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chapter 6

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Quiz on chapter 6, created by robertse10 on 27/10/2014.
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Quiz by robertse10, updated more than 1 year ago
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Resource summary

Question 1

Question
Manufactured inventory that has begun the production process but is not yet completed is
Answer
  • work in process.
  • raw materials.
  • merchandise inventory.
  • finished goods.

Question 2

Question
The factor which determines whether or not goods should be included in a physical count of inventory is
Answer
  • physical possession.
  • whether or not the purchase price has been paid.
  • management's judgment.
  • legal title

Question 3

Question
If goods in transit are shipped FOB destination
Answer
  • 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.

Question 4

Question
Independent internal verification of the physical inventory process occurs when
Answer
  • 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.

Question 5

Question
An employee assigned to counting computer monitors in boxes should
Answer
  • 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.

Question 6

Question
After the physical inventory is completed
Answer
  • 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.

Question 7

Question
When is a physical inventory usually taken?
Answer
  • 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.

Question 8

Question
Which of the following should not be included in the physical inventory of a company
Answer
  • 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.

Question 9

Question
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?
Answer
  • (2) and (4)
  • Sales made FOB shipping point and purchase made FOB destination
  • (1) and (4)
  • (1) and (3)

Question 10

Question
The term "FOB" denotes
Answer
  • freight charge on buyer.
  • free only (to) buyer.
  • free on board.
  • freight on board.

Question 11

Question
Goods held on consignment are
Answer
  • 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.

Question 12

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

Question 13

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

Question 14

Question
Which statement is false?
Answer
  • 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.

Question 15

Question
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?
Answer
  • 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

Question 16

Question
Manufacturers usually classify inventory into all the following general categories except
Answer
  • work in process.
  • merchandise inventory.
  • raw materials.
  • finished goods.

Question 17

Question
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:
Answer
  • 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.

Question 18

Question
Days in inventory is calculated by dividing 365 days by
Answer
  • the inventory turnover.
  • beginning inventory.
  • ending inventory.
  • average inventory.

Question 19

Question
Which of these would cause the inventory turnover ratio to increase the most?
Answer
  • 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.

Question 20

Question
A low number of days in inventory may indicate all of the following except
Answer
  • 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.

Question 21

Question
Inventory costing methods place primary reliance on assumptions about the flow of
Answer
  • goods.
  • resale prices.
  • values.
  • costs.

Question 22

Question
The LIFO inventory method assumes that the cost of the latest units purchased are
Answer
  • 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.

Question 23

Question
Which of the following is an inventory costing method?
Answer
  • Perpetual
  • Specific identification
  • Lower of cost or market
  • Periodic

Question 24

Question
Which of the following terms best describes the assumption made in applying the four inventory methods?
Answer
  • Asset flow
  • Physical flow
  • Goods flow
  • Cost flow

Question 25

Question
An assumption about cost flow is necessary
Answer
  • 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.

Question 26

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

Question 27

Question
Of the following companies, which one would not likely employ the specific identification method for inventory costing?
Answer
  • music store specializing in organ sales
  • farm implement dealership
  • antique shop
  • hardware store

Question 28

Question
A problem with the specific identification method is that
Answer
  • 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.

Question 29

Question
The selection of an appropriate inventory cost flow assumption for an individual company is made by
Answer
  • the internal auditors.
  • management.
  • the external auditors.
  • the SEC.

Question 30

Question
The accounting principle that requires that the cost flow assumption be consistent with the physical movement of goods is
Answer
  • called the consistency principle.
  • called the physical flow assumption.
  • called the matching principle.
  • nonexistent; that is, there is no such accounting requirement.

Question 31

Question
Which of the following statements is true regarding inventory cost flow assumptions?
Answer
  • 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.

Question 32

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

Question 33

Question
Given equal circumstances, which inventory method would probably be the most time consuming?
Answer
  • LIFO
  • Specific identification
  • FIFO
  • Average cost

Question 34

Question
Which inventory costing method should a gasoline retailer use?
Answer
  • LIFO
  • FIFO
  • either LIFO or FIFO
  • average cost

Question 35

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

Question 36

Question
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
Answer
  • FIFO method.
  • LIFO method.
  • average-cost method.
  • tax method.

Question 37

Question
In a period of declining prices, which of the following inventory methods generally results in the lowest balance sheet figure for inventory
Answer
  • FIFO method
  • Need more information to answer
  • Average cost method
  • LIFO method

Question 38

Question
In a period of rising prices, which of the following inventory methods generally results in the lowest net income figure?
Answer
  • Average cost method
  • FIFO method
  • Need more information to answer
  • LIFO method

Question 39

Question
Which inventory method generally results in costs allocated to ending inventory that will approximate their current cost?
Answer
  • LIFO
  • Whichever method that produces the highest ending inventory figure
  • FIFO
  • Average cost method

Question 40

Question
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
Answer
  • 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.

Question 41

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

Question 42

Question
In a period of increasing prices, which inventory flow assumption will result in the lowest amount of income tax expense?
Answer
  • Average cost method
  • LIFO
  • Income tax expense for the period will be the same under all assumptions
  • FIFO

Question 43

Question
Given equal circumstances and generally rising costs, which inventory method will increase the tax expense the most?
Answer
  • Average cost method
  • LIFO
  • Income tax expense for the period will be the same under all assumptions
  • FIFO

Question 44

Question
The specific identification method of costing inventories is used when the
Answer
  • 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.

Question 45

Question
The specific identification method of inventory costing
Answer
  • 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.

Question 46

Question
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?
Answer
  • LIFO
  • Average cost
  • Physical inventory method
  • FIFO

Question 47

Question
In periods of inflation, phantom or paper profits may be reported as a result of using the
Answer
  • periodic inventory method.
  • perpetual inventory method.
  • FIFO costing assumption.
  • LIFO costing assumption.

Question 48

Question
Selection of an inventory costing method by management does not usually depend on
Answer
  • tax effects.
  • the fiscal year end.
  • income statement effects.
  • balance sheet effects.
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