978-1337276337 Test Bank Chapter 5 Part 3

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104. Transportation-in is

a. an operating expense.

b. recorded as a purchases expense in a periodic inventory system.

c. added to transportation-out as part of the calculation of cost of goods sold.

d. part of cost of goods purchased.

105. Sherman, Inc. counted its ending inventory as $178,000 at year-end, January 31, 2017. Upon review of the records, it

was noted that the following items were in transit during the count:

A) $2,000 of goods shipped by a supplier to Sherman sent FOB destination point on January 31 were received February

5, and were not counted by Sherman.

B)

$5,000 of goods shipped by a supplier to Sherman sent FOB shipping point on January 30 were received February 2,

and were not counted by Sherman.

C) $6,000 of goods shipped by Sherman to a customer sent FOB shipping point on January 31 were received February

3, and were counted by Sherman.

Determine the correct inventory balance at January 31.

a. $178,000

b. $177,000

c. $174,000

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106. At the year-end inventory count, if goods in transit are shipped FOB destination point, they should be included in the

inventory count of

a. the seller.

b. the buyer.

c. neither the buyer nor the seller.

d. both the buyer and the seller.

107. At the year-end inventory count, if goods in transit are shipped FOB shipping point, they should be included in the

inventory count of

a. the seller.

b. the buyer.

c. both the seller and the buyer.

d. neither the seller nor the buyer.

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108. Dimension Lighting Corp. has the following data at its fiscal year-end:

Net Sales $27,250

Cost of Goods Sold 19,600

Gross Profit $ 7,650

Determine Dimension Lighting‘s gross profit ration.

a. 28.1%

b. 39.0%

c. 71.9%

d. None of these choices

109. In order to evaluate a company’s gross profit ratio, the ratio should be compared with

a. forecasted financial statements.

b. those of prior years.

c. other companies in the same industry.

d. those of both prior years and competitors.

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110. Which of the following statements is not true regarding the gross profit ratio?

a. The gross profit ratio is calculated by dividing net sales by gross profit.

b. The gross profit ratio is a measure of profitability.

c. The gross profit ratio can help investors decide whether or not to buy a company’s stock.

d. The gross profit ratio should be compared with both a company’s prior years’ ratios and competitors’.

111. Which of the following statements regarding the gross profit ratio is not true?

a. The gross profit ratio alone is sufficient to determine a company’s profitability.

b. Managers, investors, and creditors use the gross profit ratio to measure one aspect of profitability.

c. The gross profit ratio explains how many cents on every dollar are available to cover operating

expenses and earn a profit.

d. If a company’s net sales were $200,000 and cost of goods sold were $120,000, its gross profit ratio would be

40%.

112. The ending inventory balance represents

a. expired costs and is reported on the balance sheet as an asset.

b. the cost of goods sold during the current period and is reported on the balance sheet as an asset.

c. expired costs and is reported on the income statement as an expense.

d. unexpired costs and is reported on the balance sheet as an asset.

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113. Cost of goods sold represents

a. expired costs during a period and is reported on the income statement.

b. unexpired costs and is reported on the balance sheet as an asset.

c. the cost of goods that will be purchased during the next operating cycle and is reported on the balance sheet as an

asset.

d. expired costs and is reported on the balance sheet as an expense.

114. Which of the following would not be included in inventory costs?

a. Freight costs incurred by the buyer in shipping inventory to its place of business

b. The cost of insurance taken out during the time that inventory is in transit

c. The cost of sales tax paid when purchasing the inventory

d. Shelving to hold the inventory

115. The Ramien Store held inventory items at the end of 2017. Which items should Ramien include as part of its total

inventory cost?

a. Freight incurred in shipping goods to customers

b. Annual income taxes paid for operations

c. Excise taxes and sales taxes paid to purchase the inventory

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116. Which of the following statements is true?

a. The flow of inventory costs should match the physical flow of the merchandise.

b. Accounting standards require that merchandise costs be specifically traced to units left in inventory and to units

that have been sold.

c. Accountants have developed methods which make assumptions concerning how costs should be assigned to

inventory and cost of goods sold.

d. Alternative inventory cost-flow assumptions have the same effect on the amount of net income reported.

