Test Bank Accounting Chapter 8
A manufacturing concern would report the cost of units only partially processed as
inventory in the balance sheet. - answerstrue
When using a perpetual inventory system, freight charges on goods purchased are
debited to Freight-In. - answersfalse
If ending inventory is understated, then net income is understated. - answerstrue
Purchase Discounts Lost is a financial expense and is reported in the "other expenses
and losses" section of the income statement. - answerstrue
The cost flow assumption adopted must be consistent with the physical movement of
the goods. - answersfalse
In all cases when FIFO is used, the cost of goods sold would be the same whether a
perpetual or periodic system is used. - answerstrue
Many companies use LIFO for both tax and internal reporting purposes. - answersfalse
LIFO liquidation often distorts net income, but usually leads to substantial tax savings. -
answersfalse
LIFO liquidations can occur frequently when using a specific-goods approach. -
answerstrue
Dollar-value LIFO techniques help protect LIFO layers from erosion. - answerstrue
The dollar-value LIFO method measures any increases and decreases in a pool in
terms of total dollar value and physical quantity of the goods. - answersfalse
, A disadvantage of LIFO is that it does not match more recent costs against current
revenues as well as FIFO. - answersfalse
The LIFO conformity rule requires that if a company uses LIFO for tax purposes, it must
also use LIFO for financial accounting purposes. - answerstrue
Use of LIFO provides a tax benefit in an industry where unit costs tend to decrease as
production increases. - answersfalse
LIFO is inappropriate where unit costs tend to decrease as production increases. -
answerstrue
Where should raw materials be classified on the balance sheet? - answersInventory.
How is a significant amount of consignment inventory reported in the balance sheet? -
answersThe inventory is reported separately on the consignor's balance sheet.
Ifa company uses the periodic inventory system, what is the impact on net income of
including goods in transit f.o.b. shipping point in purchases, but not ending inventory? -
answersUnderstate net income.
Ifa company uses the periodic inventory system, what is the impact on the current ratio
of including goods in transit f.o.b. shipping point in purchases, but not ending inventory?
- answersUnderstate the current ratio.
During 2012 Carne Corporation transferred inventory to Nolan Corporation and agreed
to repurchase the merchandise early in 2013. Nolan then used the inventory as
collateral to borrow from Norwalk Bank, remitting the proceeds to Carne. In 2013 when
Carne repurchased the inventory, Nolan used the proceeds to repay its bank loan.
This transaction is known as a(n) - answersproduct financing arrangement.
On whose books should the cost of the inventory appear at the December 31, 2012
balance sheet date? - answersCarne Corporation
Goods on consignment are - answersrecorded in a Consignment Out account which is
an inventory account.
The accountant for the Pryor Sales Company is preparing the income statement for
2012 and the balance sheet at December 31, 2012. Pryor uses the periodic inventory
system. The January 1, 2012 merchandise inventory balance will appear - answersnly
in the cost of goods sold section of the income statement.
If the beginning inventory for 2012 is overstated, the effects of this error on cost of
goods sold for 2012, net income for 2012, and assets at December 31, 2013,
respectively, are - answersoverstatement, understatement, no effect.
A manufacturing concern would report the cost of units only partially processed as
inventory in the balance sheet. - answerstrue
When using a perpetual inventory system, freight charges on goods purchased are
debited to Freight-In. - answersfalse
If ending inventory is understated, then net income is understated. - answerstrue
Purchase Discounts Lost is a financial expense and is reported in the "other expenses
and losses" section of the income statement. - answerstrue
The cost flow assumption adopted must be consistent with the physical movement of
the goods. - answersfalse
In all cases when FIFO is used, the cost of goods sold would be the same whether a
perpetual or periodic system is used. - answerstrue
Many companies use LIFO for both tax and internal reporting purposes. - answersfalse
LIFO liquidation often distorts net income, but usually leads to substantial tax savings. -
answersfalse
LIFO liquidations can occur frequently when using a specific-goods approach. -
answerstrue
Dollar-value LIFO techniques help protect LIFO layers from erosion. - answerstrue
The dollar-value LIFO method measures any increases and decreases in a pool in
terms of total dollar value and physical quantity of the goods. - answersfalse
, A disadvantage of LIFO is that it does not match more recent costs against current
revenues as well as FIFO. - answersfalse
The LIFO conformity rule requires that if a company uses LIFO for tax purposes, it must
also use LIFO for financial accounting purposes. - answerstrue
Use of LIFO provides a tax benefit in an industry where unit costs tend to decrease as
production increases. - answersfalse
LIFO is inappropriate where unit costs tend to decrease as production increases. -
answerstrue
Where should raw materials be classified on the balance sheet? - answersInventory.
How is a significant amount of consignment inventory reported in the balance sheet? -
answersThe inventory is reported separately on the consignor's balance sheet.
Ifa company uses the periodic inventory system, what is the impact on net income of
including goods in transit f.o.b. shipping point in purchases, but not ending inventory? -
answersUnderstate net income.
Ifa company uses the periodic inventory system, what is the impact on the current ratio
of including goods in transit f.o.b. shipping point in purchases, but not ending inventory?
- answersUnderstate the current ratio.
During 2012 Carne Corporation transferred inventory to Nolan Corporation and agreed
to repurchase the merchandise early in 2013. Nolan then used the inventory as
collateral to borrow from Norwalk Bank, remitting the proceeds to Carne. In 2013 when
Carne repurchased the inventory, Nolan used the proceeds to repay its bank loan.
This transaction is known as a(n) - answersproduct financing arrangement.
On whose books should the cost of the inventory appear at the December 31, 2012
balance sheet date? - answersCarne Corporation
Goods on consignment are - answersrecorded in a Consignment Out account which is
an inventory account.
The accountant for the Pryor Sales Company is preparing the income statement for
2012 and the balance sheet at December 31, 2012. Pryor uses the periodic inventory
system. The January 1, 2012 merchandise inventory balance will appear - answersnly
in the cost of goods sold section of the income statement.
If the beginning inventory for 2012 is overstated, the effects of this error on cost of
goods sold for 2012, net income for 2012, and assets at December 31, 2013,
respectively, are - answersoverstatement, understatement, no effect.
