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Exam 5: Accounting for Inventories

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Question 41

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Generally accepted accounting principles often allow companies to account for the same types of events in different ways.

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B) False

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Question 42

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If a company uses the FIFO cost flow method for its income tax return it must also use FIFO for financial reporting.

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Question 43

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Which inventory costing method will produce an amount for cost of goods sold that is closest to current market value?

[The following information applies to the questions displayed below.] Singleton Company's perpetual inventory records included the following information: -If Singleton uses the weighted-average cost flow method,its average cost per unit would be $8.00.

[The following information applies to the questions displayed below.] The inventory records for Radford Co. reflected the following: $\begin{array}{|c|c|}\hline \text { Beginning inventory@May } 1 & \text { I00units@\$4.00 } \\\hline \text { Firstpurchase@May } 7 & 300 \text { units@\$4.40 } \\\hline \text { Second purchase@.May } 17 & \text { 500units@\$4.60 } \\\hline \text { Third purchase@May 23 } & 100 \text { units@\$4.80 } \\\hline \text { Sales@May } 31 & 900 \text { units@\$7.80 } \\\hline\end{array}$ -What is the amount of cost of goods sold assuming the LIFO cost flow method?

The gross margin method of estimating inventory is not useful in detecting inventory fraud.

How does an error that results in an overstatement of ending inventory affect the elements of the company's financial statements in the current year?

Landis Company is preparing its financial statements.Gross margin is normally 40% of sales.Information taken from the company's records revealed sales of $25,000; beginning inventory of $2,500 and purchases of $17,500.What is the estimated amount of ending inventory at the end of the period?

Which of the following is not required to apply the gross margin method?

How is inventory turnover calculated?

Koontz Company uses the perpetual inventory method and the weighted-average method.On January 1,Year 1,the company's first day of operations,Koontz purchased 400 units of inventory that cost $7.50 each.On January 10,Year 1,the company purchased an additional 600 units of inventory that cost $9.00 each.If the company sells 550 units of inventory,what is the amount of inventory that would appear on the balance sheet immediately following the sale?

[The following information applies to the questions displayed below.] -What is the average number of days to sell inventory for Company Y?

The cost flow method chosen by a company will impact its inventory turnover ratio.

At the end of the Year 2 accounting period,DeYoung Company determined that the market value of its inventory was $79,800.The historical cost of this inventory was $81,400.DeFazio uses the perpetual inventory method.Assuming the amount is material,how will the necessary write-down to reduce the inventory to the lower-of-cost-or-market affect the elements of the company's financial statements?

What happens when prices are falling?

A company uses a cost flow method (such as LIFO or FIFO)to allocate product costs between cost of goods sold and beginning inventory.

[The following information applies to the questions displayed below.] The inventory records for Radford Co. reflected the following: $\begin{array}{|c|c|}\hline \text { Beginning inventory@May } 1 & \text { I00units@\$4.00 } \\\hline \text { Firstpurchase@May } 7 & 300 \text { units@\$4.40 } \\\hline \text { Second purchase@.May } 17 & \text { 500units@\$4.60 } \\\hline \text { Third purchase@May 23 } & 100 \text { units@\$4.80 } \\\hline \text { Sales@May } 31 & 900 \text { units@\$7.80 } \\\hline\end{array}$ -What is the amount of gross margin assuming the weighted-average inventory cost flow method?

In most businesses,the physical flow of goods occurs on a FIFO basis,but a different cost flow method is allowed under generally accepted accounting principles.

A company's gross margin reported on the income statement is not affected by the inventory cost flow method it uses.

Why are the inventory and cost of goods sold accounts attractive targets for managerial fraud?