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Chapter 6
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Questions in this quiz (50)
143. The factor which determines whether or not goods should be included in a physical count of inventory is
- A(a) physical possession.
- B(b) ownership.
- C(c) management's judgement.
- D(d) whether or not the purchase price has been paid.
244. If goods in transit are shipped FOB destination,
- A(a) the seller has legal title to the goods until they are delivered.
- B(b) the buyer has legal title to the goods during transit.
- C(c) the transportation company has legal title to the goods while the goods are in transit.
- D(d) no one has legal title to the goods until they are delivered.
345. To ensure the accuracy of the inventory summary sheets during a physical inventory count,
- A(a) the employee is required to count all items twice for the sake of verification.
- B(b) the items counted are compared to the inventory account balance.
- C(c) a second employee or auditor counts the inventory and compares the result to the count made by the first employee.
- D(d) prenumbered inventory tags need not be used.
446. To accurately determine inventory quantities, a company must
- A(a) use the perpetual inventory system.
- B(b) employ an independent company to conduct inventory counts.
- C(c) rely on the warehouse records.
- D(d) take a physical inventory.
547. Which of the following should not be included in an inventory count?
- A(a) Goods taken home by a customer on approval
- B(b) Purchased goods shipped FOB shipping point still in transit from a supplier
- C(c) Consigned goods
- D(d) Consigned goods and goods taken home by a customer on approval
648. Westcom Corporation's goods in transit at December 31 include (1) sales made FOB destination, (2) sales made FOB shipping point, (3) purchases made FOB destination, and (4) purchases made FOB shipping point. Which items should be included in Westcom's inventory at December 31?
- A(a) (2) and (3)
- B(b) (1) and (4)
- C(c) (1) and (3)
- D(d) (2) and (4)
749. Goods held on consignment are
- A(a) never owned by the consignee.
- B(b) included in the consignee’s ending inventory.
- C(c) kept for sale on the premises of the consignor.
- D(d) not included in anyone’s ending inventory.
851. Inventory cost formulas make assumptions about the flow of
- A(a) costs.
- B(b) goods.
- C(c) resale prices.
- D(d) fair values.
952. A company just starting a business purchased three inventory items at the following prices: March 2, $75; March 7, $80; and March 15, $90. If the company sold one unit for $115 on March 10 and one unit for $125 on March 20 and uses the average cost formula in a perpetual inventory system, what is the cost of ending inventory?
- A(a) $81.67
- B(b) $83.75
- C(c) $90.00
- D(d) $125.00
1057. Average Corp purchased inventory as follows:
March 3 300 units at $9
March 4 200 units at $10
March 7 100 units at $11
On March 5, Average sold 400 units for $17 each.
The average unit cost to be used for the cost of goods sold on March 5, in a perpetual inventory system, is- A(a) $9.40.
- B(b) $9.50.
- C(c) $9.67.
- D(d) $17.00.
1168. Cost of goods available for sale consists of the
- A(a) cost of beginning inventory plus the cost of ending inventory.
- B(b) cost of ending inventory plus the cost of goods purchased during the year.
- C(c) cost of beginning inventory plus the cost of goods purchased during the year.
- D(d) difference between the cost of goods purchased and the cost of goods sold during the year.
1269. The cost of goods available for sale is allocated between
- A(a) beginning inventory and ending inventory.
- B(b) beginning inventory and cost of goods on hand.
- C(c) beginning inventory and cost of goods purchased.
- D(d) ending inventory and cost of goods sold.
1370. Gene’s Used Cars uses the specific identification method of costing inventory. During March, Gene purchased three cars for $5,000, $6,500, and $8,000, respectively. During March, two cars are sold for $7,500 each. Gene determines that at March 31, the $8,000 car is still on hand. What is Gene's cost of goods sold for March?
- A(a) $8,000
- B(b) $11,500
- C(c) $14,500
- D(d) $15,000
1471. Of the following businesses, which one would not be likely to use the specific identification method for inventory costing?
- A(a) Piano store
- B(b) Car dealership
- C(c) Antique shop
- D(d) Grocery store
1572. A problem with the specific identification method is that
- A(a) inventories can be reported at actual costs.
- B(b) management can manipulate profit.
- C(c) matching is not achieved.
- D(d) lower of cost and net realizable value cannot be applied.
1673. The selection of an appropriate inventory cost formula for a company is made by
- A(a) external auditors.
- B(b) Canada Revenue Agency (CRA).
