Chapter 06 – Inventories
Copyright Cengage Learning. Powered by Cognero.
Page 41
ANSWER:
c
POINTS:
1
DIFFICULTY:
Easy
Bloom’s: Remembering
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.06-07 – LO: 06–07
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.17 – Inventories Reporting
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:20 PM
DATE MODIFIED:
10/16/2017 5:09 PM
98. Inventory at the end of the year was inadvertently overstated. Which of the following statements correctly states the
effect of the error on net income, assets, and stockholders’ equity?
a.
net income is overstated, assets are overstated, and stockholders’ equity is understated
b.
net income is overstated, assets are overstated, and stockholders’ equity is overstated
c.
net income is understated, assets are understated, and stockholders’ equity is understated
d.
net income is understated, assets are understated, and stockholders’ equity is overstated
ANSWER:
b
POINTS:
1
DIFFICULTY:
Moderate
Bloom’s: Remembering
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.06-07 – LO: 06–07
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.17 – Inventories Reporting
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:20 PM
DATE MODIFIED:
10/16/2017 5:09 PM
99. Inventory at the end of the year was understated. Which of the following statements correctly states the effect of the
error?
a.
net income is understated
b.
net income is overstated
c.
cost of goods sold is understated
d.
inventory reported on the balance sheet is overstated
ANSWER:
a
POINTS:
1
DIFFICULTY:
Moderate
Bloom’s: Remembering
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.06-07 – LO: 06–07
Chapter 06 – Inventories
Copyright Cengage Learning. Powered by Cognero.
Page 43
a.
Merchandise purchased FOB shipping point was picked up by the freight company but had still not arrived at
Kristin’s Boutique as of December 31.
b.
Kristin has in its warehouse merchandise on consignment from Abby Co.
c.
Kristin has sent merchandise to various retailers on a consignment basis.
d.
Kristin has inventory on hand which has been returned by customers because of wrong size.
ANSWER:
b
POINTS:
1
DIFFICULTY:
Moderate
Bloom’s: Remembering
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.06-07 – LO: 06–07
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.17 – Inventories Reporting
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:20 PM
DATE MODIFIED:
10/16/2017 5:09 PM
103. During the taking of its physical inventory on December 31, 2014, Barry’s Bike Shop incorrectly counted its
inventory as $350,000 instead of the correct amount of $280,000. The effect on the balance sheet and income statement
would be
a.
assets overstated by $70,000; retained earnings understated by $70,000; and net income statement understated
by $70,000
b.
assets overstated by $70,000; retained earnings understated by $70,000; and no effect on the income statement
c.
assets, retained earnings, and net income all overstated by $70,000
d.
assets and retained earnings overstated by $70,000; and net income understated by $70,000
ANSWER:
c
POINTS:
1
DIFFICULTY:
Moderate
Bloom’s: Applying
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.06-07 – LO: 06–07
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.17 – Inventories Reporting
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:20 PM
DATE MODIFIED:
10/16/2017 5:09 PM
104. If a company mistakenly counts more items during a physical inventory than actually exist, how will the error affect
their bottom line?
a.
no change to net income
b.
net income will be overstated
c.
net income will be understated
d.
only gross profit will be affected
ANSWER:
b
Chapter 06 – Inventories
Copyright Cengage Learning. Powered by Cognero.
Page 46
ANSWER:
b
POINTS:
1
DIFFICULTY:
Bloom’s: Remembering
Easy
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.06-07 – LO: 06–07
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.17 – Inventories Reporting
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:20 PM
DATE MODIFIED:
10/16/2017 5:09 PM
110. Excess inventory results in all of the following except
a.
tied-up funds that could be used to improve operations
b.
lost sales
c.
increased storage expense
d.
increased risk of loss due to damage
ANSWER:
b
POINTS:
1
DIFFICULTY:
Bloom’s: Remembering
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.06-07 – LO: 06–07
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.17 – Inventories Reporting
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:20 PM
DATE MODIFIED:
10/16/2017 5:09 PM
111. The number of days’ sales in inventory measures
a.
the length of time it takes to acquire, sell, and replace the inventory
b.
the length of time it takes to acquire and receive payment for the inventory
c.
the number of days inventory is on hand prior to sale
d.
the number of days inventory takes to arrive after ordering
ANSWER:
a
POINTS:
1
DIFFICULTY:
Bloom’s: Remembering
Easy
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.06-07 – LO: 06–07
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.17 – Inventories Reporting
ACCT.AICPA.FN.03 – Measurement
Copyright Cengage Learning. Powered by Cognero.
Page 48
114. The method of estimating inventory that uses records of the selling prices of the merchandise is called
a.
retail method
b.
gross profit method
c.
inventory turnover method
d.
average cost method
ANSWER:
a
POINTS:
1
DIFFICULTY:
Bloom’s: Remembering
Easy
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.06-APP – LO: 06-APP
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.17 – Inventories Reporting
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:20 PM
DATE MODIFIED:
10/16/2017 5:09 PM
115. On the basis of the following data, what is the estimated cost of the inventory on May 31 using the retail method?
Cost
Retail
May 1
Inventory
$125,000
$166,667
May 1-31
Purchases
235,000
313,333
May 1-31
Sales
230,000
a.
$250,000
b.
$360,000
c.
$172,500
d.
$187,500
ANSWER:
d
RATIONALE:
Merchandise available for sale = Inventory, May 1 + Purchases
Merchandise available for sale at cost = $125,000 + $235,000 = $360,000
Merchandise available for sale at retail = $166,667 + $313,333 = $480,000
Ratio of cost to retail price = $360,000 ÷ $480,000 = 75%
Inventory, May 31, at retail = Merchandise available for sale at retail – Sales for May
= $480,000 – $230,000 = $250,000
Inventory, May 31, at cost = Inventory, May 31, at retail × Ratio of cost to retail price
= $250,000 × 75% = $187,500
POINTS:
1
DIFFICULTY:
Bloom’s: Applying
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.06-APP – LO: 06-APP
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.17 – Inventories Reporting
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic