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Chapter 7
Merchandise Inventory
MULTIPLE CHOICE QUESTIONS
1. Portland Supplies Co. mistakenly excluded $3,000 of goods from its December 31, 2016
physical inventory count. Its December 31, 2017 inventory amount was correct. As a
result of this error,
a. 2016 income is overstated by $3,000.
b. 2016 ending inventory is overstated by $3,000.
c. 2017 income is overstated by $3,000.
d. 2017 cost of goods sold is overstated by $3,000.
Ans: C LO 1 BT: AN Difficulty: Moderate TOT: 1 min. AACSB: Analytic

AICPA BB: Critical Thinking AICPA FC: Reporting
2. Which one of the following expenditures should not be included in the cost of inventory?
a. Transportation-out
b. Purchase cost
c. Packaging cost
d. Transportation-in
Ans: A LO 2 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic

AICPA BB: Critical Thinking AICPA FC: Measurement
3. Michael Manufacturers fraudulently overstated its December 31, 2016 and December
31, 2017 inventory by $3,000 and $6,000, respectively. As a result of these
overstatements,
a. 2016 income is overstated by $3,000 and 2017 income is overstated by $3,000.
b. 2016 income is overstated by $3,000 and 2017 income is overstated by $6,000.
c. 2016 income is overstated by $3,000 and 2017 income is accurate.
d. 2016 and 2017 incomes are not affected.
Solution: 2016 overstatement = $6,000 - $3,000 = $3,000
Ans: A LO 1 BT: AN Difficulty: Moderate TOT: 1 min. AACSB: Analytic

7-1
7-2 Test Bank – Chapter 7 – Merchandise Inventory
4. Jackson Roper fraudulently overstated its December 31, 2016 inventory by $8,000. As a
result of this overstatement,
a. the 2016 earnings per share is overstated.
b. the 2016 current ratio is understated.
c. the 2016 cost of goods sold amount is overstated.
d. net income is overstated for 2017, and net income for 2016 is correct.

5. If a company desires to increase its inventory, then it should:

a. sell more goods than it purchases during the period.
b. purchase more goods than it sells during the period.
c. purchase the same amount of goods that it sells.
d. increase its selling prices to a level that customers would not be willing to purchase.
Ans: B LO 1 BT: C Difficulty: Easy TOT: 1 min. AACSB: Analytic

6. Cagey Trading Inc. counted $2,000 of inventory twice during its December 31, 2016
physical inventory count. Its December 31, 2017 inventory amount is correct. As a result
of this error,
a. 2016 ending inventory is overstated by $2,000.
b. 2016 income is understated by $2,000.
c. 2017 income is overstated by $2,000.
d. 2017 cost of goods sold is understated by $2,000.

7. Washington Co. mistakenly omitted $4,000 of merchandise from its inventory on

December 31, 2016. Its December 31, 2017, inventory is correct. As a result of this
error,
a. earnings per share is overstated for 2016 and overstated for 2017.
b. total income for 2016 and 2017 combined is correct.
c. the current ratio is overstated on December 31, 2016 and is correct on December 31,
2017.
d. ending inventory is understated at December 31, 2017.
Ans: B LO 1 BT: AN Difficulty: Difficult TOT: 1 min. AACSB: Analytic

Test Bank – Chapter 7 – Merchandise Inventory 7-3
8. Parker Books purchased 200 books, paying $10 each. Parker paid the $40 shipping
costs and $30 binding repair fees so that those books could be sold. How much is the
cost of inventory?
a. $2,000
b. $2,040
c. $2,030
d. $2,070
Solution: (200 X $10) + $40 + $30
Ans: D LO 2 BT: AN Difficulty: Moderate TOT: 1 min. AACSB: Analytic

9. A company deliberately and inappropriately included interest costs in its December 31

inventory. Which one of the following statements is true for the company’s December 31
financial statements?
a. Earnings per share is understated.
b. Inventory turnover ratio is understated.
c. The current ratio is understated.
d. Cost of goods sold is overstated.
Ans: B LO 2 BT: AP Difficulty: Moderate TOT: 1 min. AACSB: Analytic

10. Dole Produce Ltd. counted $700 of inventory twice in its December 31, 2016 inventory.
On December 31, 2017, it mistakenly omitted $200 of merchandise from its inventory. As
a result of these errors:
a. net income is overstated by $700 in 2016 and understated by $200 in 2017.
b. net income in understated by $700 in 2016 and overstated by $200 in 2017.
c. net income is overstated by $700 in 2016 and understated by $900 in 2017.
d. total net income for 2016 and 2017 is correct.
Solution: 2017 understatement = -$700 - $200 = - $900
Ans: C LO 1 BT: AN Difficulty: Difficult TOT: 1 min. AACSB: Analytic

11. Kemp Clothing has cost of goods sold of $14,000 with beginning and ending inventories
of $4,000 and $2,000, respectively. Purchases during the period are:
a. $ 8,000.
b. $ 9,000.
c. $10,000.
d. $12,000.
Solution: $14,000 + $2,000 − $4,000 = $12,000

12. Which one of the following expenditures should not be included in the cost of inventory?
a. Purchase cost
b. Transportation-in
c. Packaging cost
d. Capitalized equipment cost
Ans: D LO 2 BT: C Difficulty: Easy TOT: 1 min. AACSB: Analytic

13. Mars Hardware sold 20 drills for $8 each. Each drill cost $4. Which journal entry
completely records the sale under a perpetual inventory system?
a. Cash 160
Sales 160
b. Cash 160
Inventory 160
c. Cash 160
Cost of Goods Sold 80
Sales 160
Inventory 80
d. Cash 160
Inventory 80
Gain from Sale 80
Solution: Sales = 20 X $8 = $160; CGS = 20 X $4 = $80
Ans: C LO 3 BT: AP Difficulty: Easy TOT: 1 min. AACSB: Analytic

14. Wood Inc. sells automobiles at $6,000 above cost and uses the specific identification
method for inventory. Below are the cars and the costs Wood paid for the inventory
before the sale.
Auto 1: $35,000
Auto 2: $17,500
Auto 3: $19,500
Auto 4: $23,000
Auto 5: $26,000
If Wood sells Auto 3 and Auto 5 for cash, which of the following would be included in the
journal entries it uses to record the sale and recognize the cost of the inventory?
a. A debit to Cost of Goods Sold for $45,500.
b. A credit to Sales for $45,500.
c. A credit to Inventory for $57,500.
d. A credit to Sales for $12,000.
Solution: CGS = $19,500 + $26,000 = $45,500
Ans: A LO 3, 4 BT: AP Difficulty: Moderate TOT: 1 min. AACSB: Analytic

15. Vic’s Produce purchased 50 boxes of tomatoes for a total of $400. It paid $20 for
shipping tomatoes to a customer and $15 for repackaging them into smaller boxes. The
cost of these tomatoes is:
a. $400.
b. $420.
c. $415.
d. $435.
Solution: $400 + $15 = $415

16. Simon Cereal purchased 100 pounds of cornflakes for $100. Transportation cost to
Simon’s production facility was $25 for the barrel of cornflakes shipped FOB destination.
Simon paid $60 for 100 one-pound biodegradable plastic bags into which the cornflakes
were placed. The cost of each one-pound bag of cornflakes is:
a. $1.00.
b. $1.25.
c. $1.60.
d. $1.75.
Solution: ($100 + $60) / 100 = $1.60

17. Beginning inventory is valued at $7,000, purchases are $15,000 and ending inventory is
valued at $9,000. Cost of goods sold is:
a. $23,000.
b. $16,000.
c. $30,000.
d. $13,000.
Solution: $7,000 + $15,000 - $9,000 = $13,000

18. Victoria Fashions Clothing Store uses the perpetual method of accounting for inventory.
During the current year, purchases are $30,000 and cost of goods sold is $25,000.
Beginning inventory is valued at $4,000 and ending inventory was taken on December
31 and valued at $6,000. Inventory shortage expense for the current year is:
a. $0.
b. $2,000.
c. $3,000.
d. $5,000.
Solution: ($30,000 + $4,000 - $25,000) - $6,000 = $3,000
Ans: C LO 3 BT: AN Difficulty: Difficult TOT: 1 min. AACSB: Analytic

19. During a year of decreasing prices and decreasing inventory, which cost flow
assumption would measure the greatest net income?
a. FIFO
b. LIFO
c. Average
d. Both a and c are correct.

20. During a year of rising prices and increasing inventory, which cost flow assumption
would yield the greatest current ratio?
a. Average
b. LIFO
c. FIFO
d. Both a and c are correct.
Ans: C LO 4 BT: C Difficulty: Moderate TOT: 1 min. AACSB: Analytic

would measure the smallest net income?
a. LIFO
b. FIFO
c. Average
d. All methods measure income the same.
Ans: A LO 4 BT: C Difficulty: Easy TOT: 1 min. AACSB: Analytic

would measure the smallest working capital ratio?
a. FIFO
b. LIFO
c. Average
d. Working capital is not sensitive to inventory cost flow assumptions.
Ans: B LO 4 BT: C Difficulty: Moderate TOT: 1 min. AACSB: Analytic

23. The President and CEO of Quinn Manufacturing receives a cash bonus equal to 1% of
audited net income during the current year. During a period of rising prices and
increasing inventory, which inventory cost flow assumption would measure the smallest
compensation expense and greatest cash position for Quinn Manufacturing?
a. FIFO
b. NIFO
c. Average
d. LIFO
Ans: D LO 4 BT: C Difficulty: Moderate TOT: 1 min. AACSB: Analytic

24. Unusually high income resulted when Vincent Inc. cut back its inventory levels. This
effect is:
a. backed by the LIFO elimination rule.
b. expected in most industries.
c. achieved through using the lower-of-cost-or-market rule.
d. called LIFO liquidation.

would measure the largest inventory turnover ratio?
a. FIFO
b. LIFO
c. Average
d. The inventory turnover ratio is not sensitive to inventory cost flow assumptions.

26. During a period of rising prices and increasing inventory, which cost flow assumption
used on both federal income tax returns and financial reports would provide a company
with the greatest cash position?
a. FIFO
b. LIFO
c. Average
d. TIFO

27. During a year of falling prices, which cost flow assumption would measure the strongest
cash flow position?
a. LIFO
b. FIFO
c. Average
d. Net income will remain the same under all methods.

28. During a year of falling prices, which cost flow assumption would yield the greatest
current ratio?
a. FIFO
b. LIFO
c. Average
d. Lower-of-cost or market

29. If a company uses the LIFO cost flow assumption on its federal income tax return in
order to minimize its tax payment, then it:
a. must use LIFO on its financial statements.
b. must use FIFO on its financial statements.
c. may use any cost flow assumption permitted by GAAP on its financial statements.
d. must correct the error at the beginning of the next accounting period.
Ans: A LO 4 BT: C Difficulty: Moderate TOT: 1 min. AACSB: Analytic

30. An excessively low inventory turnover ratio may reveal that:

a. customers are delaying their payments on account.
b. the selling price of inventory is too high.
c. sales returns have decreased significantly.
d. the company is selling too much inventory.

