Multiple Choice Quiz

Multiple Choice Quiz
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1	Which of the following inventory cost flow methods would an automobile dealership most likely use for its new car sales? (LO 1)
		A)	FIFO
		B)	LIFO
		C)	Weighted average
		D)	Specific identification


2	Which of the following methods describes the usual physical flow of inventory? (LO 1)
		A)	FIFO
		B)	LIFO
		C)	Weighted average
		D)	Specific identification


3	Use the following information to answer questions 3, 4, 5, and 6: The following selected financial information relates to Ferguson Company's beginning inventory, inventory purchases, and sale of inventory for 2005. Ferguson paid cash for the inventory purchases at the time of purchase. What is the cost of goods sold using the LIFO cost flow method? (LO 2)
		A)	$1,530
		B)	$1,985
		C)	$2,010
		D)	$2,250


4	What is the impact of the inventory purchases on the 2005 statement of cash flows if the LIFO cost flow method is used? (LO 2)
		A)	$1,530 outflow
		B)	$1,985 outflow
		C)	$2,010 outflow
		D)	$2,250 outflow


5	What is the cost of goods sold using the FIFO cost flow method? (LO 2)
		A)	$1,985
		B)	$2,000
		C)	$2,010
		D)	$2,250


6	What is the gross margin using the weighted-average cost flow method? (LO 2)
		A)	$1,150
		B)	$1,390
		C)	$1,400
		D)	$1,415


7	Use the following information to answer questions 7, 8, and 9: The following selected financial information relates to Morrison Company's beginning inventory, inventory purchases, and sale of inventory for 2005: What is the ending inventory using the LIFO cost flow method? (LO 2)
		A)	$1,000
		B)	$1,150
		C)	$1,270
		D)	$1,300


8	What is the ending inventory using the FIFO cost flow method? (LO 2)
		A)	$1,000
		B)	$1,150
		C)	$1,270
		D)	$1,300


9	What is the ending inventory using the weighted-average cost flow method? (LO 2)
		A)	$1,000
		B)	$1,150
		C)	$1,270
		D)	$1,300


10	In a deflationary environment (falling inventory prices), which inventory cost flow method will produce the highest net income? (LO 1)
		A)	FIFO
		B)	LIFO
		C)	Weighted average
		D)	Specific identification


11	In a deflationary environment (falling inventory prices), which inventory cost flow method will produce the lowest ending inventory amount? (LO 1)
		A)	FIFO
		B)	LIFO
		C)	Weighted average
		D)	Specific identification


12	In an inflationary environment (rising inventory prices), which inventory cost flow method will require the largest cash payment for income taxes? (LO 1)
		A)	FIFO
		B)	LIFO
		C)	Weighted average
		D)	Specific identification


13	How does a company apply the lower-of-cost-or-market valuation rule to its inventory? (LO 3)
		A)	To each individual inventory item
		B)	To major classes or categories of inventory
		C)	To the entire stock of inventory in the aggregate (in total)
		D)	Any of these methods may be used


14	Harrison Corporation has the following inventory-related information at the end of 2005: If Harrison Corporation applies the lower-of-cost-or-market rule to each individual item, by what amount, if any, will Harrison have to adjust its inventory value? (LO 3)
		A)	$ -0-
		B)	$ 210
		C)	$ 270
		D)	$2,780


15	Washington Company applies the lower-of-cost-or-market rule to each individual item in its ending inventory. The company determines that it must write down its inventory by $4,200. Which of the following answers reflects how this inventory write-down would affect Washington's financial statements? (LO 3)
		A)	A
		B)	B
		C)	C
		D)	D


16	Which of the following is FALSE? (LO 4)
		A)	A discrepancy between the perpetual inventory account and the physical inventory account may indicate the presence of fraud.
		B)	The same individual should record inventory transactions and count the inventory to reduce the likelihood of an inventory-related fraud occurrence.
		C)	Inventory is often the largest single asset reported on the balance sheet of a merchandising business.
		D)	Cost of goods sold is normally the largest single expense on the income statement of a merchandising business.


