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Exam 6: Inventories

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Question 41

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Which of the following statements is correct with respect to inventories?

A) The FIFO method assumes that the costs of the earliest goods acquired are the last to be sold.
B) It is generally good business management to sell the most recently acquired goods first.
C) Under FIFO, the ending inventory is based on the latest units purchased.
D) FIFO seldom coincides with the actual physical flow of inventory.

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Question 42

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Overstating ending inventory will overstate all of the following except

A) assets.
B) cost of goods sold.
C) net income.
D) equity.

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Question 43

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In applying the LIFO assumption in a perpetual inventory system, the cost of the units most recently purchased prior to sale is allocated first to the units sold.

Shandy Shutters has the following inventory information. $\begin{array} { r l l } \text { Nov. } 1 & \text { Inventory } & 15 \text { units @ } € 6.00 \\ 8 & \text { Purchase } & 60 \text { units @ } € 6.45 \\ 17 & \text { Purchase } & 30 \text { units @ } € 6.30 \\ 25 & \text { Purchase } & 45 \text { units @ } € 6.60 \end{array}$ A physical count of merchandise inventory on November 30 reveals that there are 50 units on hand. Assume a periodic inventory system is used. Ending inventory under FIFO is

Which inventory costing method most closely approximates current cost for each of the following: $\begin{array}{lcc}\text { Ending Inventory }&\text { Cost of Goods Sold }\\\end{array}$

The term "FOB" denotes

A major difference between IFRS and GAAP is that GAAP specifically prohibits use of the FIFO cost flow assumption.

At year-end, Dana Corporation has 2,000 units of Lolland, 2,000 units of Falster, and 3,000 units of Jultand in its ending inventory.Specific data with respect to each product follows: $\begin{array}{lrrr}&\text { Lolland }&\text { Falster } & \text { Jutland }\\\text { Historical cost } & € 55 & € 70 & € 98 \\\text { Net realizable value } & 48 & 77 & 94\end{array}$ What amount will Dana report for ending inventory using lower-of-cost-or-net realizable value?

An error that overstates the ending inventory will also cause net income for the period to be overstated.

$\text { Neighborly Industries has the following inventory information. }$ $\begin{array}{rll}\text { July }1 & \text { Beginning Inventory } & 20 \text { units at } \$ 120 \\5 & \text { Purchases } & 120 \text { units at } \$ 112 \\14 & \text { Sale } & 80 \text { units } \\21 & \text { Purchases } & 60 \text { units at } \$ 115 \\30 & \text { Sale } & 56 \text { units }\end{array}$ Assuming that a periodic inventory system is used, what is the amount allocated to ending inventory on a FIFO basis?

A company just starting in business purchased three merchandise inventory items at the following prices.First purchase $80; Second purchase $95; Third purchase $85.If the company sold two units for a total of $240 and used FIFO costing, the gross profit for the period would be

Items not yet placed into production are considered to be

If an error understates the beginning inventory, net income will also be understated.

At May 1, 2011, Deitrich Company had beginning inventory consisting of 100 units with a unit cost of $€ 3.50$ . During May, the company purchased inventory as follows: 200 units at $€ 3.50$ 300 units at $€ 4.00$ The company sold 500 units during the month for $€ 6$ per unit. Deitrich uses the average cost method. Deitrich's gross profit for the month of May is

Which one of the following inventory methods is often impractical to use?

Ted's Used Cars uses the specific identification method of costing inventory.During March, Ted purchased three cars for $8,000, $10,000, and $13,000, respectively.During March, two cars are sold for $12,000 each.Ted determines that at March 31, the $13,000 car is still on hand.What is Ted's gross profit for March?

IFRS allows companies to cost inventory using either the LIFO or the FIFO cost flow assumption.

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

Inventory is reported in the financial statements at

Net realizable value is