31. Carmelo Inc. has Cost of Goods Sold of $45,000 (beginning inventory of $10,000, plus
purchases of $55,000, less ending inventory of $20,000). Inventory turnover is
a. 2.3
b. 3.0
c. 3.7
d. 4.5
Solution: ($10,000 +$20,000)/2 = $15,000; $45,000/$15,000 = 3.0
Ans: B LO 6 BT: AN Difficulty: Moderate TOT: 1 min. AACSB: Analytic

32. Under generally accepted accounting principles, a company can choose a cost flow
assumption for valuing cost of goods sold that can result in different income reporting.
However, it can’t frequently change the cost flow assumption adopted in order to
measure the highest income possible because of the:
a. conservatism principle.
b. going concern principle.
c. stable-dollar principle.
d. consistency principle.

33. During an extended period of constant prices, which cost flow assumption would
generally measure the largest earnings per share?
a. FIFO
b. LIFO
c. Weighted average
d. All of the above assumptions would result in equal earnings per share during an
extended period of constant prices.

34. At which point in accounting for inventory in a perpetual system is determining the cost
of goods sold amount an issue?
a. When the inventory is acquired.
b. As the inventory is carried in the warehouse and held for sale.
c. As the ending inventory is counted.
d. As the inventory is sold.

35. Items should be included in the company’s inventory if they are:

a. being used in the production of income.
b. held in anticipation of an increase in value.
c. being held for sale.
d. sold during the period.
Ans: C LO 2 BT: K Difficulty: Moderate TOT: 1 min. AACSB: Analytic

36. Which one of the following should be included in Camden’s inventory at December 31,
2017?
a. Goods shipped FOB shipping point on December 31, 2017, from Camden to a
customer.
b. Goods in the Camden’s warehouse on December 31, 2017, waiting to be shipped to
a customer.
c. Goods ordered from one of Camden’s suppliers on December 31, 2017, shipped
FOB destination on December 31, 2017, which arrived January 2, 2018.
d. Goods sold and shipped to a customer on December 30, 2017, terms FOB
destination, which were delivered on December 31, 2017.

37. Which one of the following companies would likely carry the largest percentage of
inventory as compared to its other assets?
a. Ernst & Young, CPAs
b. Merrill Lynch Investment Brokers
c. The Magic Kingdom at Disney World
d. Jim’s Ford Dealership

38. When prices remain the same, which cost flow assumption would generally measure the
largest current ratio?
a. FIFO
b. LIFO
c. Average
d. All of the above assumptions would result in equal current ratios during an extended
period of constant prices.

39. When accounting for inventory consignments, the issue which helps determine whether
or not the inventory cost should be included on a company’s balance sheet is:
a. whether the inventory is physically located in the company’s warehouse.
b. who actually owns title to the inventory.
c. who will ultimately sell the inventory to the consumer.
d. when the inventory will be sold.

40. Specific identification is a method of accounting for inventory:

a. which eliminates the need for tracking the cost of inventory items.
b. that allocates the oldest cost to the first units sold.
c. that often allows a manager to manipulate net income and the ending inventory
value.
d. commonly used in periods of rising prices.

41. Selecting an inventory cost flow assumption will most likely be impacted by which one of
the following?
a. The physical flow of the inventory goods.
b. The cost of the company’s plant and equipment.
c. Income taxes.
d. The cost flow assumptions most often used by other companies.
Ans: C LO 4 BT: C Difficulty: Moderate TOT: 1 min. AACSB: Analytic

42. All of the following are typically associated with Japanese business inventory accounting
except:
a. the use of the average assumption for inventory cost.
b. shared business risks.
c. slow inventory turnover.
d. lower levels of inventory.
Ans: C LO 6 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic

AICPA BB: Global AICPA FC: Reporting
43. Inventory reported on the balance sheet of a manufacturing company consists of:
a. raw materials and the cost of labor to convert the raw materials to finished products.
b. raw materials, the cost of labor to convert the raw materials, and an allocated portion
of manufacturing overhead cost.
c. the cost of the raw materials used.
d. raw materials, the cost of labor to convert the raw materials, and all major corporate
overhead costs.

44. The LIFO conformity rule requires a company that uses:

a. the LIFO assumption for computing cost of goods sold on its tax return to also use
the LIFO assumption in preparing its financial statements.
b. any inventory cost assumption to use the LIFO cost assumption for tax purposes.
c. the LIFO assumption for computing cost of goods sold on its financial statements to
also use LIFO on its tax return.
d. the LIFO assumption to avoid paying taxes on inventory profits.
Ans: A LO 4 BT: K Difficulty: Moderate TOT: 1 min. AACSB: Analytic

45. During a period of rising prices and inventories, a company whose current ratio is
dangerously close to the minimum specified by agreement with a major creditor would
prefer which cost flow assumption?
a. FIFO
b. LIFO
c. Average
d. The company would be indifferent as to which cost flow assumption is adopted.

46. Selling more inventory than was purchased during the current period may often cause
old, smaller costs that were carried as part of the company's beginning inventory, to be
moved to the income statement and reported as cost of goods sold. This is called:
a. the LIFO conformity rule.
b. LIFO liquidation.
c. the LIFO reserve rule.
d. lower-of-cost-or-market accounting.
Ans: B LO 4 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic

47. During a period of rising prices and inventories, a company whose debt/equity ratio is
dangerously close to the minimum specified by agreement with a major creditor would
prefer which cost flow assumption?
a. FIFO
b. LIFO
c. Average

48. During a period of changing inventory prices, which of the following is not immediately
sensitive to the particular cost flow assumption adopted?
a. Net income
b. Current ratio
c. Gross profit
d. Quick ratio

49. Under the lower-of-cost-or-market rule, market is:

a. the selling price of inventory items.
b. the original cost paid for inventory.
c. used to value inventory if it is less than its recorded cost.
d. the amount of cash the company expects to collect from the sale of an inventory
item.

50. Which of the following policies would increase a firm's current inventory turnover ratio?
a. Reduction of the average inventory that supports a constant amount of sales
b. An decrease in the units of inventory sold while holding average inventory constant
c. Increase of inventory by adopting a Just-in-Time production schedule
d. Accelerating purchases of inventory to the current year

51. If the market value of inventory is greater than its cost, then the application of the lower-
of-cost-or-market rule would:
a. decrease both the current ratio and net income.
b. decrease the current ratio but not change net income.
c. not change the current ratio but decrease net income.
d. change neither the current ratio nor net income.

52. During a period of rising prices and inventories, which method causes cash flows to be
stronger?
a. FIFO
b. LIFO
c. Average

53. Which of the following should not be included in inventory cost for a car dealership?
a. The costs of transporting the cars from the factory to the dealership
b. Cost of new car preparation for customers
c. The salary and commission of the salesman who sells the vehicle
d. The cost of adding a CD player to the vehicles before the vehicle is offered for sale
Ans: C LO 2 BT: C Difficulty: Easy TOT: 1 min. AACSB: Analytic

54. If the market value of inventory is less than its cost, then application of the lower-of-cost-
or-market rule would:
a. increase earnings and decrease the current ratio.
b. decrease earnings and increase the current ratio.
c. decrease earnings and decrease the current ratio.
d. cause no change to earnings or the current ratio.
Ans: C LO 5 BT: AP Difficulty: Moderate TOT: 1 min. AACSB: Analytic

55. What is the impact on the financial statements of an overstatement of ending inventory?
a. Next year’s ending inventory will be overstated.
b. Next year’s net income will be overstated.
c. Current year’s net income will be overstated.
d. Next year’s ending inventory will be understated.
Ans: C LO 1 BT: AP Difficulty: Moderate TOT: 1 min. AACSB: Analytic

56. The following information comes from the annual reports of Devin Designs.
2017 2016 2015
Beginning inventory ? ? 2,250
Purchases 12,652 ? ?
Goods available for sale ? ? 12,899
Ending inventory ? 2,662 ?
Cost of goods sold 12,213 10,908 10,490
What is the Purchases amount for 2015?

a. $4,713
b. $2,397
c. $81
d. $10,649
Solution: $12,899 - $2,250 = $10,649

2017 2016 2015
What is the ending inventory amount for 2015?

a. $4,713
b. $2,409
c. $81
d. $10,583
Solution: $12,899 - $10,490 = $2,409

2017 2016 2015
What is the beginning inventory amount for 2016?

a. $2,409
b. $13,570
c. $10,502
d. $8,246
Solution: $12,899 - $10,490 = $2,409

2017 2016 2015
What is the amount of purchases for 2016?

a. $8,246
b. $11,161
c. $13,570
d. $10,643
Solution: $10,908 + $2,662 = $13,570. $13,570 - $2,409 = $11,161.

2017 2016 2015
What is the amount of goods available for sale for 2016?

a. $8,246
b. $11,173
c. $13,570
d. $10,643
Solution: $10,908 + $2,662 = $13,570

2017 2016 2015
What is the beginning inventory amount for 2017?

a. $439
b. $8,246
c. $10,908
d. $2,662

2017 2016 2015
What is the amount of goods available for sale for 2017?

a. $11,347
b. $15,314
c. $13,957
d. $24,865
Solution: $2,662 + $12,652 = $15,314

2017 2016 2015
What is the ending inventory amount for 2017?

a. $24,865
b. $3,101
c. $2,223
d. $15,314
Solution: $15,314 - $12,213 = $3,101

64. Forrest’s Crab House purchased Florida stone crab on account on November 10, 2017,
for a gross price of $87,000. Forrest also purchased farm-raised catfish on account on
November 11, 2017 for a gross price of $25,000. Forrest paid for the first purchase on
November 19, 2017, and for the second purchase on November 30. If he uses the
perpetual inventory method, which of the following journal entries would Forrest make for
November 30?
a. Inventory 25,000
Accounts Payable 25,000
b. Accounts Payable 25,000
Cash 25,000
c. Accounts Payable 25,000
Cash 24,500
Inventory 500
d. Accounts Payable 24,500
Cash 24,500
Ans: B LO 1 BT: AP, AN Difficulty: Moderate TOT: 2 min. AACSB: Analytic

65. Gump Supplies has the following information:

Beginning inventory $39,000
Inventory purchases 92,000
Transportation-in 11,300
An inventory count taken at year end indicates that inventory with a cost of $56,000 is on
hand as of December 31, 2017. Assume that inventory purchases and transportation-in
are both reflected in the inventory account, which shows an ending balance of $59,000.
What is the amount of the cost of goods sold?
a. $123,300
b. $83,300
c. $60,700
d. $100,700
Solution: With the perpetual method, the balance in the Cost of Goods Sold
account is perpetually updated for sales of inventory, as is the balance in the Inventory
account for sales and acquisitions of inventory. This implies that the balance in Cost of
Goods Sold should correspond to a balance in the Inventory account of $59,000, and
that no entry is necessary at the end of the year to record Cost of Goods Sold.
Ending Inventory = Beginning Inventory + Net Purchases – Cost of Goods Sold

