Chapter 8 & 9 MCQ McGraw Hill

Companies that purchase inventories that are primarily in finished form for resale to customers are known as:

Merchandising companies

Using a perpetual inventory system, the purchase of inventory on account is recorded with a:

Debit to inventory

In a perpetual inventory system, if merchandise is returned to a supplier:

Inventory is credited

Symington Corporation uses the periodic inventory system. At December 31, Year 1, the end of the company's fiscal year, a physical count of inventory revealed an ending inventory balance of $320,000. The following items were <em>not</em> included in the physical count:</p><table style="min-width: 50px;"><colgroup><col style="min-width: 25px;"><col style="min-width: 25px;"></colgroup><tbody><tr><th colspan="1" rowspan="1" style="margin: 0px; padding: 0px 0px 0px 15px; font: inherit; width: 820px; vertical-align: middle; text-align: left;"><p>Goods held on consignment at Murphy Corporation</p></th><td colspan="1" rowspan="1" style="margin: 0px; padding: 0px 10px 0px 0px; font: inherit; vertical-align: middle; width: 90px; text-align: right;"><p>$ 23,000

Merchandise shipped to a customer on 12/30/Year 1 free on board destination (merchandise arrived at customer's location on 1/3/Year 2)

12,000

Merchandise shipped to a customer on 12/29/Year 1 free on board shipping point (merchandise arrived at customer's location on 1/2/Year 2)

6,000

Merchandise purchased from a supplier, shipped free on board destination
on 12/29/Year 1, in transit at year-end

24,000

Symington's Year 1 ending inventory should be:

$365,000

Under the gross method of accounting for purchases:

All of the other answer choices are correct

A company purchases inventory on account for $45,000 with terms 2/10, n/30. Under the net method of accounting for purchases, the purchase would be recorded at:

$44,100

Sanfillipo, Incorporated, had 800 units of inventory on hand at March 1 of the current year, costing $20 each. Purchases and sales of inventory during the month of March were as follows:

Date	Purchases	Sales
March 8		600	units
March 15	400 units @ $22 each
March 22	400 units @ $24 each
March 27		400	unit

Sanfillipo uses the periodic inventory system. According to a physical count, 600 units were on hand at the end of March.

The cost of inventory at the end of March applying the FIFO method is:

$14,000

Sanfillipo, Incorporated, had 800 units of inventory on hand at March 1 of the current year, costing $20 each. Purchases and sales of inventory during the month of March were as follows:

Date	Purchases	Sales
March 8		600	units
March 15	400 units @ $22 each
March 22	400 units @ $24 each
March 27		400	units

Sanfillipo uses the periodic inventory system. According to a physical count, 600 units were on hand at the end of March.

The cost of inventory at the end of March applying the LIFO method is:

$12,000

Sanfillipo, Incorporated, had 800 units of inventory on hand at March 1 of the current year, costing $20 each. Purchases and sales of inventory during the month of March were as follows:

Date	Purchases	Sales
March 8		600	units
March 15	400 units @ $22 each
March 22	400 units @ $24 each
March 27		400	units

Sanfillipo uses the periodic inventory system. According to a physical count, 600 units were on hand at the end of March.

The cost of inventory at the end of March applying the average cost method is:

$12,900

Which inventory method typically most closely matches the actual flow of inventory being sold?

FIFO

In a period of declining costs, the use of which of the following inventory cost methods would result in the highest ending inventory?

LIFO

Identify the statement below concerning the LIFO inventory method that is untrue.

The ending inventory under LIFO will tend to approximate replacement cost

In Year 1, a company reports inventory under LIFO for the amount of $128,000. Inventory would have been reported for $140,000 if the company had reported using FIFO. In Year 2, the company calculates ending inventory under LIFO to be $137,000 and under FIFO to be 155,000. Which of the following correctly records the LIFO reserve adjusting entry at the end of Year 2?

Debit cost of goods sold and credit LIFO reserve for $6,000

A company had a decrease in the LIFO reserve during the year from $40,000 to $30,000. Which of the following would be true (ignore tax effects)?

All of the other answers are true

For its fiscal year, the King Pharmaceutical Company reported sales of $10,500,000, cost of goods sold of $6,300,000, and net income of $525,000. The company's gross profit ratio for the year is:

40%

For companies that use FIFO, average cost, or any method other than LIFO or retail inventory method, inventory is valued at:

The lower of cost or net realizable value

For purposes of accounting for inventory, net realizable value is defined as:

Estimated selling price less any costs of completion, disposal, and transportation

The following information pertains to one item of inventory of the Simon Company:

	Per unit
Cost	$ 180
Replacement cost	150
Selling price	195
Costs to sell	35

Applying the lower of cost or net realizable value rule, this item should be valued at:

$160

Consider the following information pertaining to a company’s inventory:

Product	Quantity	Cost	Net Realizable Value
Revolvers	16	$ 120	$ 150
Spurs	23	27	22
Hats	12	56	40

Applying the lower of cost or net realizable value rule to individual inventory items, at what amount should the company report its inventory?

$2,906

When reporting inventory using the lower of cost or market method, market should not be less than:

Net realizable value less a normal profit margin

When reporting inventory using the lower of cost or market method, market should not be more than:

Net realizable value

Application of the lower of cost or market method is an example of which practice in accounting:

Conservatism

The difference in the calculation of the cost-to-retail percentage applying the conventional retail method and the average cost method is that the average cost method:

Includes markdowns

The difference in the calculation of the cost-to-retail percentage applying the LIFO method and the average cost method is that the average cost method:

Includes beginning inventory

For the retail inventory method, normal spoilage of inventory is treated as:

Deducted in the retail column after calculating the cost-to-retail ratio

If a company overstates its ending balance of inventory in Year 1 and it records inventory correctly in year Year 2, which one of the following is true?

Retained earnings is overstated in Year 1