Question 1

A method of valuing inventory based on the assumption that the oldest goods will be sold first is called the:

Accepted Answer

A) LIFO method. 
B) average cost method. 
C) specific-unit-cost method. 
D) FIFO method. 
A) LIFO method. 
B) average cost method. 
C) specific-unit-cost method. 
D) FIFO method.

Question 2

Inventory is the most important asset in a service business.

Accepted Answer

A) True 
 B)False

Question 3

Having too much inventory can be a problem because:

Accepted Answer

A) inventory takes up space and ties up money. 
B) inventory can become obsolete and lose value. 
C) inventory is expensive to maintain. 
D) all of the above. 
A) inventory takes up space and ties up money. 
B) inventory can become obsolete and lose value. 
C) inventory is expensive to maintain. 
D) all of the above.

Question 4

If gross profit is overstated in Period 1, then the ending inventory and net income in Period 1 were respectively:

Accepted Answer

A) overstated, and understated. 
B) overstated, and overstated. 
C) understated, and overstated. 
D) understated, and understated. 
A) overstated, and understated. 
B) overstated, and overstated. 
C) understated, and overstated. 
D) understated, and understated.

Question 5

The amount of cost of goods sold is MOST influenced by the:

Accepted Answer

A) cost of the items sold. 
B) cost of the unsold items. 
C) inventory costing method used. 
D) number of items sold. 
A) cost of the items sold. 
B) cost of the unsold items. 
C) inventory costing method used. 
D) number of items sold.

Question 6

Goods available for sale are $26,000; beginning inventory is $15,000; ending inventory is $17,000; and cost of goods sold is $42,000. The inventory turnover is: (Round your final answer two decimal places, X.XX)

Accepted Answer

A) 2.80. 
B) 2.47. 
C) 2.63. 
D) 1.63. 
A) 2.80. 
B) 2.47. 
C) 2.63. 
D) 1.63.

Question 7

A company has $4,200 in net sales, $3,500 in gross profit, $1,000 in ending inventory, and $1,600 in beginning inventory. The company's cost of goods sold is:

Accepted Answer

A) $3,500. 
B) $700. 
C) $2,600. 
D) $1,900. 
A) $3,500. 
B) $700. 
C) $2,600. 
D) $1,900.

Question 8

________ helps investors compare a company's financial statements from one period to the next.

Accepted Answer

A) Reliability 
B) Consistency 
C) Objectivity 
D) Entity 
A) Reliability 
B) Consistency 
C) Objectivity 
D) Entity

Question 9

Net sales times the historical gross profit percentage yields the estimated:

Accepted Answer

A) ending inventory. 
B) beginning inventory. 
C) gross profit. 
D) cost of goods sold. 
A) ending inventory. 
B) beginning inventory. 
C) gross profit. 
D) cost of goods sold.

Question 10

Renoir, Inc. has the following LIFO perpetual inventory records:  
The current replacement cost of the ending inventory is $1,400. To apply the lower-of-cost-or-market rule, the journal entry would be:

Accepted Answer

A) debit Cost of Goods Sold $400, credit Inventory $400. 
B) debit Inventory $400, credit Cost of Goods Sold $400. 
C) No entry required, since the amount is not material. 
D) No entry required, since historical cost is less than replacement. 
A) debit Cost of Goods Sold $400, credit Inventory $400. 
B) debit Inventory $400, credit Cost of Goods Sold $400. 
C) No entry required, since the amount is not material. 
D) No entry required, since historical cost is less than replacement.

Question 11

Under the LCM rule, a business must report inventory at the current replacement cost.

Accepted Answer

A) True 
 B)False

Question 12

In order to pay the least income tax possible in periods of rising inventory costs, the company should use which of the following inventory costing methods?

Accepted Answer

A) FIFO 
B) LIFO 
C) Average cost 
D) Specific identification 
A) FIFO 
B) LIFO 
C) Average cost 
D) Specific identification

Question 13

Under the conservatism principle, liabilities and expenses would be understated, rather than overstated.

