Question :
76. Goods in transit between the buyer and the seller belong : 1229809
76. Goods in transit between the buyer and the seller belong to:
A. The seller.
B. The buyer.
C. The freight company.
D. The answer depends upon whether the goods were shipped F.O.B. shipping point or F.O.B. destination.
77. In a periodic inventory system, the cost of goods sold is determined as follows:
A. Year-end inventory, plus purchases during the year, less the inventory at the beginning of the year.
B. Net sales, less the balance in the Gross Profit account.
C. Cost of goods available for sale during the year, less the ending inventory.
D. A physical count is made of all items sold throughout the year, and a cost flow assumption is applied at year-end.
78. During periods of rising prices, and being primarily concerned with tax implications, most companies would select:
A. LIFO.
B. FIFO.
C. Specific identification.
D. The inventory valuation does not affect taxation.
79. For the purpose of delaying income taxes, during an inflationary period, which method would be best?
A. LIFO.
B. FIFO.
C. Average.
D. Taxes would be the same under each assumption.
80. Some companies that use a perpetual inventory system and the LIFO flow assumption restate their inventories at year-end to the amount indicated by periodic LIFO costing procedures. The primary reason for this adjustment is that:
A. Periodic LIFO often results in a higher valuation of inventory, thus reducing taxable income.
B. This adjustment is necessary to record shrinkage losses.
C. Periodic LIFO often results in a lower valuation of inventory, thus reducing taxable income.
D. Periodic and perpetual costing procedures produce the same results if the year-end inventory has been counted properly. No adjustment would be needed.
81. If the inventory at the end of the current year is understated and the error is never caught, the effect is to:
A. Understate income this year and overstate income next year.
B. Overstate income this year and understate income next year.
C. Understate income this year with no effect on income next year.
D. Overstate the cost of goods sold, but have no effect on net income.
82. The CPA firm auditing Capri Corporation found that net income had been overstated. Which of the following could be the cause?
A. Failure to take advantage of purchase discounts by paying within the discount period.
B. Overstatement of inventory at year-end.
C. Use of the last-in, first-out (LIFO) method of valuing inventory in a period of rising prices.
D. Failure to record payment of an account payable to a supplier on the last day of the year.
83. If an error in valuing inventory occurs in one year:
A. It has no effect upon income in the following year.
B. It has no effect upon the income statement, only on the balance sheet.
C. It is self-correcting after two years.
D. Retained earnings will be adversely affected until corrected.
84. Companies with periodic inventory systems often use techniques such as the gross profit method and the retail method to:
A. Prepare interim financial statements without taking a complete physical inventory.
B. Increase gross profit.
C. Value inventory at its sales price instead of its cost.
D. Reduce taxable income during a period of rising prices.
85. The inventory turnover rate provides an indication of how quickly the average quantity of inventory on hand:
A. Spoils.
B. Sells.
C. Increases.
D. Converts into cash.