$59,000 = $39,000 + ($92,000 + $11,300) – COGS
Cost of Goods Sold = $83,300

66. Gump Supplies has the following information:

Beginning inventory $39,000
Inventory purchases 92,000
Transportation-in 11,300
An inventory count taken at year end indicates that inventory with a cost of $56,000 is on
hand as of December 31, 2017. Assume that inventory purchases and transportation-in
are both reflected in the inventory account, which shows an ending balance of $59,000.
Which of the following would be the best adjusting journal entry to make at the end of the
period with respect to this information?
a. Inventory Loss 3,000
Inventory 3,000
b. Inventory 3,000
Inventory Gain 3,000
c. Inventory 3,000
Purchases 3,000
d. Cost of Goods Sold 3,000
Sales 3,000
Solution: Since the physical count indicates that Gump has $3,000 less inventory
than is recorded in its Inventory account, the following adjusting entry is necessary at the
end of the year.
Inventory Loss (E, –SE)..................................................... 3,000

Inventory (–A) ......................................................... 3,000
Ans: A LO 3 BT: AP, AN Difficulty: Moderate TOT: 2 min. AACSB: Analytic

67. Dakota Industries has two items in inventory as of December 31, 2017. Each item was
purchased for $52. Company management chose to write down Item #1 to $39, which
at year-end was assessed to be its market value. Management did not write down Item
#2 because its market value was estimated to be greater than $52. During 2017, each
item was sold for $63 cash.
The journal entry for the write down of Item #1 would include which of the following?
a. Inventory Loss .................................................................. 24
Inventory ............................................................ 24
b. Inventory ......................................................................... 13
Inventory Loss ..................................................... 13
c. Inventory Loss .................................................................. 13
Inventory ............................................................ 13
d. Inventory ......................................................................... 24
Inventory Loss ..................................................... 24
Ans: C LO 5 BT: AP, AN Difficulty: Moderate TOT: 2 min. AACSB: Analytic

68. Dakota Industries has two items in inventory as of December 31, 2015. Each item was
purchased for $52. Company management chose to write down Item #1 to $39, which
at year-end was assessed to be its market value. Management did not write down Item
#2 because its market value was estimated to be greater than $52. During 2016, each
item was sold for $63 cash.
If Dakota uses the perpetual inventory method, which of the following would be included
in the entry or entries to record the sale of Item #1?
a. A debit to Sales for $63.
b. A credit to Inventory for $52.
c. A debit to Cost of Goods Sold for $39.
d. A credit to Cost of Goods Sold for $52.
Ans: C LO 3, 5 BT: AP, AN Difficulty: Moderate TOT: 2 min. AACSB: Analytic

69. Grey Manufacturing had the following transaction:

• Grey received an order to sell inventory with a cost of $50,000, and debited
Accounts Receivable and credited Sales. The goods were shipped to the
customer on December 31, 2017, and received on January 2, 2018.
If the terms of the sale were FOB shipping point and Grey included all these items in its
ending inventory of 12/31/17, which of the following is the best statements regarding this
treatment?
a. Grey made no mistake and rightfully included the items in its inventory until January
2, 2018.
b. Grey made a mistake and wrongly understated ending inventory.
c. Grey made a mistake and wrongly understated Cost of Goods Sold.
d. Grey made a mistake and wrongly understated Retained Earnings.
Ans: C LO 2 BT: AP Difficulty: Difficult TOT: 2 min. AACSB: Analytic

70. Grey Manufacturing had the following transaction:

• Grey ordered $67,000 of inventory on December 30, 2017. The inventory
was shipped on December 31, 2017, with the terms FOB destination. Grey
received the inventory on January 3, 2018.
If Grey included all these items in it ending inventory of 12/31/17, which of the following
is the best statement regarding this treatment?
a. Grey made no mistake and rightfully included the items in its ending inventory for
12/31/17.
b. Grey made a mistake and wrongly overstated ending Inventory.
c. Grey made a mistake and wrongly overstated Cost of Goods Sold.
d. Grey made a mistake and wrongly overstated Retained Earnings.
Ans: B LO 1 BT: AP Difficulty: Difficult TOT: 2 min. AACSB: Analytic

MATCHING QUESTIONS
1. For each cost numbered 1 through 8 below, identify which accounting treatment (a
through c) would most likely be used in accounting for the cost. You may use each letter
more than once or not at all.
Users
a. Added to cost of inventory
b. Deducted from cost of inventory
c. Not part of cost of inventory
1. Cash price of goods purchased for resale
2. Transportation cost of goods shipped to customers
3. Transportation cost of goods shipped from suppliers FOB shipping point
4. Return of inventory to supplier
5. Transportation cost of goods being shipped to consignee
6. Assembly costs of products which will be sold to customers
7. Insurance cost paid while inventory is in transit from suppliers
8. Excise, sales, use, value added, and other fees and taxes paid on the purchase of inventory
Solution:
1. a 5. a
2. c 6. a
3. a 7. a
4. b 8. a
LO 1 BT: K Difficulty: Moderate TOT: 3 min. AACSB: Analytic
2. For each item listed in 1 through 4, place the letter of the accounting effect (a through e)
in the space provided. You may use each letter more than once or not at all.
Accounting Effects
a. Current ratio and earnings per share increase.
b. Current ratio and earnings per share are not affected.
c. Current ratio increases and earnings per share decreases.
d. Current ratio decreases and earnings per share increases.
e. Current ratio and earnings per share decrease.
____ 1. During a period of increasing inventory and rising prices, a company decides
to use FIFO instead of LIFO.
____ 2. During a period of increasing inventory and rising prices, a company decides
to use Average instead of FIFO.
____ 3. During a period of static prices, a company decides to use FIFO instead of
LIFO.
____ 4. A company applies lower-of-cost-or-market for valuing ending inventory when
market price is less than cost.
Solution: 1. a 2. e 3. b 4. e
LO 4 BT: AN Difficulty: Moderate TOT: 1 min. AACSB: Analytic

3. For each item listed in 1 through 2, place the letter of the accounting effect (a through e)
Accounting Effects
a. Current ratio and earnings per share increase.
b. Current ratio and earnings per share decrease.
c. Current ratio increases and earnings per share decreases.
d. Current ratio decreases and earnings per share increases.
e. Current ratio and earnings per share are not affected.

cost is greater than market price.
____ 2. During an extended period of constant prices, a company uses LIFO instead of
FIFO.
Solution: 1. b 2. e
LO 4, 5 BT: AN Difficulty: Moderate TOT: 1 min. AACSB: Analytic

4. For each item listed in 1 through 7, place the letter (a through e) of the accounting effect
Accounting Effects
a. Assets and net income increase
b. Assets and net income decrease
c. Assets decrease and net income increases
d. Assets increase and net income decreases
e. Assets and net income are not affected
____ 1. During a period of increasing inventory and rising prices, a company decides to
use FIFO instead of LIFO.
____ 2. During a period of increasing inventory and rising prices, a company decides to
use Average instead of FIFO.
____ 3. During a period of increasing inventory and increasing prices, a company uses
the LIFO method, which creates the largest cost of goods sold.
market price is less than cost.
cost is less than market price.
____ 6. During an extended period of constant prices, a company adopts LIFO instead
of FIFO.
Solution: 1. a 2. b 3. b 4. b 5. e 6. e

SHORT PROBLEMS
1. Bisbee Ltd. has been fraudulently overstating its inventory in order to "pump up" a
lagging income. It started this practice in 2016 and overstated the 2016 income by
$9,000. By what amount will they have to overstate December 31, 2017 inventory in
order to overstate 2017 income by $14,000?
Solution: ($9,000) – $14,000 = $23,000
LO 1,3 BT: AN Difficulty: Moderate TOT: 2 min. AACSB: Analytic

Use the information that follows concerning Bradley Corporation to answer problems 2-
5.
Bradley Corporation began business on January 1. During January, Bradley used the
periodic method and reported the following:
January 1 purchase: 100 units @ $10 = $1,000
January 10 purchase: 150 units @ $14 = $2,100
January sales: 200 units
2. Determine the amount of inventory to report on Bradley’s balance sheet at January 31

under the FIFO cost flow assumption.
Solution: 50 x $14 = $700

3. Determine the amount of inventory to report on Bradley’s balance sheet at January 31

under the LIFO cost flow assumption.
Solution: 50 x $10 = $500

4. Determine the amount of the inventory valuation on January 31 under the Average cost
flow assumption.
Solution: [(100 x $10) + (150 x $14)]/250 = $12.40 per unit

50 x $12.40 = $620

5. Determine the amount of cost of goods sold under the FIFO cost flow assumption for the
month of January.
Solution: (100 x $10) + (100 x $14) = $2,400

6. Warren Trading pays for its inventory purchases with cash. Beginning inventory is
$3,000, purchases were $19,000, and cost of goods sold is $18,000. Determine the cost
of Warren’s ending inventory.
Solution: $3,000 + $19,000 – $18,000 = $4,000

Use the information that follows concerning Cinci Corporation to answer problems 7 and 8.
Cinci Company began business on March 1. During March, Cinci made the following
purchases.
March 1: 100 units @ $8 $ 800
March 6: 200 units @ $10 2,000
March sales: 240 units
7. How much will Cinci report as cost of goods sold using LIFO during March?
Solution: (200 x $10) + (40 x $8) = $2,320

8. Calculate cost of goods sold during March under the Average cost flow assumption.
Solution: $2,800/300 = $9.33 per unit; $9.33 x 240 = $2,240

9. The management of Dayton Ltd. erroneously understated its ending inventory during
2016 by $2,000. Using the information below and assuming there are no distributions of
retained earnings: (1) present a brief analysis with the accurate numbers and the
numbers in error and (2) explain whether retained earnings would be overstated,
understated, or be indifferent to the error at the end of 2017.
2016 Sales: $60,000

2016 Purchases: $50,000
2016 Cost of Goods Sold (before effect of inventory error) $20,000
2017 Sales: $210,000
2017 Purchases: $60,000
2017 Cost of Goods Sold (based on error numbers): $68,000
Solution:
(1)
If Accurate With 2016 Error

2016
Sales $60,000 $60,000
Cost of Goods Sold 20,000 22,000
Net Income $40,000 $38,000
2017
Sales $210,000 $210,000
Cost of Goods Sold 70,000 68,000
Net Income $140,000 $142,000
(2) Since errors in inventory misstate net income in the subsequent period by an equal
dollar amount in the opposite direction, retained earnings should be correctly stated
at the end of 2017, if no further errors occur.
Accurate Incomes = $40,000 + $140,000 = $180,000 Retained earnings

Incomes associated with error = $38,000 + $142,000 = $180,000 Retained earnings

10. Yale Co. has valued its beginning and ending inventories at $4,000 and $7,000,
respectively, during a period where cost of goods sold was $22,000. An auditor found an
error in the valuation of the ending inventory and insisted that it be restated to $6,000.
Calculate the adjusted cost of goods sold resulting from the inventory restatement.
Solution: $22,000 + $1,000 = $23,000

11. Summers Company began business on August 1, 2017, and uses the periodic inventory
method. During August, Summers made the following purchases:
August 3 100 units @ $10 $1,000
August 21 300 units @ $20 $6,000
Other information provided:
August sales 350 units at $50 each
August expenses excluding cost of goods sold $7,200
August 31 current assets excluding inventory $34,000
August 31 current liabilities $26,000
Calculate Summers’ August 31 ending inventory under the FIFO and LIFO cost flow
assumptions.
Solution:
FIFO = 50 x $20 = $1,000
LIFO = 50 x $10 = $500

12. Yogi Company began operations on July 1. Each unit is sold for $80. Under the periodic
LIFO method of inventory, Yogi reported the following:
July 3 Purchased 60 units @ $50 $3,000
July 14 Purchased 40 units @ $60 2,400
Cost of goods available $5,400
July 31 Inventory (10 @ $50) 500
Cost of goods sold $4,900
Complete the following table for Yogi for July using the FIFO cost flow assumption
instead of LIFO.
Sales revenue . . . . . . . . . . . . . . . . . _____________________
Cost of goods sold . . . . . . . . . . . . . ._____________________
Gross profit . . . . . . . . . . . . . . . . . . . _____________________
Solution:
Sales revenue = $80 X 90 = $7,200
Cost of goods sold = (60 x $50) + (30 x $60) = $4,800
Gross profit = $7,200 – $4,800 = $2,400
LO 4 BT: AN Difficulty: Difficult TOT: 5 min. AACSB: Analytic

13. A firm fraudulently overstated its December 31, 2016 and 2017 inventories by $4,000
and $7,000, respectively. What is the amount and direction of 2016 and 2017
misstatements of cost of goods sold which results from these inventory overstatements?
Solution:
2016 cost of goods sold is understated by $4,000.
2017 cost of goods sold is understated by $3,000.

