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Test 6 - Chapter 6 Costing Test

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Grade 12 Accounting Midterm Prep
Claudia Voin
Quiz by Claudia Voin, updated more than 1 year ago
Claudia Voin
Created by Claudia Voin over 9 years ago
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Question 1

Question
All of the following are inventory costing methods except for
Answer
  • specific unit cost method
  • weighted-average cost method
  • FIFO cost method
  • LIFO cost method

Question 2

Question
This method of accounting for inventory assumes that the units acquired earliest are sold or used first
Answer
  • specific identification method
  • first in, last out
  • last in, first out
  • first in, first out

Question 3

Question
This method of accounting for inventory assumes that the units acquired most recently are sold or used first
Answer
  • specific identification method
  • first in, last out
  • last in, first out
  • last in, last out

Question 4

Question
The cost at which an inventory item could be acquired today is the
Answer
  • market price
  • replacement cost
  • acquisition cost
  • none of the above

Question 5

Question
Inventory costing methods place primary reliance on assumptions about the flow of
Answer
  • goods
  • costs
  • resale prices
  • values

Question 6

Question
The selection of an appropriate inventory cost flow assumption for an individual company is made by
Answer
  • the external auditors
  • Canada Revenue Agency
  • the internal auditors
  • management

Question 7

Question
The primary goals of inventory management include
Answer
  • 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

Question 8

Question
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
Answer
  • $25
  • $35
  • $20
  • $10

Question 9

Question
Which of the following would not be affected by the choice of costing methods?
Answer
  • net sales
  • cost of goods sold
  • gross profit
  • net income

Question 10

Question
In periods of rising prices, the inventory method which results in the highest gross profit is
Answer
  • the FIFO method
  • the LIFO method
  • the average cost method
  • not determinable

Question 11

Question
In a period of declining prices, which of the following inventory methods generally results in the lowest balance sheet figure for inventory?
Answer
  • average cost method
  • LIFO
  • FIFO
  • need more information to answer

Question 12

Question
Which inventory method generally results in cost allocated to ending inventory that will approximate their current cost?
Answer
  • LIFO
  • FIFO
  • average cost method
  • whichever method produces the highest ending inventory figure

Question 13

Question
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?
Answer
  • LIFO
  • average cost method
  • FIFO
  • physical inventory method

Question 14

Question
In periods of rising prices, LIFO will produce
Answer
  • higher net income than FIFO
  • the same net income as FIFO
  • lower net income than FIFO
  • higher net income than average cost method

Question 15

Question
Considerations that affect the selection of an inventory costing method do not include:
Answer
  • tax effects
  • balance sheet effects
  • income statement effects
  • perpetual versus periodic inventory system

Question 16

Question
The LCM rule for inventory is an example of the application of
Answer
  • conservatism principle
  • historical cost principle
  • materiality principle
  • economic entity principle

Question 17

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

Question 18

Question
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?
Answer
  • understated, understated, no effect, no effect
  • understated, understated, understated, understated
  • understated, overstated, overstated, understated
  • overstated, overstated, understated, overstated

Question 19

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

Question 20

Question
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?
Answer
  • 115 000
  • 150 000
  • 230 000
  • 300 000

Question 21

Question
Which inventory costing method generally results in the most recent costs being assigned to ending inventory?
Answer
  • LIFO
  • FIFO
  • average cost
  • all of the above

Question 22

Question
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
Answer
  • 12 000
  • 10 000
  • 9 000
  • 16 000

Question 23

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

Question 24

Question
An adjustment to ending inventory under the LCM rule would be most likely to be recorded by a company that sells
Answer
  • plastic storage containers
  • paper clips
  • body lotion
  • designer clothes

Question 25

Question
When the LCM rule requires an inventory adjustment
Answer
  • 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

Question 26

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

Question 27

Question
Which of the following companies would be least concerned about a low inventory ratio?
Answer
  • A fish market selling fish
  • A hardware company selling drywall screws
  • A dairy company selling butter and milk
  • A semiconductor company selling microchips

Question 28

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

Question 29

Question
Which of the following inventory cost flow methods would an auto dealership most likely use for its new car sales?
Answer
  • FIFO
  • LIFO
  • AVG Cost
  • Specific Identification

Question 30

Question
In an inflationary environment in Canada, which inventory cost flow method will require the smallest cash payment for income taxes?
Answer
  • FIFO
  • LIFO
  • AVG Cost
  • not determinable

Question 31

Question
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)
Answer
  • (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

Question 32

Question
An overstatement of ending inventory results in an
Answer
  • overstatement of cost of goods sold
  • overstatement of gross profit
  • overstatement of sales revenue
  • understatement of net income

Question 33

Question
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?
Answer
  • $156 000
  • $250 000
  • $269 000
  • $375 000

Question 34

Question
The ? principle states that a company should use the same accounting methods and procedures from one period to the next.
Answer
  • conservatism
  • consistency
  • full disclosure
  • materiality

Question 35

Question
An undiscovered inventory error usually affects:
Answer
  • 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

Question 36

Question
When using the FIFO inventory method, the most recent inventory costs will be found on the
Answer
  • balance sheet
  • income statement
  • statement of OE
  • cash flow statement

Question 37

Question
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.
Answer
  • 150
  • 200
  • 350
  • none of the above

Question 38

Question
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.
Answer
  • 200
  • 350
  • 450
  • none of the above

Question 39

Question
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.
Answer
  • 200
  • 270
  • 300
  • none of the above

Question 40

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

Question 41

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

Question 42

Question
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?
Answer
  • $300
  • $1 875
  • $425
  • $2 000

Question 43

Question
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?
Answer
  • $375
  • $1 955
  • $2 125
  • $345

Question 44

Question
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?
Answer
  • $300
  • $1 875
  • $425
  • $2 000

Question 45

Question
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.
Answer
  • $2 000
  • $5 000
  • $7 000
  • none of the above

Question 46

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

Question 47

Question
Which inventory method generally best follows the matching rule?
Answer
  • whichever method is used for tax purposes
  • average cost
  • FIFO
  • LIFO

Question 48

Question
During periods of declining prices, which inventory method probably will result in the lowest ending inventory?
Answer
  • average cost
  • specific ID
  • FIFO
  • LIFO

Question 49

Question
Insurance companies often verify the extent of inventory lost or destroyed by applying the
Answer
  • specific ID method
  • retail method
  • LCM method
  • gross profit method

Question 50

Question
Which of the following statement is true of inventory errors?
Answer
  • 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
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