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Exam 8: Inventories and the Cost of Goods Sold

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Question 51

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Which of the four inventory cost flow assumptions is best suited to inventories of high-priced, low-volume items?

A) LIFO.
B) FIFO.
C) Average.
D) Specific identification.

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Question 52

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If an error in valuing inventory occurs in one year:

A) It has no effect upon income in the following year.
B) It has no effect upon the income statement, only on the balance sheet.
C) It is self-correcting after two years.
D) Retained earnings will be adversely affected until corrected.

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Question 53

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Gross profit rate is equal to.

Companies with periodic inventory systems often use techniques such as the gross profit method and the retail method to:

The primary purpose for using an inventory flow assumption is to:

Trent Department Store uses a perpetual inventory system but adjusts its inventory records at year-end to reflect the results of a complete physical inventory. In the physical inventory taken at the ends of 2010 and 2011, Trent's employees failed to count the merchandise in the store's window display. The cost of this merchandise amounted to $13,000 at the end of 2010, and $19,000 at the end of 2011. As a result of these errors, the cost of goods sold for 2005 will be:

The logic behind the lower-of-cost-or-market rule is:

Many companies state in their annual reports that inventory is shown at the lower of its cost or market value. This means that the inventory:

Just-in-time inventory systems cannot be used in conjunction with LIFO.

A store that sells expensive custom-made jewelry is most likely to determine its cost of goods sold using:

When goods for sale are not homogeneous in nature, it is not necessary to use the specific identification method of accounting for inventory.

If all things are equal, except one company uses LIFO during inflation and the other uses FIFO, then:

Sherman Electric uses a periodic inventory system. The beginning inventory of a particular product, and the purchases during the current year, were as follows: At December 31, the ending inventory of this product consisted of 65 units. Using periodic costing procedures, determine (1) cost of the year-end inventory and, (2) cost of goods sold relating to this product under each of the following flow assumptions:

The total amount debited to the Inventory account during January was:

Salerno Co. has an inventory turnover rate of 7 and an accounts receivable turnover rate of 5. Assuming 365 days in a year, the period of time required for Salerno to convert its inventory into cash through normal business operations is approximately:

Carl Equipment's inventory turnover rate is:

Because of the consistency principle, inventory should never be written down below cost.

In a periodic inventory system, overstating the amount of ending inventory will cause an understatement of gross profit in the following year.

Assume that the replacement cost of this monitor at year-end is $210 per unit. Using LIFO flow assumption and the lower-of-cost-or-market rule, the ending inventory amounts to:

In a perpetual inventory system, the flow of inventory cost is first through the balance sheet then through the income statement.