17	Which of the following is the result of an understatement of cost of goods sold? (LO 4)
		A)	Understatement of the ending inventory
		B)	Understatement of net earnings
		C)	Overstatement of the sales revenue
		D)	Overstatement of gross margin


18	The following information is from the 2005 accounting records of Nelson Company: What is the estimated cost of Nelson Company's 2005 ending inventory using the gross margin method? (LO 5)
		A)	$ 45,000
		B)	$248,000
		C)	$275,000
		D)	$390,000


19	Selected financial information for Davis Corporation is shown below: What is the average number of days to sell inventory (average days in inventory ratio) for Davis Corporation? (Round your answer to two decimal places.) (LO 6)
		A)	4.75
		B)	6.25
		C)	58.40
		D)	76.84


20	Which of the following is FALSE? (LO 7)
		A)	An investor receives a debt security when assets are loaned to the investee.
		B)	The most common types of equity securities are common stock and preferred stock.
		C)	Transactions between the investor and the investee constitute the secondary securities market.
		D)	Securities that regularly trade in established secondary markets are called marketable securities.


21	Nelson Incorporated purchased marketable securities and recorded the transaction in its financial statements as follows: Based on this information, how is Nelson classifying these securities? (LO 7)
		A)	As trading securities
		B)	As available-for-sale securities
		C)	As held-to-maturity securities
		D)	Cannot be determined from the information provided.


22	Granger Company purchased securities during 2005 for $15,000. At the end of 2005, these securities have a fair value of $16,500. The effect of this increased value affected Granger's financial statements as follows: Based on this information, how is Granger classifying these securities? (LO 7)
		A)	As trading securities
		B)	As available-for-sale securities
		C)	As held-to-maturity securities
		D)	Cannot be determined from the information provided.


23	Granger Company purchased securities during 2005 for $15,000. At the end of 2005, these securities have a fair value of $16,500. The effect of this increased value affected Granger's financial statements as follows: Based on this information, how is Granger classifying these securities? (LO 7)
		A)	As trading securities
		B)	As available-for-sale securities
		C)	As held-to-maturity securities
		D)	Cannot be determined from the information provided.


24	Granger Company purchased securities during 2005 for $15,000. At the end of 2005, these securities have a fair value of $16,500. The effect of this increased value affected Granger's financial statements as follows: Based on this information, how is Granger classifying these securities? (LO 7)
		A)	As trading securities
		B)	As available-for-sale securities
		C)	As held-to-maturity securities
		D)	Cannot be determined from the information provided.


25	If ending inventory for the current year is overstated, what will be the effect on the current year financial statements? (LO 4)
		A)	Cost of goods sold will be overstated.
		B)	Gross margin will be understated.
		C)	Sales will be overstated.
		D)	Retained earnings will be overstated.


26	The following is the most recent information available for four companies. Which of the following statements is TRUE? (LO 6)
		A)	Pine Ridge takes longer to sell its inventory than Oak Meadow.
		B)	Walnut Hill takes 73 days, on average, to sell its inventory.
		C)	Maple Lane sells its inventory in 10 days, on average.
		D)	Oak Meadow sells its inventory every 4 months, on average.

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Home > Chapter 5 > Multiple Choice Quiz

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	Course-wide Content
		Glossary Net Tutor Spreadsheet Tips Study Guide Sample Annual Report Projects CYGL Video Guide Text Updates

	Instructor Resources
		Instructors Manual Solutions Manual Solutions to Excel

	Quizzes
		Multiple Choice Quiz
	More Resources
		Check Figures Excel Templates TopicTackler Plus Review Problems Flashcards PowerPoint Presentations Narrated Slides iPod Content
	eBook
		Chapter Opener Inventory Cost Flow Me... Effect of Cost Flow on... Inventory Cost Flow Un... Inventory Cost Flow Wh... Lower of Cost or Marke... Avoiding Fraud in Merc... Estimating the Ending ... Real-World Data Effects of Cost Flow o... A Look Back A Look Forward Appendix Self-Study Review Prob... Key Terms Questions Exercises-Series A Problems-Series A Exercises-Series B Problems-Series B Analyze Think Communic... Comprehensive Problem