Chapter 8 Flashcards


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1

Manufacturing companies have two inventory accounts: Work in Process and Finished Goods.
A. True
B. False

B. False

2

Merchandising concerns report the cost assigned to unsold units left on hand as finished goods inventory.
A. True
B. False

B. False

3

Which of the following would be included in the balance sheet of a merchandiser?
A.
Finished Goods Inventory.
B.
Merchandise Inventory.
C.
Raw Materials Inventory.
D.
Work in Process Inventory.

B.
Merchandise Inventory.

4

Which of the following would not be included in a manufacturing company's balance sheet?
A.
Finished goods inventory.
B.
Merchandise inventory.
C.
Raw materials inventory.
D.
Work in process inventory.

B.
Merchandise inventory.

5

A physical inventory is only required at year-end if the company has a periodic inventory system.
A. True
B. False

B. False

6

Which of the following accounts does not exist in a perpetual inventory system?
A.
Inventory.
B.
Cost of Goods Sold.
C.
Sales Returns and Allowances.
D.
Purchases.

D.
Purchases.

7

All of the following accounts are used under a perpetual inventory system except:
A.
Cost of Goods Sold.
B.
Inventory.
C.
Purchase Discounts Lost.
D.
Sales.

C.
Purchase Discounts Lost.

8

Under a perpetual which accounts should be debited the each time a sale on account is made?
A.
Accounts Payable and Purchases.
B.
Accounts Receivable and Cost of Goods Sold.
C.
Inventory and Cost of Goods Sold.
D.
Accounts Receivable and Purchases.

B.
Accounts Receivable and Cost of Goods Sold.

9

If ending inventory is overstated, net income, retained earnings and working capital are overstated in that period as well.
A. True
B. False

A. True

10

If the beginning inventory is overstated:
A.
the current ratio is overstated.
B.
cost of goods sold is understated.
C.
retained earnings is understated.
D.
working capital is understated.

C.
retained earnings is understated.

11

Drago Inc. is a calendar-year corporation. Its financial statements for the years 2012 and 2011 contained errors as follows:

2012

2011
Ending inventory $6,000 overstated
$12,000 overstated
Depreciation expense $4,000 understated
$9,000 overstated

Assume that the proper correcting entries were made at December 31, 2011. By how much will 2012 income before taxes be overstated or understated?
A. $2,000 understated
B. $5,000 overstated
C. $7,000 overstated
D. $10,000 overstated

Overstating ending inventory by $6,000 plus the understatement of depreciation expense by $4,000 overstates net income by $10,000. The 2011 errors are contained in retained earnings

12

On December 30, Crane Co. accepted delivery of merchandise which it purchased on account. As of December 31, Crane had recorded the purchase, but did not include the merchandise in its physical count of ending inventory. The effect of this on its financial statements for December 31 would be
A.
net income, current assets, and retained earnings were understated.
B.
net income was correct and current assets were understated.
C.
net income was understated and current liabilities were overstated.
D.
net income was overstated and current assets were understated.

A.
net income, current assets, and retained earnings were understated.

13

Storage costs are usually included in the value of the inventory.
A. True
B. False

B. False

14

Interest incurred while getting inventories ready for sale is a product cost.
A. True
B. False

B. False

15

Both U.S. GAAP and IFRS permit the use of the LIFO method to account for inventories.
A. True
B. False

LIFO is not permitted under IFRS.

16

Which of the following should be not included in a company's ending inventory?
A.
In-transit goods purchased and shipped FOB shipping point.
B.
In-transit goods sold and shipped FOB destination.
C.
Goods held on consignment.
D.
Goods out on consignment.

C.
Goods held on consignment.

17

When goods are shipped FOB shipping point, title passes to the buyer when the seller delivers the goods to a common carrier.
A. True
B. False

A. True

18

A sale with a “buyback” agreement allows the seller to finance their inventory and retain the risks of ownership even though the technical title has been transferred.
A. True
B. False

A. True

19

Which of the following items should be included in a company's inventory at the balance sheet date?
A.
Goods in transit which were purchased f.o.b. shipping point.
B.
Goods received from another company for sale on consignment.
C.
Goods sold to a customer that is being held for the customer to call for at his or her convenience.
D.
Goods sold to a customer that was shipped f.o.b. shipping point.

A.
Goods in transit which were purchased f.o.b. shipping point.

20

Birmingham Corporation uses the perpetual inventory method. On May 1, it purchased $22,000 of inventory, terms 2/10, n/30. On May 3, Birmingham returned goods that cost $2,000. On May 9, Birmingham paid the supplier. On May 9, the company should credit
A.
purchase discounts for $440.
B.
inventory for $440.
C.
purchase discounts for $400.
D.
inventory for $400.

($22,000 - $2,000) X 2% = $400.

21

All of the following costs should be charged against revenue in the period in which the costs were incurred except for
A.
manufacturing overhead costs for a product manufactured and sold in the same accounting period.
B.
costs which will not benefit any future period.
C.
costs from idle manufacturing capacity resulting from an unexpected plant shutdown.
D.
costs of normal shrinkage and scrap incurred for the manufacture of a product in ending inventory.

D.
costs of normal shrinkage and scrap incurred for the manufacture of a product in ending inventory.

22

The buyer would report the inventory in its balance sheet for items:
A.
received on consignment.
B.
shipped f.o.b. destination and in transit.
C.
purchased with a buyback agreement.
D.
purchased f.o.b. shipping point and in transit.

D.
purchased f.o.b. shipping point and in transit.

23

Freight charges on goods sold are accounted for as:
A.
manufacturing costs.
B.
product costs.
C.
period costs.
D.
variable costs.

C.
period costs.

24

The use of a Purchase Discounts Lost account implies that the recorded cost of a purchased inventory item is its
A.
invoice price.
B.
invoice price plus the purchase discount lost.
C.
invoice price less the purchase discount taken.
D.
invoice price less the purchase discount allowable whether taken or not.

D.
invoice price less the purchase discount allowable whether taken or not.

25

In a period of rising prices, LIFO will result in a higher income tax expense than FIFO.
A. True
B. False

B. False

26

Jamison Manufacturing Company has the following account balances at year end:

Office supplies $6,000
Raw materials 21,000
Work-in-process 44,000
Finished goods 52,000
Prepaid insurance 8,000

What amount should Jamison report as inventories in its balance sheet?
A. $52,000.
B. $96,000.
C. $117,000.
D. $123,000.

$21,000 + $44,000 + $52,000 = $117,000.

27

An inventory pricing procedure in which the oldest costs incurred rarely have an effect on the ending inventory valuation is
A.
FIFO.
B.
LIFO.
C.
base stock.
D.
weighted-average.

A.
FIFO.

28

Jersey Company had 500 units of “CL-10” in its inventory at a cost of $4 each. It purchased, for $2,800, 300 more units of “CL-10”. Jersey then sold 400 units at a selling price of $10 each, resulting in a gross profit of $1,600. The cost flow assumption used by Jersey
A.
is FIFO.
B.
is LIFO.
C.
is weighted average.
D.
cannot be determined from the information given.

C.
is weighted average.