Use the information that follows concerning Yarley’s Gift Store to answer problems 14-17.
Grandma’s Gift Store uses the periodic inventory method. nventory and purchase
information for July is as follows:
July 1 Beginning inventory 500 @ $4
July 10 Purchase 800 @ $5
July 31 Ending inventory 300
14. Grandma’s Gift Store uses the FIFO cost flow assumption. Calculate its cost of goods
sold for the month of July and its ending inventory at July 31.
Solution:
Ending inventory = 300 x $5 = $1,500

15. Grandma’s Gift Store uses the LIFO cost flow assumption. Calculate its cost of goods
sold for July and its ending inventory at July 31.
Solution:
Ending inventory = 300 x $4 = $1,200

16. Grandma’s Gift Store uses the Average cost flow assumption. Calculate its cost of goods
sold for July and its inventory at July 31. Round average cost per unit to 3 decimal
places.
Solution:
[(500 X $4) + (800 X $5)] / 1,300 = $4.615
Cost of goods sold = $4.615 x 1,000 = $4,615
Ending inventory = $4.615 x 300 = $1,385

17. Ignoring taxes, by what amount would Grandma’s working capital on July 31 under FIFO
exceed working capital using LIFO?
Solution: ($5 x 300) – ($4 x 300) = $300

Use the information that follows concerning Ruby Company to answer problems 18 through 20.
Ruby Company sells office supplies and uses the periodic system. Below is a list of
purchases and sales for the month of January:
Date Inventory Balances Purchases
January 1 Beginning inventory 10 @ $6
January 4 Purchase 40 @ $7
January 18 Purchase 40 @ $8
January 31 Ending inventory 20 units
18. Ruby uses the FIFO cost flow assumption. Calculate its January cost of goods sold.
Solution: (10 x $6) + (40 x $7) + (20 x $8) = $500

19. Ruby uses the LIFO cost flow assumption. Calculate its January cost of goods sold.
Solution: (40 x $8) + (30 x $7) = $530

20. Ruby uses the Average cost flow assumption. Calculate its January cost of goods sold.
Solution: [(10 x $6) + (40 x $7) + (40 x $8)]/90 = $7.33; 70 x $7.33 = $513
LO 4 BT: K Difficulty: Moderate TOT: 3 min. AACSB: Analytic

21. Toyz’s Retail Store sold $900 of merchandise to Ebony Inc. on April 3, terms. On April 8,
Ebony returned $200 of the merchandise that was defective. The original merchandise
sold cost Toyz $600, but of this amount, $70 was returned. Toyz received payment from
Ebony on April 10. What amount of sales and cost of goods sold should Toyz record for
these transactions?
Solution: Sales = $900 – $200 = $700

Cost of goods sold = $600 - $70 = $530

Use the information that follows concerning Edward Company to answer problems 22 and 23.
Edward Company began business on January 1 and uses the periodic system. During
January, Edward made the following purchases:
January 3: 100 units @ $30 $3,000
January 21: 400 units @ $20 $8,000
January sales: 320 units @ $40 $12,800
Other information:
January expenses excluding cost of goods sold $ 800
January 31 current assets excluding inventory 11,000
January 31 current liabilities 6,000
Number of shares of common stock 300
22. Calculate Edward’s January earnings per share under the FIFO and LIFO cost flow
assumptions.
Solution: FIFO net income: $12,800 − [(100 x $30) + (220 x $20)] − $800 = $4,600
LIFO net income: $12,800 − [320 x $20] − $800 = $5,600
FIFO EPS: $4,600/300 = $15.33 per share
LIFO EPS: $5,600/300 = $18.67 per share

23. Calculate Edward’s January current ratio under the FIFO and LIFO cost flow
assumptions.
Solution: FIFO: ($11,000 + $3,600)/$6,000 = 2.43; LIFO: ($11,000 + $4,600)/$6,000 = 2.60

24. Nokia Inc. reported beginning inventory of $90,000, ending inventory of $23,000,
purchases of $128,000, purchase returns of $2,000, and transportation-in of $3,000.
Calculate cost of goods sold.
Solution: $90,000 + $128,000 – $2,000 + $3,000 – $23,000 = $196,000
LO 1, 3 BT: AN Difficulty: Moderate TOT: 3 min. AACSB: Analytic

25. Ramiro Co. has valued its beginning and ending inventories at $4,000 and $5,000,
respectively, during a period where purchases totaled $150,000. An auditor found errors
in the ending inventory valuation and insisted that it be restated to $6,000. Calculate the
adjusted cost of goods sold resulting from the inventory restatement.
Solution: [$4,000 + $150,000 – $5,000] – $1,000 = $148,000

26. Morrie Produce began operations on July 1. Below is its income statement for the month
of July and the current portion of its balance sheet dated July 31.
Sales revenue $45,000
Cost of goods sold (Note 1) 12,000
Gross profit 33,000
Operating expenses 4,700
Net income $28,300
Current assets:
Cash $8,000
Accounts receivable 4,000
Inventory 1,200
Total current assets $13,200
Current liabilities:
Accounts payable $ 9,000
Notes payable 4,000
Total current liabilities $13,000
Note 1: Morrie uses the periodic LIFO method of inventory valuation.

July 1 Purchased 80 units @ $30 $ 2,400
July 17 Purchased 180 units @ $60 10,800
Cost of goods available 13,200
July 31 Inventory (40 @ $30) 1,200
Cost of goods sold $12,000
Complete the following income statement and current portion of the balance sheet for
Morrie for July using the FIFO cost flow assumption instead of LIFO.
Sales revenue . . . . . . . . . . . . . . . . . _____________________
Cost of goods sold . . . . . . . . . . . . . ._____________________
Gross profit . . . . . . . . . . . . . . . . . . . _____________________
Operating expenses. . . . . . . . . . . . . _____________________
Net income. . . . . . . . . . . . . . . . . . . . _____________________
Current assets:
Inventory. . . . . . . . . . . . . . . . . . ._____________________
Solution:
Sales revenue $45,000
Cost of goods sold 10,800
Gross profit 34,200
Operating expenses 4,700
Net income $29,500
Inventory (40 x $60) $ 2,400

27. Mamma’s Cafe assigned the following costs to inventory on December 31:
Cash purchase costs $6,000
Commissions paid to Mamma’s sales staff 230
Transportation-in costs 310
Cell phone charges for Mamma’s’ CEO 400
Handling cost associated with unloading the inventory 150
Labor and overhead costs attributable to repackaging inventory 280
Total cost $7,370
Current net income $24,000
Determine the correct December 31 inventory and recalculate current net income that is
appropriate under generally accepted accounting principles. Justify your new valuation
of inventory.
Solution: The cost of inventory is the cash or cash equivalent price of the asset
plus all expenditures necessary to get the asset in place and ready for its intended use.
Those expenditures for the inventory include:
Cash price $6,000
Repackaging costs 280
Transportation-in 310
Handling costs 150
Total cost $6,740
The adjusted net income is $24,000 –$230 – $400 = $23,370.

SHORT ESSAY QUESTIONS

1. Please explain the statement that “a LIFO liquidation creates ‘phantom’ income”.
Solution: A LIFO liquidation occurs when the current year’s higher-priced inventory
is all sold off causing penetration (i.e., sale) of the LIFO inventory layers that had
accumulated in prior years. Since the prior year layers had lower costs associated with
them, the cost of goods sold for the goods in by these lower-cost layers is less than the
current cost of inventory. The sale of inventory having these artificially low costs creates
an artificially high gross profit. This extra gross profit is what is referred to by some as
“phantom” income.
LO 4 BT: C Difficulty: Moderate TOT: 2 min. AACSB: Communication, Reflective

Thinking AICPA BB: Critical Thinking AICPA FC: Reporting
2. Identify the options a manager has in measuring the cost of inventory as it flows through
the accounting system.
Solution: Four cost flow options exist: specific identification, Average, FIFO, and
LIFO. The inventory cost of individual items sold is moved from the balance sheet to the
income statement at the point-of-sale based on one of these assumptions.
LO 4 BT: K Difficulty: Easy TOT: 2 min. AACSB: Communication, Analytic

3. What effect does management's perception of the ‘capital market’ have on selecting an
inventory costing method?
Solution: Investors in the capital market prefer companies with higher net income
amounts and larger amounts of assets. In periods of rising prices, FIFO reports a lower
cost of goods sold, which results in higher net income, and leaves the cost of the new or
more expensive inventory on the balance sheet. However, the validity of this reasoning
is open to question. Some research studies suggest that the stock market “looks
through” a company’s accounting methods and values the company on the basis of
underlying cash flows. Since using LIFO usually saves taxes, these studies suggest that
LIFO companies are more highly valued by the market than the FIFO companies.
However, evidence is mixed and conclusions are still tentative.
LO 4 BT: C Difficulty: Moderate TOT: 2 min. AACSB: Communication, Reflective

4. If an entity overstates its ending inventory for the current year, what are the effects on
assets, cost of goods sold, retained earnings, and total stockholders’ equity for the
current year?
Solution: If ending inventory is overstated at the end of the year, assets will be
overstated and cost of goods sold will be understated. When this occurs, expenses are
less than expected, which causes net income to be overstated. When net income is
overstated, the amount closed to retained earnings at the end of the accounting period is
more than what it should be. This creates an overstatement of retained earnings. Since
retained earnings is part of stockholders’ equity, this amount also will be overstated.
LO 1 BT: AP Difficulty: Moderate TOT: 3 min. AACSB: Communication, Analytic

5. During a period of rapidly rising inventory prices and a significant increase in inventory, a
financial analyst made the following statement:
"I rank a company's earning power by using earnings per share. You do not need to be a
rocket scientist and know all that accounting mumbo-jumbo in order to compare earnings
per share of two companies to obtain a ranking of their earnings power."
Respond to the statement made by the financial analyst concerning the implications of
choosing an inventory valuation method.
Solution: During a period of significantly increasing prices and inventory, the choice
of FIFO or LIFO inventory valuation methods can significantly influence measured
current assets and income for corporations that carry significant inventory and whose
cost of goods sold is a major expense. Under these conditions, the firm that uses FIFO
will have a greater income number than that of the firm that uses LIFO. Thus, when their
earnings per share are compared, adjustments for this difference should be made.
These adjustments may involve an approximation of the difference in the EPS figure
caused by the use of LIFO or FIFO. As a minimum, the user should realize the direction
of the "bias" caused by the differing inventory valuation methods and digest the EPS
numbers accordingly. However, if inventory and cost of goods sold are not a significant
component of the firm's financial statements, or prices do not change significantly, then
perhaps the financial analyst's position would be justified.
LO 4 BT: AP Difficulty: Difficult TOT: 3 min. AACSB: Communication, Analytic

