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1 | |
Which of the following inventory cost flow methods would an automobile dealership most likely use for its new car sales? (LO 1) |
| | A) | FIFO |
| | B) | LIFO |
| | C) | Weighted average |
| | D) | Specific identification |
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2 | |
Which of the following methods describes the usual physical flow of inventory? (LO 1) |
| | A) | FIFO |
| | B) | LIFO |
| | C) | Weighted average |
| | D) | Specific identification |
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3 | |
Use the following information to answer questions 3, 4, 5, and 6:
The following selected financial information relates to Ferguson Company’s beginning inventory, inventory purchases, and sale of inventory for 2005. Ferguson paid cash for the inventory purchases at the time of purchase. 01/01/2005 | Beginning inventory | 15 units | @ $ 48 | $ 720 | 05/15/2005 | First purchase | 20 units | @ $ 50 | 1,000 | 09/30/2005 | Second purchase | 10 units | @ $ 53 | 530 | | Total | 45 units | | $ 2,250 | | | | | | 10/05/2005 | Sales | 40 units | @ $ 85 | $ 3,400 |
What is the cost of goods sold using the LIFO cost flow method? (LO 2) |
| | A) | $1,530 |
| | B) | $1,985 |
| | C) | $2,010 |
| | D) | $2,250 |
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4 | |
What is the impact of the inventory purchases on the statement of cash flows if the LIFO cost flow method is used? (LO 2) |
| | A) | $1,530 |
| | B) | $1,985 |
| | C) | $2,010 |
| | D) | $2,250 |
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5 | |
What is the cost of goods sold using the FIFO cost flow method? (LO 2) |
| | A) | $1,985 |
| | B) | $2,000 |
| | C) | $2,010 |
| | D) | $2,250 |
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6 | |
What is the gross margin using the weighted-average cost flow method? (LO 2) |
| | A) | $1,150 |
| | B) | $1,390 |
| | C) | $1,400 |
| | D) | $1,415 |
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7 | |
Use the following information to answer questions 7, 8, and 9: The following selected financial information relates to Morrison Company's beginning inventory, inventory purchases, and sale of inventory for 2005: 01/01/2005 | Beginning inventory | 35 units | @ $ 26 | $ 910 | 04/24/2005 | First purchase | 75 units | @ $ 24 | 1,800 | 10/16/2005 | Second purchase | 60 units | @ $ 20 | 1,200 | | Total available | 170 units | | $ 3,910 | | | | | | 11/15/2005 | Sales | 120 units | @ $ 50 | $ 6,500 |
What is the ending inventory using the LIFO cost flow method? (LO 2) |
| | A) | $1,000 |
| | B) | $1,150 |
| | C) | $1,270 |
| | D) | $1,300 |
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8 | |
What is the ending inventory using the FIFO cost flow method? (LO 2) |
| | A) | $1,000 |
| | B) | $1,150 |
| | C) | $1,270 |
| | D) | $1,300 |
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9 | |
What is the ending inventory using the weighted-average cost flow method? (LO 2) |
| | A) | $1,000 |
| | B) | $1,150 |
| | C) | $1,270 |
| | D) | $1,300 |
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10 | |
In a deflationary environment (falling inventory prices), which inventory cost flow method will produce the highest net income? (LO 1) |
| | A) | FIFO |
| | B) | LIFO |
| | C) | Weighted average |
| | D) | Specific identification |
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11 | |
In a deflationary environment (falling inventory prices), which inventory cost flow method will produce the lowest ending inventory amount? (LO 1) |
| | A) | FIFO |
| | B) | LIFO |
| | C) | Weighted average |
| | D) | Specific identification |
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12 | |
In an inflationary environment (rising inventory prices), which inventory cost flow method will require the largest cash payment for income taxes? |
| | A) | FIFO |
| | B) | LIFO |
| | C) | Weighted average |
| | D) | Specific identification |
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13 | |
How does a company apply the lower-of-cost-or-market valuation rule to its inventory? (LO 3) |
| | A) | To each individual inventory item. |
| | B) | To major classes or categories of inventory. |
| | C) | To the entire stock of inventory in the aggregate (in total). |
| | D) | Any of these methods may be used. |
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14 | |
Harrison Corporation has the following inventory-related information at the end of 2005: Item | Quantity | Unit Cost | Unit Market | A | 60 | $12 | $10 | B | 30 | $20 | $18 | C | 45 | $30 | $28 | D | 20 | $16 | $19 |
If Harrison Corporation applies the lower-of-cost-or-market rule to each individual item , by what amount, if any, will Harrison have to adjust its inventory value? (LO 3) |
| | A) | $ -0- |
| | B) | $ 210 |
| | C) | $ 270 |
| | D) | $2,780 |
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15 | |
Washington Company's applies the lower-of-cost-or-market rule to each individual item in its ending inventory. The company determines that it must write down its inventory by $4,200. Which of the following answers reflects how this inventory write-down would affect Washington 's financial statements? (LO 3) | | Assets | = | Liab. | + | Equity | | Rev. | – | Exp. | = | Net Inc. | | Cash Flow | | | | | | | | | | | | | | | | | | a. | | 4,200 | = | n/a | + | 4,200 | | 4,200 | – | n/a | = | 4,200 | | n/a | | b. | | (4,200) | = | n/a | + | (4,200) | | n/a | – | 4,200 | = | (4,200) | | (4,200) OA | | c. | | (4,200) | = | n/a | + | (4,200) | | n/a | – | n/a | = | n/a | | (4,200) OA | | d. | | (4,200) | = | n/a | + | (4,200) | | n/a | – | 4,200 | = | (4,200) | | n/a | | | | | | | | | | | | | | | | | |
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| | A) | a. | | 4,200 | = | n/a | + | 4,200 | | 4,200 | – | n/a | = | 4,200 | | n/a | |