117. Which inventory costing method assigns the cost of the most recent items purchased to ending inventory?

a. Specific identification

b. Weighted average cost

c. LIFO

d. FIFO

118. Which inventory costing method assigns the cost of the most recent items purchased to cost of goods sold?

a. Specific identification

b. Weighted average cost

c. FIFO

d. LIFO

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119. Which inventory costing method assigns the same cost to all units whether sold or left in ending inventory?

a. Specific identification

b. Weighted average cost

c. FIFO

d. LIFO

120. For which type of inventory would a company most likely use the specific identification method?

a. Barbie dolls

b. Cartons of milk

c. Custom-designed diamond rings

d. Gasoline in storage tanks at a gasoline station

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121. Roki Inc. uses the periodic inventory system and has the following data for the month of June:

June 1 On hand, 50 units @ $15.00 each $ 750.00

5 Purchased 115 units @ $15.10 each 1,736.50

14 Purchased 75 units @ $15.20 each 1,140.00

Total cost of goods available for sale $3,626.50

30 On hand, 90 units

If the June 30 inventory included 45 units from the June 5 purchase and 45 units from the June 14 purchase, Roki’s cost of

goods sold for June under the specific identification method would be

a. $2,263.00.

b. $2.373.00.

c. $2,945.00.

d. $3,626.50.

122. Roki Inc. uses the periodic inventory system and has the following data for the month of June:

June 1 On hand, 50 units @ $15.00 each $ 750.00

5 Purchased 115 units @ $15.10 each 1,736.50

14 Purchased 75 units @ $15.20 each 1,140.00

Total cost of goods available for sale $3,626.50

30 On hand, 90 units

If Roki uses the FIFO method, the amount assigned to the June 30 inventory would be

a. $1,354.00.

b. $1,366.50.

c. $1,590.42.

d. $1,594.00.

123. Roki Inc. uses the periodic inventory system and has the following data for the month of June:

June 1 On hand, 50 units @ $15.00 each $ 750.00

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5 Purchased 115 units @ $15.10 each 1,736.50

14 Purchased 75 units @ $15.20 each 1,140.00

Total cost of goods available for sale $3,626.50

30 On hand, 90 units

If Roki uses the weighted average cost method, the amount assigned to the June 30 inventory would be

a. $1,359.90.

b. $1,486.50.

c. $1,549.00.

d. $1,591.50.

124. Roki Inc. uses the periodic inventory system and has the following data for the month of June:

June 1 On hand, 50 units @ $15.00 each $ 750.00

5 Purchased 115 units @ $15.10 each 1,736.50

14 Purchased 75 units @ $15.20 each 1,140.00

Total cost of goods available for sale $3,626.50

30 On hand, 90 units

If Roki uses the LIFO method, the cost of goods sold for June would be

a. $1,354.00.

b. $2,200.00.

c. $2,272.50.

d. $2,296.08.

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125. Roki Inc. uses the periodic inventory system and has the following data for the month of June:

June 1 On hand, 50 units @ $15.00 each $ 750.00

5 Purchased 115 units @ $15.10 each 1,736.50

14 Purchased 75 units @ $15.20 each 1,140.00

Total cost of goods available for sale $3,626.50

30 On hand, 90 units

How many units did Roki Inc. sell during June?

a. 50

b. 90

c. 100

d. 150

126. Quan uses a periodic inventory system. The company had the following data for the month of April:

April 1 On hand, 10 units @ $2 each $ 20

19 Purchased 90 units @ $3 each 270

Cost of goods available for sale $290

30 On hand, 20 units

If Quan, Inc. uses the FIFO method, how much is cost of goods sold for April?

