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Bat4M Inventory Basics Test Review Package-KEY True or False Answer True or False To The Statements Below

1. The document is a true/false quiz on inventory valuation concepts. 2. Key concepts covered include inventory cost flow assumptions, when to include goods in inventory ownership, and applying lower of cost or net realizable value. 3. It also addresses multiple choice questions related to inventory valuation methods and accounting for changes in assumptions.

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JohnMurray111
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41 views

Bat4M Inventory Basics Test Review Package-KEY True or False Answer True or False To The Statements Below

1. The document is a true/false quiz on inventory valuation concepts. 2. Key concepts covered include inventory cost flow assumptions, when to include goods in inventory ownership, and applying lower of cost or net realizable value. 3. It also addresses multiple choice questions related to inventory valuation methods and accounting for changes in assumptions.

Uploaded by

JohnMurray111
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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BAT4M

Inventory Basics Test Review Package-KEY


True or False Answer True or False to the statements below:

1. The sum of the cost of goods sold and ending inventory will always be the same regardless
of the inventory valuation (FIFO, LIFO Average Cost) method chosen. T

2. A good internal control procedure, when counting inventory, is to use pre-numbered inventory
tags and ensure all tags are accounted for at the end of the count. T

3. A physical inventory count need not be performed if the company is using a perpetual
inventory system. F

4. Goods out on consignment should be included in the inventory of the consignor. T

5. Goods that have been purchased FOB destination point but are in transit at year end should
be included in the seller’s physical inventory count. T

6. Goods that have been purchased FOB shipping point but are in transit should be included in
the buyer’s physical count of goods. T

7. The Crawford Company has $200,000 in inventory in its warehouse. The company has
goods in transit of $5,000 shipped from a supplier FOB destination. Included in the items
counted in the inventory is $1,200 for goods on approval to a customer. Crawford’s correct
inventory balance is $200,000. T

8. Management may choose any inventory cost flow assumption it desires as long as the
assumption chosen is consistent with the physical movement of goods in the company. F

9. The First-in, First-out (FIFO) inventory cost flow assumption results in an ending inventory
valued at the most recent cost. T

10. The specific identification method of inventory valuation is desirable when a company sells a
large number of low-unit cost items. F

11. If the unit price of inventory is increasing during a period, a company using the LIFO inventory
cost flow assumption will show less gross profit for the period, than if it had used the FIFO
inventory cost flow assumption. T

12. A company may use more than one inventory cost flow assumption concurrently. T

13. In periods in which inventory prices remain unchanged, FIFO will result in the highest net
income. F

14. If a company changes its inventory cost flow assumption, the effect of the change should be
disclosed in the financial statements. T

15. When the market value of inventory is lower than its cost, the inventory is written down to its
market value. T
Inventory Ownership
Start with $189,000
Item (a) – (Because Binbrook is the consignor and owns the inventory it
has been properly included.)
Item (b) +12,000 (Goods belong to Binbrook. Title passed when supplier
delivered the goods to the transportation company.)
Item (c) +3,700 (Goods were shipped FOB destination. Binbrook retains title
until the customer receives them.)
Item (d) -1,000 (Goods should be excluded. The customer owns them.)
Item (e) – (Because the goods were shipped FOB shipping point,
Binbrook no longer has title to these goods. Properly excluded.
Item (f) +9,000 (Goods belong to Binbrook. Title passed when supplier
delivered the goods to the transportation company.)

Corrected inventory $212,700

LCNRV

(a) Total cost


Product line Item Units Unit cost Cost
Downhill skis Brand A 40 $300 $ 12,000
Brand B 50 $260 13,000
Snowboards Brand G 80 $190 15,200
Brand H 75 $140 10,500
$ 50,700

(b) Total market value


Product line Item Units on Market Market
hand
Downhill skis Brand A 40 $280 $ 11,200
Brand B 50 $275 13,750
Snowboards Brand G 80 $250 20,000
Brand H 75 $138 10,350
$ 55,300

(c) Reported inventory value based on applying lower of cost or NRV:

Product line Item Cost NRV LCNRV


Downhill skis Brand A $12,000 $11,200 $ 11,200
Brand B $13,000 $13,750 13,000
Snowboards Brand G $15,200 $20,000 15,200
Brand H $10,500 $10,350 10,350
50,700 55,300 $ 49,750

(d)
COGS 950
MI 950

To record decline in inventory value from original cost of 50,700 to market value of 49,750.
FIFO
Purchases Cost of goods sold Balance
Date Units Cost Total Units Cost Total Units Cost Total
1-July 22 $ 250 $ 5,500
10-July 13 250 $3,250 9 250 2,250

15-July 4 250 $1,000 5 250 1,250

20-July 6 260 1,560 5 250 1,250


6 260 1,560
2,810
22-July 8 280 2,240 5 250 1,250
6 260 1,560
8 280 2,240
5,050
30-July 5 250 1,250
5 260 1,300

1 260 260
8 280 $ 2240
$ 3,800 $ 6,800 $2,500

5,500+3,800-6,800=2,500

(ii) Average Cost


Purchases Cost of goods sold Balance
Unit
Date Units Cost Total Units Cost Total s Cost Total
July 1 22 250 5,500
July 10 13 250 3,250 9 250 2,250
July 15 4 250 1,000 5 250 1,250
July 20 6 260 1,560 11 255.45 2,809.95
July 22 8 280 2,240 19 265.79 5,050
July30 10 265.79 2,657.90 9 265.79 2,392.11
$ 3,800 $ 6,907.90 2,392.11

5,500+3,800-6,907.90=2,392.10 (1 cent difference due to rounding)

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