21. Which of the following inventories carried
by a manufacturer is similar to the merchandise inventory of a retailer?
a. Raw
materials.
b. Work-in-process.
c. Finished
goods.
d. Supplies.
22. Where should raw materials be classified on
the balance sheet?
a. Prepaid
expenses.
b. Inventory.
c. Equipment.
d. Not
on the balance sheet.
23. Which of the following accounts is not
reported in inventory?
a. Raw
materials.
b. Equipment.
c. Finished
goods.
d. Supplies.
24. Why are inventories included in the computation
of net income?
a. To
determine cost of goods sold.
b. To
determine sales revenue.
c. To
determine merchandise returns.
d. Inventories
are not included in the computation of net income.
25. Which of the following is a characteristic
of a perpetual inventory system?
a. Inventory
purchases are debited to a Purchases account.
b. Inventory
records are not kept for every item.
c. Cost
of goods sold is recorded with each sale.
d. Cost
of goods sold is determined as the amount of purchases less the change in
inventory.
26. How is a significant amount of consignment
inventory reported in the balance sheet?
a. The
inventory is reported separately on the consignor's balance sheet.
b. The
inventory is combined with other inventory on the consignor's balance sheet.
c. The
inventory is reported separately on the consignee's balance sheet.
d. The
inventory is combined with other inventory on the consignee's balance sheet.
27. Where should goods in transit that were
recently purchased f.o.b. destination be included on the balance sheet?
a. Accounts
payable.
b. Inventory.
c. Equipment.
d. Not
on the balance sheet.
28. If a company uses the periodic inventory
system, what is the impact on net income of including goods in transit f.o.b.
shipping point in purchases, but not ending inventory?
a. Overstate
net income.
b. Understate
net income.
c. No
effect on net income.
d. Not
sufficient information to determine effect on net income.
29. If a company uses the periodic inventory
system, what is the impact on the current ratio of including goods in transit
f.o.b. shipping point in purchases, but not ending inventory?
a. Overstate
the current ratio.
b. Understate
the current ratio.
c. No
effect on the current ratio.
d. Not
sufficient information to determine effect on the current ratio.
30. What is consigned inventory?
a. Goods
that are shipped, but title transfers to the receiver.
b. Goods
that are sold, but payment is not required until the goods are sold.
c. Goods
that are shipped, but title remains with the shipper.
d. Goods
that have been segregated for shipment to a customer.
31. When using a perpetual inventory system,
a. no
Purchases account is used.
b. a
Cost of Goods Sold account is used.
c. two
entries are required to record a sale.
d. all
of these.
32. Goods in transit which are shipped f.o.b.
shipping point should be
a. included
in the inventory of the seller.
b. included
in the inventory of the buyer.
c. included
in the inventory of the shipping company.
d. none
of these.
33. Goods in transit which are shipped f.o.b.
destination should be
a. included
in the inventory of the seller.
b. included
in the inventory of the buyer.
c. included
in the inventory of the shipping company.
d. none
of these.
34. Which of the following items should be included in a company's
inventory at the balance sheet date?
a. Goods
in transit which were purchased f.o.b. destination.
b. Goods
received from another company for sale on consignment.
c. Goods
sold to a customer which are being held for the customer to call for at his or
her convenience.
d. None of
these.
Use the following information for
questions 35 and 36.
During 2010 Carne Corporation
transferred inventory to Nolan Corporation and agreed to repurchase the
merchandise early in 2011. Nolan then used the inventory as collateral to
borrow from Norwalk Bank, remitting the proceeds to Carne. In 2011 when Carne
repurchased the inventory, Nolan used the proceeds to repay its bank loan.
35. This transaction is known as a(n)
a. consignment.
b. installment
sale.
c. assignment
for the benefit of creditors.
d. product
financing arrangement.
