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Which of the followingis not considered an advantage of last-in, first-out when pricesare rising?

Select one:

A. Overstated inventory

B. The more recent costs are matched against currentrevenues.

C. There will be a deferral of income tax.

D. A company's future reported earnings will not be affectedsubstantially by future price declines.

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Casey Durgan
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27 Feb 2019

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1. How should the balances of Progress Billings and Constructionin Progress be shown at reporting dates prior to completion of along-term contract

a. Progress billings as income, construciton in progress asinventory

b. Net , as income from construction if credit balance, and lossfrom construction if debit balance

c. Progress Billings as deferred income, Construction inProgress as a current asset

d. Net, as a current asset if debit balance and currentliability if credit balance

3. the competed-contract method of accounting for long-termconstruction-type contracts is preferable when

a. a contractor is involved in numerous projects

b. the contracts are of a relatively long duration

c. estimates of costs to complete and extent of progress towardcompletion are reasonably dependable

d. there are inherent uncertainties in the contract beyondnormal business risks

4. C & J Construction has consistently used the percentageof completion method of recognizing income. Last year C & Jstarted work on a $4,500,000 constuction contract, which wascompleted this year, the accounting records desclosed the followingdata for the last year

Progress billings - $1,650,000

Costs incurred - 1,350,000

Collections - 1,050,000

Estimated cost to complete - 2,700,000

How much income should C & J have recognized on thiscontract last year?

a. 105,000

b. 150,000

c. 300,000

d. 350,000

6. The use of the gross profit assumes

a. the amount of gross profit is the same as in prior years

b. sales and cost of goods sold have not changed from previousyears

c. inventory values have not increased from previous years

d. the relationship between selling price and cost of goods soldis similar to prior years

7. the gross profit method of inventory valuation is not validwhen

a. there is substantial increase in the quantity of inventoryduring the year

b. there is substantial increase in the cost of inventory duringthe year

c. the gross margin percentage changes significantly during theyear

d. all ending inventory is destroyed by dire before it can becounted

8. When the current year's ending inventory amount isoverstated,

a. the current year's cost of goods sold is overstated

b. the current year's total assets are understated

c. the current year's net income is overstated

d. the next year's income is overstated

9. If the ending inventory balance is understated, net income ofthe same period

a. will be overstated

b. will be understated

c. will be unaffected

d. cannot be determined from the above information

10. An overstatement of ending inventory in Period 1 wouldresult in income of Period 2 being

a. overstated

b. understated

c. correctly stated

d. the answer cannot be determined from the informationgiven

11. what is the maximum amount at which inventory can be valuedwhen the goods have experienced a permanent decline in value

a. historical cost

b. sales price

c. net realizable value

d. net realizable value reduced by a normal profit margin

12. Net realizable value can be defined as

a. selling price

b. selling price less costs to complete and sell

c. selling price plus costs to complete and sell

d. acquisition cost plus costs to complete and sell

13. Miller company needs an estimate of its ending inventorybalance. The following information is available

Cost Retail

sales revenue - 180,000

beginning inventory - 35,000 62,000

net purchases - 100,000 135,000

gross margin percentage - 30%

Given this information, when using the gross margin estimationmethod, ending inventory is approx

a. 1,000

b. 9,000

c. 19,000

d. 11,650

14. Which of the following would not be reported asinventory?

a. land acquired for resale by a real estate firm

b. stocks and bonds held for resale by a brokerage firm

c. partially completed goods held by a manufacturing company

d. machinery acquired by a manufacturing company for use in theproduction process

15. Cost of goods sold is equal to

a. the cost of inventory on hand at the end of a period plus netpurchases minus the cost of inventory on hand at the beginning

b. the cost of inventory on hand at the beginning of a periodminus net purchases plus the cost of inventory on hand at the endof a period

c. the cost of inventory on hand at the beginning of a periodplus net sales minus the cost of inventory on hand at the end of aperiod

d. the cost of inventory on hand at the beginning of a periodplus net purchases minus the cost of inventory on hand at the endof a period

17. In a period of falling prices, the use of which of thefolliwng inventory cost flow methods would typically result inhighest cost of goods sold?

a. FIFO

b. LIFO

c. Weighted average cost

d. Specific identification

18. In a period of rising prices, the inventory cost allocationmethod that tends to result in the lowest reported net incomeis

a. LIFO

b. FIFO

c. Moving average

d. Weighted average

19. The LIFO inventory cost flow method may be applied to whichof the following inventory systems?

Periodic Perpetual

a. no no

b. no yes

c. yes yes

d. yes no

The student is required to critique, analyze, and evaluate thearticles as they relate to what was learned in class by writing afour to six-page paper (12 font, double spaced, APA format). Theobjective of this activity is for you to be aware of what ishappening in the real world as it relates to financial accountingissues to make the study of accounting more meaningful, and tobridge the gap between theory and practice

LIFO vs FIFO Inventory Accounting at HomeDepot

Last Updated Dec 28, 2008 12:16 AM EST

Home Depot, Inc. announced a key change inaccounting principals in its third quarter filing with the SEC.After adopting a new enterprise resource planning system, otherwiseknown in the wholesale-retail world as an "ERP" system, Home Depotis now keeping track of inventory values in its Canada retailoperations using a weighted-average cost method. Previously Canadainventory values had been determined using a method based on whenthe items were bought called "first-in, first-out."

