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Exam 6: Inventories

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Question 91

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The use of the lower-of-cost-or-market method of inventory valuation increases net income for the period in which the inventory replacement price declined.

A) True
B) False

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Question 92

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When using the FIFO inventory costing method, the most recent costs are assigned to the cost of goods sold.

A) True
B) False

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Question 93

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Inventory errors, if not discovered, will self-correct in two years.

During the taking of its physical inventory on December 31, 2011, Gentry Supplies Company incorrectly counted its inventory as $245,000 instead of the correct amount of $254,000. Indicate the affect of the misstatement on Gentry Supplies Company's balance sheet and income statement for the year ended December 31, 2011.

During August, the first month of the fiscal year, sales totaled $875,000 and the cost of merchandise available for sale totaled $700,000. Estimate the cost of the merchandise inventory as of August 31, based on an estimated gross profit rate of 45%.

Of the three widely used inventory costing methods (FIFO, LIFO, and average cost), the LIFO method of costing inventory assumes costs are charged based on the most recent purchases first.

Hampton Co. took a physical count of its inventory on December 31. In addition, it had to decide whether or not the following items should be added to this count. Indicate which items should be added to (answer: yes) and which items should not be added to (answer: no) the December 31 inventory count.

Most large companies will use only one inventory costing methods for all of its different segments.

The following information was extracted from the Stone Company's records. Complete the following: $\begin{array} { | l | l | l | } \hline \text { Gross Sales } & & \\\hline \text { Sales Discounts } & & \\\hline \text { Sales Returns \& Allowances } & & \\\hline \text { Net Sales } & & \\\hline \text { Cost of Goods Sold } & & \\\hline \text { Gross Profit } & & \\\hline \text { Operating Expenses: } & & \\\hline \text { Gen. \& Admin Expenses } & & \\\hline \text { Selling Expenses } & & \\\hline \text { Total Operating Expenses } & & \\\hline \text { Net Income (Loss) } & & \\\hline\end{array}$

Control of inventory should begin as soon as the inventory is received. Which of the following internal control steps is not done to meet this goal?