6. How do inventories of manufacturing companies differ from inventories of merchandising

companies?
Solution: Manufacturing companies have three inventories: raw materials, work in

process, and finished goods. Three costs make up these inventories: direct materials,
labor, and manufacturing overhead costs. A merchandising company has only one
inventory account—often called merchandise inventory. This account is used for goods
that are ready to sell.
LO 2 BT: K Difficulty: Easy TOT: 2 min. AACSB: Communication, Analytic

7. Explain the concept of hidden reserves as it applies to the lower-of-cost-or-market rule.
Solution: The lower-of-cost-or-market rule recognizes price decreases immediately,

but price increases are not recognized until the inventory is sold in an actual transaction.
While this treatment is conservative, it is not consistent. The downward adjustment of
inventory creates a 'hidden reserve' that is easily manipulated by managers. When
management recognizes a price decrease in the current period, i.e., a loss, which is
followed by a price increase in a subsequent period, the inventory can be sold for a
larger profit. By reporting a larger profit in a different accounting period, management
has manipulated income by deferring the gain.
LO 5 BT: C Difficulty: Moderate TOT: 3 min. AACSB: Communication, Analytic

8. The chief investment officer of a large mutual fund made the following statement:
"I prefer to use the debt/equity ratio instead of the debt/asset ratio because the latter
ratio is sensitive to the measure of inventory where accountants can choose LIFO, FIFO,
or weighted Average. Therefore, I use the debt/equity ratio so that I do not have to worry
about which inventory valuation method the accountant used when I run comparisons
between companies."
Comment on the preceding statement.
Solution: Although it is true that the particular inventory valuation method does
influence the measure of assets and, therefore, the debt/asset ratio, it is not true that the
debt/equity ratio is unaffected. If the choice of an inventory valuation method results in
greater (smaller) measure of assets, it measures a greater (smaller) income. Thus, the
amount of retained earnings and stockholders' equity is influenced by the inventory
valuation method used and by the same amount that measured assets are affected. For
example, if the application of FIFO measures assets $10,000 more than that under
LIFO, then FIFO stockholders' equity will also be $10,000 greater than that resulting
from the use of LIFO.
LO 4 BT: AP Difficulty: Difficult TOT: 4 min. AACSB: Communication, Reflective

9. Why is the lower-of-cost-or-market rule necessary in accounting?
Solution: When the market value of inventory, its replacement cost, is lower than
the original cost of the inventory, the inventory amount reported on the balance sheet will
be overstated. Conservatism justifies reducing the inventory value on the balance sheet
to the lower of the two amounts.

10. After studying a financial accounting text, your roommate asserts that what is interesting
about accountants is that they always measure what actually happens. Having studied
inventory, you disagree with your roommate's assertion. Present an argument refuting
your roommate's position that accountants measure what actually happens in context of
knowledge acquired after reading the chapter entitled "Merchandise Inventory."
Solution: Accountants measure cost of goods sold and inventory by applying a cost
flow assumption. Accountants may choose to represent inventory cost flows as First-In,
First-Out (FIFO), Last-In, First-Out (LIFO), or a weighted Average. The choice of a cost
flow assumption is independent of the actual physical flow of inventory through the
business. This is why the assumptions are referred to as cost flow instead of physical
flow assumptions. The only time that accountants respect the actual flow of inventory
through the business is when they use specific identification to value inventory.
Therefore, with respect to inventory, accountants do not measure what actually
happens.

11. If an entity understates its ending inventory for the current period, why does the effect on
cost of goods sold and inventory carry over to the next year?
Solution: If ending inventory is understated at the end of the year, cost of goods
sold will be overstated for that year. Ending inventory from the first year then becomes
the beginning inventory of the second year. This creates an equal, but opposite effect on
financial statement items during the second accounting year.

12. Explain the relationship between the valuation of inventory and income reporting.
Solution: Inventory costs are capitalized on the balance sheet as assets because
they provide future economic benefits. The dollar amount at which the inventory is
carried on the books is the valuation of the inventory. Most often, original cost is the
valuation, but in some cases, the lower-of-cost-or-market rule applies. When goods are
sold, the accountant must measure cost of goods sold and ending inventory by applying
a cost flow assumption. Cost flow assumptions include FIFO, LIFO, Average, and
specific identification.
LO 2, 4, 5 BT: C Difficulty: Moderate TOT: 3 min. AACSB: Communication, Analytic

IFRS QUESTIONS
1. Which of the following inventory cost flow assumptions is not allowed under IFRS?
A. FIFO
B. Average Cost
C. LIFO
D. FIFO and LIFO
Ans: C LO 4 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic, Communication

2. When applying the lower-of-cost-or-market rule, IFRS uses the market value which is
A. Normally the realizable value or the amount at which the inventory could be sold
B. Normally the replacement cost or the cost of replacing the inventory
C. Normally the hypothetical future value
D. IFRS does not use the lower-of-cost or market rule.
Ans: A LO 5 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic, Communication

