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Exam 5: Accounting for Inventories

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Question 21

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Phipps Corporation overstated its ending inventory on December 31,Year 1.Which of the following correctly identifies the effect of the error on Year 2 financial statements?

A) Cost of goods sold is overstated.
B) Gross margin overstated.
C) Ending inventory is understated.
D) Net income is overstated.

E) B) and C)
F) None of the above

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Question 22

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A discount merchandiser is likely to have a higher inventory turnover than more upscale stores with higher merchandise prices.

A) True
B) False

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Question 23

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Carson Company has an inventory turnover of 12.75,and its inventory amounts to $2,400,000.What is the amount of cost of goods sold?

Blake Company purchased two identical inventory items.The item purchased first cost $16.00,and the item purchased second cost $18.00.Blake sold one of the items for $24.00.Which of the following statements is true?

If the replacement cost of inventory is greater than its historical cost,the increase in value does not affect the company's financial statements.

At a time of declining prices,which inventory cost flow method will result in the highest ending inventory?

If a company is using the lower-of-cost-or-market rule and a write-down is required,how will that write-down affect the elements of the company's financial statements?

Rowan Company has four different categories of inventory.The quantity,cost,and market value for each of the inventory categories are as follows: The company carries inventory at lower-of-cost-or-market applied to the entire stock of inventory in the aggregate.How would the implementation of the lower-of-cost-or-market rule impact the elements of the company's financial statements?

Anton Co.uses the perpetual inventory system and FIFO cost flow method.During the year,Anton purchased 400 units of inventory that cost $12.00 each and then purchased an additional 600 units of inventory that cost $16.00 each.If Anton sells 700 units of inventory,what is the amount of cost of goods sold?

When using the gross margin method to estimate inventory,which of the following is a step in the computation?

A loss resulting from application of the lower-of-cost-or-market rule is included in cost of goods sold if the loss is material in amount.

Nelson Corporation is required to record an inventory write-down of $2,500 as a result of using the lower-of-cost-or-market rule.Which of the following shows how this business event would affect the financial statements?

Which of the following statements is not correct regarding the importance of inventory turnover to a company's profitability?

Melbourne Company uses the perpetual inventory system and LIFO cost flow method.Melbourne purchased 500 units of inventory that cost $4.00 each.At a later date,the company purchased an additional 600 units of inventory that cost $5.00 each.If the company sells 800 units of inventory,what amount of ending inventory will appear on a balance sheet prepared immediately after the sale?

Stubbs Company uses the perpetual inventory method and the weighted-average cost flow method.On January 1,Year 2,Stubbs purchased 400 units of inventory that cost $8.00 each.On January 10,Year 2,the company purchased an additional 600 units of inventory that cost $9.00 each.If the company sells 700 units of inventory for $16.00 each,what is the amount of gross margin reported on the income statement?

Vargas Company uses the perpetual inventory system and the FIFO cost flow method.During the current year,Vargas purchased 400 units of inventory that cost $15.00 each.At a later date during the year,the company purchased an additional 800 units of inventory that cost $18.00 each.Vargas sold 500 units of inventory for $27.00.What is the amount of cost of goods sold that will appear on the current year's income statement?

When the perpetual inventory system is used,where can the best estimate of the amount of inventory on hand be found?

During a period of rising inventory prices the LIFO cost flow method will result in higher total assets than FIFO.

If a company overstates its Inventory balance at the end of Year 1 due to an error,its Retained Earnings will also be overstated on the Year 1 balance sheet.

What is meant by "market" in the lower-of-cost-or-market rule?