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Exam 7: Reporting and Interpreting Cost of Goods Sold and Inventory

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Question 51

Multiple Choice

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Which of the following costs does not become a part of inventory of a manufacturer?

A) The cost of raw materials used.
B) The cost of factory overhead.
C) The cost of rent on the factory building.
D) Rent on corporate headquarters.

E) A) and B)
F) All of the above

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Question 52

Multiple Choice

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Under the FIFO cost flow assumption during a period of rising costs, which of the following is false?

A) Income tax expense will be higher under FIFO than under LIFO.
B) Net income will be higher under FIFO than under LIFO.
C) Ending inventory will be lower under FIFO than under LIFO.
D) Cost of goods sold will be lower under FIFO than under LIFO.

E) C) and D)
F) All of the above

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Question 53

Multiple Choice

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Of the following, which is not a reason for having controls to safeguard inventories?

Carp Corporation has provided the following information for its most recent month of operation: sales $16,000; ending inventory $4,000, purchases $8,000 and gross profit $10,000. How much was Carp's beginning inventory?

The journal entry to write-down inventory under the lower of cost or market (LCM) rule results in a credit to cost of goods sold and a debit to inventory.

Tinker's cost of goods sold in the year of sale (2016) was $750,000 and 2015 cost of goods sold was $770,000. The inventory at the end of 2016 was $188,000 and at the end of 2015 the inventory was $208,000. Tinker's inventory turnover during 2016 was closest to:

The FIFO inventory method allocates the earliest inventory purchase costs to ending inventory.

Which of the following journal entries is not consistent with the use of a periodic inventory system?

In the year of an overstatement of ending inventory, cost of goods sold will be understated and net income will be overstated.

Which of the following businesses would not be as likely to use the specific identification method of inventory valuation?

RJ Corporation has provided the following information about one of its inventory items: During the year, RJ sold 3,000 units. What was ending inventory using the average cost flow assumption under a periodic inventory system?

The journal entry to write-down inventory under the lower of cost or market (LCM) rule results in a decrease in both ending inventory and cost of goods sold.

Which of the following statements is correct regarding either the perpetual or periodic inventory systems?

Cranchey Company reported a LIFO ending inventory of $670,000 on its balance sheet at December 31, 2016. Cranchey's disclosure notes to the financial statements reported that the LIFO Reserve at December 31, 2015 was $32,000 and the LIFO Reserve at December 31, 2016 was $40,000. Which of the following statements is correct for Cranchey Company for the effect of the LIFO Reserve in 2016 in converting LIFO amounts to FIFO amounts?

During periods of decreasing unit costs, use of the LIFO inventory method will result in a higher amount of ending inventory than will the use of the FIFO inventory method.

Given a particular set of facts and assumptions, the following pairs of amounts were computed using FIFO and LIFO. For each pair of amounts, indicate which amount resulted from applying FIFO, and which amount resulted from applying LIFO.

Required: A.Compute the missing amounts in the income statement under three different inventory costing methods: (Ignore income taxes.) B.Explain the results of the weighted-average inventory costing method compared to the FIFO and LIFO costing methods during a period of increasing unit costs.

Which of the following statements is correct when inventory unit costs are decreasing?

An increase in accounts payable is added to net income when determining cash flows from operating activities.

During the audit of Montane Company's 2016 financial statements, the auditors discovered that the 2016 ending inventory had been overstated by $8,000 and that the 2016 beginning inventory was overstated by $5,000. Before the effect of these errors, 2016 pretax income had been computed as $100,000. What should be reported as the correct 2016 pretax income before taxes?