For some shareholders inventory accounting changes raise red flagsas such moves suggest the company is trying to manage its balancesheet values or profit margins. If price changes are nominal,inventory accounting methods typically render the same balancesheet values and profit levels. That is, First-in, First-out (FIFO)yields the same results as "Last-in, Last-Out" (LIFO) as the pricesare basically the same. However, when prices are rising fast, LIFOleads to falling inventory values on the balance sheet as theolder, lower priced items remain on the balance sheet. If thecompany is unable to pass along rising wholesale or materialsprices to their customers, margins also fall. Ergo, A change toFIFO is tempting.

Apparently, Home Depot management expects the change to aweighted-average cost (WAC) to provide a better match of the costof sales with the revenue generated. The more sophisticatedcalculation is made possible by the new ERP system. As it turnsout, the new accounting method produced an inventory value verynear what would have been reported had Home Depot Canada stuck withthe old FIFO method.

Home Deport operates about 165 stores in Canada. Managementindicates the Canada operation is profitable and same-store salesare positive, but the company does not disclose sales by geography.Total merchandize inventory was $11.9 billion at the end of thefiscal third quarter 2008 compared to $11.7 billion a year-ago.However, as Home Depot's sales in 2008 are off approximately 4%from 2007, going forward the 1.7% increase in total inventory couldbe a source of concern -- should sales continue to fall.

1) Which of the following items would be reported net of taxesafter income from continuing operations?

Select one:

a. Gain or loss on the sale of property.

b. Loss due to a factory strike.

c. Interest expense.

d. Gain or loss on the sale of a major segment of theentity.

2)

Given the following list of accounts, calculate TotalAssets:

Accounts Receivable

$ 5,000

Capital Stock

20,000

Cash

14,300

Equipment

15,400

Fees Earned

44,400

Miscellaneous Expense

18,200

Rent Expense

4,150

Retained Earnings

6,550

Wages Expense

13,900

Select one:

a. $54,700

b. $26,550

c. $79,100

d. $34,700

3)

Which of the following is NOT associated with accrual basisaccounting?

Select one:

a. Income statement.

b. Matching principle.

c. Statement of cash flows.

d. Revenue recognition principle.

4)

Which of the following is an example of an intangible asset?

Select one:

a. Trademark

b. Timber

c. Equipment

d. Marketable securities

5)

Which of the following would be shown under the financingactivities section on the statement of cash flows?

Select one:

a. Cash received from customers.

b. The payment of cash to retire a long-term note.

c. Depreciation expense.

d. The proceeds from the sale of a building.

6)

A machine was purchased for $32,000 on April 1st. It has auseful life of 5 years and a residual value of $4,000. What is thedepreciation expense for the first fiscal year ending on December31st under the straight-line method?

Select one:

a. $1,400

b. $6,400

c. $4,200

d. $5,600

7)

The entry to record the signing of a contract to receiveinventory and make payment at a future date includes

Select one:

a. No debits or credits—just a memorandum.

b. A debit to cost of goods sold.

c. A credit to cash.

d. A debit to inventory.

8)

An inventory cost flow assumption is NOT needed for a productline

Select one:

a. If all of the inventory available for sale was purchased atthe same unit cost.

b. If all of the inventory looks the same.

c. If there is still some inventory on hand at the end of theyear.

d. If there is no beginning inventory carried over from theprevious accounting period.

9)

Fees received this period from customers for services to beperformed in the next accounting period, would be a(n)

Select one:

a. Expense disclosed on the statement of cash flows.

b. Revenue disclosed on the income statement.

c. Liability disclosed on the balance sheet.

d. Item not included on the financial statements until the nextaccounting period.

10)

Which of the following is TRUE of a corporation?

Select one:

a. They are incorporated with a national agency.

b. At least one owner has unlimited liability.

c. They are a separate taxable entity.

d. More than 70% of businesses are organized this way.

11)

The effects on the accounts of recording the cost of merchandisesold for cash using a perpetual inventory system include an

Select one:

a. Increase in Accounts Payable.

b. Increase in Merchandise Inventory.

c. Increase in Sales.

d. Increase in Cost of Goods Sold;

12)

Which of the following is NOT a limitation of externallyreported accounting information?

Select one:

a. The income statement contains atypical data due to the timingof the fiscal year end.

b. Accounting information relies on estimates.

c. Management has some discretion regarding the reportingclassification and choice of accounting measurement methods.

d. There is a hodge-podge of valuation techniques used on thefinancial statements.

13)

Given the following information regarding merchandise inventoryat the end of the fiscal year:

Ending inventory at cost $34,000

Ending inventory at market $33,400

Which of the following is correct?

Select one:

a. No journal entry should be made based upon the informationgiven.

b. Inventory should be reported on the balance sheet at$34,000.

c. Inventory should be reported on the balance sheet at$33,400.

d. A journal entry should be made to recognize a gain of$600.

14)

Which of the following describes the closing process when acompany has net earnings for the period?

Select one:

a. The Dividends account is debited for its balance.

b. The individual asset accounts are credited for theirbalances.

c. The individual expense accounts are debited for theirbalances.

d. The Income Summary account is debited for its balance.

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