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Exam 6: Merchandise Inventory

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Question 41

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A company should not change the inventory costing method each period in order to maximize net income. This is an example of the disclosure principle.

A) True
B) False

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Question 42

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Shipman, Inc. has 6 units in inventory on December 31. The units were purchased in November for $200 each. The price lists from suppliers indicate the current replacement cost of the item to be $198 each. What is the effect on gross profit if Shipman values its ending merchandise inventory using the lower-of-cost-or-market rule?

A) The gross profit would increase by $2.
B) The gross profit would not be affected.
C) The gross profit would decrease by $12.
D) The gross profit would increase by $12.

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

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Question 43

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The consistency principle states that businesses should report the same amount of ending merchandise inventory from period to period.

In the weighted-average inventory costing method, when using the periodic inventory system, a single weighted average cost per using is computed for the entire period.

A company is uncertain whether a complex transaction should be recorded as gain or loss. Under the conservatism principle, it should choose to treat it a loss.

Which of the following inventory costing methods yields the highest net income during a period of rising inventory costs?

Which of the following amounts would be reported as Merchandise Inventory on the balance sheet of a company if the cost of an item is $120 and the current replacement cost is $100?

Which of the following is the correct formula to calculate weighted-average unit cost for merchandise inventory?

When using the LIFO inventory costing method, ending merchandise inventory will be the lowest, as compared to FIFO and weighted-average inventory costing methods, when costs are increasing.

Which of the following inventory costing methods requires the calculation of a new average cost after each purchase?

Under which of the following inventory costing methods is the ending inventory based on the costs of the most recent purchases?

Complete the following table, which compares the effects of LIFO, FIFO, and weighted-average inventory costing methods on the financial statements in periods of rising inventory costs. The answer should be lowest, highest, or middle.

Ending inventory is calculated by multiplying the number of units on hand by the unit cost.

Which of the following assets must be reported at the lower-of-cost-or-market value?

Which of the following is an application of conservatism?

Which of the following inventory valuation methods minimizes income tax expense during a period of rising inventory costs?

Weighted average cost per unit is determined by dividing the cost of goods available for sale by the number of units available.

Rodriguez, Inc. had the following balances and transactions during 2017, from January 1 to December 31: What would be reported for Ending Merchandise Inventory on the balance sheet at December 31, 2017 if the perpetual inventory system and the weighted-average inventory costing method are used? (Round unit costs to two decimal places and total costs to nearest dollar.)

The tracking of inventory shrinkage due to theft, damage, or errors is done with the help of a (n) ________ of inventory.

Anderson Plumbing Fixtures reported the following income statement for the year ended December 31, 2017. Compute inventory turnover rate for the year. (Round to two decimal places.) Compute days' sales in inventory for the year. (Round to two decimal places.)