Manufactured inventory that has begun the production process but is not yet completed is
work in process.
The factor which determines whether or not goods should be included in a physical count of inventory is
whether or not the purchase price has been paid.
If goods in transit are shipped FOB destination
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.
Independent internal verification of the physical inventory process occurs when
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.
An employee assigned to counting computer monitors in boxes should
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.
After the physical inventory is completed
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.
When is a physical inventory usually taken?
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.
Which of the following should not be included in the physical inventory of a company
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.
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?
(2) and (4)
Sales made FOB shipping point and purchase made FOB destination
(1) and (4)
(1) and (3)
The term "FOB" denotes
freight charge on buyer.
free only (to) buyer.
free on board.
freight on board.
Goods held on consignment are
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.
Many companies use just-in-time inventory methods. Which of the following is not an advantage of this method?
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.
When a perpetual inventory system is used, which of the following is a purpose of taking a physical inventory
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
Which statement is false?
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.
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.
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?
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
Manufacturers usually classify inventory into all the following general categories except
work in process.
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:
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.
Days in inventory is calculated by dividing 365 days by
the inventory turnover.
Which of these would cause the inventory turnover ratio to increase the most?
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.
A low number of days in inventory may indicate all of the following except
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.
Inventory costing methods place primary reliance on assumptions about the flow of
The LIFO inventory method assumes that the cost of the latest units purchased are
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.
Which of the following is an inventory costing method?
Lower of cost or market
Which of the following terms best describes the assumption made in applying the four inventory methods?
An assumption about cost flow is necessary
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.
Which of the following items will increase inventoriable costs for the buyer of goods?
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
Of the following companies, which one would not likely employ the specific identification method for inventory costing?
music store specializing in organ sales
farm implement dealership
A problem with the specific identification method is that
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.
The selection of an appropriate inventory cost flow assumption for an individual company is made by
the internal auditors.
the external auditors.
The accounting principle that requires that the cost flow assumption be consistent with the physical movement of goods is
called the consistency principle.
called the physical flow assumption.
called the matching principle.
nonexistent; that is, there is no such accounting requirement.
Which of the following statements is true regarding inventory cost flow assumptions?
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.
Which of the following statements is correct with respect to inventories?
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
Given equal circumstances, which inventory method would probably be the most time consuming?
Which inventory costing method should a gasoline retailer use?
either LIFO or FIFO
In periods of rising prices, which is an advantage of using the LIFO inventory costing method?
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.
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
In a period of declining prices, which of the following inventory methods generally results in the lowest balance sheet figure for inventory
Need more information to answer
Average cost method
In a period of rising prices, which of the following inventory methods generally results in the lowest net income figure?
Which inventory method generally results in costs allocated to ending inventory that will approximate their current cost?
Whichever method that produces the highest ending inventory figure
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
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.
If companies have identical inventoriable costs but use different inventory flow assumptions when the price of goods have not been constant, then the
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.
In a period of increasing prices, which inventory flow assumption will result in the lowest amount of income tax expense?
Average cost method
Income tax expense for the period will be the same under all assumptions
Given equal circumstances and generally rising costs, which inventory method will increase the tax expense the most?
The specific identification method of costing inventories is used when the
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.
The specific identification method of inventory costing
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.
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?
Physical inventory method
In periods of inflation, phantom or paper profits may be reported as a result of using the
periodic inventory method.
perpetual inventory method.
FIFO costing assumption.
LIFO costing assumption.
Selection of an inventory costing method by management does not usually depend on
the fiscal year end.
income statement effects.
balance sheet effects.