Question : 98. Merchandise inventory at the end of the year was understated. : 1227177

 

 

98. Merchandise inventory at the end of the year was understated.  Which of the following statements correctly states the effect of the error? 
A. net income is understated
B. net income is overstated
C. cost of merchandise sold is understated
D. merchandise inventory reported on the balance sheet is overstated

 

99. Merchandise inventory at the end of the year is overstated. Which of the following statements correctly states the effect of the error? 
A. retained earnings is overstated
B. cost of merchandise sold is overstated
C. gross profit is understated
D. net income is understated

 

100. If the cost of an item of inventory is $50 and the current replacement cost is $57, the amount included in inventory according to the lower of cost or market is  
A. $7
B. $50
C. $57
D. $107

 

101. Kristin’s Boutiques has identified the following items for possible inclusion in its December 31, 2010 inventory.  Which of the following would not be included  in the year end inventory? 
A. Merchandise purchased FOB shipping point was picked up by the freight company but had still not arrived at Kristin’s Boutique as of December 31, 2010.
B. Kristin has in its warehouse merchandise on consignment from Abby Co.
C. Kristin has sent merchandise to various retailers on a consignment basis.
D. Kristin has merchandise on hand which has been returned by customers because of wrong size. 

 

102. During the taking of its physical inventory on December 31, 2010, Barry’s Bike Shop incorrectly counted its inventory as $270,000 instead of the correct amount of $190,000.   The effect on the balance sheet and income statement would be as follows: 
A. assets overstated by $80,000; retained earnings understated by $80,000;  net income statement understated by $80,000.
B. assets overstated by $80,000; retained earnings understated by $80,000;  no effect on the income statement.
C. assets and retained earnings overstated by $80,000; net income overstated by $80,000.
D. assets and retained earnings overstated by $80,000; net income understated by $80,000.

 

103. If a company mistakenly counts more items during a physical inventory than actually exist,  how will the error affect their bottom line? 
A. No change to net income.
B. Net income will be overstated
C. Net income will be understated.
D. Only gross profit will be affected.

 

104. If a company mistakenly counts less items during a physical inventory than actually exist, how will the error affect the cost of merchandise sold? 
A. Understated
B. Overstated
C. No change
D. Only inventory is affected

 

105. Too much inventory on hand  
A. reduces solvency
B. increases the cost to safeguard the assets
C. increases the losses due to price declines
D. all of the above

 

106. Which of the following is used to analyze the efficiency and effectiveness of inventory management? 
A. inventory turnover only
B. number of days’ sales in inventory only
C. both inventory turnover and number of days’ sales in inventory
D. neither inventory turnover or number of days’ sales in inventory

 

107. Which of the following measures the relationship between cost of merchandise sold and the amount of inventory carried during the period? 
A. inventory turnover
B. number of days’ sales in inventory
C. retail method of inventory costing
D. gross profit method of inventory costing

 

 

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