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1
One of the foremost questions in determining the value of the ending inventory is "which units did we sell?"
A)True
B)False
2
The specific identification method of inventory valuation would be more appropriate for a car dealer than for a hardware store.
A)True
B)False
3
If a retailer purchased 500 units of merchandise inventory at $8 per unit, and 800 units of inventory at $10 per unit, the average cost of the merchandise is $9 per unit.
A)True
B)False
4
Under the FIFO cost flow assumption, the assignment of costs to merchandise sold is in the same order in which the merchandise was purchased.
A)True
B)False
5
The FIFO method of inventory valuation is based on an assumption that the most recent costs incurred should be charged against current-year revenues.
A)True
B)False
6
The FIFO method of inventory valuation is based on the assumption that costs should be charged against revenues in the same order in which the costs were incurred.
A)True
B)False
7
LIFO is considered the most conservative inventory pricing method.
A)True
B)False
8
Under the LIFO method of inventory valuation, the ending merchandise inventory would be valued at the cost of the most recent purchases.
A)True
B)False
9
The accounting principle of consistency prohibits any changes in the method of inventory valuation.
A)True
B)False
10
The basic requirement for using cost flow assumptions, such as FIFO and LIFO, is that the items being sold are homogeneous.
A)True
B)False
11
When the items in inventory are homogeneous in nature, it is necessary to use the specific identification method of valuating inventory.
A)True
B)False
12
If a company uses LIFO in its income tax return, it must use LIFO in its financial statements.
A)True
B)False
13
The specific identification method may produce misleading results if the items being sold are homogenous.
A)True
B)False
14
The moving-average method of inventory valuation is a more precise method of inventory valuation than the average-cost method.
A)True
B)False
15
The average cost method will give misleading values to the ending inventory and to the cost of goods sold.
A)True
B)False
16
The FIFO method provides an inventory balance that is farthest from its replacement value.
A)True
B)False
17
The LIFO method provides the more accurate cost of goods sold when compared to FIFO.
A)True
B)False
18
During extended periods of rising prices, the FIFO method of inventory valuation will yield a higher cost of goods sold and a lower ending merchandise inventory, when compared to the LIFO method of inventory valuation.
A)True
B)False
19
JIT means just-in-time and is an inventory method where the raw materials for production are purchased in smaller quantities after sales orders have been taken for the manufactured products.
A)True
B)False
20
Just-in-time inventory requires that a large inventory be maintained to avoid, if possible, any out-of-stock situations.
A)True
B)False
21
A perpetual inventory should be checked periodically against a physical inventory count.
A)True
B)False
22
If the perpetually maintained inventory total is $50,000 but the physically counted value of the same inventory totals $49,800, the $200 is called a shortage.
A)True
B)False
23
Shrinkage losses are usually debited to the Inventory account when a perpetual inventory system is used.
A)True
B)False
24
If one hundred units of merchandise were purchased at $15 per unit and the end-of-period replacement cost of the merchandise is $8 per unit, the merchandise will be reported at $8 per unit.
A)True
B)False
25
Inventory write-downs that are material in amount are always handled in the same manner as inventory shrinkage.
A)True
B)False
26
Goods in transit that were purchased under freight terms of FOB shipping point should be included in the inventory of the buyer.
A)True
B)False
27
Goods shipped FOB destination are the property of the seller until the goods are removed from the carrier and placed on the buyer's receiving dock.
A)True
B)False
28
Goods in transit that were shipped under freight terms of FOB shipping point should be included in the seller's inventory.
A)True
B)False
29
Merchandise shipped FOB destination is actually owned by the seller until the goods reach the receiving dock of the buyer.
A)True
B)False
30
One of the weaknesses of the periodic inventory system is that it fails to account for losses of inventory due to merchandise obsolescence, or theft by employees.
A)True
B)False
31
If the ending inventory of the business is understated, the net income for the period will be understated and the retained earnings for the period will be overstated.
A)True
B)False
32
If the ending inventory of the business is overstated, the net income for the period will be overstated and the net income for the following period will also be overstated.
A)True
B)False
33
When the value of ending merchandise inventory is overstated, the net income of the subsequent year will be understated by the amount of the overstatement.
A)True
B)False
34
When an error that understates the ending merchandise inventory is not discovered, the Retained Earnings account will be overstated at the end of the subsequent year.
A)True
B)False
35
When merchandise inventory is destroyed (by fire, theft, or other causes) it is not possible to determine the value of that merchandise inventory.
A)True
B)False
36
The ratio of goods available for sale at cost to the same goods available for sale at retail prices is called the retail method cost ratio.
A)True
B)False
37
The gross profit is 45% of net sales. The cost of goods sold then must be 55% of the net sales.
A)True
B)False
38
If the goods available for sale are $360,000 at retail and $240,000 at cost, the cost ratio is 66.7%.
A)True
B)False
39
If the cost ratio is 60% and the estimated inventory at cost is $120,000, the physical count (value) of the inventory at retail is $72,000.
A)True
B)False
40
The average inventory totals $20,000 and the cost of goods sold totals $200,000. The inventory turnover rate is 15.0.
A)True
B)False
41
If the company averages 85 days to sell a product, and it averages 45 days to collect the receivable for the sale of the product, the operating cycle is about 40 days.
A)True
B)False
42
The inventory turnover rate is not affected by the inventory method used.
A)True
B)False
43
Increasing (or improving) the inventory turnover rate may improve the operating cycle.
A)True
B)False
44
A store manager who requires that outdated and obsolete inventory items are to be included in the physical count of inventory, an action that will unfavorably affect the inventory turnover ratio, is adversely affecting the income statement.
A)True
B)False





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