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that inclination to mirth which the preposterousness of Féodorovna’s
pretensions, coupled with that of her appearance, would naturally produce.
“You must come and go between us,” continues the patient, earnestly.
“Tell me how he is from hour to hour, prevent his fretting more than he can
help, and ensure him against the neglect which hitherto only my own
personal and incessant attention has guarded him from.”
A mechanical mandarin-like movement agitates Lavinia’s head.
“Of course you do not know anything of the technicalities of nursing—
how should you?—but you can at least follow my directions.”
“Yes.”
“Do not sit too close to him.”
“No.”
“Do not talk too much.”
“No.”
“Let him choose his own topic.”
A profound sigh follows this last injunction, which somehow implies
that there can be little doubt as to what that topic will be.
“Yes.”
“Make as light of my illness as you can.”
“Yes.”
“And come back to me every quarter of an hour to report progress.”
“Every quarter of an hour!” repeats Miss Carew, for once forgetful of
and disobedient to her instructions as to unhesitating acquiescence in
everything that might be suggested to her. “But you may be asleep!”
“And if I am!” returns Miss Prince, with such an expression of high-
flown enthusiasm on her discoloured countenance as makes Lavinia’s pity
almost succumb to an unpardonable inclination to laugh.
She escapes at last without having disgraced herself by any overt
evidence of amusement, though her departure is delayed by the
determination of Miss Prince to invest her messenger in her own cap and
apron.
“He has grown used to having them about him,” says Féo, with pensive
peremptoriness; while a recollection of ill-controlled cap-strings gambolling
across patient eyes confirms the statement in the hearer’s mind, and she sets
forth reluctantly equipped in an attire which, like David’s, she has not
proved.
Admitted by Nurse Blandy with a lofty cordiality which speaks less for
her own merit than for the lustre with which she shines by contrast with
Féodorovna, Lavinia finds herself once more standing by that bedside
whence her spirit has so rarely stirred since the day, which now seems so
incomputably distant, when first her lagging feet carried her thither. Their
hands lie in each other’s with the large sense of freedom that the absence of
any onlooker gives; the consciousness that, as far as any one to note their
clasp goes, they may remain in thrilled contact from now till night. As if in
malicious acting upon the knowledge that such a course would be the most
distasteful possible to her young employer, Nurse Blandy has hastened to
leave them tête-à-tête. In their eyes, as they rush to meet, each reads the
other’s joyous elation in the thought that not only is there no Féodorovna
present to cramp and chill their greeting, but that all through the long
wealth of the afternoon to be theirs no opening door need scare them with
the swishing announcement of her paralyzing presence.
“So I have a new nurse!” he says, his look wandering with slow delight
over the array that had made her feel like a mummer.
“Miss Prince thought that, as you were used to the dress, it would be
better that I should wear it.”
“Yes; I am used to the dress.”
The implication that he is not used to the wearer is so clear to them both,
as to draw a little gauzy veil of shyness between them.
“I feel rather like Jacob, having jockeyed Esau out of his occupation,”
she says, talking somewhat at random; the more so for the consciousness
that his eyes have done with her cap and apron, and now find employment
in the string of pearls that, as both of them know, owes no ascription to
Féodorovna. Involuntarily one of Lavinia’s hands goes up to her throat,
with the impulse to hide the jewels, though a cold instinct tells her that he
has already discovered their origin.
“It is very hard upon my predecessor, isn’t it,” she says, beginning to
talk much faster than her wont, “to have developed such an enthusiasm for
nursing, and then to have her course barred by so odious a form of illness?”
“Jaundice, isn’t it?” returns he, with a very respectable and even
remorseful effort at regret.
“Yes; jaundice.”
“Poor soul!”
Both read in each other’s hearts that, as between them, talk of
Féodorovna is sheer waste of time; yet one of them clings convulsively to
her as a safe topic.
“What aggravates her vexation is that she can’t believe that you will not
be starved and ill-used in her absence!”
“Poor soul!”
There is a touch of impatience that to one initiated speaks of past
endurance in the repeated phrase; and the smile that sends up the corners of
both their mouths, when Lavinia adds demurely, “I am to report progress
every quarter of an hour,” makes them both feel rather guilty.
It is the man who instinctively breaks away from the subject, and, as one
determined to have his will, rushes headforemost into another.
“Tell me how much time you are going to give me! I had rather know at
once.”
His eye seeks the travelling-clock standing on the table beside him, and
as he turns somewhat to get an exacter view of it, she notes with how much
greater ease and freedom he can move.
“I have come to stay the night.”
“The night!”
“Yes; the night. My men have left me and gone to London.”
She answers colourlessly, looking straight before her; but through her
drooped eyelids her spirit sees the almost incredulous delight of his.
There is a moment’s pause; next, in a long sigh of relief, come the words
—
“Then we shall have time for everything!”
She smiles with slow relish of and acquiescence in his thought, despite
the apparent protest in her—
“That is rather comprehensive, isn’t it?”
“I mean,” he continues, eagerly sitting up, and leaning on his elbow,
“that after your former visits I have always felt that we—that I had not
made the most of them; but that I had egotistically frittered away our
time”—neither of them notes the significance of the plural pronoun
—“talking of myself.”
“Did you talk of yourself?” she asks. “I think your memory plays you
false then. If you had, I should,” with embarrassed playfulness, “know more
about you than I do.”
“What do you know? What do you care to know?”
“I know that you have had a bullet through your left lung, and one that
passed very close to your heart; and that, under these circumstances, it
would be wiser not to gesticulate much,” she answers, with a pretty air of
admonishment, and of recalling to both their minds her temporary function,
which seems to him to sit upon her more exquisitely than any of her former
expressions or gestures.
“Did I gesticulate?” he asks. “One gets rather tired of moving nothing
but one’s head, and you must not be hard upon me to-day, for I am rather
down on my luck. At least I was!”
“About Féodorovna?”
“Oh no! At least—of course yes. But that was not what I was alluding to.
I have seen”—eyes and hands seeking among the newspapers with which
the bed is strewn—“that one of my pals has been badly hit.”
In a moment she is beside him. “Let me help you. Which paper is it in?”
“In them all! It is official from Lord Roberts.” He has found the
paragraph, and hands it to her, indicating it with a pale fore finger.
“On February 28th, General —— and his staff narrowly escaped being
captured by a party of the enemy, and were only saved by the presence of
mind and gallantry of Captain Greene of the —— Hussars. Captain Greene
had been sent back by the General to order a company of infantry up to the
kopje taken on the previous night by the Australian Bushmen. On his way
he saw superior numbers of the enemy creeping up a donga, with the
obvious intention of surprising General —— and his staff. With great
presence of mind he galloped across ground in full view of the enemy,
ordering up reinforcements. Having accomplished his object, Captain
Greene recrossed the bullet-swept zone to inform the General of the
position, in doing which he was severely wounded in the head and neck,
but, though reeling in his saddle, regained the kopje, imparted his discovery,
and thereby averted an otherwise inevitable disaster.”
Lavinia’s eyes race through the record, and, having done so, raise
themselves to Binning’s. Passionately alive as she is to deeds of daring, at
this moment the desire to find something consoling to say to the hero’s
friend is even more prominent in her mind and look than admiration of the
valiant act.
“It says ‘severely,’ not ‘dangerously’ ” is her low-voiced comment; “and
even ‘dangerously’ does not always mean mortally. You were put in as
‘dangerously.’ ”
He thanks her with an eye-flash for the recollection; but a moment later
his hands, so quiet in their patience generally, are uneasily pulling at the
embroidered coverlet, which Féodorovna has contributed from her treasures
to his luxury, and which Nurse Blandy will call a “bed-spread.”
“I cannot think why they do not let me get up. Roots has promised that I
shall be able to return to duty by the end of May; and here we are at the
beginning!”
The end of May! It is, then, to the same spot in time that his eyes and
heart are directed, as are her own; but with how unimaginable a difference!
To him the end of May is to bring release, liberty, return to the “bullet-
swept zones,” to the cold veldt, the ambush, and the sniping. Yes, but also
to the comradeship after which his soul is lusting. While to her!
“May is young yet,” she says, forcing her lips into a reassuring smile.
“Dr. Roots has twenty-five days in which to keep his word.”
His hands cease their restless plucking at the counterpane, and a change
passes over his face. Has he divination to read beneath the mask of her
smile? she asks herself with a sort of terror.
“Twenty-five days!” he repeats softly. “They are a great many; and yet I
can fancy their seeming very few.”
Her self-command does not go so far as to furnish her with a comment
upon this thrilling truism; and the air upon which his next words steal out
seems to have been stilled to receive them.
“I wonder upon how many of those twenty-five I shall have a sight of
you?”
“Let us take short views of life, as Sidney Smith bids us,” she answers,
involuntarily moving her shoulders, as if to shake off from them a load
which, at the moment, seems to press as heavily as did the bursting wallet
of his sins upon good Christian’s bowed back. “I will come as often as I can
be spared from home.”
At that they regard one another steadily, each conveying to the other’s
consciousness their knowledge of how much more than appears the phrase
carries.
“You have naturally a great deal to do just now?”
“Yes.”
It is not true; but what is the use of explaining that the dull change—dull,
except in the one awful main fact of her wifehood—causes little alteration
in the outward framework of her life? Again the room seems irksomely still.
Is it possible that to two pairs of ears even the swish of Miss Prince’s skirts
would be welcome? In one respect Lavinia might meet that lady with a
clear conscience, since she has undoubtedly obeyed her behest of allowing
the wounded man to choose his own topic; but it can hardly be said to have
agreed with him, judging by the grey shadows on his face. Yet he will not
leave the theme that has brought them there.
“It is to be on the 28th?”
“Yes.”
He has leant back on the pillows, which are propped into a more
convalescent slant than on the day when she had first seen him lying flat
and bloodless upon them. Yet he has reusurped the privilege granted to
those in extremis; and she grows restless under the insistence of his eyes.
“I should like to give you a present.”
“Oh, why should you?”
There is no mistaking her start, and the pain and dissent in her tone.
“You had rather that I did not?”
“Much rather.”
CHAPTER XIII
“No bad news, I hope?”
“None, thanks.”
It is at the breakfast-table next morning that this question and answer are
exchanged. They are the result of the wire which has just been handed to
Lavinia, and which she continues looking at, long after she must have
mastered its contents—so long that the hostess’s curiosity conquers her
good breeding, and makes her take for granted sender and subject.
“Does Mr. Rupert say by what train he and Sir George are returning?”
There is a pause, though slightly perceptible.
“They cannot get back to-day; the papers were not ready for their
signature, after all.”
“The law’s delay! We all know something about that,” says Mr. Prince,
looking up with a smile of elaborate sympathy from his porridge. “Will
legislation ever effect anything towards——?”
“It is an ill wind that blows nobody good,” cries Mrs. Prince, cutting
ruthlessly into her husband’s speculation. “Since there is nobody to go back
to, what sense is there in your going back?”
* * * * *
“I have only one little hint to give you, dear,” says Mrs. Prince, escorting
her visitor to the wounded man’s door, and in a tone tinged with apology;
“but you know what an impracticable patient Féo is, and we must give in to
sick people’s whims, as she was always impressing upon us about Captain
Binning.”
“Yes?”
“Well, dear, it is too silly and exacting of her; but she complains that
there were three quarters of an hour between your first and second visits to
her yesterday, and forty-five minutes between your second and third.”
“Were there?” rather blankly.
“If the same thing happens to-day, she threatens to get up and go and see
for herself what’s happening. Dr. Roots tells her he will not answer for the
consequences if she does; but she snaps her fingers at him. However,” with
reassurance, “my one confidence is in her colour!”
* * * * *
They meet without the elation of yesterday, their eyes shirking each
other, and their hands taking for granted that contact is superfluous. Half a
score of subjects had yesterday succeeded her refusal of his suggested gift;
but the sting of that rebuff still inflames their memories.
“This is an uncovenanted mercy!” he says, with a rather strained smile.
“I was afraid that I had seen the last of you.”
“I heard from my people, that they cannot get back to-day.”
“So you stay here?”
“Yes.”
There is a lifelessness in the little dialogue, she expressing no regret, and
he no gladness. When the eyes, dropped upon her work—she had no work
yesterday—give him an opportunity of covert observation, he sees that her
large eyelids look thickened as if with tears or watching.
“The law is a very odd thing, isn’t it?” she says presently in a staccato
key.
“I have never had many dealings with it.”
“It is the only vehicle to which civilization has not given C-springs and
indiarubber tires. It still jolts and lumbers along as it did three hundred
years ago.”
His look asks for an explanation of her forced yet commonplace analogy,
and she goes on.
“In the matter of marriage settlements for instance, both sides may be
perfectly at one as to the disposition of the money; and yet the law insists
on finding flaws and making difficulties.”
“I suppose it does.”
“Some hitch of the kind is detaining my uncle and Rupert.”
She cannot be more uncomfortably conscious that the explanation is
superfluous and uncalled for, than is he that her trite reflections and
unasked-for introduction of her financial affairs are the stairs by which she
is climbing to some aimed-at goal. In her next sentence she attains it.
“Talking of marriages reminds me——” Even when the door to which
she has been looking is reached, it seems hard to open.
“Yes?”
“I have been thinking that I owe you an apology.”
“For what?”
“For the spirit in which I received a very kind suggestion you made.”
“What suggestion?”
It is needless to say that he knows as well as she what was the
contemned overture; yet—for Love is by no means a kindly god—he cannot
deny himself the luxury of seeing her run up the red pennon of shame into
her cheeks. But when he notes what uphill work it is to her to give the
asked-for explanation, and how conscientiously she does it, his heart smites
him with an acuteness that brings its own retribution.
“To give me a wedding present.”
“I was sorry that I had put you to the pain of refusing.” His tone is very
gentle, and not in the least rancorous.
“Do you know why I refused?”
“I had a twinge of my old misgivings.”
For a moment—so complete is her innocence of the motive hinted at—
she looks at sea. Then his meaning flashes painfully upon her. He supposes
that from the causer of Bill’s death no member of Bill’s family can bring
him or herself to accept a gift.
“Whatever your misgiving was, it was wrong,” she says, the eager desire
to reassure him giving her a momentary glibness in conspicuous contrast to
the lameness of her former speech. “You could not possibly have guessed
the real reason; it would have required a more than human intuition.”
“Are you going—are you able to tell it me?”
“Yes, now.” She pauses a moment, as if to collect herself, and set her
facts in order. “I must explain to you,” she says, “that my marriage is not
like other marriages.”
“I do not understand.”
It would be better taste, as he feels, to allow her to tell her tale to its end,
without remark; but she makes a slight halt, and the delay is unendurable.
“I mean that it is no occasion for festivity or present-giving. I intended
no slight to you; I only saw that you misunderstood.”
This time he has himself better in hand, for no comment follows; but
she, verifying by one snatched look the miserable mystification of his face,
hurries out her next words.
“It is the carrying out of a bargain made almost further back than
memory can reach.”
“Do you mean——”—whether it be through the weakness of his body or
the rebellion of his spirit, the words are spoken almost below his breath
—“that you have tied yourself for life by a childish promise to another
child?”
She draws up head and neck in a way that he feels to convey a dignified
reproof.
“There is no question of tying. I am doing it absolutely of my own free
will. All my life I have known that for me there was to be no another man
than Rupert; and all his life he has known that for him there was to be no
other woman than me!”
If any incredulity born of experience or observation invades the soul of
Rupert’s brother man at this large assertion, no sign of it appears. He only
waits blankly.
“I am up to my neck in debt to them—to both of them!” goes on the poor
girl, losing something of her collectedness, and torn between the knowledge
that wisdom bids her leave the picture of her past and future without further
touches; and the impossibility of not making it clear to her pale hearer, that
love—lover-love—has no part in the scheme of her existence. “I am up to
my neck in debt to them, and this is the first instalment I have ever been
able to pay!”
“I see.”
She sighs, and throws out her arms as if tossing away something
irksome.
“Now let us talk of something else.”
But a topic, thus ordered up, comes with a limp; and they get lamely
enough through the next hour; the bulletins to Féodorovna are delivered
with a punctuality unknown on happier yesterday. It is only gradually that
comfort and fluency return to them, the knowledge of the one subject which
has to be skirted round, making all others seem dangerous. The war-map
hung at the foot of the bed proves their best ally. In moving its pins and
flags, and making out, with the nearest approach to accuracy, the scene of
Captain Greene’s exploit, they grow almost easy and almost garrulous.
“What have you been talking about?” is the first question put by Miss
Prince on the next scrupulously paid visit of report made by the amateur
nurse.
Féodorovna has managed to fidget her temperature up to a higher point
than yesterday’s, and the orange of her face is patched with the flushings of
fever.
“About the war.”
“What about the war?”
“I have been moving the pins and flags on the war-map, in accordance
with to-day’s news.”
“You ought not to let him mention the war.”
“I think it would be worse harm to forbid him. He would only brood the
more over Captain Greene’s wounds.”
“You seem to be much better informed on the subject than I am”—very
fretfully. “What else have you talked about?”
“Nothing much.”
“I hope you have not told him that my temperature has gone up.”
“No.”
“Of course he asked?”
“Of course.”
It is with the weight of this falsehood upon her soul that Lavinia returns
to her charge. It does not sit very heavily, and is probably not a falsehood at
all, since all the inquiries in question have, no doubt, been addressed to
Nurse Blandy or Mrs. Prince, before her own appearance on the scene. And
whether because a little of the former awkwardness makes him glad of a
topic ready to his hand, or that his conscience smites him with an earlier
negligence, he really does put the orthodox query this time.
“Well, how is she?”
Lavinia shakes her head. “Poor thing! I am afraid her overhaste to be
well will very much retard her cure. You had better take warning by her!”
There is a pretty admonishment in her voice, and in the face, which is
gentled beyond its never ungentle wont by a diminution of colour. He rolls
his head about on the pillow.
“Am I in such overhaste to be well? Or do I only pretend it?”
“I do not think you are a very good hand at pretending,” she answers,
with a flickering smile.
* * * * *
And now the day is done. Has some new Joshua issued a contrary
command to that which the first one sent over the wrecked Syrian town, and
bid the sun double his speed to the west?
“Sleep well,” Lavinia says.
At his request, and by the condescension of Nurse Blandy, she has gone
in to bid him good night at her own bedtime, and long after her services
have been dispensed with. The electric light is out, and the moonlight, for
whose continued admission during another few minutes he has begged,
sleeps in faintly glorious bars and islands on the bed. Long and ghostly he
lies there, and ghostly she leans over him. The pallid interrupted light—so
interrupted that in a second either of them can withdraw from it under the
shield of darkness—gives them a confidence and expansiveness unknown
throughout the day. They feel something of the freedom of two innocently
tender spirits freed from the shams and prohibitions of the flesh.
“Sleep well!”
She is stooping over him to enable her to see him, and one hand lies on
the turned-over sheet. It looks so unearthly that he must think there is no
contravention of rules made for the material and the real in carrying it to his
ghostly lips. But the unspiritual contact, novel and most sweet, effectually
breaks through the etherial figment.
“Do not wish me ‘sleep:’ wish me a blessed lying dream!”
* * * * *
How deep is Lavinia’s thankfulness that Miss Prince’s ignorance of this
irregular interview saves her from the awful necessity of at once accounting
for and relating it. She reaches her own room, trembling and unstrung. So
complete has been her fidelity to Rupert, unconscious of the unusual in its
absoluteness, that no man has ever before kissed even her hand, the hand
which is so often a wicket-gate leading to the palace of the lips. By the
electric light she looks at her right hand—it was the right—which has been
desecrated, is it? or for ever ennobled?—her practical, capable right hand,
beautiful in shapely strength; and her first feeling is one of regret that it is
not more satin-soft, more smoothly worthy of his lips. Shame that at such a
crisis—for to her inexperience it seems one—so unworthy an impulse
should predominate, burns hotly. But, all the same, the regret holds its own,
and keeps its original start.
The “dazzled morning moon” and the uprising sun find her still a
watcher.
“I have lost a whole night’s sleep because a sick man kissed my hand out
of gratitude,” she says to herself, when her eyes at length close upon the
already roseing clouds. “That is sensible!”
Waking brings with it a healthier view of the episode that had cost her
such a vigil—brings an effort to deride herself for attaching so much
importance to what was doubtless a very commonplace form of
acknowledgment. Her yesterday’s explanation returns with a certain power
of soothing upon her conscience. It showed more than doubtful taste in her
to volunteer it; but, at all events, he now knows that her marriage with
Rupert is an unalterable certainty, and that lover-love has no part in it. Why
it should be unendurable to leave an acquaintance of a fortnight’s standing
under the belief that she is influenced by the ordinary motives, she omits to
asks herself. But it is with a brave face of open friendliness that she presents
herself at his bedside, and he asks himself by what juggle it had seemed to
him that last night her spirit had kissed his in the moonlight.
In the afternoon she returns to Campion Place, bidding her patient good-
bye with staid kindness, but making no mention of a possible return. She is
on the doorstep, with a bright face to welcome back “her men.”
The young horse, which Sir George is driving, shies badly at barking
Geist, with a foolish pretence of not recognizing him as his own family dog;
and Lavinia would give anything that her eyes had not flown suspiciously
to Rupert, to note whether his hand is nervously gripping the side of the
dog-cart.
It is fortunate for her that both her travellers are too much occupied with
their own misadventures to ask her many questions about the disposition of
her time. The trip has been neither satisfactory nor final. An entry in a
baptismal registry is not to be found, and a second, if not a third visit to the
lawyers will probably be necessary. Two dull evenings have been passed at
a hotel, as Sir George, with his usual ingenuity in making life as
disagreeable to himself as he can, has morosely refused to spend them at
any place of entertainment; and Rupert—as seems a matter of course to
them all—has foregone his own friends and pastimes to keep him company.
The only bright spots in their history appear to be that Rupert, who to his
other graces adds a connoisseurship in old silver, has picked up a George
III. Loving-cup at a shop in the Strand for an old song; and that Sir George
has met with some patterns of wall-paper that please him for two rooms
which have not been used of late years, and in whose doing-up he takes an
interest in striking contrast to his usually absolute indifference to the
internal details of his household.
“They would make a nursery look nice and bright,” he says, displaying
them to his niece, and speaking with that uncompromising outspeaking of
his hopes, which has often before inflamed her cheeks.
It is with an inward convulsion of dismay that she realizes how
enormously her repulsion for the topic, thus introduced with Saxon
simplicity, has grown since it was last broached to her. Yet she must get
used to it. She has never hitherto flinched from the necessary and the actual.
There will be, in all human probability, a nursery; there will be children; and
they will be hers—theirs.
“Yes, very bright and pretty.”
He looks at her with a touch of solicitude, though without a grain of
suspicion.
“Have you got a cold? I always tell you that you go too thinly clad.”
“No, thanks; not in the least. Why do you think so?”
“Your voice sounded hoarse, as if your tonsils were relaxed.”
But Lavinia’s tonsils are all right.
CHAPTER XIV
“A côté du bonheur”
“All these things are against me!”

