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| 1 | |
When goods are shipped FOB shipping point, the buyer is responsible for paying the transportation charges, but when the goods are shipped FOB destination, the seller is responsible for the transportation charges. |
| | A) | True |
| | B) | False |
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| 2 | |
Damaged goods are not included in the firm's physical inventory if they cannot be sold. If the items can be sold at a reduced price, they are included in the inventory at a reduced price called the net realizable value. |
| | A) | True |
| | B) | False |
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| 3 | |
When a company buys inventory and incurs transportation costs to ship the goods to its business location, the transportation costs are debited to an expense account called Delivery Expense which is classified as a selling expense. |
| | A) | True |
| | B) | False |
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| 4 | |
The most accurate inventory method is the weighted average method. |
| | A) | True |
| | B) | False |
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| 5 | |
No matter which inventory cost flow assumption is used, LIFO, FIFO, specific identification, or weighted average, there is one amount that will be identical under all four methods and that is the cost of goods available for sale. |
| | A) | True |
| | B) | False |
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| 6 | |
When sales occur under the FIFO method, the costs of the earliest units acquired are charged to the inventory account. |
| | A) | True |
| | B) | False |
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| 7 | |
When prices are rising, FIFO assigns the lowest amount to cost of goods sold and LIFO assigns the highest amount to cost of goods sold. |
| | A) | True |
| | B) | False |
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| 8 | |
The lower-of-cost-or-market rule (LCM) may be applied (1) to each individual item separately, (2) to major categories of items, and (3) to the entire inventory. |
| | A) | True |
| | B) | False |
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| 9 | |
If the lower-of-cost-or-market rule is used and the total market value of the inventory is less than the cost of the inventory, the entry to adjust the inventory includes a credit to Merchandise Inventory and a debit to Unrealized Losses on Inventory. |
| | A) | True |
| | B) | False |
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| 10 | |
If the value of the ending inventory is understated, the net income for the time period will be overstated. |
| | A) | True |
| | B) | False |
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| 11 | |
The costing method used, FIFO, LIFO, weighted average, or specific identification, needs to closely follow the actual physical flow of inventory. |
| | A) | True |
| | B) | False |
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| 12 | |
In a period of rising prices, the weighted average inventory cost flow method will result in the lowest ending inventory. |
| | A) | True |
| | B) | False |
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| 13 | |
Using one inventory costing system over another will not make a significant difference in the amount of taxes due in any given period. |
| | A) | True |
| | B) | False |
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| 14 | |
Should an error that understates the ending merchandise inventory not be corrected, the capital account will be correctly stated at the end of the current year. |
| | A) | True |
| | B) | False |
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| 15 | |
The cost of transporting and preparing merchandise for resale is a legitimate part of inventory cost. |
| | A) | True |
| | B) | False |
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| 16 | |
Goods in transit that were purchased under freight terms of FOB factory (shipping point) should be included in the ending inventory of the buyer. |
| | A) | True |
| | B) | False |
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| 17 | |
A person (or entity) who receives and holds goods owned by another party for the purpose of selling the goods for its owner is a consignor. |
| | A) | True |
| | B) | False |
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| 18 | |
The goal of inventory management is to achieve the lowest inventory turnover ratio possible. |
| | A) | True |
| | B) | False |
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| 19 | |
An item that will sell for $86 and has a cost to sell of $22, has an expected net realizable value of $59. |
| | A) | True |
| | B) | False |
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| 20 | |
The formula for Inventory Turnover is: Cost of Goods Sold/Ending Inventory. |
| | A) | True |
| | B) | False |
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| 21 | |
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 by purchased. |
| | A) | True |
| | B) | False |
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| 22 | |
In a period of rising prices, the LIFO cost flow method will result in the highest cost of goods sold. |
| | A) | True |
| | B) | False |
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| 23 | |
If a business uses LIFO for tax purposes it must also use LIFO in the financial statements. |
| | A) | True |
| | B) | False |
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| 24 | |
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 |
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| 25 | |
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 |
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| 26 | |
If the beginning inventory is overstated, the cost of goods sold is overstated and the net income is understated. |
| | A) | True |
| | B) | False |
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| 27 | |
When merchandise is left on consignment with a consignee, it should be included in the ending inventory of the consignor. |
| | A) | True |
| | B) | False |
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| 28 | |
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 |
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| 29 | |
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 |
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| 30 | |
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 |
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