1/ An overstatement of ending inventory for 1998 will: A understate the 1998 inc

Question

1/ An overstatement of ending inventory for 1998 will:

A understate the 1998 income.

B understate the 1998 current assets by the same amount.

C overstate the 1998 costs of goods sold by the same amount.

D overstate the 1998 income.

E overstate the 1998 goods available for sale by the same amount.

2/

Goods out on consignment were accidentally left out of the 1999 ending inventory count. This error, if undetected, will:

A understate 1999 ending inventory.

B overstate 1999 Cost of goods sold.

C understate 2000 beginning inventory.

D understate 1999 income.

E all of the above are results of this error.

3.

Which of the following items should NOT be included in ERINCO's inventory?

A) Goods ERINCO has shipped FOB destination (title passes at delivery) that are still in transit.

B) Goods that ERINCO has had in stock for a long time that will be sold at a discounted price.

C)Goods that ERINCO has out on consignment to a distributor.

D) Goods that ERINCO holds on consignment from another manufacturer.

E) Goods that ERINCO has in stock.

#4 Which of the following should be included in the unit cost of an inventory item?

A) Purchase discounts lost on the purchase of inventory.

B) Freight costs incurred as part of the purchase of inventory.

C) Purchase price of the inventory.

D) Commissions paid when inventory is sold.

E) Both b and c should be included in the unit cost of an inventory item.

#5

When a periodic inventory system is used:

A) Cost of goods sold is calculated each time a sale is made during the year.

B) Ending inventory is continually updated each time a sale is made.

C) Purchases are recorded in a separate purchases account during the year.

D)There is no need to do a physical inventory count at year end.

E) Beginning inventory plus purchases equals cost of goods sold.

#6.

The following information relates to GRAHAMCO's inventory activity for 1999:

Purchases = $160,000

Ending inventory = $25,000

Cost of goods sold = $180,000

       The balance in beginning inventory at January 1, 1999 must have been:

a.$0.

b.$25,000.

c.$5,000.

d.$45,000.

e.There is not enough information given to compute the beginning inventory.

#7

When prices are falling, which of the following statements are generally true?

A) Using LIFO as the inventory cost method will result in higher total assets than will result if FIFO is used as the inventory cost method.

B) Using Average cost as the inventory cost method will result in the highest possible total asset balance of any available cost method.

C) Using LIFO as the inventory cost method will result in higher Cost of goods sold than will result if FIFO is used as the inventory cost method.

D) Using the FIFO periodic system will result in higher Cost of Goods Sold than will result if the FIFO perpetual system is used.

E) LIFO will produce the highest Cost of goods Sold.

#8.

When prices are rising, which of the following inventory methods will result in the highest debt to equity ratio?

A) FIFO

B) LIFO

C) Average cost

D)The ratios will be the same.

#9.

LIFO liquidation occurs when

A) All of the inventory is exposed to extreme heat, causing it to melt.

B) Ending inventory is higher than beginning inventory.

C) Beginning inventory is higher than ending inventory, causing old costs to be reflected in Cost of Goods Sold.

D) Inventory grows at an extreme pace.

E) Management throws all of the inventory into the company inventory "pool" at the annual summer barbecue.

Explanation / Answer

Since, there are multiple questions, the first four have been answered.

_________-

Part 1)

Overstate the 1998 Income. (which is Option D)

________

Explanation:

An overtstatement of ending inventory would result in a lower value of cost of sold goods (as ending inventory is deducted while calculating cost of goods sold. This would result in higher gross profit and consequently higher net income for the reporting period. All the other options provided in the question are completely incorrect.

________

Part 2)

All of the above are results of this error. (which is Option E)

________

Explanation:

As the goods out on consignment are required to be included in the ending inventory, an error in recording the same would result in lower value of ending inventory for the current year, which in turn will overstate the value of cost of goods sold (as ending inventory is deducted at the time of calculating cost of goods sold) resulting in an understatement of net income for the current year. As the ending inventory for the current year will become the opening inventory for the next year, it will get understated. Therefore, all the options are correct.

________

Part 3)

Goods that ERINCO holds on consignment from another manufacturer. (which is Option D)

________

Explanation:

Goods belonging to another manufacturer held on consignment will not be treated as a part of company's inventory. It will be included in the inventory of the original manufacturer only. Therefore, goods that ERINCO holds on consignment from another manufacturer will not form part of ENRICO'S inventory at the year end.

________

Part 4)

Both b and c should be included in the unit cost of an inventory item. (which is Option E)

________

Explanation:

As per the provisions of the relevant accounting standards, all the costs incurred in bringing the inventory to their present location and condition are included in the unit cost of an inventory item. Therefore, purchase price of the inventory and freight costs incurred to bring the inventory will form part of unit cost.

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