36. On whose books should the cost of the inventory appear at the
December 31, 2010 balance sheet date?
a. Carne
Corporation
b. Nolan
Corporation
c. Norwalk
Bank
d. Nolan
Corporation, with Carne making appropriate note disclosure of the transaction
37. Goods on consignment are
a. included
in the consignee's inventory.
b. recorded
in a Consignment Out account which is an inventory account.
c. recorded
in a Consignment In account which is an inventory account.
d. all
of these
S38. Valuation of inventories requires the determination
of all of the following except
a. the
costs to be included in inventory.
b. the
physical goods to be included in inventory.
c. the
cost of goods held on consignment from other companies.
d. the
cost flow assumption to be adopted.
P39. The accountant for the Pryor Sales Company
is preparing the income statement for 2010 and the balance sheet at December
31, 2010. Pryor uses the periodic inventory system. The January 1, 2010
merchandise inventory balance will appear
a. only
as an asset on the balance sheet.
b. only
in the cost of goods sold section of the income statement.
c. as
a deduction in the cost of goods sold section of the income statement and as a
current asset on the balance sheet.
d. as
an addition in the cost of goods sold section of the income statement and as a
current asset on the balance sheet.
P40. If
the beginning inventory for 2010 is overstated, the effects of this error on
cost of goods sold for 2010, net income for 2010, and assets at December 31, 2011,
respectively, are
a. overstatement,
understatement, overstatement.
b. overstatement,
understatement, no effect.
c. understatement,
overstatement, overstatement.
d. understatement,
overstatement, no effect.
S41. The failure to record a purchase of merchandise
on account even though the goods are properly included in the physical inventory
results in
a. an
overstatement of assets and net income.
b. an
understatement of assets and net income.
c. an
understatement of cost of goods sold and liabilities and an overstatement of
assets.
d. an
understatement of liabilities and an overstatement of owners' equity.
42. Dolan Co. received merchandise on consignment. As of March 31, Dolan
had recorded the transaction as a purchase and included the goods in inventory.
The effect of this on its financial statements for March 31 would be
a. no
effect.
b. net
income was correct and current assets and current liabilities were overstated.
c. net
income, current assets, and current liabilities were overstated.
d. net
income and current liabilities were overstated.
43. Green Co. received merchandise on consignment. As of January 31,
Green included the goods in inventory, but did not record the transaction. The
effect of this on its financial statements for January 31 would be
a. net
income, current assets, and retained earnings were overstated.
b. net
income was correct and current assets were understated.
c. net
income and current assets were overstated and current liabilities were
understated.
d. net
income, current assets, and retained earnings were understated.
44. Feine Co. accepted delivery of merchandise which it purchased on
account. As of December 31, Feine had recorded the transaction, but did not
include the merchandise in its inventory. The effect of this on its financial
statements for December 31 would be
a. net
income, current assets, and retained earnings were understated.
b. net
income was correct and current assets were understated.
c. net
income was understated and current liabilities were overstated.
d. net
income was overstated and current assets were understated.
45. On June 15, 2010, Wynne Corporation accepted delivery of
merchandise which it pur-chased on account. As of June 30, Wynne had not
recorded the transaction or included the merchandise in its inventory. The
effect of this on its balance sheet for June 30, 2010 would be
a. assets
and stockholders' equity were overstated but liabilities were not affected.
b. stockholders'
equity was the only item affected by the omission.
c. assets,
liabilities, and stockholders' equity were understated.
d. none
of these.
46. What
is the effect of a $50,000 overstatement of last year's inventory on current
years ending retained earning balance?
a. Understated
by $50,000.
b. No
effect.
c. Overstated
by $50,000.
d. Need
more information to determine.
47. Which of the following is a product cost as it relates to
inventory?
a. Selling
costs.
b. Interest
costs.
c. Raw
materials.
d. Abnormal
spoilage.
48. Which of the following is a period cost?
a. Labor
costs.
b. Freight
in.
c. Production
costs.
d. Selling
costs.
49. Which method may be used to record cash discounts a company
receives for paying suppliers promptly?
a. Net
method.
b. Gross
method.
c. Average
method.
d. a
and b.