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| | B) | b. | | (4,200) | = | n/a | + | (4,200) | | n/a | – | 4,200 | = | (4,200) | | (4,200) OA | |
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| | C) | c. | | (4,200) | = | n/a | + | (4,200) | | n/a | – | n/a | = | n/a | | (4,200) OA | |
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| | D) | d. | | (4,200) | = | n/a | + | (4,200) | | n/a | – | 4,200 | = | (4,200) | | n/a | |
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16 | |
Which of the following is an incorrect statement? (LO 4) |
| | A) | A discrepancy between the perpetual inventory account and the physical inventory account may indicate the presence of fraud. |
| | B) | The same individual should record inventory transactions and count the inventory to reduce the likelihood of an inventory-related fraud occurrence. |
| | C) | Inventory is often the largest single asset reported on the balance sheet of a merchandising business. |
| | D) | Cost of goods sold is normally the largest single expense on the balance sheet of a merchandising business. |
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17 | |
An understatement of cost of goods sold results in an (LO 4) |
| | A) | Understatement of the ending inventory. |
| | B) | Understatement of net earnings. |
| | C) | Overstatement of the sales revenue. |
| | D) | Overstatement of gross margin. |
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18 | |
The following information is from the 2005 accounting records of Nelson Company: Sales revenue | $ 575,000 | Beginning inventory ( 1/1/2005 ) | $ 254,000 | Purchases | $ 366,000 | Historical gross margin ratio | 40% |
What is the estimated cost of Nelson Company's 2005 ending inventory using the gross margin method? (LO 5) |
| | A) | $ 45,000 |
| | B) | $248,000 |
| | C) | $275,000 |
| | D) | $390,000 |
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19 | |
Selected financial information for Davis Corporation is shown below: Sales revenue | $ 440,000 | Cost of goods sold | 250,000 | Gross margin | 190,000 | Inventory | 40,000 |
What is the average number of days to sell inventory (average days in inventory ratio) for Davis Corporation? (Round your answer to two decimal places) (LO 6) |
| | A) | 4.75 |
| | B) | 6.25 |
| | C) | 58.40 |
| | D) | 76.84 |
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20 | |
Which of the following is an incorrect statement? (LO 7) (Appendix) |
| | A) | An investor receives a debt security when assets are loaned to the investee. |
| | B) | The most common types of equity securities are common stock and preferred stock. |
| | C) | Transactions between the investor and the investee constitute the secondary securities market. |
| | D) | Securities that regularly trade in established secondary markets are called marketable securities. |
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21 | |
Nelson Incorporated purchased marketable securities and recorded the transaction in its financial statements as follows: | Assets | = | Liab. | + | Equity | | Rev. | – | Exp. | = | Net Inc. | | Cash Flow | | | Cash | + | Investment | | | | | | | | | | | | | | | (10,000) | + | 10,000 | = | n/a | + | n/a | | n/a | – | n/a | = | n/a | | (10,000) OA | |
Based on this information, how is Nelson classifying these securities? (LO 7) (Appendix) |
| | A) | As trading securities |
| | B) | As available-for-sale securities |
| | C) | As held-to-maturity securities |
| | D) | Cannot determine from the information provided |
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22 | |
Granger Company purchased securities during 2005 for $15,000. At the end of 2005, these securities have a fair value of $16,500. The effect of this increased value affected Granger's financial statements as follows: | | Assets | = | Liab. | + | Equity | | Rev. or | | Exp. or | | Net | | Cash | | | Inv. Sec. | | | + | Ret. Earn. | + | Unreal. Gain | | Gain | – | Loss | = | Income | | Flow | | | 1,500 | = | n/a | + | n/a | + | 1,500 | | n/a | – | n/a | = | n/a | | n/a |
Based on this information, how is Granger classifying these securities? (LO 7) (Appendix) |
| | A) | As trading securities |
| | B) | As available-for-sale securities |
| | C) | As held-to-maturity securities |
| | D) | Cannot determine from the information provided |
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23 | |
Granger Company purchased securities during 2005 for $15,000. At the end of 2005, these securities have a fair value of $16,500. The effect of this increased value affected Granger's financial statements as follows: | | Assets | = | Liab. | + | Equity | | Rev. or | | Exp. or | | Net | | Cash | | | Inv. Sec. | | | + | Ret. Earn. | + | Unreal. Gain | | Gain | – | Loss | = | Income | | Flow | | | 1,500 | = | n/a | + | 1,500 | + | n/a | | 1,500 | – | n/a | = | 1,500 | | n/a |
Based on this information, how is Granger classifying these securities? (LO 7) (Appendix) |
| | A) | As trading securities |
| | B) | As available-for-sale securities |
| | C) | As held-to-maturity securities |
| | D) | Cannot determine from the information provided |
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24 | |
Granger Company purchased securities during 2005 for $15,000. At the end of 2005, these securities have a fair value of $16,500. The effect of this increased value affected Granger's financial statements as follows: | | Assets | = | Liab. | + | Equity | | Rev. or | | Exp. or | | Net | | Cash | | | Inv. Sec. | | | + | Ret. Earn. | + | Unreal. Gain | | Gain | – | Loss | = | Income | | Flow | | | n/a | = | n/a | + | n/a | + | n/a | | n/a | – | n/a | = | n/a | | n/a |
Based on this information, how is Granger classifying these securities? (LO 7) (Appendix) |
| | A) | As trading securities |
| | B) | As available-for-sale securities |
| | C) | As held-to-maturity securities |
| | D) | Cannot determine from the information provided |
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