Question 1

The journal entry to write down inventory under the lower of cost or net realizable value rule results in a credit to cost of goods sold and a debit to inventory.

Accepted Answer

A) True 
 B)False

Question 2

A $25,000 overstatement of the 2018 ending inventory was discovered after the financial statements for 2018 were prepared.Which of the following describes the effect of the inventory error on the 2019 financial statements?

Accepted Answer

A)  Net income and stockholders' equity are both understated.
B)  Net income is understated and stockholders' equity is correct.
C)  Net income and stockholders' equity are both overstated.
D)  Net income and stockholders' equity are both unaffected.E) None of the above
F) All of the above

Question 3

Prepare the journal entries for the transactions listed below under both the periodic inventory system and the perpetual inventory system.

Accepted Answer

The answer of Prepare the journal entries for the transactions...

Question 4

Sideline Company reported net income for 2018 of $70,000 and in 2019 of $84,000 (both after income taxes at a 30% rate).It was discovered in 2019 that the ending inventory for 2018 was understated by $2,000 (before any income tax effect).
Calculate the correct net income (after income tax of 30%)for 2018 and 2019.

Accepted Answer

2018: $70,000 + ($2,...

Question 5

An increase in accounts payable is added to net income when determining cash flows from operating activities.

Accepted Answer

A) True 
 B)False

Question 6

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 7

Which of the following statements is false?

Accepted Answer

A)  Companies do not have to use the same inventory method for all items of inventory.
B)  Companies do not have to consistently use the same inventory costing methods over time.
C)  Use of the LIFO inventory method during a period of increasing unit costs may create a conflict of interest between the owners and managers.
D)  A company choosing to maximize stockholders' equity during a period of increasing unit costs should use the FIFO inventory method.E) A) and B)
F) A) and C)

Question 8

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?

Accepted Answer

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

Question 9

William Company has provided the following data:
  A.Calculate the following using both: FIFO and LIFO inventory methods.
  B.In times of rising unit costs,how does pretax income using FIFO compare to pretax income using LIFO? Explain your answer.

Accepted Answer

A.

B.FIFO pretax income is h...

Question 10

Which of the following statements is correct?

Accepted Answer

A)  FIFO reports lower net income amounts than LIFO when unit costs are increasing.
B)  LIFO reports a higher net income amount than FIFO when unit costs are increasing.
C)  LIFO reports a higher net income amount than FIFO when unit costs are decreasing.
D)  LIFO reports the same amount of net income as FIFO when unit costs are increasing.E) B) and C)
F) A) and C)

Question 11

McMillan Company uses the periodic inventory system.It has compiled the following information in order to prepare the financial statements at December 31,2019:
  Calculate each of the following:
A.Cost of goods available for sale
B.Cost of goods sold
C.Gross profit

Accepted Answer

A.Cost of goods available for sale,$850,...

Question 12

A grocery store would likely use the specific identification inventory costing method for most of the items in its inventory.

Accepted Answer

A) True 
 B)False

Question 13

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

Accepted Answer

A)  LIFO's ending inventory will be the largest among the inventory costing methods.
B)  FIFO's gross profit will be the lowest among the inventory costing methods.
C)  Inventory turnover will be the largest when the LIFO inventory method is used.
D)  Use of the LIFO method will result in lower cash flows due to an increased cost of goods sold.E) A) and B)
F) C) and D)

Question 14

Abel Company must write down its inventory by $30,000 to the net realizable value of $450,000 at December 31,2019.What is the effect of this write-down on the year 2019 financial statements?

Accepted Answer

A)  Decrease cost of goods sold.
B)  Decrease ending inventory on the balance sheet.
C)  Increase pretax income.
D)  Decrease accounts payable.E) A) and D)
F) A) and B)

Question 15

Which of the following statements is correct regarding either the perpetual or periodic inventory systems?

Accepted Answer

A)  In a perpetual inventory system,the amount of inventory is not known until the end of the period when the inventory count is taken.
B)  In a perpetual inventory system,cost of goods sold is recorded at the time of each sale during the accounting period.
C)  In a periodic inventory system,cost of goods sold is developed only from a comparison of beginning inventory and ending inventory.
D)  In a periodic inventory system,the inventory account is increased for each purchase during the accounting period.E) A) and D)
F) B) and D)

Question 16

The lower of cost or net realizable value 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 17

The inventory records of Martin Corporation reflected the following information for the month of August:
  A.Determine the amount of the ending inventory and cost of goods sold under each of the following methods assuming the periodic inventory system.
  B.Why would cash flow considerations relate to the choice of an inventory method?

Accepted Answer

A.

B.Cash flow considerations would re...

Question 18

JJ Enterprises began the year with 480 units of one of its most popular products.During the year JJ purchased 1,000 units and sold 1,100 units for $500 each.What is the pre-tax effect of JJ's LIFO liquidation?

Accepted Answer

A)  $38,400
B)  $9,600
C)  $4,800
D)  $11,600E) A) and B)
F) A) and C)

Question 19

Which of the following statements is correct?

