Chapter 6 FA

Which of the following should not be included in the physical inventory of a company?

• a. Goods held on consignment from another company.

• b. Goods shipped on consignment to another company.

• c. Goods in transit from another company shipped FOB shipping point.

• d. All of the above should be included.

As a result of a thorough physical inventory, Railway Ltd. determined that it had inventory worth €180,000 at December 31, 2020. This count did not take into consideration the following facts. Rogers Consignment currently has goods that would cost €35,000 on its sales fl oor that belong to Railway but are being sold on consignment by Rogers. The selling price of these goods is €50,000. Railway purchased €13,000 of goods that were shipped on December 27, FOB destination, that will be received by Railway on January 3. Determine the correct amount of inventory that Railway should report.

• a. €230,000.

• b. €215,000.

• c. €228,000.

• d. €193,000.

Cost of goods available for sale consists of two elements: beginning inventory and:

• a. ending inventory.

• b. cost of goods purchased.

• c. cost of goods sold.

• d. All of the answers are correct.

Tinker Bell Magic Shop has the following:

Units Unit

Cost Inventory, Jan. 1 8,000 £11

Purchase, June 19 13,000 12

Purchase, Nov. 8 5,000 13

If Tinker Bell has 9,000 units on hand at December 31, the cost of the ending inventory under FIFO is:

• a. £99,000.

• b. £108,000.

• c. £113,000.

• d. £117,000.

Davidson Electronics has the following:

Units Unit Cost

Inventory, Jan. 1 5,000 £ 8

Purchase, April 2 15,000 £10

Purchase, Aug. 28 20,000 £12

If Davidson has 7,000 units on hand at December 31, the cost of ending inventory under the average-cost method is:

• a. £84,000.

• b. £70,000.

• c. £56,000.

• d. £75,250.

In periods of rising prices, average-cost will produce:

• a. higher net income than FIFO.

• b. the same net income as FIFO.

• c. lower net income than FIFO.

• d. net income equal to the specific identification method.

Factors that affect the selection of an inventory costing method do not include:

• a. tax effects.

• b. statement of financial position effects.

• c. income statement effects.

• d. perpetual vs. periodic inventory system.

Atlantis Aquarium’s ending inventory is understated NT$122,000. The eff ects of this error on the current year’s cost of goods sold and net income, respectively, are:

• a. understated, overstated.

• b. overstated, understated.

• c. overstated, overstated.

• d. understated, understated.

Lee Athletics overstated its inventory by NT$500,000 at December 31, 2019. It did not correct the error in 2019 or 2020. As a result, Lee’s equity was:

• a. overstated at December 31, 2019, and understated at December 31, 2020.

• b. overstated at December 31, 2019, and properly stated at December 31, 2020.

• c. understated at December 31, 2019, and understated at December 31, 2020.

• d. overstated at December 31, 2019, and overstated at December 31, 2020.

Rickety Company purchased 1,000 widgets and has 200 widgets in its ending inventory at a cost of HK$91 each and a net realizable value of HK$80 each. The ending inventory under LCNRV is:

• a. HK$91,000.

• b. HK$80,000.

• c. HK$18,200.

• d. HK$16,000.