ch 6 pracice questions Flashcards
Manufacturing companies usually classify inventory into three categories.
T/F
true
Inventory items on an assembly line in various stages of production are classified as
work in process
Which of the following should not be included in the physical inventory of a company?
Goods held on consignment from another company
All of the following would be classified as inventory except A.) supplies. B.) work in process. C.) raw materials. D.) finished goods.
supplies
Companies using a periodic inventory system take a physical inventory for each of the following purposes except to determine the
amount of inventory lost due to shoplifting or employee theft
Goods in transit should be included in the inventory of the buyer when the
terms of sale are FOB shipping point
When the terms of sale are FOB destination, ownership of the goods remains with the seller until the goods
reach the buyer.
There is an accounting requirement that the cost flow assumption be consistent with the physical movement of the goods.
T/F
false
Inventory costing methods place primary reliance on assumptions about the flow of
costs
Which of the following statements is correct with respect to inventories?
Under FIFO, the ending inventory is based on the latest units purchased.
Cost of goods available for sale consists of two elements: beginning inventory and
cost of goods purchased
The cost flow method that often parallels the actual physical flow of merchandise is the
FIFO method.
The first costs assigned to ending inventory are the costs of the beginning inventory under the
LIFO method.
Hudson Company started its year with 600 units of beginning inventory at a cost of $4 per unit. During the year, the company made the following purchases: May, 900 units at $5 per unit and July, 500 units at $6 per unit. A physical count of inventory at year-end indicates that there are 700 units in ending inventory. What is the cost of the ending inventory if Hudson Company uses the FIFO method for valuing inventory?
4,000
[Cost of goods sold using the FIFO method instead of ending inventory ($9,900 - $4,000). Under the FIFO method of inventory valuation, the correct ending inventory is: (500 units x $6) + (200 units x $5) =$4,000.]
Under IFRS, if inventory is written down under the lower-of-cost-or-market valuation,
the write-down may be reversed in a subsequent period up to the amount of the previous write-down.
Atlantis Company’s ending inventory is understated $4,000. The effects of this error on the current year’s cost of goods sold and net income, respectively, are
overstated, understated
Under the lower-of-cost-or-market basis, market is defined as current replacement cost.
T/F
true
Overstating beginning inventory will overstate
cost of goods sold
Harold Company overstated its inventory by $15,000 at December 31, 2014. It did not correct the error in 2014 or 2015. As a result, Harold’s stockholders’ equity was
overstated at December 31, 2014, and properly stated at December 31, 2015.
An error in the ending inventory of the current period will have no effect on net income of the next accounting period.
T/F
false
Trendy Toy Company purchased 1,000 toys at a cost of $50 each. Trendy Toys has 200 toys in inventory at year-end with a replacement cost of $45 each. The ending inventory at lower-of-cost-or-market is
9,000
[ending inventory at lower-of-cost-or-market is $50 x 200 toys. The correct valuation should be $45 x 200 toys]
Sheldon’s Jewelers uses the specific identification method of inventory costing. During May, Sheldon purchased 3 gemstones for $4,000, $5,000, and $6,000 respectively. During May, Sheldon sold two of the gemstones for $6,500 each. At the end of May, Sheldon determined that the $6,000 gemstone was still in his inventory. What is Sheldon’s gross profit for the month of May?
4,000
[ gross profit as sales (2 x $6,500) – cost of goods sold ($5,000 + $6,000). The correct gross profit = sales (2 x $6,500) – cost of goods sold ($4,000 + $5,000) =$4,000.]
When the current replacement cost of inventory is less than its cost, it is written down to
market value
In a period of rising prices, FIFO will result in
lower cost of goods sold than LIFO.