10/12/2019 Chapter 8 - Multiple Choice - principlesofaccounting.

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Chapter 8 - Multiple Choice

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1. Question

Inventory accounts should be classi ed in which section of a balance sheet?

([Link]

Current assets 
Investments

Property, plant, and equipment

Intangible assets

CORRECT 
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2. Question

Ritz Company agreed to purchase certain inventory items from Hostess Corporation. Hostess shipped the goods F.O.B.
destination. On December 31, Ritz’s accounting year-end, Ritz was aware that the goods had been shipped and would
be received any day. ([Link]

Ritz should include the goods in its inventory calculated on December 31.

Ritz should include the goods in its inventory calculated on December 31, but should not record the

obligation to pay for them.

Ritz should not include the goods in its inventory calculated on December 31, but should include the related
payable on its balance sheet at December 31.

Ritz should not include the goods in its inventory calculated on December 31, and should not include the
related payable on its balance sheet at December 31. 

CORRECT 

3. Question

Hefty Company wants to know the effect of different inventory methods on nancial statements. Given below is
information about beginning inventory and purchases for the current year. ([Link]
8/inventory-costing-methods/)

January 2 Beginning Inventory 500 units at $3.00

April 7 Purchased 1,100 units at $3.20
June 30 Purchased 400 units at $4.00

December 7 Purchased 1,600 units at $4.40

 

Sales during the year were 2,700 units at $5.00. If Hefty used the rst-in, rst-out method, ending inventory would be:

$2,780

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$3,960 
$9,700

$10,880

CORRECT 

4. Question

Hefty Company wants to know the effect of different inventory methods on nancial statements. Given below is
information about beginning inventory and purchases for the current year. ([Link]

8/inventory-costing-methods/)

January 2 Beginning Inventory 500 units at $3.00

April 7 Purchased 1,100 units at $3.20
June 30 Purchased 400 units at $4.00
December 7 Purchased 1,600 units at $4.40
 

Sales during the year were 2,700 units at $5.00. If Hefty used the periodic LIFO method, cost of goods sold would be:

$2,780

$3,960

$9,700 
$10,880 

INCORRECT 
d. $10,880. Cost of goods sold consisted of the last 2,700 units purchased ((1,600 X $4.40) + (400 X $4.00) +
(700 X $3.20)).

5. Question
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Hefty Company wants to know the effect of different inventory methods on nancial statements. Given below is
information about beginning inventory and purchases for the current year. ([Link]
8/inventory-costing-methods/)

January 2 Beginning Inventory 500 units at $3.00

April 7 Purchased 1,100 units at $3.20
June 30 Purchased 400 units at $4.00
December 7 Purchased 1,600 units at $4.40
 

Sales during the year were 2,700 units at $5.00. If Hefty used the weighted-average method, gross pro t would be:

$3,255 
$3,415

$10,245 
$13,500

INCORRECT 
a. $3,255. Sales minus cost of goods sold equals gross pro t. Sales are $13,500 (2,700 X $5.00). Cost of goods
sold is $10,245, calculated as weighted-average cost per unit (((500 units X $3) + (1,100 units X $3.20) + (400
units X $4.00) + (1,600 units X $4.40))/(500 + 1,100 + 400 + 1,600)) times the 2,700 units sold.

6. Question

Which of the following inventory methods will always produce the same results under both a periodic and perpetual
system? ([Link]

FIFO 
LIFO

Average 
All of these

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INCORRECT 
a. FIFO valuations do not depend on the choice of a periodic or perpetual system. As sales occur, the cost is
always presumed to be from the oldest goods in stock. This occurs whether the computation is made only once
at the end of the period or throughout the period. The other methods would yield different results under a
periodic versus a perpetual system, as the units presumed to be sold are sensitive to the timing of the sale.

7. Question

An inventory pricing procedure in which the oldest costs incurred rarely have an effect on the ending inventory valuation
is: ([Link]

FIFO 
LIFO

Retail

Weighted-average

CORRECT 

8. Question

Wonder Corporation uses a periodic inventory system and correctly recorded all inventory purchases during the year.
Beginning inventory was correctly measured. However, in the process of taking a physical inventory at the end of the
year, the accountants double-counted one warehouse, resulting in an overstatement of ending inventory by $2,000,000.
This overstatement of ending inventory had what impact on assets, liabilities, income, and retained earnings,
respectively? ([Link]

Understated, understated, no effect, no effect

Understated, no effect, understated, understated

Understated, overstated, overstated, understated

Overstated, no effect, overstated, overstated 

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CORRECT 

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Additional Resources   

(//[Link]/illustrative-entries/)

  Illustrative Entries
   Examples of journal entries for numerous sample transactions

(//[Link]/illustrative-entries/)

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(//[Link]/illustrative-entries/)

(//[Link]/account-types/)

  Account Types
   Typical nancial statement accounts with debit/credit rules and disclosure conventions

(//[Link]/account-types/)
(//[Link]/account-types/)

(//[Link]/glossary/)

  Glossary
   Includes nancial and managerial terms

(//[Link]/glossary/)

(//[Link]/glossary/)

(//[Link]/time-value-money/)

  Time Value of Money

   Future and present value tables

(//[Link]/time-value-money/)

(//[Link]/time-value-money/)

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