Question 1

Pali Grid Inc's controller discovered an error when comparing the count of ending inventory to the accounting records. This error must be corrected as soon as possible or the financial statements for that period will never be automatically corrected.

Accepted Answer

A) True 
 B)False

Question 2

Ending inventory for the year ended December 31, 2008, is overstated by $10,000. How will this affect net income for 2009?

Accepted Answer

A)  Net income for 2009 will be understated by $20,000.
B)  Net income for 2009 will be understated by $10,000.
C)  Net income for 2009 will be overstated by $10,000.
D)  Net income for 2009 will be overstated by $20,000.E) A) and B)
F) All of the above

Question 3

Charles Scrab Inc. has beginning inventory of $15,000, purchases of $25,000, and ending inventory of $10,000, sales of $75,000, operating expenses of $30,000, and a tax rate of 40% for 2008. An accounting clerk input the ending inventory as $12,000. What is the effect on 2008 net income?

Accepted Answer

A)  Net income will be $2,000 lower.
B)  Net income will be $1,200 lower.
C)  Net income will be $1,200 higher.
D)  Net income will be $2,000 higher.E) All of the above
F) A) and B)

Question 4

Unlike the periodic inventory system, the perpetual inventory system:

Accepted Answer

A)  does not require a physical count of the ending inventory.
B)  provides a continuous record of inventory on hand.
C)  includes only the inventory purchased for cash.
D)  is not required by GAAP.E) B) and C)
F) A) and D)

Question 5

The weighted- average cost per unit is calculated as the cost of goods sold divided by the number of units actually sold.

Accepted Answer

A) True 
 B)False

Question 6

The largest expense category on the income statement of most merchandising companies is:

Accepted Answer

A)  administrative expenses.
B)  cost of goods sold.
C)  selling expenses.
D)  other expenses.E) C) and D)
F) All of the above

Question 7

A widely used method for estimating the value of ending inventory is the:

Accepted Answer

A)  lower- of- cost- or- market method.
B)  gross profit method.
C)  perpetual method.
D)  periodic method.E) B) and D)
F) B) and C)

Question 8

When the LIFO method is used, cost of goods sold is assumed to consist of:

Accepted Answer

A)  units with the lowest per unit cost.
B)  oldest units.
C)  units with the highest per unit cost.
D)  most recently purchased units.E) A) and B)
F) None of the above

Question 9

How do purchase returns and allowances and purchase discounts affect net purchases?

Accepted Answer

A)  Both are added to purchases.
B)  Both are subtracted from purchases.
C)  Purchase returns and allowances are added to purchases; purchase discounts are subtracted from purchases.
D)  Purchase returns and allowances are subtracted from purchases; purchase discounts are added to purchases.E) B) and D)
F) C) and D)

Question 10

Happy House Corporation reported net sales of $425,000 for the current year. After the financial statements had been prepared, it was discovered that ending inventory had been understated by $25,000. If the tax rate is 40%, after the error has been corrected, net income will:

Accepted Answer

A)  never be correct, unless there is a correcting entry.
B)  be correct in the present year.
C)  not be corrected for two years.
D)  be correct in the next year.E) C) and D)
F) A) and B)

Question 11

A company whose inventory consists of very unique items would probably use which inventory method?

Accepted Answer

A)  Specific unit cost
B)  Weighted- average of only the unique items
C)  F- in, first- out
D)  Last- in, first- outE) A) and D)
F) A) and C)

Question 12

Given the following data, what is the cost of purchases?

Accepted Answer

A)  $465,000
B)  $370,000
C)  $475,000
D)  $595,000E) All of the above
F) A) and B)

Question 13

Deciding on which inventory method a company should use affects:

Accepted Answer

A)  the values of ratios reported from the balance sheet.
B)  the profits to be reported.
C)  the income taxes to be paid.
D)  all of the above.E) A) and C)
F) C) and D)

Question 14

The specific unit cost method is preferred by accountants because it is easy to use and fairly accurate.

Accepted Answer

A) True 
 B)False

Question 15

When prices are rising, a company using the FIFO costing method will generally pay less taxes than if the company had been using the LIFO method.

Accepted Answer

A) True 
 B)False

Question 16

If year- end inventory is reduced from cost to a lower replacement cost, which of the following accurately depicts the results?

