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Exam 5: Accounting for Inventories

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Question 31

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Assuming that longer inventory holding periods act to increase expenses,which of the three companies would be expected to have the lowest inventory holding costs?

A) All three companies have equal holding costs
B) Company X
C) Company Y
D) Company Z

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

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Question 32

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Warner Company purchased two units of a product for $36 and later purchased one more for $40.If the company uses the weighted average cost flow method,and it sold one unit of the product for $60,its gross margin would be $22.00.

A) True
B) False

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Question 33

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Generally accepted accounting principles restrict or limit a company's freedom to change inventory cost flow methods from one year to the next.

Barker Company paid cash to purchase two identical inventory items.The first purchase cost $18.00 cash and the second cost $20.00 cash.Barker sold one inventory item for $30.00 cash.Based on this information alone,without considering the effect of income taxes,which of the following statements is correct?

Taylor Co.had beginning inventory of $400 and ending inventory of $600.Taylor Co.had cost of goods sold amounting to $1,800.What is the amount of inventory that was purchased during the period?

In a period of rising inventory prices,use of the FIFO cost flow method would cause a company to pay more income taxes than would use of LIFO.

If a company applies the lower-of-cost-or-market rule to the entire stock of inventory in the aggregate,its write-down of inventory is likely to be greater than if it applies the rule to individual items of inventory.

Which of the following methods of applying the lower-of-cost-or-market rule will result in the fewest number of inventory write-downs?

During a period of declining prices,a company would report a lower gross margin using the FIFO cost flow method than with LIFO.

When the cost of purchasing inventory is declining,which inventory cost flow method will produce the highest amount of cost of goods sold?

Misty Mountain Outfitters is a merchandiser of specialized fly fishing gear.Its cost of goods sold for Year 2 was $295,000,and sales were $690,000.The amount of merchandise on hand was $50,000,and total assets amounted to $585,000.What is the average number of days to sell inventory? (Round to the nearest day.)

The lower-of-cost-or-market rule can be applied to which of the following?

When preparing its quarterly financial statements,Pace Co.uses the gross margin method to estimate ending inventory.The following information is available for the quarter ending March 31,Year 2: What is the estimated amount of inventory that is on hand on March 31,Year 2?

What happens when a company is operating in an inflationary environment?

[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 FIFO cost flow method?

Which of the following circumstances would be a valid reason to estimate the amount of inventory that is on hand at the end of the period?

Poole Company purchased two identical inventory items.One of the items,purchased in January,cost $4.50.The other,purchased in February,cost $4.75.One of the items was sold in March at a selling price of $7.50.Poole uses LIFO.Which of the following statements is true?

The last-in,first-out cost flow method assigns the cost of the items purchased first to ending inventory.

During a period of rising inventory prices,the amount of ending inventory reported on the balance sheet will be lower using the LIFO cost flow method than with FIFO.

The Internal Revenue Service allows a company to use LIFO for income tax purposes only if it also uses LIFO for financial reporting.