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| 1 | |
Merchandise inventory includes all goods that are in the physical possession of the company as of a cutoff date. |
| | A) | True |
| | B) | False |
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| 2 | |
When merchandise is left on consignment with a consignee, it should be included in the ending inventory of the consignee. |
| | A) | True |
| | B) | False |
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| 3 | |
Companies that use a perpetual inventory system have no need to take a physical count during the year. |
| | A) | True |
| | B) | False |
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| 4 | |
When purchasing prices do not change, each of the four inventory costing methods assigns the same cost to inventory and cost of goods sold. |
| | A) | True |
| | B) | False |
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| 5 | |
Last-in, first-out (LIFO) is the most often used method of valuing inventory. |
| | A) | True |
| | B) | False |
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| 6 | |
The method that is used to assign costs of inventory and to cost of goods sold (that is, specific identification, first-in, first-out (FIFO), last-in, last-out (LIFO), or weighted average) must closely follow the actual physical flow of inventory. |
| | A) | True |
| | B) | False |
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| 7 | |
The matching concept prescribes that a company use the same accounting methods period after period so that the financial statements are comparable across periods--the only exception is when a change from one method will improve its financial reporting. |
| | A) | True |
| | B) | False |
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| 8 | |
A company that uses the last-in, first-out (LIFO) method for tax reporting, may use first-in, first-out (FIFO) for financial reporting. |
| | A) | True |
| | B) | False |
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| 9 | |
During times of rising prices, the last-in, first-out (LIFO) method results in the highest net income. |
| | A) | True |
| | B) | False |
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| 10 | |
An error in the amount of ending inventory affects assets (inventory), net income (cost of goods sold), and equity (retained earnings) for that period and also affects assets (inventory), net income (cost of goods sold), and equity (retained earnings) for the next period. |
| | A) | True |
| | B) | False |
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| 11 | |
The inventory turnover ratio measures how many days are needed to convert the inventory into receivables or cash. |
| | A) | True |
| | B) | False |
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| 12 | |
The specific identification method can only be used by companies to assign costs of inventory and to cost of goods sold only when the inventory is comprised of expensive, custom-made inventory. |
| | A) | True |
| | B) | False |
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| 13 | |
The first-in, first-out (FIFO) method of assigning costs to both inventory and cost of goods sold assumes that inventory items are sold in the order acquired. |
| | A) | True |
| | B) | False |
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| 14 | |
The last-in, first-out (LIFO) method of assigning costs to both inventory and cost of goods sold assumes that the latest purchases are sold first. |
| | A) | True |
| | B) | False |
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| 15 | |
The conservatism constraint is the accounting principle that guides accountants to select the less optimistic amount when more than one estimate of amounts to be received or paid exists and these estimates are about equally likely. |
| | A) | True |
| | B) | False |
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| 16 | |
Which of the following costs should be included as part of the cost of merchandise inventory? |
| | A) | Import duties |
| | B) | Freight |
| | C) | Storage |
| | D) | Insurance |
| | E) | All of the above |
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| 17 | |
Which of the following is not an internal control that should be applied by a company when taking a physical count of inventory? |
| | A) | Prenumbered inventory tickets are prepared and distributed to counters. |
| | B) | Employees responsible for the inventory perform the count. |
| | C) | Counters confirm the validity of inventory, including its existence, amounts, quality, and so forth. |
| | D) | Separate counters perform second counts. |
| | E) | Managers confirm that all inventories are ticketed once, and only once. |
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| 18 | |
Which of the following methods of assigning costs to both inventory and cost of goods sold are in conformity with generally accepted accounting principles (GAAP)? |
| | A) | Specific identification |
| | B) | FIFO and LIFO |
| | C) | Weighted average |
| | D) | All of the above |
| | E) | None of the above |
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| 19 | |
Which of the following statements is true concerning the effects of inventory methods? |
| | A) | LIFO assigns the lowest amount to cost of goods sold during times of rising prices. |
| | B) | LIFO assigns the highest amount to cost of goods sold during times of rising prices, yielding the lowest net income. |
| | C) | FIFO assigns the highest amount of cost of goods sold during times of rising prices, yielding the highest net income. |
| | D) | Weighted average assigns the highest amount of cost of goods sold during times of rising prices. |
| | E) | None of the above. |
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| 20 | |
During periods when purchase costs regularly rise, which of the following is true? |
| | A) | FIFO will yield the highest net income. |
