Chapter 6 Self Test

Question 1

Which of the following should not be included in the physical inventory of a company?
Goods held on consignment from another company.
Goods shipped on consignment to another company.
Goods in transit from another company shipped FOB shipping point.
None of the above.

Answer 1

Goods held on consignment from another company.

Question 2

As a result of a thorough physical inventory, Railway Company determined that it had inventory worth $180,000 at December 31, 2012. This count did not take into consideration the following facts: Rogers Consignment store currently has goods worth $35,000 on its sales floor that belong to Railway but are being sold on consignment by Rogers. The selling price of these goods is $50,000. Railway purchased $13,000 of goods that were shipped on December 27, FOB destination, that will be received by Railway on January 3. Determine the correct amount of inventory that Railway should report.
$230,000.
$215,000.
$228,000.
$193,000.

Answer 2

$215,000.

Question 3

Cost of goods available for sale consist of two elements: beginning inventory and
ending inventory.
cost of goods purchased.
cost of goods sold.
All of the above.

Answer 3

cost of goods purchased.

Question 4

Tinker Bell Company has the following:

Units
Unit Cost
Inventory, Jan. 1
8,000
$11
Purchase, June 19
13,000
12
Purchase, Nov. 8
5,000
13
If Tinker Bell has 9,000 units on hand at December 31, the cost of the ending inventory under FIFO is:

Answer 4

$113,000.

Question 5

Davidson Electronics has the following:

Units
Unit Cost
Inventory, Jan. 1
5,000
$ 8
Purchase, April 2
15,000
$10
Purchase, Aug. 28
20,000
$12
If Davidson has 7,000 units on hand at December 31, the cost of ending inventory under the average-cost method is:

Answer 5

$75,250.

Question 6

In periods of rising prices, LIFO will produce:
higher net income than FIFO.
the same net income as FIFO.
lower net income than FIFO.
higher net income than average costing.

Answer 6

lower net income than FIFO.

Question 7

Factors that affect the selection of an inventory costing method do not include:
tax effects.
balance sheet effects.
income statement effects.
perpetual vs. periodic inventory system.

Answer 7

perpetual vs. periodic inventory system.

Question 8

Rickety Company purchased 1,000 widgets and has 200 widgets in its ending inventory at a cost of $91 each and a current replacement cost of $80 each. The ending inventory under lower-of-cost-or-market is:
$91,000.
$80,000.
$18,200.
$16,000.

Answer 8

$16,000.

Question 9

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:
understated, overstated.
overstated, understated.
overstated, overstated.
understated, understated.

Answer 9

overstated, understated.

Question 10

Harold Company overstated its inventory by $15,000 at December 31, 2011. It did not correct the error in 2011 or 2012. As a result, Harold’s owner’s equity was:
overstated at December 31, 2011, and understated at December 31, 2012.
overstated at December 31, 2011, and properly stated at December 31, 2012.
understated at December 31, 2011, and understated at December 31, 2012.
overstated at December 31, 2011, and overstated at December 31, 2012.

Answer 10

overstated at December 31, 2011, and properly stated at December 31, 2012.

Question 11

Which of these would cause the inventory turnover ratio to increase the most?
Increasing the amount of inventory on hand.
Keeping the amount of inventory on hand constant but increasing sales.
Keeping the amount of inventory on hand constant but decreasing sales.
Decreasing the amount of inventory on hand and increasing sales.

Answer 11

Decreasing the amount of inventory on hand and increasing sales.

Question 12

Carlos Company had beginning inventory of $80,000, ending inventory of $110,000, cost of goods sold of $285,000, and sales of $475,000. Carlos's days in inventory is:
73 days.
121.7 days.
102.5 days.
84.5 days.

Answer 12

121.7 days.