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Exam 6: Inventories

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Question 51

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Widner Company understated its inventory by $10,000 at December 31, 2010. It did not correct the error in 2010 or 2011. As a result, Widner's owner's equity was:

A) understated at December 31, 2010, and overstated at December 31, 2011.
B) understated at December 31, 2010, and properly stated at December 31, 2011.
C) overstated at December 31, 2010, and overstated at December 31, 2011.
D) understated at December 31, 2010, and understated at December 31, 2011.

E) A) and B)
F) A) and C)

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Question 52

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The gross profit method is based on the assumption that the rate of gross profit remains constant from one year to the next.

A) True
B) False

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Question 53

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

A company just starting business made the following four inventory purchases in June: A physical count of merchandise inventory on June 30 reveals that there are 200 units on hand. Using the average-cost method, the amount allocated to the ending inventory on June 30 is

Holliday Company's inventory records show the following data: A physical inventory on December 31 shows 2,000 units on hand. Holliday sells the units for $12 each. The company has an effective tax rate of 20%. Holliday uses the periodic inventory method. If the company uses FIFO, what is the gross profit for the period?

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 current replacement cost of $350. What value should Paulson, Inc., have for the computers at the end of the year?

Under the LCM approach, the market value is defined as

For each of the independent events listed below, analyze the impact on the indicated items at the end of the current year by placing the appropriate code letter in the box under each item. Code: O = item is overstated U = item is understated NA = item is not affected

The lower-of-cost-or-market basis of accounting for inventories should be applied when the ______________ cost of the goods is lower than its cost.

Accounting for inventories is important because inventories affect the ______________ section of the balance sheet and the ______________ section on the income statement.

Kirby Company suffered a loss of its inventory on March 28 due to a fire in its warehouse. As a basis for filing a claim with its insurance company, Kirby Company developed the following information: The company has experienced an average gross profit rate of 35% in the past and this rate appears to be appropriate in the current period. Instructions Using the gross profit method, prepare an estimate of the cost of the inventory destroyed by fire on March 28. Show all computations in good form.

Under the lower-of-cost-or-market basis, market is defined as current replacement cost.

Julian Junkets has the following inventory information. Assuming that a perpetual inventory system is used, what is the ending inventory (rounded) under the average-cost method?

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 balance sheet are

A problem with the specific identification method is that

At May 1, 2010, Deitrich Company had beginning inventory consisting of 100 units with a unit cost of $7. During May, the company purchased inventory as follows: 200 units at $7 300 units at $8 The company sold 500 units during the month for $12 per unit. Deitrich uses the average cost method. The value of Deitrich's inventory at May 31, 2010 is

The ______________ method tracks the actual physical flow of each unit of inventory available for sale; however, management may be able to manipulate ______________ by using this method.

Julian Junkets has the following inventory information. Assuming that a perpetual inventory system is used, what is the ending inventory on a FIFO basis?

Two widely used methods of estimating inventories are the ______________ method and the _____________ method.

Hoyt Company's inventory records show the following data for the month of September: A physical inventory on September 30 shows 200 units on hand. Calculate the value of ending inventory and cost of goods sold if the company uses LIFO inventory costing and a periodic inventory system.