| | B) | LIFO will yield the lowest net income. |
| | C) | Weighted average yields results between FIFO and LIFO. |
| | D) | All of the above. |
| | E) | None of the above. |
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| 21 | |
Inventory at the end of the current period was erroneously understated. Which of the following is true as a result? |
| | A) | Net income for the current year is overstated. |
| | B) | The cost of goods sold for the current year is understated. |
| | C) | Retained earnings at the end of the current year is overstated. |
| | D) | Net income at the end of the following year will be overstated. |
| | E) | Retained earnings at the end of the following year will be overstated. |
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| 22 | |
Which of the following is true about errors in the ending inventory? |
| | A) | If ending Inventory is overstated, Cost of Goods Sold is understated, and Net Income is overstated. |
| | B) | If ending Inventory is understated, Cost of Goods Sold is understated, and Net Income is understated. |
| | C) | If ending Inventory is overstated, Cost of Goods Sold is understated, and Net Income is understated. |
| | D) | If ending Inventory is understated, Cost of Goods Sold is understated, and Net Income is overstated. |
| | E) | If ending Inventory is understated, Cost of Goods Sold is overstated, and Net Income is overstated. |
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| 23 | |
Which of the following is true about errors in the beginning inventory? |
| | A) | If beginning Inventory is overstated, Cost of Goods Sold is overstated, and Net Income is overstated. |
| | B) | If beginning Inventory is understated, Cost of Goods Sold is understated, and Net Income is understated. |
| | C) | If beginning Inventory is overstated, Cost of Goods Sold is overstated, and Net Income is understated. |
| | D) | If beginning Inventory is understated, Cost of Goods Sold is overstated, and Net Income is understated. |
| | E) | If beginning Inventory is understated, Cost of Goods Sold is overstated, and Net Income is overstated. |
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| 24 | |
Beginning inventory totals $100,000 and ending inventory totals $140,000 for the period and net sales are $800,000 and cost of goods sold is $600,000. What is the inventory turnover ratio? |
| | A) | 2.00 |
| | B) | 2.25 |
| | C) | 5.0 |
| | D) | 6.67 |
| | E) | None of the above |
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| 25 | |
Beginning inventory totals $100,000 and ending inventory totals $140,000 for the period and net sales are $800,000 and cost of goods sold is $600,000. What is the days' sales in inventory (to the nearest hundredth)? |
| | A) | 22.25 |
| | B) | 32.50 |
| | C) | 55.33 |
| | D) | 60.65 |
| | E) | 85.17 |
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| 26 | |
Abba Company maintains a perpetual inventory system and uses the specific identification method of assigning costs. Purchases and sales of inventory during the period are as follows:
Activity | Units | Unit Cost | Beginning inventory | 10 | $10 | First purchase | 35 | $11 | First sale | 20 | | Second purchase | 40 | $12 | Second sale | 35 | | Third purchase | 15 | $13 |
When the ending inventory was counted and identified, it was determined that 5 units of the beginning inventory, 10 units of the first purchase, 15 units of the second purchase, and 15 units of the third purchase were not sold. What is the value of its ending inventory? |
| | A) | $465 |
| | B) | $475 |
| | C) | $515 |
| | D) | $535 |
| | E) | None of the above |
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| 27 | |
Abba Company maintains a perpetual inventory system and uses the first-in, first out (FIFO) method of assigning costs. Purchases and sales of inventory during the period are as follows:
Activity | Units | Unit Cost | Beginning inventory | 10 | $10 | First purchase | 35 | $11 | First sale | 20 | | Second purchase | 40 | $12 | Second sale | 35 | | Third purchase | 15 | $13 |
What is the value of its cost of goods sold? |
| | A) | $395 |
| | B) | $555 |
| | C) | $605 |
| | D) | $675 |
| | E) | None of the above |
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| 28 | |
Abba Company maintains a perpetual inventory system and uses the last-in, first out (LIFO) method of assigning costs. Purchases and sales of inventory during the period are as follows:
Activity | Units | Unit Cost | Beginning inventory | 10 | $10 | First purchase | 35 | $11 | First sale | 20 | | Second purchase | 40 | $12 | Second sale | 35 | | Third purchase | 15 | $13 |
What is the value of its ending inventory? |
| | A) | $485 |
| | B) | $555 |
| | C) | $520 |
| | D) | $540 |
| | E) | None of the above |
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| 29 | |
Abba Company maintains a perpetual inventory system and uses the weighted average method of assigning costs. Purchases and sales of inventory during the period are as follows:
Activity | Units | Unit Cost | Beginning inventory | 10 | $101 | First purchase | 30 | $105 | First sale | 20 | | Second purchase | 35 | $115 | Second sale | 35 | | Third purchase | 16 | $120 |
What is the value of its ending inventory? |
| | A) | $3,744.00 |
| | B) | $3,978.00 |
| | C) | $4,140.00 |
| | D) | $6,063.75 |
| | E) | $6,325.00 |
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| 30 | |
Lipton Hardware prepared the following schedule of cost and market per unit information for its three items of merchandise inventory.
Item | Units | Cost per Unit | Market
per Unit | A | 1,000 | $0.50 | $0.60 | B | 2,000 | $0.45 | $0.30 | C | 1,500 | $0.50 | $0.75 |
What is the value of the inventory if the lower-of-cost-or-market (LCM) rule is applied to each item individually? |
| | A) | $1,267.50 |
| | B) | $1,850.00 |
| | C) | $2,080.00 |
| | D) | $2,580.00 |
| | E) | None of the above |
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