Accepted Answer

A)  Cost of goods sold is increased and beginning inventory of the next period is decreased by the same amount.
B)  The capital account balance is increased and beginning inventory of the next period is reduced by the same amount.
C)  Cost of goods sold is reduced and beginning inventory of the next period is reduced by the same amount.
D)  Year- end inventory is reduced and cost of goods sold is reduced by the same amount.E) A) and B)
F) All of the above

Question 17

Overstating ending inventory in the current period will overstate the following year's net income.

Accepted Answer

A) True 
 B)False

Question 18

Beginning inventory for the year ended December 31, 2008, is understated. How will this error affect net income for 2008 and 2009?

Accepted Answer

A)  2008 overstated; 2009 no effect
B)  2008 understated; 2009 overstated
C)  2008 understated; 2009 no effect
D)  2008 overstated; 2009 understatedE) None of the above
F) C) and D)

Question 19

As the perpetual inventory system continuously updates the inventory account, a physical inventory count is necessary to prove the inventory records.

Accepted Answer

A) True 
 B)False

Question 20

The following data are for the Bi- Star Technologies for the year ended December 31, 2006: 0
  What is the estimated ending inventory?

Accepted Answer

A)  $635,000
B)  $ 10,000
C)  $167,500
D)  $840,000E) A) and B)
F) A) and D)

Exam 6: Inventory and Cost of Goods Sold

If year- end inventory is reduced from cost to a lower replacement cost, which of the following accurately depicts the results?

Correct AnswerverifiedShow Answer

Overstating ending inventory in the current period will overstate the following year's net income.

Correct AnswerverifiedShow Answer

Given the following data, what is the cost of purchases?

Correct AnswerverifiedShow Answer

The largest expense category on the income statement of most merchandising companies is:

Correct AnswerverifiedShow Answer

When prices are rising, a company using the FIFO costing method will generally pay less taxes than if the company had been using the LIFO method.

Correct AnswerverifiedShow Answer

Happy House Corporation reported net sales of $425,000 for the current year. After the financial statements had been prepared, it was discovered that ending inventory had been understated by $25,000. If the tax rate is 40%, after the error has been corrected, net income will:

Correct AnswerverifiedShow Answer

Beginning inventory for the year ended December 31, 2008, is understated. How will this error affect net income for 2008 and 2009?

Correct AnswerverifiedShow Answer

A company whose inventory consists of very unique items would probably use which inventory method?

Correct AnswerverifiedShow Answer

Pali Grid Inc's controller discovered an error when comparing the count of ending inventory to the accounting records. This error must be corrected as soon as possible or the financial statements for that period will never be automatically corrected.

Correct AnswerverifiedShow Answer

The weighted- average cost per unit is calculated as the cost of goods sold divided by the number of units actually sold.

Correct AnswerverifiedShow Answer

When the LIFO method is used, cost of goods sold is assumed to consist of:

Correct AnswerverifiedShow Answer

The specific unit cost method is preferred by accountants because it is easy to use and fairly accurate.

Correct AnswerverifiedShow Answer

A widely used method for estimating the value of ending inventory is the:

Correct AnswerverifiedShow Answer

As the perpetual inventory system continuously updates the inventory account, a physical inventory count is necessary to prove the inventory records.

Correct AnswerverifiedShow Answer

Ending inventory for the year ended December 31, 2008, is overstated by $10,000. How will this affect net income for 2009?

Correct AnswerverifiedShow Answer

The following data are for the Bi- Star Technologies for the year ended December 31, 2006: 0 What is the estimated ending inventory?

Correct AnswerverifiedShow Answer

How do purchase returns and allowances and purchase discounts affect net purchases?

Correct AnswerverifiedShow Answer

Charles Scrab Inc. has beginning inventory of $15,000, purchases of $25,000, and ending inventory of $10,000, sales of $75,000, operating expenses of $30,000, and a tax rate of 40% for 2008. An accounting clerk input the ending inventory as $12,000. What is the effect on 2008 net income?

Correct AnswerverifiedShow Answer

Deciding on which inventory method a company should use affects:

Correct AnswerverifiedShow Answer

Unlike the periodic inventory system, the perpetual inventory system:

Correct AnswerverifiedShow Answer

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