50. Which of the following is included in inventory costs?
a. Product
costs.
b. Period
costs.
c. Product
and period costs.
d. Neither
product or period costs.
51. Which of the following is correct?
a. Selling
costs are product costs.
b. Manufacturing
overhead costs are product costs.
c. Interest
costs for routine inventories are product costs.
d. All
of these.
52. All of the following costs should be charged against revenue in
the period in which costs are incurred except
for
a. manufacturing
overhead costs for a product manufactured and sold in the same accounting
period.
b. costs
which will not benefit any future period.
c. costs
from idle manufacturing capacity resulting from an unexpected plant shutdown.
d. costs
of normal shrinkage and scrap incurred for the manufacture of a product in
ending inventory.
53. Which
of the following types of interest cost incurred in connection with the
purchase or manufacture of inventory should be capitalized as a product cost?
a. Purchase
discounts lost
b. Interest
incurred during the production of discrete projects such as ships or real
estate projects
c. Interest
incurred on notes payable to vendors for routine purchases made on a repetitive basis
d. All
of these should be capitalized.
54. The use of a Discounts Lost account implies that the recorded
cost of a purchased inventory item is its
a. invoice
price.
b. invoice
price plus the purchase discount lost.
c. invoice
price less the purchase discount taken.
d. invoice
price less the purchase discount allowable whether taken or not.
55. The use of a Purchase Discounts account implies that the
recorded cost of a purchased inventory item is its
a. invoice
price.
b. invoice
price plus any purchase discount lost.
c. invoice
price less the purchase discount taken.
d. invoice
price less the purchase discount allowable whether taken or not.
Use the following information for questions 56 and 57.
During 2010, which was the first year
of operations, Oswald Company had merchandise purchases of $985,000 before cash
discounts. All purchases were made on
terms of 2/10, n/30. Three-fourths of
the items purchased were paid for within 10 days of purchase. All of the goods available had been sold at
year end.
56. Which of the following recording procedures
would result in the highest cost of goods sold for 2010?
1. Recording
purchases at gross amounts
2. Recording
purchases at net amounts, with the amount of discounts not taken shown under
"other expenses" in the income statement
a. 1
b. 2
c. Either
1 or 2 will result in the same cost of
goods sold.
d. Cannot
be determined from the information provided.
57. Which of the following recording procedures
would result in the highest net income for 2010?
1. Recording
purchases at gross amounts
2. Recording
purchases at net amounts, with the amount of discounts not taken shown under
"other expenses" in the income statement
a. 1
b. 2
c. Either
1 or 2 will result in the same net income.
d. Cannot
be determined from the information provided.
58. When
using the periodic inventory system, which of the following generally would not be separately accounted for in the
computation of cost of goods sold?
a. Trade
discounts applicable to purchases during the period
b. Cash
(purchase) discounts taken during the period
c. Purchase
returns and allowances of merchandise during the period
d. Cost
of transportation-in for merchandise purchased during the period
S59. Costs which are inventoriable include all
of the following except
a. costs
that are directly connected with the bringing of goods to the place of business
of the buyer.
b. costs
that are directly connected with the converting of goods to a salable
condition.
c. buying
costs of a purchasing department.
d. selling
costs of a sales department.
P60. Which inventory costing method most closely
approximates current cost for each of the following:
Ending Inventory Cost of Goods Sold
a. FIFO FIFO
b. FIFO LIFO
c. LIFO FIFO
d. LIFO LIFO
61. In situations where there is a rapid turnover, an inventory
method which produces a balance sheet valuation similar to the first-in,
first-out method is
a. average
cost.
b. base
stock.
c. joint
cost.
d. prime
cost.
62. The pricing of issues from inventory must be deferred until the
end of the accounting period under the following method of inventory valuation:
a. moving
average.
b. weighted-average.
c. LIFO
perpetual.
d. FIFO.