- C(c) industry standards.
- D(d) management.
1774. Which of the following should a business consider when choosing between the FIFO and average cost formulas?
- A(a) Whether the method closely follows the physical flow of goods
- B(b) Whether the method reports an inventory cost that approximates recent cost
- C(c) Using the same method for inventory of similar nature and use
- D(d) All of the above.
1875. Which of the following statements regarding inventory cost determination methods is correct?
- A(a) A company may use more than one inventory cost determination method.
- B(b) A company should use the method that is easiest.
- C(c) A company must use the method that allows them to manage profit.
- D(d) A company may never change its inventory cost method once it has chosen it.
1976. Which of the following statements regarding inventories is correct?
- A(a) FIFO assumes that the costs of the earliest goods acquired are the last to be sold.
- B(b) It is generally good business management to sell the most recently acquired goods first.
- C(c) Under FIFO, the ending inventory is based on the latest units purchased.
- D(d) FIFO seldom coincides with the actual physical flow of inventory.
2077. The specific identification method of inventory cost determination must be used
- A(a) for goods that are produced and segregated for specific projects.
- B(b) when goods are not ordinarily interchangeable.
- C(c) when high priced goods are purchased.
- D(d) for goods that are produced and segregated for specific projects, and/or when goods are not ordinarily interchangeable.
2178. Management may be able to manipulate profit using
- A(a) the FIFO cost formula.
- B(b) specific identification.
- C(c) the average cost formula.
- D(d) Need more information to answer.
2279. The inventory cost determination method that results in the inventory value on the statement of financial position that is closest to its actual cost is
- A(a) FIFO.
- B(b) specific identification.
- C(c) average cost.
- D(d) either FIFO or average cost.
2380. In a period of declining prices, which of the following inventory cost formulas generally results in the lowest inventory figure on the statement of financial position?
- A(a) Average cost
- B(b) FIFO
- C(c) The figure would be the same under both FIFO and average cost
- D(d) Need more information to answer
2481. In a period of rising prices, which of the following inventory cost formulas generally results in the lowest profit figure?
- A(a) Average cost
- B(b) FIFO
- C(c) The inventory cost formula only affects the statement of financial position
- D(d) Need more information to answer
2582. Two companies report the same cost of goods available for sale but each employs a different inventory cost formula. If the price of goods has increased during the period, then the company using
- A(a) FIFO will report lower ending inventory.
- B(b) Average cost will report lower ending inventory.
- C(c) FIFO will report higher cost of goods sold.
- D(d) Average cost will report lower cost of goods sold.
2683. In a period of inflation (prices are rising), which inventory cost formula will result in higher profit?
- A(a) FIFO
- B(b) Average cost
- C(c) Cost of goods sold for the period will be the same under both formulas.
- D(d) There would be no effect on profit.
2784. The specific identification method of costing inventories is used when the
- A(a) physical flow of units cannot be determined.
- B(b) company sells large quantities of relatively homogeneous items.
- C(c) company has sophisticated technology to account for its inventory.
- D(d) company sells a small number of expensive, easily distinguishable items.
2885. The specific identification method of inventory costing
- A(a) always maximizes a company's profit.
- B(b) always minimizes a company's profit.
- C(c) has no effect on a company's profit.
- D(d) may enable management to manipulate profit.
2986. The managers of Winning Ways Ltd. receive performance bonuses based on the company’s profit. Which inventory cost formula are they likely to favour in periods of declining prices?
- A(a) FIFO
- B(b) Average cost
- C(c) They would have no preference.
- D(d) Need more information to answer.
3087. Which cost determination method smooths the effects of price changes?
- A(a) Specific identification
- B(b) FIFO
- C(c) Average cost
- D(d) Lower of cost and net realizable value
3188. Selection of an inventory cost formula by management should be influenced most by the
- A(a) fiscal year end.
- B(b) physical flow of goods.
- C(c) goal of reporting inventory at its lowest cost.
- D(d) Income tax effects.
3289. Which cost formula provides the better (1) income statement and (2) statement of financial position valuations, respectively?
- A(a) (1) Average and (2) FIFO
- B(b) (1) FIFO and (2) average
- C(c) (1) FIFO and (2) FIFO
- D(d) (1) Average and (2) average
3390. During a period of inflation, using the __________ cost formula will approximate a company’s current cost of ending inventory.
