Question 1

Which of the following best describes why inventory errors are often said to be "self-correcting"?

Accepted Answer

A)   Inventory errors have no impact on the income statement.
B)   An inventory error in the current period will have a reverse effect in the next period.
C)   An inventory error in the current period will have the same effect in the next period.
D)   Inventory errors have no impact on the balance sheet.E) A) and B)
F) None of the above

Question 2

During its December 31, 2017 year-end inventory count, Jefferson Company failed to count items in transit to which it had legal title. As a result of this error, ending inventory was understated by $30,000. Assuming the company makes no errors in 2018, Jefferson's owner's equity at the end of December 2018 will be

Accepted Answer

A)   overstated by $30,000.
B)   understated by $30,000.
C)   overstated by $60,000.
D)   correct.E) All of the above
F) A) and D)

Question 3

Only smaller companies need to do an annual physical count of inventory.

Accepted Answer

A) True 
 B)False

Question 4

In a periodic inventory system the cost of goods available for sale is allocated between

Accepted Answer

A)   beginning inventory and ending inventory.
B)   beginning inventory and cost of goods on hand.
C)   ending inventory and cost of goods sold.
D)   beginning inventory and cost of goods purchased.E) B) and D)
F) A) and B)

Question 5

Independent internal verification of the physical inventory process occurs when

Accepted Answer

A)   the employee is required to count all items twice for sake of verification.
B)   the items counted are compared to the inventory account balance.
C)   a second employee counts the inventory and compares the result to the count made by the first employee.
D)   all prenumbered inventory tags are accounted for.E) A) and D)
F) B) and C)

Question 6

The counting of the inventory should be done by employees who are NOT responsible for either custody of the inventory or keeping inventory records.

Accepted Answer

A) True 
 B)False

Question 7

To use the retail inventory method, a company's records must show both the cost and the retail value of the goods available for sale.

Accepted Answer

A) True 
 B)False

Question 8

If the net realizable value declines to an amount lower than cost, the Cost of Goods Sold account will

Accepted Answer

A)   increase.
B)   decrease.
C)   be adjusted to the cost amount.
D)   stay the same.E) C) and D)
F) A) and C)

Question 9

For a merchandising company, the net realizable value of its inventory is the

Accepted Answer

A)   original cost of the inventory.
B)   current selling price.
C)   current selling price less any costs required to make the goods ready for sale.
D)   original cost of the inventory less any costs required to make the goods ready for sale.E) A) and B)
F) All of the above

Question 10

Internal control is the process designed and implemented by management to help their organization achieve reliable financial reporting.

Accepted Answer

A) True 
 B)False

Question 11

Days sales in inventory is calculated by

Accepted Answer

A)   cost of goods sold divided by average inventory.
B)   average inventory divided by cost of goods sold.
C)   days in the year divided by inventory turnover ratio.
D)   inventory turnover ratio divided by days in the year.E) B) and C)
F) All of the above

Question 12

Errors in the cost of goods sold will affect the income statement.

Accepted Answer

A) True 
 B)False

Question 13

The first-in, first-out (FIFO) cost formula assumes that the earliest (oldest) goods purchased are the last ones to be sold.

Accepted Answer

A) True 
 B)False

Question 14

A company had sales of $150,000 and cost of goods available for sale of $300,000 during January. If its gross profit margin is estimated to be 40%, the ending inventory value at January 31 is estimated to be

Accepted Answer

A)   $90,000.
B)   $210,000.
C)   $180,000.
D)   $120,000.E) A) and B)
F) B) and C)

Question 15

The gross profit method of estimating inventory CANNOT be used if the gross profit margin has changed from the previous period.

Accepted Answer

A) True 
 B)False

Question 16

Companies are allowed to use the specific identification cost determination method when the goods are interchangeable.

Accepted Answer

A) True 
 B)False

Question 17

If goods in transit are shipped FOB shipping point by a carrier named by the buyer,

Accepted Answer

A)   the seller has legal title to the goods until they are delivered.
B)   the buyer has legal title to the goods when a public carrier accepts the goods from the seller.
C)   the transportation company has legal title to the goods while the goods are in transit.
D)   no one has legal title to the goods until they are delivered.E) C) and D)
F) A) and B)

Question 18

The selection of an appropriate inventory cost formula for an individual company is made by

Accepted Answer

A)   the external auditors.
B)   the accounting standards for private companies.
C)   the International Financial Reporting Standards for public companies.
D)   management.E) None of the above
F) B) and C)

Question 19

If beginning inventory is understated, then the cost of goods sold will be understated if there are no other errors.

