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Quiz on chapter 6, created by robertse10 on 10/27/2014.

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chapter 6

chapter 6

Question 1 of 48

1

Manufactured inventory that has begun the production process but is not yet completed is

Select one of the following:

  • work in process.

  • raw materials.

  • merchandise inventory.

  • finished goods.

Explanation

Question 2 of 48

1

The factor which determines whether or not goods should be included in a physical count of inventory is

Select one of the following:

  • physical possession.

  • whether or not the purchase price has been paid.

  • management's judgment.

  • legal title

Explanation

Question 3 of 48

1

If goods in transit are shipped FOB destination

Select one of the following:

  • the seller has legal title to the goods until they are delivered.

  • the buyer has legal title to the goods until they are delivered.

  • the transportation company has legal title to the goods while the goods are in transit.

  • no one has legal title to the goods until they are delivered.

Explanation

Question 4 of 48

1

Independent internal verification of the physical inventory process occurs when

Select one of the following:

  • a second employee counts the inventory and compares the result to the count made by the first employee.

  • all prenumbered inventory tags are accounted for.

  • the items counted are compared to the inventory account balance.

  • the employee is required to count all items twice for sake of verification.

Explanation

Question 5 of 48

1

An employee assigned to counting computer monitors in boxes should

Select one of the following:

  • determine that the box contains a monitor.

  • rely on the warehouse records of the number of computer monitors.

  • read each box and rely on the box description for the contents.

  • estimate the number if there is a large quantity to be counted.

Explanation

Question 6 of 48

1

After the physical inventory is completed

Select one of the following:

  • quantities are entered into various general ledger inventory accounts.

  • unit costs are determined by dividing the quantities on the summary sheets by the total inventory costs.

  • the accuracy of the inventory summary sheets is checked by the person listing the quantities on the sheets.

  • quantities are listed on inventory summary sheets.

Explanation

Question 7 of 48

1

When is a physical inventory usually taken?

Select one of the following:

  • When the company has its greatest amount of inventory.

  • At the end of the company’s fiscal year.

  • When the company has its greatest amount of inventory and at the end of the company's fiscal year.

  • When goods are not being sold or received.

Explanation

Question 8 of 48

1

Which of the following should not be included in the physical inventory of a company

Select one of the following:

  • Goods shipped on consignment to another company.

  • All of these answer choices should be included.

  • Goods held on consignment from another company.

  • Goods in transit from another company shipped FOB shipping point.

Explanation

Question 9 of 48

1

Tidwell Company's goods in transit at December 31 include sales made
(1) FOB destination
(2) FOB shipping point
and purchases made
(3) FOB destination
(4) FOB shipping point.

Which items should be included in Tidwell's inventory at December 31?

Select one of the following:

  • (2) and (4)

  • Sales made FOB shipping point and purchase made FOB destination

  • (1) and (4)

  • (1) and (3)

Explanation

Question 10 of 48

1

The term "FOB" denotes

Select one of the following:

  • freight charge on buyer.

  • free only (to) buyer.

  • free on board.

  • freight on board.

Explanation

Question 11 of 48

1

Goods held on consignment are

Select one of the following:

  • kept for sale on the premises of the consignor.

  • included as part of no one’s ending inventory.

  • never owned by the consignee.

  • included in the consignee’s ending inventory.

Explanation

Question 12 of 48

1

Many companies use just-in-time inventory methods. Which of the following is not an advantage of this method?

Select one of the following:

  • It lowers inventory levels and costs.

  • Companies can respond to individual customer requests.

  • it limits the risk of having obsolete items in inventory.

  • Companies may not have quantities to meet customer demand.

Explanation

Question 13 of 48

1

When a perpetual inventory system is used, which of the following is a purpose of taking a physical inventory

Select one of the following:

  • All are a purpose of taking a physical inventory when a perpetual inventory system is used.

  • To check the accuracy of the perpetual inventory records

  • To determine cost of goods sold for the accounting period

  • To compute inventory ratios

Explanation

Question 14 of 48

1

Which statement is false?

Select one of the following:

  • Companies that use a perpetual inventory system must take a physical inventory to determine inventory on hand on the balance sheet date and to determine cost of goods sold for the accounting period.

  • An inventory count is generally more accurate when goods are not being sold or received during the counting.

  • Taking a physical inventory involves actually counting, weighing, or measuring each kind of inventory on hand.
    Noing period.

  • No matter whether a periodic or perpetual inventory system is used, all companies need to determine inventory quantities at the end of each accounting period.

Explanation

Question 15 of 48

1

Reeves Company is taking a physical inventory on March 31, the last day of its fiscal year. Which of the following must be included in this inventory count?