Seven days are gone since Lavinia was called upon to exult over the
nursery hangings, and there is no exultation, even feigned, in the tone with
which she quotes to herself the words of Jacob, running over in her head
what “these things” are. It is “against her” that the search for the missing
baptismal entry, now complicated by doubt as to the whereabouts of the
register in which it was made, has motived another absence on the part of
her bridegroom and uncle. It is against her that this fact has come to Mrs.
Prince’s ears, and has brought a hailstorm of invitations, entreaties, and
reproaches about Miss Carew’s head. It is against her that Féodorovna,
having with a headstrong insanity, even stronger than her vanity, insisted on
visiting Binning, has succeeded in improving upon her original malady by
an attack of pneumonia, and brought herself to death’s door.
As she unquietly paces the garden at Campion Place, waiting for the
Princes’ victoria to convey her to the Chestnuts, Lavinia, dolefully probing
her conscience, asks it which of the causes that have added their weight to
each other till their momentum has grown irresistible, can be, in any
common fairness, laid at her door; and she can detect no unjust bias in her
own favour in the “not one” that answers her inward inquisition.
On the elms’ little leaves in the giant espaliered hedge that parts her
from the churchyard is the glisten of that sunshine that has just been luring
them into life; on the dazzling emerald grass “nice-eyed” wagtails are
walking with balanced tails at the foot of the old grey wall which, on the
left side of the demesne, drops down a matter of ten feet to the croquet lawn
below. She, looking absently over, can see the large-flowered periwinkle
staring up at her, and the heaven-shaming blue of the forget-me-not fringe.
The sight of the latter blossoms causes her a twinge of discomfort. She had
worn a little bunch of them in her white coat, and at his leave-taking, a
quarter of an hour ago, Rupert had deliberately unpinned and annexed them.
Could he have intended any rebuke or admonishment by an action unlike
him in its something of cool ownership? Yet there was certainly nothing of
overweening confidence or masterdom in the words with which he had
answered her at the moment, sincerely meant and felt—
“This is really too bad.”
“Has absence made the heart grow fonder?” he asks, with a light lip-
raillery, which the restrained yet legible wistfulness of his eyes contradicts.
“When I see a wave of hatred coming on, I shall know what remedy to
apply.”
She has taught him to be sparing of endearments. Yet even he must
expect some trifling kindness at parting. It weighs upon her conscience after
he is gone that she had deftly chosen a moment when the butler was passing
through the hall to bid him her final good-bye.
“All these things are against me!”
Yet even while she repeats the Biblical phrase aloud, to give it greater
solidity, a sense of her own hypocrisy comes hotly home to her.
All these things are against her. But is there nothing for her too? Isn’t the
May month for her? and the temporary freedom assured to her fifteen
minutes ago? and her own heart, capering and curvetting, under all its pack-
load of scruples and compunctions?
“For” and “against.” In what a double and contradictory sense is she
using both prepositions! She pulls herself up muddled and uneasy, yet
helped out of her puzzle by the delicious egotistical noise a thrush is
making on a bough near by, insisting on telling all passers-by, at the top of
his voice, how well his suit has thriven. A phrase out of one of Keats’
Letters recurs to her àpropos of a like feathered Anacreon—
“That thrush is a fine fellow. I hope he has made a good choice this
year.”
Happy thrush, to be in a position to make a choice! Daily, or almost
daily, as have been Lavinia’s visits to the wounded man, she never fails
before each one to feel afresh the same almost sick excitement as to the
precise method of their meeting. To a not very observant onlooker there
would not seem to be much variety in their salutations, but to her now
practised eye and ear, there lies an infinite range of gradations between the
clouded gladness of his mute, yet how legible, “It is very good of your
owner to lend you to me for yet another hour!” and the equally mute
uncalculating exultation that knows no to-morrow of “You are here!”
To-day she might have spared herself the daily fever of her speculation,
since their meeting is to fall out in quite a new manner, and under safe
conditions of large chaperonage. Captain Binning is no longer either in bed
or in the room which has been the scene of their whole acquaintance. He
has been moved several hours ago into the adjoining room, and now lies on
a sofa drawn up to the window. He is still pillow-backed and more than
semi-recumbent; but he is “up” and the first step has been taken towards the
fulfilment of Dr. Roots’ promise.
Lavinia’s heart first bounds and then drops stone-like at the sight. Thank
God, he has reached the first milestone on the high-road to health and
vigour. How many more will take him beyond her ken? No man can fight
the enemies of his country in bandages and a nightingale, but from grey
flannel to khaki is but a step! Captain Binning is, as one glance at the mise
en scène informs her, giving a housewarming in honour of his
convalescence. The prudence of the step may be doubted, but that it is being
enjoyed by guests and host is indubitable.
In compliance with his request, backed by their own much urgency, the
rector’s wife has brought her young family to be presented to the first live
hero they have ever seen, and all have arrived laden with the objects that
seem to them most likely to support his spirits. With their usual eager
kindheartedness, they have stripped their walls and dressing-tables of the
photographs of the adored generals, and disposed them for exhibition within
easy reach of Captain Binning’s eye and hand. Phillida has brought the new
poodle, who wears the portraits of as many military men as can be induced
to stick there, in midget size, in his hair, and Daphne introduces a female
dove, in whom the friends of General Pole-Carew would be surprised to
recognize that son of Mars. Mrs. Darcy sits by the sofa-side, putting in an
observation when she has the chance, but, with her usual wise easy-
goingness, not attempting to arrest the flow of enraptured questions which
she knows that a word or a sign from her can at once check, and which
evokes such amused answers as cannot be produced by the weary or the
overdone.
At the moment of Lavinia’s entry two inquiries are shooting from as
many eager mouths at her patient, “Have you kept the bullet?” and “How
often have you spoken to Bobs?” Half a dozen sparkling eyes await the
answer; since, though Christopher has returned to school, little Serena is
here, and staring with the rest. Surprise that one who has hitherto been so
obligingly ready with his responses should now remain silent and look
oddly over the tops of their hats instead of answering, makes them turn their
own necks to discover the cause, and in the next moment they are
surrounding Miss Carew, and liberally sharing their delightful gains in
knowledge with her.
“Oh, Lavy! Did you know that Captain Binning has the same Christian
name as Bobs?”
Lavinia did know it, as well as a good many other facts about the object
of the children’s interest, which he is less likely to have imparted to them;
but she is spared the necessity of owning it by Captain Binning, who puts
in, with a laugh whose altered quality puzzles the keen-eared young people
—
“It is so far down in my long string that it scarcely counts.”
“Captain Binning has three Christian names,” explains Daphne, in kind
elucidation; and Phillida hastens to strike in glibly, before her sister can
anticipate her—
“Edward Carruthers Frederick Binning.”
“Two too many,” says the owner of the names, laughing again. But, as
the children remark to their mother in the waggonette on their homeward
road, claiming her confirmation of the fact, there is still something odd
about him.
She shuts their mouths unexpectedly. “It was his civil way of letting you
know that he was tired! You know that with strangers and invalids a little of
you goes a long way.”
The explanation is not flattering, but is received without offence.
The Rectory adieux to the newly found hero are made much earlier than
his votaries think at all necessary or desirable. But though a few moments
before Lavinia’s entry, he had stoutly denied the accusation of fatigue and
the offer of departure, a quarter of an hour later he tamely acquiesces in
both.
“You will come again soon, and bring the Siege Train,” he says at
parting, and with something that might be compunctious in his tone, to the
disappointed children; “and I’ll tell you all I know about Bobs. I do not
think it is nearly as much as you know yourselves,” he adds laughing.
He shakes hands with Phillida and Daphne, and kisses Serena and the
poodle—the latter by request—and they are gone.
Strong emotion is often the unexpected parent of platitude. It is the mind
at ease that has leisure to sharpen the epigram and fire the bon-mot, and
nothing can be more banal than the short phrases exchanged between the
young pair whom the departure of the Darcys has left quivering and tingling
with a sense of each other’s proximity.
“What capital children!”
“Yes, aren’t they?”
“And she, the mother, is one of the best, isn’t she?”
“Yes, she is.”
A pause.
Lavinia can go no farther than this bald assent in praise of her chosen
friend, for the oppression of shyness that crushes and gags her. It is of this
metamorphosed, dressed, transformed man, passing so visibly out of the
province of the nurse, despite his crutches and his pallor, that she feels a
timidity none the less overmastering for her knowledge of its senselessness.
That he sees it, the uncertainty of the tone which utters what sounds like a
reproach sufficiently proves.
“Why were you so unwilling to own that you knew my Christian names?
It was not a very compromising admission.”
“Not very,” she answers with a wavering laugh; “but to-day I feel as if I
must sit up, and ‘make strange’ with you. The person I knew lay meekly
flat on his back, and did not dare to call his soul his own; when he sits up
and gives a party, I realize that my jurisdiction has ended.”
“Has it?”
The question is followed by a silence so full of electricity that both feel
the necessity of running up a lightning conductor. Both begin a sentence at
the same moment, and each breaks it off on realizing the other’s intention.
Each begs the other to continue the interrupted phrase, and each asseverates
that it was not worth ending. It is Binning who is finally persuaded to
reissue from his mint the coin whose valuelessness he has spent so much
breath in asserting.
“I was only going to say that if I have already become such a bogey—so
unrecognizable—when once I am on my legs again, I shall have to be
formally reintroduced to you.”
“It will not be worth while.” Even as she makes it Lavinia realizes the
folly of her speech, opening up, as it does, the subject of their fast-
approaching separation; but before her forces can come up to relieve it, the
traitor within her has rushed the position, and once again the electric current
runs perilously strong.
* * * * *
As the young Darcys have always been taught to say what they mean,
and mean what they say, they credit their acquaintance with a like
simplicity and veracity; and, having been invited by Captain Binning to
come again soon, and bring the Siege Train, see no reason why they should
not repeat their visit in compliance with a request, whose sincerity it never
occurs to them to doubt, with the least possible delay. Thanks to the drag
placed upon their ardour by a discreeter parent, a decent interval of three or
four days is allowed to elapse before they reappear in triumph, equipped
with all the munitions of war.
“You will find him in the garden,” Mrs. Prince says to her young
visitors, waving her en tout cas in the direction indicated—“there among
those lilacs. He is out for the first time in a wheeled chair—quite an event
for him, poor lad!” Then, as they fly off in eager obedience to the direction
given, she adds, sotto voce, to Mrs. Darcy, “If you could give them—
Binning and Lavinia, I mean—a hint to stay within range of Féo’s windows.
She likes to be able to watch them.”
But the rector’s wife must have forgotten to fulfil the delicate
commission entrusted to her, since when, an hour later, Mrs. Prince joins
the party, ostensibly to see on her own account how they are getting on, but
in reality irefully despatched by her daughter to investigate the causes of
their being completely out of sight, she finds them all grouped in a fragrant
close of blossoming shrubs round the wheeled chair, whence Binning is
conducting the Relief of Ladysmith. That the carrying out of that operation
has reduced all the forces engaged—male and female, grown-up people and
children—to the same level of excited juvenility, is proved by the fact that,
at the moment of Mrs. Prince’s advent, Captain Binning and Miss Carew
are contesting, with raised voices and heightened colours, the possession of
the one cannon that shoots silver bonbons. For the moment they have