Accepted Answer

A)  Cost of goods available for sale is allocated between costs of goods sold and inventory at year-end.
B)  A purchase of inventory on credit increases both cost of goods available for sale and cost of goods sold.
C)  Purchases of inventory during a period less that period's cost of goods sold equals ending inventory regardless of the beginning inventory amount.
D)  Cost of goods available for sale equals ending inventory plus purchases.E) B) and D)
F) A) and D)

Question 20

Which of the following costs will not affect cost of goods sold?

Accepted Answer

A)  Inventory inspection costs.
B)  Inventory preparation costs.
C)  Inventory-related selling costs.
D)  Freight charges incurred to bring inventory to the warehouse.E) B) and C)
F) None of the above

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

Which of the following statements is correct regarding either the perpetual or periodic inventory systems?

Correct Answer
verified

Correct Answer
verified
A.
B.Cash flow considerations would re...
View Answer

A $25,000 overstatement of the 2018 ending inventory was discovered after the financial statements for 2018 were prepared.Which of the following describes the effect of the inventory error on the 2019 financial statements?

Correct Answer
verified

Prepare the journal entries for the transactions listed below under both the periodic inventory system and the perpetual inventory system.

Correct Answer
verified

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

Correct Answer
verified

Which of the following statements is correct?

Correct Answer
verified

A grocery store would likely use the specific identification inventory costing method for most of the items in its inventory.

Correct Answer
verified

Correct Answer
verified
2018: $70,000 + ($2,...
View Answer

Which of the following statements is correct?

Correct Answer
verified

Which of the following costs will not affect cost of goods sold?

Correct Answer
verified

JJ Enterprises began the year with 480 units of one of its most popular products.During the year JJ purchased 1,000 units and sold 1,100 units for $500 each.What is the pre-tax effect of JJ's LIFO liquidation?

Correct Answer
verified

An increase in accounts payable is added to net income when determining cash flows from operating activities.

Correct Answer
verified

Correct Answer
verified

Which of the following statements is false?

Correct Answer
verified

William Company has provided the following data: A.Calculate the following using both: FIFO and LIFO inventory methods. B.In times of rising unit costs,how does pretax income using FIFO compare to pretax income using LIFO? Explain your answer.

Correct Answer
verified
A.
B.FIFO pretax income is h...
View Answer

The lower of cost or net realizable value 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

Abel Company must write down its inventory by $30,000 to the net realizable value of $450,000 at December 31,2019.What is the effect of this write-down on the year 2019 financial statements?

Correct Answer
verified

The journal entry to write down inventory under the lower of cost or net realizable value rule results in a credit to cost of goods sold and a debit to inventory.

Correct Answer
verified

McMillan Company uses the periodic inventory system.It has compiled the following information in order to prepare the financial statements at December 31,2019: Calculate each of the following: A.Cost of goods available for sale B.Cost of goods sold C.Gross profit

Correct Answer
verified
A.Cost of goods available for sale,$850,...
View Answer

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

Correct Answer
verified

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

Which of the following statements is correct regarding either the perpetual or periodic inventory systems?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedA. B.Cash flow considerations would re...View AnswerShow Answer

A $25,000 overstatement of the 2018 ending inventory was discovered after the financial statements for 2018 were prepared.Which of the following describes the effect of the inventory error on the 2019 financial statements?

Correct AnswerverifiedShow Answer

Prepare the journal entries for the transactions listed below under both the periodic inventory system and the perpetual inventory system.

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

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

A grocery store would likely use the specific identification inventory costing method for most of the items in its inventory.

Correct AnswerverifiedShow Answer

Correct Answerverified2018: $70,000 + ($2,...View AnswerShow Answer

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

Which of the following costs will not affect cost of goods sold?

Correct AnswerverifiedShow Answer

JJ Enterprises began the year with 480 units of one of its most popular products.During the year JJ purchased 1,000 units and sold 1,100 units for $500 each.What is the pre-tax effect of JJ's LIFO liquidation?

Correct AnswerverifiedShow Answer

An increase in accounts payable is added to net income when determining cash flows from operating activities.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following statements is false?

Correct AnswerverifiedShow Answer

William Company has provided the following data: A.Calculate the following using both: FIFO and LIFO inventory methods. B.In times of rising unit costs,how does pretax income using FIFO compare to pretax income using LIFO? Explain your answer.

Correct AnswerverifiedA. B.FIFO pretax income is h...View AnswerShow Answer

The lower of cost or net realizable value 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

Abel Company must write down its inventory by $30,000 to the net realizable value of $450,000 at December 31,2019.What is the effect of this write-down on the year 2019 financial statements?

Correct AnswerverifiedShow Answer

The journal entry to write down inventory under the lower of cost or net realizable value rule results in a credit to cost of goods sold and a debit to inventory.

Correct AnswerverifiedShow Answer

McMillan Company uses the periodic inventory system.It has compiled the following information in order to prepare the financial statements at December 31,2019: Calculate each of the following: A.Cost of goods available for sale B.Cost of goods sold C.Gross profit

Correct AnswerverifiedA.Cost of goods available for sale,$850,...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified
A.
B.Cash flow considerations would re...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
2018: $70,000 + ($2,...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
A.
B.FIFO pretax income is h...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
A.Cost of goods available for sale,$850,...
View Answer

Correct Answer
verified