Accepted Answer

A) True 
 B)False

Question 20

If a company has no beginning inventory and the unit cost of inventory items does NOT change during the year, the value assigned to the ending inventory will be the same under the FIFO and weighted average cost formulas.

Accepted Answer

A) True 
 B)False

Exam 6: Inventory Costing

If the net realizable value declines to an amount lower than cost, the Cost of Goods Sold account will

Correct Answer
verified

Only smaller companies need to do an annual physical count of inventory.

Correct Answer
verified

The gross profit method of estimating inventory CANNOT be used if the gross profit margin has changed from the previous period.

Correct Answer
verified

For a merchandising company, the net realizable value of its inventory is the

Correct Answer
verified

Which of the following best describes why inventory errors are often said to be "self-correcting"?

Correct Answer
verified

If a company has no beginning inventory and the unit cost of inventory items does NOT change during the year, the value assigned to the ending inventory will be the same under the FIFO and weighted average cost formulas.

Correct Answer
verified

Days sales in inventory is calculated by

Correct Answer
verified

The counting of the inventory should be done by employees who are NOT responsible for either custody of the inventory or keeping inventory records.

Correct Answer
verified

If goods in transit are shipped FOB shipping point by a carrier named by the buyer,

Correct Answer
verified

The first-in, first-out (FIFO) cost formula assumes that the earliest (oldest) goods purchased are the last ones to be sold.

Correct Answer
verified

If beginning inventory is understated, then the cost of goods sold will be understated if there are no other errors.

Correct Answer
verified

Independent internal verification of the physical inventory process occurs when

Correct Answer
verified

Internal control is the process designed and implemented by management to help their organization achieve reliable financial reporting.

Correct Answer
verified

Companies are allowed to use the specific identification cost determination method when the goods are interchangeable.

Correct Answer
verified

In a periodic inventory system the cost of goods available for sale is allocated between

Correct Answer
verified

Correct Answer
verified

A company had sales of $150,000 and cost of goods available for sale of $300,000 during January. If its gross profit margin is estimated to be 40%, the ending inventory value at January 31 is estimated to be

Correct Answer
verified

The selection of an appropriate inventory cost formula for an individual company is made by

Correct Answer
verified

To use the retail inventory method, a company's records must show both the cost and the retail value of the goods available for sale.

Correct Answer
verified

Errors in the cost of goods sold will affect the income statement.

Correct Answer
verified

Exam 6: Inventory Costing

If the net realizable value declines to an amount lower than cost, the Cost of Goods Sold account will

Correct AnswerverifiedShow Answer

Only smaller companies need to do an annual physical count of inventory.

Correct AnswerverifiedShow Answer

The gross profit method of estimating inventory CANNOT be used if the gross profit margin has changed from the previous period.

Correct AnswerverifiedShow Answer

For a merchandising company, the net realizable value of its inventory is the

Correct AnswerverifiedShow Answer

Which of the following best describes why inventory errors are often said to be "self-correcting"?

Correct AnswerverifiedShow Answer

If a company has no beginning inventory and the unit cost of inventory items does NOT change during the year, the value assigned to the ending inventory will be the same under the FIFO and weighted average cost formulas.

Correct AnswerverifiedShow Answer

Days sales in inventory is calculated by

Correct AnswerverifiedShow Answer

The counting of the inventory should be done by employees who are NOT responsible for either custody of the inventory or keeping inventory records.

Correct AnswerverifiedShow Answer

If goods in transit are shipped FOB shipping point by a carrier named by the buyer,

Correct AnswerverifiedShow Answer

The first-in, first-out (FIFO) cost formula assumes that the earliest (oldest) goods purchased are the last ones to be sold.

Correct AnswerverifiedShow Answer

If beginning inventory is understated, then the cost of goods sold will be understated if there are no other errors.

Correct AnswerverifiedShow Answer

Independent internal verification of the physical inventory process occurs when

Correct AnswerverifiedShow Answer

Internal control is the process designed and implemented by management to help their organization achieve reliable financial reporting.

Correct AnswerverifiedShow Answer

Companies are allowed to use the specific identification cost determination method when the goods are interchangeable.

Correct AnswerverifiedShow Answer

In a periodic inventory system the cost of goods available for sale is allocated between

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A company had sales of $150,000 and cost of goods available for sale of $300,000 during January. If its gross profit margin is estimated to be 40%, the ending inventory value at January 31 is estimated to be

Correct AnswerverifiedShow Answer

The selection of an appropriate inventory cost formula for an individual company is made by

Correct AnswerverifiedShow Answer

To use the retail inventory method, a company's records must show both the cost and the retail value of the goods available for sale.

Correct AnswerverifiedShow Answer

Errors in the cost of goods sold will affect the income statement.

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified