The following questions dealing with inventory are adapted from questions that previously appeared on Certified Management Accountant (CMA) examinations. The CMA designation sponsored by the Institute of Management Accountants (www.imanet.org) provides members with an objective measure of knowledge and competence in the field of management accounting. Determine the response that best completes the statements or questions.
1. The following FCL Corporation inventory information is available for the year ended December 31:
The December 31 ending inventory at cost using the conventional (lower of average cost or market) retail inventory method equalsa. $17,500b. $20,000c. $27,500d. $50,000
2. All sales and purchases for the year at Ross Corporation are credit transactions. Ross uses a perpetual inventory system. During the year, it shipped certain goods that were correctly excluded from ending inventory although the sale was not recorded. Which one of the following statements is correct?
a. Accounts receivable was not affected, inventory was not affected, sales were understated, and cost of goods sold was understated.
b. Accounts receivable was understated, inventory was not affected, sales were understated, and cost of goods sold was understated.
c. Accounts receivable was understated, inventory was overstated, sales were understated, and cost of goods sold was overstated.
d. Accounts receivable was understated, inventory was not affected, sales were understated, and cost of goods sold was not affected.
3. During the year 1 year end physical inventory count at Tequesta Corporation, $40,000 worth of inventory was counted twice. Assuming that the year 2 year end inventory was correct, the result of the year 1 error was that
a. Year 1 retained earnings was understated, and year 2 ending inventory was correct.
b. Year 1 cost of goods sold was overstated, and year 2 income was understated.
c. Year 1 income was overstated, and year 2 ending inventory was overstated.
d. Year 1 cost of goods sold was understated, and year 2 retained earnings was correct.