Claudia Voin
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Grade 12 Accounting Midterm Prep

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Claudia Voin
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Test 6 - Chapter 6 Costing Test

Question 1 of 50

1

All of the following are inventory costing methods except for

Select one of the following:

  • specific unit cost method

  • weighted-average cost method

  • FIFO cost method

  • LIFO cost method

Explanation

Question 2 of 50

1

This method of accounting for inventory assumes that the units acquired earliest are sold or used first

Select one of the following:

  • specific identification method

  • first in, last out

  • last in, first out

  • first in, first out

Explanation

Question 3 of 50

1

This method of accounting for inventory assumes that the units acquired most recently are sold or used first

Select one of the following:

  • specific identification method

  • first in, last out

  • last in, first out

  • last in, last out

Explanation

Question 4 of 50

1

The cost at which an inventory item could be acquired today is the

Select one of the following:

  • market price

  • replacement cost

  • acquisition cost

  • none of the above

Explanation

Question 5 of 50

1

Inventory costing methods place primary reliance on assumptions about the flow of

Select one of the following:

  • goods

  • costs

  • resale prices

  • values

Explanation

Question 6 of 50

1

The selection of an appropriate inventory cost flow assumption for an individual company is made by

Select one of the following:

  • the external auditors

  • Canada Revenue Agency

  • the internal auditors

  • management

Explanation

Question 7 of 50

1

The primary goals of inventory management include

Select one of the following:

  • maintaining a sufficient quantity of inventory to keep customers satisfied

  • maintaining a sufficient quality of inventory to keep customers satisfied

  • minimizing the costs associated with maintaining inventories

  • all of the above

Explanation

Question 8 of 50

1

A company just starting in business purchased three inventory items at the following prices: first purchase, $80; second purchase, $95; third purchase, $85. If the company sold two units for a total of $200 and used FIFO costing, the gross profit for the period would be

Select one of the following:

  • $25

  • $35

  • $20

  • $10

Explanation

Question 9 of 50

1

Which of the following would not be affected by the choice of costing methods?

Select one of the following:

  • net sales

  • cost of goods sold

  • gross profit

  • net income

Explanation

Question 10 of 50

1

In periods of rising prices, the inventory method which results in the highest gross profit is

Select one of the following:

  • the FIFO method

  • the LIFO method

  • the average cost method

  • not determinable

Explanation

Question 11 of 50

1

In a period of declining prices, which of the following inventory methods generally results in the lowest balance sheet figure for inventory?

Select one of the following:

  • average cost method

  • LIFO

  • FIFO

  • need more information to answer

Explanation

Question 12 of 50

1

Which inventory method generally results in cost allocated to ending inventory that will approximate their current cost?

Select one of the following:

  • LIFO

  • FIFO

  • average cost method

  • whichever method produces the highest ending inventory figure

Explanation

Question 13 of 50

1

The managers of Sera Company receive performance bonuses based on the net profit of the firm. Which inventory costing method are they likely to favour in periods of declining prices?

Select one of the following:

  • LIFO

  • average cost method

  • FIFO

  • physical inventory method

Explanation

Question 14 of 50

1

In periods of rising prices, LIFO will produce

Select one of the following:

  • higher net income than FIFO

  • the same net income as FIFO

  • lower net income than FIFO

  • higher net income than average cost method

Explanation

Question 15 of 50

1

Considerations that affect the selection of an inventory costing method do not include:

Select one of the following:

  • tax effects

  • balance sheet effects

  • income statement effects

  • perpetual versus periodic inventory system

Explanation

Question 16 of 50

1

The LCM rule for inventory is an example of the application of

Select one of the following:

  • conservatism principle

  • historical cost principle

  • materiality principle

  • economic entity principle

Explanation

Question 17 of 50

1

Which of these would cause the inventory turnover ratio to increase the most

Select one of the following:

  • increasing the amount of inventory on hand

  • keeping the amount of inventory on hand constant but increasing sales

  • keeping the amount of inventory on hand constant but decreases sales

  • decreasing the amount of inventory on hand but increasing sales

Explanation

Question 18 of 50

1

Wonder Corp. failed to record the purchase of merchandise on account. As a result, ending inventory was understated. What is the effect of these errors on assets, liabilities, capital, and net income, respectively?

Select one of the following:

  • understated, understated, no effect, no effect

  • understated, understated, understated, understated

  • understated, overstated, overstated, understated

  • overstated, overstated, understated, overstated

Explanation

Question 19 of 50

1

The specific ID method would probably be most appropriate for which of the following goods?

