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ACC 255 Chp 6

When is a physical inventory usually taken?

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When a company has its greatest amount of inventory and when goods are not being sold or received.
When goods are not being sold or received
When the company has its greatest amount of inventory
At the end of the company’s fiscal year

At the end of the company’s fiscal year
Which of the following should not be included in the physical inventory of a company?

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Goods held on consignment from another company
Goods in transit from another company shipped FOB shipping point
All of the answer choices are correct.
Goods shipped on consignment to another company

Goods held on consignment from another company
As a result of a thorough physical inventory, Railway Company determined that it had inventory worth $180,000 at December 31, 2014. This count did not take into consideration the following transactions:

? Rogers Consignment store currently has goods worth $35,000 on its sales floor that belong to Railway but are being sold on consignment by CityplaceRogers. The selling price of these goods is $50,000.
? Railway purchased $13,000 of goods that were shipped on December 27, FOB destination, that will be received by Railway on January 3.
Determine the correct amount of inventory that Railway should report.

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$193,000
$228,000
$215,000
$230,000

$215,000
Which of the following is not a legitimate business reason for taking a physical inventory?

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To determine cost of goods sold
To check the accuracy of the perpetual inventory records
To determine if any inventory has been lost from waste, shoplifting, or employee theft
To verify the profitability of individual inventory items

To verify the profitability of individual inventory items
Ownership passes to the buyer when the public carrier accepts the goods if the goods are shipped

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FOB shipping point.
FOB buyer.
FOB destination.
FOB shipper.

FOB shipping point.
Cecil gives goods on consignment to Jerry who agrees to try to sell them for a 25% commission. At the end of the accounting period, which of the following parties includes in its inventory the consigned goods?

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Jerry
Both Cecil and Jerry
Cecil
Neither Cecil nor Jerry

Cecil
Inventory costing methods place primary reliance on assumptions about the flow of

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costs.
resale prices.
values.
goods.

costs
Cost of goods purchased is $540,000, ending inventory is $20,000, and cost of goods sold is $560,000. How much is beginning inventory?

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$0
$40,000
$20,000
$20,000

$40,000
Which of the following is true of the FIFO inventory method?

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It assumes that the cost of the earliest units purchased are the last to be allocated to cost of goods sold.
It assumes that the cost of the earliest units purchased are the first to be allocated to cost of goods sold.
It assumes that the cost of the earliest units purchased are the last to be allocated to the beginning inventory.
It assumes that the cost of the earliest units purchased are the first to be allocated to the ending inventory.

Which of the following would most likely employ the specific identification method of inventory costing?

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Gasoline station
Jewelry store
Grocery store
Hardware store

Jewelry store
Which of the following statements is true?

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FIFO inventory valuation requires physical flow of goods to be representative of the cost flow.
Specific identification method inventory valuation requires physical flow of goods to be representative of the cost flow.
All of these answer choices are correct.
LIFO inventory valuation requires physical flow of goods to be representative of the cost flow.

Specific identification method inventory valuation requires physical flow of goods to be representative of the cost flow.
Which of the following statements is true?

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The IRS dictates the method of inventory costing method a company must use.
The SEC dictates the method of inventory costing method a company must use.
Company management selects the method of inventory costing method a company will use.
GAAP dictates the method of inventory costing method a company must use.

Kam Company has the following units and costs:

Units Unit Cost
Inventory, Jan. 1 8,000 $11
Purchase, June 19 13,000 12
Purchase, Nov. 8 5,000 13

If 9,000 units are on hand at December 31, what is the cost of the ending inventory under FIFO using a periodic inventory system?

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$113,000
$117,000
$99,000
$108,000

$113,000
Kam Company has the following units and costs:

Units Unit Cost
Inventory, Jan. 1 8,000 $11
Purchase, June 19 13,000 12
Purchase, Nov. 8 5,000 13

If 9,000 units are on hand at December 31, what is the cost of the ending inventory under LIFO using a periodic inventory system?

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$108,000
$99,000
$100,000
$113,000

$100,000
Davidson Electronics has the following:

Units Unit Cost
Inventory, Jan. 1 5,000 $ 8
Purchase, April 2 15,000 10
Purchase, Aug. 28 20,000 12

If Davidson has 7,000 units on hand at December 31, how much is the cost of ending inventory under the average-cost method in a periodic inventory system?

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$84,000
$70,000
$56,000
$75,250

$75,250
In periods of rising prices, what will LIFO produce?

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The same net income as FIFO
Higher net income than FIFO
Higher net income than average costing
Lower net income than FIFO

Lower net income than FIFO
Which one of the following is not a consideration that affects the selection of an inventory costing method?

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Perpetual versus periodic inventory system
Tax effects
Balance sheet effects
Income statement effects

Perpetual versus periodic inventory system
In a period of rising prices which inventory method will result in the greatest amount of income tax expense?

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Average cost
Specific identification
FIFO
LIFO

FIFO
With the assumption of costs and prices generally rising, which of the following is correct?

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Specific identification method provides the closest cost of goods sold to replacement cost on the income statement.
LIFO provides the closest valuation of inventory on the balance sheet to replacement cost.
FIFO provides the closest cost of goods sold to replacement cost.
LIFO provides the closest valuation of cost of goods sold to replacement cost of inventory sold.

LIFO provides the closest valuation of cost of goods sold to replacement cost of inventory sold.
Two companies report the same cost of goods available for sale, but each employs a different inventory costing method. If the price of goods has increased during the period, which statement is true?
The company using

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The company using LIFO will have the lowest cost of goods sold.
The company using FIFO will have the highest cost of good sold.
The company using LIFO will have the highest ending inventory.
The company using FIFO will have the highest ending inventory.

The company using FIFO will have the highest ending inventory.
Which situation requires a departure from the cost basis of accounting to the lower-of-cost-or-market basis in valuing inventory?

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A decline in the value of the inventory
An increase in selling price
An increase in the value of the inventory
A desire for more profit

A decline in the value of the inventory
Hagger Sounds has accumulated the following cost and market data on March 31:

Cost Data Market Data
iPods $24,000 $20,400
Cell phones 18,000 19,000
DVDs 28,000 25,600

Using the lower-of-cost-or-market, how much is the value of the ending inventory? (Apply LCM to each category)

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$70,000
$65,000
$71,000
$64,000

$64,000
What is the underlying rationale for the lower-of-cost-or-market rule?

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The historical cost principle
The materiality constraint
The economic entity assumption
The conservatism constraint

The conservatism constraint
Carlos Comany had beginning inventory of $80,000, ending inventory of $110,000, cost of goods sold of $285,000, and sales revenue of $475,000. What is Carlos’ days in inventory?

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73 days
121.7 days
102.5 days
84.5 days

121.7 days
The following information came from the income statement of the Wilkens Company at December 31, 2014: sales revenue $1,800,000; beginning inventory $160,000; ending inventory $240,000; and gross profit $600,000. What is Wilkens’ inventory turnover ratio for 2014?

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6.0 times
2.5 times
3.0 times
3.75 times

6.0 times

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