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Exam 6: Inventories

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Question 71

True/False

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Transactions that affect inventories on hand have an effect on both the statement of financial position and the income statement.

A) True
B) False

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Question 72

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IFRS allows companies to cost inventory using either the LIFO or the FIFO cost flow assumption.

A) True
B) False

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Question 73

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Net realizable value refers to

If the inventory reported on the statement of financial position is understated, then net income reported on the income statement is understated.

The lower-of-cost-or-net realizable value basis of valuing inventories is an example of

Merchandise inventory is

The accounting principle that requires that the cost flow assumption be consistent with the physical movement of goods is

Paulson, Inc.has 5 computers which have been part of the inventory for over two years.Each computer cost ₤600 and originally retailed for ₤825.At the statement date, each computer has a net realizable value of ₤350.What value should Paulson, Inc., have for the computers at the end of the year?

If the unit price of inventory is increasing during a period, a company using the average-cost inventory method will show less gross profit for the period, than if it had used the FIFO inventory method.

The cost of goods available for sale is allocated to the cost of goods sold and the

Ted's Used Cars uses the specific identification method of costing inventory.During March, Ted purchased three cars for $8,000, $10,000, and $13,000, respectively.During March, two cars are sold for $12,000 each.Ted determines that at March 31, the $13,000 car is still on hand.What is Ted's gross profit for March?

Goods that have been purchased FOB destination but are in transit, should be excluded from a physical count of goods.

The lower-of-cost-or-net realizable value basis is an example of the accounting concept of prudence.

As a result of a thorough physical inventory, Hastings Company determined that it had inventory worth $540,000 at December 31, 2011.This count did not take into consideration the following facts: Carlin Consignment store currently has goods worth $104,000 on its sales floor that belong to Hastings but are being sold on consignment by Carlin.The selling price of these goods is $150,000.Hastings purchased $40,000 of goods that were shipped on December 27 FOB destination, that will be received by Hastings on January 3.Determine the correct amount of inventory that Hastings should report.

If a company has no beginning inventory and the unit price of inventory is increasing during a period, the cost of goods available for sale during the period will be the same under the average-cost and FIFO inventory methods.

A company uses the periodic inventory method and the beginning inventory is overstated by $4,000 because the ending inventory in the previous period was overstated by $4,000.The amounts reflected in the current end of the period statement of financial position are

Match the items below by entering the appropriate code letter in the space provided.

The specific identification method of costing inventories tracks the actual physical flow of the goods available for sale.

The consistent application of an inventory costing method is essential for

Companies have the choice of physically counting inventory on hand at the end of the year or using the gross profit method to estimate the ending inventory.