a. $230

b. $232

c. $240

d. $250

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127. Quan uses a periodic inventory system. The company had the following data for the month of April:

April 1 On hand, 10 units @ $2 each $ 20

19 Purchased 90 units @ $3 each 270

Cost of goods available for sale $290

30 On hand, 20 units

If Quan, Inc. uses the weighted average cost method, how much is cost of goods sold for April?

a. $230

b. $232

c. $240

d. $250

128. Quan uses a periodic inventory system. The company had the following data for the month of April:

April 1 On hand, 10 units @ $2 each $ 20

19 Purchased 90 units @ $3 each 270

Cost of goods available for sale $290

30 On hand, 20 units

If Quan uses the LIFO method, how much is inventory on the balance sheet as of April 30?

a. $40

b. $50

c. $58

d. $60

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129. A major advantage of the weighted average method of inventory costing is that

a. cost flows correspond with the physical flow of merchandise.

b. it is relatively easy to apply.

c. it matches current costs with revenues.

d. recent costs are assigned to the ending inventory balance.

130. Which method of inventory costing is not acceptable for financial accounting purposes?

a. Specific Identification

b. FIFO

c. LIFO

d. Replacement Cost

131. Which inventory costing method results in the highest inventory balance during a period of rising prices?

a. Weighted average cost

b. LIFO

c. FIFO

d. Both FIFO and LIFO result in the same inventory balance

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132. Which inventory costing method might allow a company to make significant inventory purchases at year-end for the

purpose of manipulating income?

a. FIFO

b. LIFO

c. Specific identification

d. Weighted average cost

133. Which inventory costing method results in the lowest income tax expense during a period of decreasing prices?

a. FIFO

b. LIFO

c. Specific identification

d. Weighted average cost

134. During a period of increasing cost prices, which inventory costing method will yield the lowest cost of goods sold?

a. Any method in which the company uses a periodic inventory system

b. FIFO

c. LIFO

d. Weighted average cost

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135. Xu Corp. started business at the beginning of 2017. Xu selected the FIFO method for its inventory. In order to

maximize its profits for 2017under this method, prices must be

a. increasing.

b. decreasing.

c. stable.

d. fluctuating up and down at the same amount consistently over the year.

136. Federal income tax rules allow businesses to use different inventory costing methods for tax reporting and financial

reporting with one exception. Which of the following situations is not allowed by federal income tax rules?

Inventory Method Inventory Method

for Tax Reporting for Financial Reporting

a. LIFO LIFO

b. LIFO FIFO

c. Weighted average FIFO

d. FIFO LIFO

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137. Summer, Inc. has been in business for 20 years. During that time, the company has consistently used the LIFO

inventory costing method. Because of inflation, prices for merchandise have increased consistently over the 20 years. The

company has maintained the same inventory quantities over the 20-year period. Which of the following statements is true?

a. Summer’s total net income for the past 20 years is greater than it would have reported using another inventory

method.

b. Summer will have paid more income taxes over the past 20 years than it would have if it had used the FIFO

method.

c. Summer will have to continue using the LIFO method indefinitely because of generally accepted accounting

principles and federal income tax rules.

d. The ending inventory figure reported on the balance sheet may be significantly lower than its current value.

138. Which of the following statements regarding changing inventory methods is true?

a. A change in inventory methods can be justified if the change is made to better match profits with revenue.

b. Changing inventory methods affects consistency.

c. One place that the reader of an annual report would be able to identify that a company changed inventory methods

is the statement of stockholders’ equity.

d. Tax advantages are valid justification for changing inventory methods.

