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Exam 9: Inventories

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Question 71

Multiple Choice

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A periodic system of inventory

A) reduces record keeping.
B) increases record keeping.
C) increases the cost of maintaining inventory.
D) eliminates the need for a physical count.

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

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Question 72

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Cost of goods available for sale is always the same regardless of the inventory cost flow assumption in use.

A) True
B) False

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Question 73

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The Mick Company reported a LIFO cost of goods sold for the year of $100,000.The LIFO reserve decreased by $30,000 for the year.An estimate of the cost of goods sold under FIFO is

The input cost changes that occur after the purchase of inventory items in a current cost accounting system are recognized as

Under a periodic inventory system,cost of goods sold automatically includes the cost of inventory "shrinkage."

Financial analysts recognize that the deficiency of the FIFO cost flow assumption is the failure to

Dollar-value LIFO avoids much of the detailed record keeping required under standard LIFO.

The lower of cost or market method is based on the assumption that input costs and selling prices generally move together.

Some analysts argue that by merging current cost profits and realized holding gains,LIFO gives misleading signals about the sustainable operating profits of the company.

The World Company's financial statements for 2014 and 2015 contain the following errors: $\begin{array} { l l l } &2015&2014\\\text { Ending Inventory } & \$ 6,000 \text { overstated } & \$ 16,000 \text { overstated } \\\text { Insurance Expense } & \$ 4,000 \text { understated } & \$ 12,000 \text { overstated }\end{array}$ -If no correcting entries were made at the end of 2014,by how much will retained earnings be overstated or understated at the end of 2015? Ignore tax consequences.

The size of the divergence between FIFO cost of goods sold and replacement cost of goods sold depends on

The SEC rule (Regulation S-X)requires firms to disclose "the excess of replacement cost or current cost over stated LIFO value ..." rather than the difference between inventory book value at LIFO and inventory book value at FIFO.

Analysts try to remove holding gains from reported FIFO income because

Inventory shipped on consignment is owned by the consignee.

Under a periodic inventory system,purchases are debited to a purchases account.

Goods available for sale is determined by

Goods held on consignment are included in the inventory valuation of

Variable costs are those that do not change in proportion to the level of production and include raw materials,direct labor,and the salaries of factory supervisors.

When a LIFO firm liquidates old LIFO layers,the net income number under LIFO can be seriously distorted because the older costs in the LIFO layers that are liquidated are matched against sales dollars that are stated at higher current prices.

Companies frequently disclose the effects of absorption costing on reported net income.