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1
FIFO, LIFO, weighted average, and specific invoice inventory pricing are terms used to describe inventory costing methods.
A)True
B)False
2
The costing method used (FIFO, LIFO, Weighted Average, or Specific Identification) does not need to closely follow the actual physical flow of inventory.
A)True
B)False
3
In a period of rising prices, the weighted average inventory cost flow method will result in the highest ending inventory.
A)True
B)False
4
The LIFO method of assigning costs to both ending inventory and the cost of goods sold assumes that inventory items are sold in the same order in which they were acquired (purchased).
A)True
B)False
5
Under the LIFO method of assigning costs to both inventory and the cost of goods sold, ending inventory consists of the oldest items in inventory.
A)True
B)False
6
Under the FIFO method of inventory valuation, the ending merchandise inventory would be valued at the purchase price of the most recent purchases.
A)True
B)False
7
In a period of rising prices, the LIFO cost flow method will result in the highest cost of goods sold.
A)True
B)False
8
Using one inventory costing system over another can make a significant difference on the amount of taxes due in any given period.
A)True
B)False
9
If a business uses LIFO for tax purposes it must also use LIFO in the financial statements.
A)True
B)False
10
The consistency principle is the accounting requirement that a company use the same accounting methods period after period so that the financial statements of succeeding periods will be comparable.
A)True
B)False
11
When the value of ending merchandise inventory is overstated, the net income of the subsequent year will be overstated by the amount of the overstatement of the ending merchandise inventory.
A)True
B)False
12
Should an error that understates the ending merchandise inventory not be discovered, the capital account will be correctly stated at the end of the subsequent year.
A)True
B)False
13
When goods are in transit between the seller's place of business and the buyer's place of business, the party that includes those goods in their inventory will be determined by the shipping terms.
A)True
B)False
14
The cost of transporting and preparing merchandise to be ready to be sold is not a legitimate part of inventory cost.
A)True
B)False
15
If the beginning inventory is overstated, the cost of goods sold is overstated and the net income is understated.
A)True
B)False
16
Goods in transit that were purchased under freight terms of FOB factory (shipping point) should not be included in the ending inventory of the buyer.
A)True
B)False
17
A person (or entity) who receives and holds goods owned by another party for the purpose of selling the goods for the owner is a consignee.
A)True
B)False
18
When merchandise is left on consignment with a consignee, it should be included in the ending inventory of the consignor.
A)True
B)False
19
An item that will sell for $86 and has a cost to sell of $27, has an expected net realizable value of $59.
A)True
B)False
20
The inventory costing method used by a company is chosen by the management of that company.
A)True
B)False
21
If the market value of inventory has fallen below its cost, firms are required to report this inventory using the lower-of-cost-or-market method.
A)True
B)False
22
There are three ways to apply LCM to ending inventory.
A)True
B)False
23
The rationale for LCM as it relates to inventory is that accountants seek to select the less optimistic estimate when two estimates are equally likely. This is known as the conservatism principle.
A)True
B)False
24
When using LCM, the market value used to compare the cost value is defined as current replacement cost.
A)True
B)False
25
When prices are increasing over time and FIFO is the inventory costing method being used, the highest amount of gross margin will result.
A)True
B)False
26
In a period of rising prices, the comparison of the cost of goods sold and ending inventory for different inventory costing methods will always result in the values for weighted average being in between LIFO and FIFO.
A)True
B)False
27
If a firm has the goal to minimize the amount of money they pay in taxes, the best choice of inventory costing method (assuming prices are rising) is FIFO.
A)True
B)False
28
The formula for Inventory Turnover is: Cost of Goods Sold/Average Inventory.
A)True
B)False
29
Dividing the cost of goods sold by ending inventory and then multiplying the result by 365 results in a number that is called day's sales in inventory.
A)True
B)False
30
The goal of inventory management is to achieve the highest inventory turnover ratio possible.
A)True
B)False
31
A method for estimating ending inventory based on the ratio of the amount of goods for sale at cost to the amount of goods for sale at marked selling prices is called the gross profit method.
A)True
B)False
32
Goods available for sale at cost total $120,000 and at retail total $200,000. The cost ratio is 60% and the net sales for the period total $140,000. The ending inventory at retail totals $60,000 and the ending inventory at cost totals $36,000.
A)True
B)False
33
A procedure for estimating ending inventory in which the past gross profit rate is used to estimate cost of goods sold, which is then subtracted from the cost of goods available for sale to determine the estimated ending inventory, is called the retail inventory method of estimating ending an inventory.
A)True
B)False
34
If net Sales total $160,000, beginning inventory totals $36,000, the total cost of merchandise purchases is $104,000, and gross profit is 25% of net sales, the ending inventory determined by the gross profit method will be $20,000.
A)True
B)False





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