives for paying suppliers promptly?
a. Net method.
b. Gross method.
c. Average method.
d. a and b.
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