Site MapHelpFeedbackTrue or False
True or False
(See related pages)

1
Merchandise inventory includes all goods that are in the physical possession of the company as of a cutoff date.
A)True
B)False
2
Merchandise inventory errors affect only the balance sheet, but will affect it for two years.
A)True
B)False
3
Inventories make up a small portion of current assets for most wholesalers and retailers.
A)True
B)False
4
Specific identification is only practical for companies with expensive, custom-made inventory.
A)True
B)False
5
Perpetual inventory systems are now the most dominant system across United States businesses.
A)True
B)False
6
Ownership of goods in transit passes when goods arrive at their destination when goods are shipped FOB shipping point.
A)True
B)False
7
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 consignor.
A)True
B)False
8
When merchandise is left on consignment with a consignee, it should be included in the ending inventory of the consignee.
A)True
B)False
9
An item that will sell for $45 and has a cost to sell of $32, has an expected net realizable value of $13.
A)True
B)False
10
Proper internal controls over inventory counts include having employees responsible for inventory conduct the counts.
A)True
B)False
11
The matching principle is applied to inventory in that inventory costs should be recorded against revenue in the period in which cash is received from the sale of inventory.
A)True
B)False
12
Companies that use a perpetual inventory system have no need to take a physical count during the year.
A)True
B)False
13
LIFO is the most often used method of valuing inventory.
A)True
B)False
14
When purchasing prices do not change, each inventory costing method assigns the same cost to inventory and cost of goods sold.
A)True
B)False
15
Decisions on inventory costing methods will affect the reported amounts for inventory, cost of goods sold, and other accounts.
A)True
B)False
16
The costing method used (FIFO, LIFO, Weighted Average, or Specific Identification) must closely follow the actual physical flow of inventory.
A)True
B)False
17
In order to use the specific identification method, each inventory item must be identified with a specific purchase invoice and sale record.
A)True
B)False
18
Under the FIFO method of assigning costs to both inventory and the cost of goods sold, it is assumed that the ending inventory consists of the inventory items most recently acquired (purchased).
A)True
B)False
19
FIFO assumes cost flows in the same order that they were incurred.
A)True
B)False
20
Cost of goods available for sale, cost of goods sold, and inventory amounts will all differ under each of the four methods of inventory costing.
A)True
B)False
21
Under the LIFO method of inventory valuation, the ending merchandise inventory would be valued at the purchase price of the most recent purchases.
A)True
B)False
22
When LIFO is used for tax reporting, it must also be used for financial statements.
A)True
B)False
23
Another name for weighted-average inventory pricing is the average cost method.
A)True
B)False
24
During times of rising prices, the LIFO method results in the highest net income.
A)True
B)False
25
If a business uses LIFO for tax purposes it may use any other method of inventory costing for its financial statements.
A)True
B)False
26
The matching 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
27
An understatement of ending inventory causes an overstatement of cost of goods sold and an overstatement of net income for the current year.
A)True
B)False
28
Should an error that understates the ending merchandise inventory not be discovered, the Retained Earnings account will be overstated at the end of the subsequent year.
A)True
B)False
29
An inventory error is said to be self-correcting because it always yields an offsetting error in the next period.
A)True
B)False
30
If the beginning inventory is overstated, the cost of goods sold is overstated and the net income is understated.
A)True
B)False
31
If the beginning inventory is understated, the cost of goods sold is overstated and the net income is overstated.
A)True
B)False
32
Accounting principles require that inventory be reported at the market value (cost) of replacing inventory when market value is lower than cost.
A)True
B)False
33
There are three ways to apply LCM to ending inventory.
A)True
B)False
34
When using the lower of cost or market principle, the journal entry to adjust the inventory downward would include a credit to cost of goods sold.
A)True
B)False
35
The accounting principle that guides accountants to select the less optimistic estimate when two estimates of amounts to be received or paid are about equally likely is the conservatism principle.
A)True
B)False
36
If one hundred units of merchandise were purchased at $15 per unit and the current market price of the merchandise is $8 per unit, the merchandise will be reported at $8 per unit.
A)True
B)False
37
A company that had a beginning inventory balance of $330,000 and ending inventory balance of $270,000 and cost of goods sold of $900,000 has an inventory turnover ratio of 3.33.
A)True
B)False
38
Dividing the ending inventory by cost of goods sold and multiplying the result by 365 results in a number that is called day's sales in inventory.
A)True
B)False
39
The inventory turnover ratio measures how many days is needed to convert the inventory into receivables or cash.
A)True
B)False
40
The goal of inventory management is to achieve the lowest inventory turnover ratio possible.
A)True
B)False
41

THE NEXT TWO QUESTIONS ARE BASED ON INVENTORY COSTING UNDER A PERIODIC SYSTEM AND MATERIALS PRESENTED IN APPENDIX A OF CHAPTER 5.

The assignment of costs to the goods sold and ending inventory is the same for both the perpetual and periodic systems using specific identification and FIFO methods.

A)True
B)False
42
Under a periodic inventory system, the weighted average cost per unit is only calculated at the end of a period.
A)True
B)False
43

THE NEXT FOUR QUESTIONS ARE BASED ON THE RETAIL INVENTORY AND GROSS PROFIT METHODS TO ESTIMATE INVENTORY AND MATERIALS PRESENTED IN APPENDIX B OF CHAPTER 5.

A method for estimating an 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
44
Goods available for sale at cost total $65,000 and at retail total $100,000. Total net sales at retail total $85,000. The cost to retail ratio is 35%.
A)True
B)False
45
Goods available for sale at cost total $55,000 and at retail total $100,000. The cost ratio is 55% and the net sales for the period total $80,000. The ending inventory at retail totals $20,000 and the ending inventory at cost totals $11,000.
A)True
B)False
46
Net sales at retail times the gross profit ratio equals the estimated cost of goods sold under the gross profit method of inventory estimation.
A)True
B)False
47
If net Sales total $100,000, beginning inventory totals $12,000, the total cost of merchandise purchases is $48,000, and gross profit is 60% of net sales, the ending inventory determined by the gross profit method will be $30,000.
A)True
B)False





To learn more about the book this website supports, please visit its Information Center.
(c)2007 McGraw-Hill Higher Education
Any use is subject to the Terms of Use and Privacy Policy.
McGraw-Hill Higher Education is one of the many fine businesses of The McGraw-Hill Companies.


Wild FAFOnline Learning Center

Home > Chapter 5 > True or False