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MULTIPLE CHOICE QUESTIONS

Ans: C LO 1 BT: AN Difficulty: Moderate TOT: 1 min. AACSB: Analytic

Ans: A LO 2 BT: K Difficulty: Easy TOT: 1 min. AACSB: Analytic

Solution: 2016 overstatement = $6,000 - $3,000 = $3,000

Ans: A LO 1 BT: AN Difficulty: Moderate TOT: 1 min. AACSB: Analytic

Ans: A LO 1 BT: AN Difficulty: Moderate TOT: 1 min. AACSB: Analytic

5. If a company desires to increase its inventory, then it should:

Ans: B LO 1 BT: C Difficulty: Easy TOT: 1 min. AACSB: Analytic

Ans: A LO 1 BT: AN Difficulty: Moderate TOT: 1 min. AACSB: Analytic

7. Washington Co. mistakenly omitted $4,000 of merchandise from its inventory on

Ans: B LO 1 BT: AN Difficulty: Difficult TOT: 1 min. AACSB: Analytic

Solution: (200 X $10) + $40 + $30

Ans: D LO 2 BT: AN Difficulty: Moderate TOT: 1 min. AACSB: Analytic

9. A company deliberately and inappropriately included interest costs in its December 31

Ans: B LO 2 BT: AP Difficulty: Moderate TOT: 1 min. AACSB: Analytic

Solution: 2017 understatement = -$700 - $200 = - $900

Ans: C LO 1 BT: AN Difficulty: Difficult TOT: 1 min. AACSB: Analytic

Solution: $14,000 + $2,000 − $4,000 = $12,000

Ans: D LO 1 BT: AN Difficulty: Moderate TOT: 1 min. AACSB: Analytic

Ans: D LO 2 BT: C Difficulty: Easy TOT: 1 min. AACSB: Analytic

Solution: Sales = 20 X $8 = $160; CGS = 20 X $4 = $80

Ans: C LO 3 BT: AP Difficulty: Easy TOT: 1 min. AACSB: Analytic

Solution: CGS = $19,500 + $26,000 = $45,500

Ans: A LO 3, 4 BT: AP Difficulty: Moderate TOT: 1 min. AACSB: Analytic

Solution: $400 + $15 = $415

Ans: C LO 2 BT: AN Difficulty: Moderate TOT: 1 min. AACSB: Analytic

Solution: ($100 + $60) / 100 = $1.60

Ans: C LO 2 BT: AN Difficulty: Moderate TOT: 1 min. AACSB: Analytic

Solution: $7,000 + $15,000 - $9,000 = $13,000

Ans: D LO 1 BT: AN Difficulty: Moderate TOT: 1 min. AACSB: Analytic

Solution: ($30,000 + $4,000 - $25,000) - $6,000 = $3,000

Ans: C LO 3 BT: AN Difficulty: Difficult TOT: 1 min. AACSB: Analytic

Ans: B LO 4 BT: C Difficulty: Easy TOT: 1 min. AACSB: Analytic

Ans: C LO 4 BT: C Difficulty: Moderate TOT: 1 min. AACSB: Analytic

Ans: A LO 4 BT: C Difficulty: Easy TOT: 1 min. AACSB: Analytic

Ans: B LO 4 BT: C Difficulty: Moderate TOT: 1 min. AACSB: Analytic

Ans: D LO 4 BT: C Difficulty: Moderate TOT: 1 min. AACSB: Analytic

Ans: D LO 4 BT: C Difficulty: Moderate TOT: 1 min. AACSB: Analytic

Ans: B LO 4 BT: C Difficulty: Moderate TOT: 1 min. AACSB: Analytic

Ans: B LO 4 BT: C Difficulty: Easy TOT: 1 min. AACSB: Analytic

Ans: B LO 4 BT: C Difficulty: Moderate TOT: 1 min. AACSB: Analytic

Ans: B LO 4 BT: C Difficulty: Moderate TOT: 1 min. AACSB: Analytic

Ans: A LO 4 BT: C Difficulty: Moderate TOT: 1 min. AACSB: Analytic

30. An excessively low inventory turnover ratio may reveal that:

Ans: B LO 4 BT: C Difficulty: Moderate TOT: 1 min. AACSB: Analytic

Solution: ($10,000 +$20,000)/2 = $15,000; $45,000/$15,000 = 3.0

Ans: B LO 6 BT: AN Difficulty: Moderate TOT: 1 min. AACSB: Analytic

Ans: D LO 4 BT: C Difficulty: Easy TOT: 1 min. AACSB: Analytic

Ans: D LO 4 BT: C Difficulty: Moderate TOT: 1 min. AACSB: Analytic

Ans: D LO 3 BT: C Difficulty: Moderate TOT: 1 min. AACSB: Analytic

35. Items should be included in the company’s inventory if they are:

Ans: C LO 2 BT: K Difficulty: Moderate TOT: 1 min. AACSB: Analytic

Ans: B LO 2 BT: C Difficulty: Moderate TOT: 1 min. AACSB: Analytic