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139. If cost of goods sold under FIFO was $8,000 and was $10,000 under LIFO, assuming a tax rate of 40%, how much

tax savings resulted from using LIFO?

a. There would be no tax savings.

b. $ 800

c. $ 1,200

d. $ 2,000

140. Which of the following statements is not true?

a. Differences in cash flows between LIFO and FIFO inventory methods are a direct result of the differences in the

purchases.

b. Differences in cash flows between LIFO and FIFO inventory methods are caused by differences in taxes.

c. The amount of cash to acquire inventory is the same for companies that use LIFO as for those companies that use

FIFO.

d. The primary determinant in selecting an inventory costing method should be the ability of the method to

accurately reflect the net income of the period.

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141. LIFO liquidation

a. occurs as a result of selling more units than are purchased during the period.

b. occurs as a result of selling less units than are purchased during the period.

c. occurs as a result of selling the same number of units that are purchased during the period.

d. often results in favorable tax consequences if a company is using LIFO.

142. Accountants should be aware that LIFO liquidations can potentially result in which of the following?

a. If older, less costly layers are liquidated, a correspondingly lower cost of goods sold will result.

b. If older, less costly layers are liquidated, a correspondingly higher gross profit will result.

c. If older, less costly layers are liquidated, the company may be faced with higher taxes for those deferred in

previous periods.

d. All of these could result.

143. Zebra Company overstated its December 31, 2017, inventory by $5,200. Which of the following statement is true

concerning Zebra’s financial statement amounts for 2017?

a. Retained earnings are understated.

b. Gross profit is overstated.

c. Cost of goods sold is overstated.

d. Net income is understated.

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144. Which f the following statements is true if the amount assigned to ending inventory is incorrect?

a. The balance sheet is affected, but the income statement is not.

b. The income statement is affected, but the balance sheet is not.

c. Neither the balance sheet nor the income statement are affected.

d. Both the balance sheet and the income statement are affected.

145. A company fails to record one storeroom full of inventory in its year-end inventory records. As a result, this will

cause an

a. overstatement of inventory on the year-end balance sheet.

b. understatement of gross profit in the following year.

c. overstatement of retained earnings at the end of the year.

d. overstatement of cost of goods sold for the current year.

146. Hawk Store counted some of its inventory twice. As a result, its operating expenses will be

a. correct only if Hawk Store calculates it cost of goods sold correctly.

b. correct since operating expenses are not affected by inventory costs.

c. overstated.

d. understated.

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147. If Stevens Co. overstates its ending inventory for the current year, what are the effects on cost of goods sold and net

income for the current year?

Effect on Cost of Goods Sold Effect on Net Income

a. Understated Overstated

b. Overstated No effect

c. Understated Understated

d. Overstated Overstated

148. If Taylor Corp. understates its ending inventory balance for 2017 by $15,500 and it is not corrected, what are the

effects on its net income for 2018 and 2017?

Effect on 2018 Net Income Effect on 2017 Net Income

a. Overstated by $15,500 Understated by $15,500

b. Understated by $15,500 Overstated by $15,500

c. Understated by $15,500 No effect

d. Overstated by $15,500 No effect

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149. If Diamond, Inc. overstates its ending inventory balance for 2018 by $10,000 and understates its ending inventory

balance for 2017 by $5,000 what are the effects on its net income for 2018 and 2017 if either error is corrected?

Effect on 2018 Net Income Effect on 2017 Net Income

a. Overstated by $15,000 Understated by $10,000

b. Understated by $5,000 Overstated by $10,000

c. Overstated by $15,000 Understated by $5,000

d. Overstated by $10,000 Understated by$5,000

150. If a company overstates its ending inventory balance for 2018 by $10,000 and overstates its ending inventory balance

for 2017 by $5,000, what are the effects on its net income for 2018 and 2017 if neither error is corrected?

Effect on 2018 Net Income Effect on 2017 Net Income

a. Overstated by $15,000 Overstated by $10,000

b. Understated by $5,000 Overstated by $10,000

c. Overstated by $5,000 Overstated by $5,000

d. Overstated by $10,000 Overstated by $5,000