Select one of the following:

  • Goods that Reeves is holding on consignment for Parker Company

  • Goods in transit that Reeves has sold to Smith Company, FOB shipping point

  • Goods that Reeves is holding in inventory on March 31 for which the related Accounts Payable is 15 days past due

  • Goods in transit to Reeves, FOB destination

Explanation

Question 16 of 48

1

Manufacturers usually classify inventory into all the following general categories except

Select one of the following:

  • work in process.

  • merchandise inventory.

  • raw materials.

  • finished goods.

Explanation

Question 17 of 48

1

Johnson Company has a high inventory turnover that has increased over the last year. All of the following statements are true regarding this situation except Johnson County:

Select one of the following:

  • is increasing the amount of inventory on hand relative to sales.

  • may be losing sales due to inventory shortages.

  • has a cost of goods sold that is increasing relative to its average inventory.

  • is minimizing funds tied up in inventory.

Explanation

Question 18 of 48

1

Days in inventory is calculated by dividing 365 days by

Select one of the following:

  • the inventory turnover.

  • beginning inventory.

  • ending inventory.

  • average inventory.

Explanation

Question 19 of 48

1

Which of these would cause the inventory turnover ratio to increase the most?

Select one of the following:

  • keeping the amount of inventory on hand constant but decreasing sales.

  • decreasing the amount of inventory on hand and increasing sales.

  • increasing the amount of inventory on hand.

  • keeping the amount of inventory on hand constant but increasing sales.

Explanation

Question 20 of 48

1

A low number of days in inventory may indicate all of the following except

Select one of the following:

  • There is less chance of having obsolete inventory items.

  • The company has fewer funds tied up in inventory.

  • Management has achieved the best balance between too much and too little inventory levels.

  • Sales opportunities may be lost because of inventory shortages.

Explanation

Question 21 of 48

1

Inventory costing methods place primary reliance on assumptions about the flow of

Select one of the following:

  • goods.

  • resale prices.

  • values.

  • costs.

Explanation

Question 22 of 48

1

The LIFO inventory method assumes that the cost of the latest units purchased are

Select one of the following:

  • the first to be allocated to ending inventory.

  • the last to be allocated to cost of goods sold.

  • the first to be allocated to cost of goods sold.

  • not allocated to cost of goods sold or ending inventory.

Explanation

Question 23 of 48

1

Which of the following is an inventory costing method?

Select one of the following:

  • Perpetual

  • Specific identification

  • Lower of cost or market

  • Periodic

Explanation

Question 24 of 48

1

Which of the following terms best describes the assumption made in applying the four inventory methods?

Select one of the following:

  • Asset flow

  • Physical flow

  • Goods flow

  • Cost flow

Explanation

Question 25 of 48

1

An assumption about cost flow is necessary

Select one of the following:

  • even when there is no change in the purchase price on inventory.

  • because prices usually change, and tracking which units have been sold is difficult.

  • only when the flow of goods cannot be determined.

  • because it is required by the income tax regulation.

Explanation

Question 26 of 48

1

Which of the following items will increase inventoriable costs for the buyer of goods?

Select one of the following:

  • purchase discounts taken by the purchaser

  • freight charges paid by the purchaser

  • purchase returns and allowances granted by the seller

  • freight charges paid by the seller

Explanation

Question 27 of 48

1

Of the following companies, which one would not likely employ the specific identification method for inventory costing?

Select one of the following:

  • music store specializing in organ sales

  • farm implement dealership

  • antique shop

  • hardware store

Explanation

Question 28 of 48

1

A problem with the specific identification method is that

Select one of the following:

  • the lower of cost or market basis cannot be applied.

  • inventories can be reported at actual costs.

  • management can manipulate income.

  • matching is not achieved.

Explanation

Question 29 of 48

1

The selection of an appropriate inventory cost flow assumption for an individual company is made by

Select one of the following:

  • the internal auditors.

  • management.

  • the external auditors.

  • the SEC.

Explanation

Question 30 of 48

1

The accounting principle that requires that the cost flow assumption be consistent with the physical movement of goods is

Select one of the following:

  • called the consistency principle.

  • called the physical flow assumption.

  • called the matching principle.

  • nonexistent; that is, there is no such accounting requirement.

Explanation

Question 31 of 48

1

Which of the following statements is true regarding inventory cost flow assumptions?

Select one of the following:

  • A company must use the same method for domestic and foreign operations.

  • A company may never change its inventory costing method once it has chosen a method.

  • A company must comply with the method specified by industry standards.

  • A company may use more than one costing method concurrently.

Explanation

Question 32 of 48

1

Which of the following statements is correct with respect to inventories?

Select one of the following:

  • The FIFO method assumes that the costs of the earliest goods acquired are the last to be sold.

  • Under FIFO, the ending inventory is based on the latest units purchased.

  • FIFO seldom coincides with the actual physical flow of inventory.

  • It is generally good business management to sell the most recently acquired goods first

Explanation

Question 33 of 48

1

Given equal circumstances, which inventory method would probably be the most time consuming?

Select one of the following:

  • LIFO

  • Specific identification

  • FIFO

  • Average cost

Explanation

Question 34 of 48

1

Which inventory costing method should a gasoline retailer use?

Select one of the following:

  • LIFO

  • FIFO

  • either LIFO or FIFO

  • average cost

Explanation

Question 35 of 48

1

In periods of rising prices, which is an advantage of using the LIFO inventory costing method?

Select one of the following:

  • Ending inventory will include latest (most recent) costs and thus be more realistic.
    Net income will be the highest and thus reflect the prosperity of the c

  • Net income will be the highest and thus reflect the prosperity of the company.

  • Phantom profits are reported.

  • Cost of goods sold will include latest (most recent) costs and thus will be more realistic.

Explanation

Question 36 of 48

1

In periods of rising prices, the inventory method which results in the inventory value on the balance sheet that is closest to current cost is the

Select one of the following:

  • FIFO method.

  • LIFO method.

  • average-cost method.

  • tax method.

Explanation

Question 37 of 48

1

In a period of declining prices, which of the following inventory methods generally results in the lowest balance sheet figure for inventory

Select one of the following:

  • FIFO method

  • Need more information to answer

  • Average cost method

  • LIFO method

Explanation

Question 38 of 48

1

In a period of rising prices, which of the following inventory methods generally results in the lowest net income figure?

Select one of the following:

  • Average cost method

  • FIFO method

  • Need more information to answer

  • LIFO method

Explanation

Question 39 of 48

1

Which inventory method generally results in costs allocated to ending inventory that will approximate their current cost?

Select one of the following:

  • LIFO

  • Whichever method that produces the highest ending inventory figure

  • FIFO

  • Average cost method

Explanation

Question 40 of 48

1

Two companies report the same cost of goods available for sale but each employs a different inventory costing method. If the price of goods has increased during the period, then the company using

Select one of the following:

  • FIFO will have the highest cost of goods sold.

  • FIFO will have the highest ending inventory.

  • LIFO will have the highest ending inventory.

  • LIFO will have the lowest cost of goods sold.

Explanation

Question 41 of 48

1

If companies have identical inventoriable costs but use different inventory flow assumptions when the price of goods have not been constant, then the

Select one of the following:

  • net income of the companies will be identical.

  • ending inventory of the companies will be identical.

  • cost of goods purchased during the year will be identical.

  • cost of goods sold of the companies will be identical.

Explanation

Question 42 of 48

1

In a period of increasing prices, which inventory flow assumption will result in the lowest amount of income tax expense?

Select one of the following:

  • Average cost method

  • LIFO

  • Income tax expense for the period will be the same under all assumptions

  • FIFO

Explanation

Question 43 of 48

1

Given equal circumstances and generally rising costs, which inventory method will increase the tax expense the most?

Select one of the following:

  • Average cost method

  • LIFO

  • Income tax expense for the period will be the same under all assumptions

  • FIFO

Explanation

Question 44 of 48

1

The specific identification method of costing inventories is used when the

Select one of the following:

  • company sells large quantities of relatively low cost homogeneous items.

  • company sells a limited quantity of high-unit cost items.

  • physical flow of units cannot be determined.

  • company sells large quantities of relatively low cost heterogeneous items.

Explanation

Question 45 of 48

1

The specific identification method of inventory costing

Select one of the following:

  • may enable management to manipulate net income.

  • always maximizes a company's net income.

  • always minimizes a company's net income.

  • has no effect on a company's net income.

Explanation

Question 46 of 48

1

The managers of Hong Company receive performance bonuses based on the net income of the firm. Which inventory costing method are they likely to favor in periods of declining prices?

Select one of the following:

  • LIFO

  • Average cost

  • Physical inventory method

  • FIFO

Explanation

Question 47 of 48

1

In periods of inflation, phantom or paper profits may be reported as a result of using the

Select one of the following:

  • periodic inventory method.

  • perpetual inventory method.

  • FIFO costing assumption.

  • LIFO costing assumption.

Explanation

Question 48 of 48

1

Selection of an inventory costing method by management does not usually depend on

Select one of the following:

  • tax effects.

  • the fiscal year end.

  • income statement effects.

  • balance sheet effects.

Explanation

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