63. An inventory pricing procedure in which the oldest costs
incurred rarely have an effect on the ending inventory valuation is
a. FIFO.
b. LIFO.
c. base
stock.
d. weighted-average.
64. Which method of inventory pricing best approximates specific
identification of the actual flow of costs and units in most manufacturing
situations?
a. Average
cost
b. First-in,
first-out
c. Last-in,
first-out
d. Base
stock
65. Assuming no beginning inventory, what can be said about the
trend of inventory prices if cost of goods sold computed when inventory is
valued using the FIFO method exceeds cost of goods sold when inventory is
valued using the LIFO method?
a. Prices
decreased.
b. Prices
remained unchanged.
c. Prices
increased.
d. Price
trend cannot be determined from information given.
66. In a period of rising prices, the inventory method which tends
to give the highest reported net income is
a. base
stock.
b. first-in,
first-out.
c. last-in,
first-out.
d. weighted-average.
67. In a period of rising prices, the inventory method which tends
to give the highest reported inventory is
a. FIFO.
b. moving
average.
c. LIFO.
d. weighted-average.
68. Tanner Corporation's inventory cost on its balance sheet was
lower using first-in, first-out than it would have been using last-in,
first-out. Assuming no beginning
inventory, in what direction did the cost of purchases move during the period?
a. Up
b. Down
c. Steady
d. Cannot
be determined
69. In a period of rising prices, the inventory method which tends
to give the highest reported cost of goods sold is
a. FIFO.
b. average
cost.
c. LIFO.
d. none
of these.
70. Which of the following statements is not valid as it applies to inventory costing methods?
a. If
inventory quantities are to be maintained, part of the earnings must be
invested (plowed back) in inventories when FIFO is used during a period of
rising prices.
b. LIFO
tends to smooth out the net income pattern by matching current cost of goods
sold with current revenue, when inventories remain at constant quantities.
c. When
a firm using the LIFO method fails to maintain its usual inventory position
(reduces stock on hand below customary levels), there may be a matching of old
costs with current revenue.
d. The
use of FIFO permits some control by management over the amount of net income
for a period through controlled purchases, which is not true with LIFO.
71. The
acquisition cost of a certain raw material changes frequently. The book value
of the inventory of this material at year end will be the same if perpetual
records are kept as it would be under a periodic inventory method only if the
book value is computed under the
a. weighted-average
method.
b. moving
average method.
c. LIFO
method.
d. FIFO
method.
72. Which of the following is a reason why the specific
identification method may be considered ideal for assigning costs to inventory
and cost of goods sold?
a. The
potential for manipulation of net income is reduced.
b. There
is no arbitrary allocation of costs.
c. The
cost flow matches the physical flow.
d. Able
to use on all types of inventory.
73. In a period of rising prices which inventory method generally
provides the greatest amount of net income?
a. Average
cost.
b. FIFO.
c. LIFO.
d. Specific
identification.
74. In a period of falling prices, which inventory method generally
provides the greatest amount of net income?
a. Average
cost.
b. FIFO.
c. LIFO.
d. Specific
identification.
75. What is a LIFO reserve?
a. The
difference between the LIFO inventory and the amount used for internal
reporting purposes.
b. The
tax savings attributed to using the LIFO method.
c. The
current effect of using LIFO on net income.
d. Change
in the LIFO inventory during the year.
76. When a company uses LIFO for external reporting purposes and
FIFO for internal reporting purposes, an Allowance to Reduce Inventory to LIFO
account is used. This account should be reported
a. on
the income statement in the Other Revenues and Gains section.
b. on
the income statement in the Cost of Goods Sold section.
c. on
the income statement in the Other Expenses and Losses section.
d. on
the balance sheet in the Current Assets section.
77. What happens when inventory in base year dollars decreases?
a. LIFO
reserve increases.
b. LIFO
layer is created.
c. LIFO
layer is liquidated.
d. LIFO
price index decreases.