Select one of the following:

  • boxes of brass 4-inch drywall screws at Home Depot

  • bottles of suntan lotion in Wal-Mart's central warehouse

  • sets of tires at the Goodyear plant

  • diamond necklaces at a Tiffany's & Co. jewelry store

Explanation

Question 20 of 50

1

Gerber Department Store utilizes the retail inventory method. Gerber's beginning inventory cost $140 000 and retailed for $280 000. Purchases for the period amounted to $390 000 and were priced to sell at twice that amount. Sales for the period, at retail, were $600 000. How much is the cost of ending inventory?

Select one of the following:

  • 115 000

  • 150 000

  • 230 000

  • 300 000

Explanation

Question 21 of 50

1

Which inventory costing method generally results in the most recent costs being assigned to ending inventory?

Select one of the following:

  • LIFO

  • FIFO

  • average cost

  • all of the above

Explanation

Question 22 of 50

1

The 2014 records of Thompson Co. showed beginning inventory, $6 000; cost of goods sold, $14 000; and ending inventory, $8 000. The cost of purchases for 2014 was

Select one of the following:

  • 12 000

  • 10 000

  • 9 000

  • 16 000

Explanation

Question 23 of 50

1

Which of the following statements is true with regards to all inventory costing methods?

Select one of the following:

  • The ending inventory balance and cost of goods sold move in the same direction

  • The ending inventory balance and cost of total assets move in the opposite direction

  • The ending inventory balance and net income move in the same direction

  • all of the above

Explanation

Question 24 of 50

1

An adjustment to ending inventory under the LCM rule would be most likely to be recorded by a company that sells

Select one of the following:

  • plastic storage containers

  • paper clips

  • body lotion

  • designer clothes

Explanation

Question 25 of 50

1

When the LCM rule requires an inventory adjustment

Select one of the following:

  • the adjustment usually, but not always, reduces the book value of inventory

  • the write off is usually reported as a selling expense or part of cost of goods sold

  • the inventory adjustment is recorded in a contra-revenue account called sales allowances

  • all of the above

Explanation

Question 26 of 50

1

A rising balance in the inventory account and a falling inventory turnover ratio implies that the inventory buildup is occurring because

Select one of the following:

  • goods are not selling as fast as anticipated

  • the company is expecting to sell more in the future

  • goods are selling, but it is taking longer to collect payment

  • goods cannot be shipped fast enough

Explanation

Question 27 of 50

1

Which of the following companies would be least concerned about a low inventory ratio?

Select one of the following:

  • A fish market selling fish

  • A hardware company selling drywall screws

  • A dairy company selling butter and milk

  • A semiconductor company selling microchips

Explanation

Question 28 of 50

1

Because LIFO uses older costs for inventory, in times of rising prices:

Select one of the following:

  • LIFO results in a higher book value of inventory and lower inventory turnover ratio than FIFO

  • LIFO results in a lower book value of inventory and a lower inventory turnover ratio than FIFO

  • LIFO results in a higher book value of inventory and a higher inventory turnover ratio than FIFO

  • LIFO results in a lower book value of inventory and a higher inventory turnover ratio than FIFO

Explanation

Question 29 of 50

1

Which of the following inventory cost flow methods would an auto dealership most likely use for its new car sales?

Select one of the following:

  • FIFO

  • LIFO

  • AVG Cost

  • Specific Identification

Explanation

Question 30 of 50

1

In an inflationary environment in Canada, which inventory cost flow method will require the smallest cash payment for income taxes?

Select one of the following:

  • FIFO

  • LIFO

  • AVG Cost

  • not determinable

Explanation

Question 31 of 50

1

Carrington Company applies the LCM rule to each individual item in its ending inventory. The company determines that it must write down its inventory by $4 000. Which of the following answers reflects how this would effect the statements? (Assets = Liabilities + Equity; Revenue - Expenses = Net Income)

Select one of the following:

  • (4 000) = n/a + (4 000); n/a - 4 000 = (4 000)

  • (4 000) = 4 000 + n/a; n/a - 4 000 = (4 000)

  • (4 000) = n/a + (4 000); n/a - n/a = n/a

  • 4 000 = n/a + 4 000; 4 000 - n/a = 4 000

Explanation

Question 32 of 50

1

An overstatement of ending inventory results in an

Select one of the following:

  • overstatement of cost of goods sold

  • overstatement of gross profit

  • overstatement of sales revenue

  • understatement of net income

Explanation

Question 33 of 50

1

The following info is from the 2014 accounting records of Odom Company: Sales Revenue = $625 000; Beginning Inventory = $254 000; Purchases = $366 000; Historical Gross Profit Margin = 40%
What is the estimated gross profit?

Select one of the following:

  • $156 000

  • $250 000

  • $269 000

  • $375 000

Explanation

Question 34 of 50

1

The ? principle states that a company should use the same accounting methods and procedures from one period to the next.

