Merchandise inventory - Multiple choice questions.
1. Which of the following items should be included in a company's inventory at the balance sheet date?
a. Goods in transit which were purchased f.o.b. destination.
b. Goods received from another company for sale on consignment.
c. Goods sold to customers which are being held for the customer to call for at his or her convenience.
d. None of these.
2. Dane Co. received merchandise on consignment. As of March 31, Dane had recorded the transaction as a purchase and included the goods in inventory. The effect of this on its financial statements for March 31 would be
a. no effect.
b. net income was correct and current assets and current liabilities were overstated.
c. net income, current assets, and current liabilities were overstated.
d. net income and current liabilities were overstated.
3. Which of the following types of interest cost incurred in connection with the purchase or manufacture of inventory should be capitalized as a product cost?
a. Purchase discounts lost
b. Interest incurred during the production of discrete projects such as ship or real estate projects
c. Interest incurred on notes payable to vendors for routine purchases made on a repetitive basis
d. All of these should be capitalized.
4. Assuming no beginning inventory, what can be said about the trend of inventory prices if cost of goods sold computed when inventory is valued using the FIFO method exceeds cost of goods sold when inventory is valued using the LIFO method?
a. Prices decreased.
b. Prices remained unchanged.
c. Prices increased.
d. Price trend cannot be determined from information given.
Use the following information for questions 6 though 8.
Dexter, Inc. is a calendar-year corporation. Its financial statements for the years 2008 and 2007 contained error as follows:
|
|
2008
|
2007
|
|
Ending inventory
|
$8,000 overstated
|
$14,000 overstated
|
|
Depreciation expense
|
$4,000 understated
|
$16,000 overstated
|
5. Assume that the proper correcting entries were made at December 31, 2007. By how much will 2008 income before taxes be overstated or understated?
a. $4,000 understated
b. $4,000 overstated
c. $8,000 overstated
d. $12,000 overstated
6. Assume that no correcting entries were made at December 31, 2007. Ignoring income taxes, by how much will retain earnings at December 31, 2008 be overstated or understated?
a. $4,000 understated
b. $12,000 overstated
c. $12,000 understated
d. $18,000 understated
7. Assume that no correcting entries were made at December 31, 2007, or December 31, 2008 and that no additional errors occurred in 2009. Ignoring income taxes, by how much will work at December 31, 2009 be overstated or understated?
a. $0
b. $8,000 overstated
c. $8,000 understated
d. $6,000 understated
Please use the following information for questions 9 and 10.
Iron Co. has the following data related to an item of inventory:
|
Inventory, March 1
|
100 units @ $4.20
|
|
Purchase, March 7
|
350 units @ $4.40
|
|
Purchase, March 16
|
70 units @ $4.50
|
|
Inventory, March 31
|
150 units
|
8. The value assigned to ending inventory if Iron uses LIFO is
a. $667.
b. $640.
c. $630.
d. $675.
9. The value assigned to cost of goods sold if Iron uses FIFO is
a. $667.
b. $640.
c. $1,635.
d. $1,608.
10. When valuing raw materials inventory at lower of cost or market, what is the meaning of the term "market"?
a. Net realizable value
b. Net realizable value less a normal profit margin
c. Current replacement cost
d. Discounted present value