78. How might a company obtain a price index in order to apply
dollar-value LIFO?
a. Calculate
an index based on recent inventory purchases.
b. Use
a general price level index published by the government.
c. Use
a price index prepared by an industry group.
d. All
of the above.
79. In the context of dollar-value LIFO, what is a LIFO layer?
a. The
difference between the LIFO inventory and the amount used for internal
reporting purposes.
b. The
LIFO value of the inventory for a given year.
c. The
inventory in base year dollars.
d. The
LIFO value of an increase in the inventory for a given year.
S80. Which of the following statements is not
true as it relates to the dollar-value LIFO inventory method?
a. It
is easier to erode LIFO layers using dollar-value LIFO techniques than it is
with specific goods pooled LIFO.
b. Under
the dollar-value LIFO method, it is possible to have the entire inventory in
only one pool.
c. Several
pools are commonly employed in using the dollar-value LIFO inventory method.
d. Under
dollar-value LIFO, increases and decreases in a pool are determined and
measured in terms of total dollar value, not physical quantity.
S81. Which of the following is not considered an
advantage of LIFO when prices are rising?
a. The
inventory will be overstated.
b. The
more recent costs are matched against current revenues.
c. There
will be a deferral of income tax.
d. A
company's future reported earnings will not be affected substantially by future
price declines.
82. Which of the following is true regarding the use of LIFO for
inventory valuation?
a. If
LIFO is used for external financial reporting, then it must also be used for
internal reports.
b. For
purposes of external financial reporting, LIFO may not be used with the lower
of cost or market approach.
c. If
LIFO is used for external financial reporting, then it cannot be used for tax
purposes.
d. None
of these.
83. If inventory levels are stable or increasing, an argument which
is not an advantage of the LIFO
method as compared to FIFO is
a. income
taxes tend to be reduced in periods of rising prices.
b. cost
of goods sold tends to be stated at approximately current cost on the income
statement.
c. cost
assignments typically parallel the physical flow of goods.
d. income
tends to be smoothed as prices change over time.
ANSWERS:
Item
|
Ans.
|
Item
|
Ans.
|
Item
|
Ans.
|
Item
|
Ans.
|
Item
|
Ans.
|
Item
|
Ans.
|
Item
|
Ans.
|
21.
|
c
|
30.
|
c
|
39.
|
b
|
48.
|
d
|
57.
|
c
|
66.
|
b
|
75.
|
a
|
22.
|
b
|
31.
|
d
|
40.
|
b
|
49.
|
d
|
58.
|
a
|
67.
|
a
|
76.
|
d
|
23.
|
b
|
32.
|
b
|
41.
|
d
|
50.
|
a
|
59.
|
d
|
68.
|
b
|
77.
|
c
|
24.
|
a
|
33.
|
a
|
42.
|
b
|
51.
|
b
|
60.
|
b
|
69.
|
c
|
78.
|
d
|
25.
|
c
|
34.
|
d
|
43.
|
a
|
52.
|
d
|
61.
|
a
|
70.
|
d
|
79.
|
d
|
26.
|
a
|
35.
|
d
|
44.
|
a
|
53.
|
b
|
62.
|
b
|
71.
|
d
|
80.
|
a
|
27.
|
d
|
36.
|
a
|
45.
|
d
|
54.
|
d
|
63.
|
a
|
72.
|
c
|
81.
|
a
|
28.
|
b
|
37.
|
b
|
46.
|
b
|
55.
|
a
|
64.
|
b
|
73.
|
b
|
82.
|
d
|
29.
|
b
|
38.
|
c
|
47.
|
c
|
56.
|
a
|
65.
|
a
|
74.
|
c
|
83.
|
c
|
Solutions to those Multiple Choice questions for which the answer is
“none of these.”
34. Goods in transit which were purchased
f.o.b. shipping point.
45. Assets and liabilities were understated but stockholders’ equity
was not affected.
82. If LIFO is used for tax purposes, then it
must also be used for external financial reporting
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