Select one of the following:

  • conservatism

  • consistency

  • full disclosure

  • materiality

Explanation

Question 35 of 50

1

An undiscovered inventory error usually affects:

Select one of the following:

  • two reporting periods

  • the balance sheet of the first period but not the balance sheet of the second period

  • the income statements of both periods

  • all of the above are true

Explanation

Question 36 of 50

1

When using the FIFO inventory method, the most recent inventory costs will be found on the

Select one of the following:

  • balance sheet

  • income statement

  • statement of OE

  • cash flow statement

Explanation

Question 37 of 50

1

Use the following info for this question: Beginning Inventory: 10 units, $10 each; January 20 Purchase: 10 units, $20 each; January 30 Purchase: 5 units, $30 each. 15 of the 25 are sold. Calculate cost of goods sold using FIFO.

Select one of the following:

  • 150

  • 200

  • 350

  • none of the above

Explanation

Question 38 of 50

1

Use the following info for this question: Beginning Inventory: 10 units, $10 each; January 20 Purchase: 10 units, $20 each; January 30 Purchase: 5 units, $30 each. 15 of the 25 are sold. Calculate cost of goods sold using LIFO.

Select one of the following:

  • 200

  • 350

  • 450

  • none of the above

Explanation

Question 39 of 50

1

Use the following info for this question: Beginning Inventory: 10 units, $10 each; January 20 Purchase: 10 units, $20 each; January 30 Purchase: 5 units, $30 each. 15 of the 25 are sold. Calculate cost of goods sold using average cost.

Select one of the following:

  • 200

  • 270

  • 300

  • none of the above

Explanation

Question 40 of 50

1

In a period of rising prices, all of the following statements are true regarding LIFO except:

Select one of the following:

  • most recent inventory costs are allocated to cost of goods sold

  • ending inventory is generally undervalued

  • the ending inventory figure represents replacement value

  • all of the above are true

Explanation

Question 41 of 50

1

In a period of falling prices, all of the following statements are true regarding FIFO except:

Select one of the following:

  • the units purchased earlier in the period are allocated to cost of goods sold

  • the lower priced units are allocated to ending inventory

  • the ending inventory figure represents replacement value

  • net income is generally higher

Explanation

Question 42 of 50

1

Use the following information:
May 1 Beginning Inventory: 50 units @ $20
May 7 Purchases: 40 units @ $25
May 18 Sales: 60 units
May 22 Purchases: 10 units @ $30
May 29 Sales: 25 units
What is the ending inventory using the LIFO method?

Select one of the following:

  • $300

  • $1 875

  • $425

  • $2 000

Explanation

Question 43 of 50

1

Use the following information:
May 1 Beginning Inventory: 50 units @ $20
May 7 Purchases: 40 units @ $25
May 18 Sales: 60 units
May 22 Purchases: 10 units @ $30
May 29 Sales: 25 units
What is the ending inventory using the AVG cost method?

Select one of the following:

  • $375

  • $1 955

  • $2 125

  • $345

Explanation

Question 44 of 50

1

Use the following information:
May 1 Beginning Inventory: 50 units @ $20
May 7 Purchases: 40 units @ $25
May 18 Sales: 60 units
May 22 Purchases: 10 units @ $30
May 29 Sales: 25 units
What is the ending inventory using the FIFO method?

Select one of the following:

  • $300

  • $1 875

  • $425

  • $2 000

Explanation

Question 45 of 50

1

Use the following info to compute gross profit. Sales price of merchandise sold to customers is $10 000, beginning inventory $1 000, inventory purchases $4 000, and cost of goods sold $3 000.

Select one of the following:

  • $2 000

  • $5 000

  • $7 000

  • none of the above

Explanation

Question 46 of 50

1

Errors may arise in the process of counting inventory. Assume some inventory is accidentally counted twice. All of the following statements are true except:

Select one of the following:

  • this accounting period's cost of goods sold will be overstated

  • this accounting period's net income will be overstated

  • next accounting period's net income will be understated

  • next accounting period's ending OE will be correct

Explanation

Question 47 of 50

1

Which inventory method generally best follows the matching rule?

Select one of the following:

  • whichever method is used for tax purposes

  • average cost

  • FIFO

  • LIFO

Explanation

Question 48 of 50

1

During periods of declining prices, which inventory method probably will result in the lowest ending inventory?

Select one of the following:

  • average cost

  • specific ID

  • FIFO

  • LIFO

Explanation

Question 49 of 50

1

Insurance companies often verify the extent of inventory lost or destroyed by applying the

Select one of the following:

  • specific ID method

  • retail method

  • LCM method

  • gross profit method

Explanation

Question 50 of 50

1

Which of the following statement is true of inventory errors?

Select one of the following:

  • if the error counterbalances, it does not have to be disclosed

  • a counterbalancing error impacts on two income statements and one balance sheet

  • a counterbalancing error impacts on two balance sheets and one income statement

  • none of the above are true

Explanation

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