- A(a) Average cost
- B(b) FIFO
- C(c) Lower of cost and net realizable value
- D(d) Both FIFO and average cost
3491. The consistent application of an inventory cost formula is essential for
- A(a) neutrality.
- B(b) accuracy.
- C(c) comparability.
- D(d) relevance.
3592. An error in the physical count of goods on hand at the end of a period resulted in a $10,000 overstatement of the ending inventory. The effect of this error in the current period is
Cost of Goods Sold Profit .- A(a) Understated Understated
- B(b) Overstated Overstated
- C(c) Understated Overstated
- D(d) Overstated Understated
3693. If beginning inventory is understated by $10,000, the effect of this error in the current period is
Cost of Goods Sold Profit .- A(a) Understated Understated
- B(b) Overstated Overstated
- C(c) Understated Overstated
- D(d) Overstated Understated
3794. An overstatement of the beginning inventory results in
- A(a) an overstatement of profit.
- B(b) an understatement of profit.
- C(c) no effect on the period’s profit.
- D(d) a need to adjust purchases.
3895. An overstatement of ending inventory in one period results in
- A(a) no effect on profit of the next period.
- B(b) an overstatement of profit of the next period.
- C(c) an understatement of profit of the next period.
- D(d) an overstatement of the ending inventory of the next period.
- A(a) no effect on profit of the next period.
3996. The lower of cost and net realizable value basis of valuing inventories ensures that inventories are
- A(a) valued at their current cost.
- B(b) valued at their selling price.
- C(c) not under-valued.
- D(d) not over-valued.
4097. Under the lower of cost and net realizable value basis, the adjusting entry to record a decline in net realizable value below cost includes a
- A(a) debit to the Inventory account.
- B(b) debit to the Cost of Goods Sold account.
- C(c) credit to the Cost of Goods Sold account.
- D(d) credit to the Sales account.
4198. XYZ Inc. is a wholesaler of electronics. It purchased 1,000 units of Product X for $500 each during 2012. The selling price during the year was $750 per unit. At year end, it had 100 units on hand and due of changes in technology, the selling price will have to be reduced by 40% in order to sell them. The value of each unit of Product X for the year-end inventory presentation should be
- A(a) $600.
- B(b) $500.
- C(c) $400.
- D(d) $450.
4299. Inventory that originally cost $10,000 was written down to its net realizable value of $8,500 at the end of 2011. At the end of 2012, the net realizable value is determined to be $10,500. At what amount should the inventory be reported on the December 31, 2012 statement of financial position?
- A(a) $10,500
- B(b) $10,000
- C(c) $9,500
- D(d) $8,500
43100. For 2012, Nervous Energy Inc. reported $24,000 beginning inventory and $26,000 ending inventory. Net sales were $160,000 and gross profit was $55,000 for the same period. Based on these figures, inventory turnover for 2012 was:
- A(a) 3.4 times.
- B(b) 4.2 times.
- C(c) 6.4 times.
- D(d) 9.2 times.
44101. An aircraft manufacturer would most likely have a
- A(a) high inventory turnover.
- B(b) low profit margin.
- C(c) high volume.
- D(d) low inventory turnover.
45102. The inventory turnover ratio is calculated by dividing cost of goods sold by
- A(a) beginning inventory.
- B(b) ending inventory.
- C(c) average inventory.
- D(d) 365 days.
46103. Days in inventory is calculated by dividing 365 days by
- A(a) average inventory.
- B(b) beginning inventory.
- C(c) ending inventory.
- D(d) the inventory turnover ratio.
47106. An increase in inventory turnover means days in inventory
- A(a) increases.
- B(b) decreases.
- C(c) remains the same.
- D(d) cannot be determined.
48107. NHL Canada Ltd. has a days in inventory ratio of 40 and average inventory of $254,000. What is its cost of goods sold?
- A(a) Cannot be determined
- B(b) $12,700,000
- C(c) $2,317,750
- D(d) $1,854,200
49108. In a periodic inventory system, the cost of goods sold is determined
- A(a) at the beginning of the accounting period.
- B(b) after each sale.
- C(c) after each purchase.
- D(d) at the end of the accounting period.
50*109. In order to determine cost of goods sold in a periodic inventory system we
- A(a) add purchases to beginning inventory.
- B(b) subtract ending inventory from beginning inventory.
- C(c) subtract ending inventory from cost of goods available for sale.
- D(d) subtract purchases from ending inventory.
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- Quiz on Chapter 6, created by Aeren Tempest on 03/03/2015.
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- Aeren Tempest
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