Accepted Answer

A) True 
 B)False

Question 14

The first step in using the gross profit method to estimate ending inventory is to:

Accepted Answer

A) calculate the cost of goods available for sale. 
B) estimate the ending inventory. 
C) estimate the beginning inventory. 
D) estimate the cost of goods sold. 
A) calculate the cost of goods available for sale. 
B) estimate the ending inventory. 
C) estimate the beginning inventory. 
D) estimate the cost of goods sold.

Question 15

An example of full disclosure would be a footnote to the financial statements indicating what method was used to value inventory.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following is an INCORRECT statement if ending inventory is understated?

Accepted Answer

A) Cost of goods sold is overstated. 
B) Gross profit is overstated. 
C) Net income understated. 
D) Income tax is understated. 
A) Cost of goods sold is overstated. 
B) Gross profit is overstated. 
C) Net income understated. 
D) Income tax is understated.

Question 17

Inventory is shown on the:

Accepted Answer

A) Balance Sheet as a long-term asset. 
B) Income Statement before gross profit. 
C) Balance Sheet as a current asset. 
D) Income Statement after gross profit. 
A) Balance Sheet as a long-term asset. 
B) Income Statement before gross profit. 
C) Balance Sheet as a current asset. 
D) Income Statement after gross profit.

Question 18

A company using the perpetual inventory system does not need to perform a physical count of inventory.

Accepted Answer

A) True 
 B)False

Question 19

The LCM rule compares original cost to current replacement cost to determine the amount at which inventory should be valued.

Accepted Answer

A) True 
 B)False

Question 20

When merchandise is sold and the perpetual system of inventory is used, the journal entry to record a sale of merchandise on account would include:

Accepted Answer

A) debiting Accounts Receivable and crediting Sales. 
B) debiting Accounts Receivable and crediting Inventory. 
C) debiting Accounts Receivable and crediting Cost of Goods Sold. 
D) debiting Cost of Goods Sold and crediting Accounts Receivable. 
A) debiting Accounts Receivable and crediting Sales. 
B) debiting Accounts Receivable and crediting Inventory. 
C) debiting Accounts Receivable and crediting Cost of Goods Sold. 
D) debiting Cost of Goods Sold and crediting Accounts Receivable.

A method of valuing inventory based on the assumption that the oldest goods will be sold first is called the:

Inventory is the most important asset in a service business.

Having too much inventory can be a problem because:

If gross profit is overstated in Period 1, then the ending inventory and net income in Period 1 were respectively:

The amount of cost of goods sold is MOST influenced by the:

Goods available for sale are $26,000; beginning inventory is $15,000; ending inventory is $17,000; and cost of goods sold is $42,000. The inventory turnover is: (Round your final answer two decimal places, X.XX)

A company has $4,200 in net sales, $3,500 in gross profit, $1,000 in ending inventory, and $1,600 in beginning inventory. The company's cost of goods sold is:

________ helps investors compare a company's financial statements from one period to the next.

Net sales times the historical gross profit percentage yields the estimated:

Renoir, Inc. has the following LIFO perpetual inventory records: The current replacement cost of the ending inventory is $1,400. To apply the lower-of-cost-or-market rule, the journal entry would be:

Under the LCM rule, a business must report inventory at the current replacement cost.

In order to pay the least income tax possible in periods of rising inventory costs, the company should use which of the following inventory costing methods?

Under the conservatism principle, liabilities and expenses would be understated, rather than overstated.

The first step in using the gross profit method to estimate ending inventory is to:

An example of full disclosure would be a footnote to the financial statements indicating what method was used to value inventory.

Which of the following is an INCORRECT statement if ending inventory is understated?

Inventory is shown on the:

A company using the perpetual inventory system does not need to perform a physical count of inventory.

The LCM rule compares original cost to current replacement cost to determine the amount at which inventory should be valued.

When merchandise is sold and the perpetual system of inventory is used, the journal entry to record a sale of merchandise on account would include:

Business, Accounting, and You

Analyzing and Recording Business Transactions

Adjusting and Closing Entries

Accounting for a Merchandising Business

The Challenges of Accounting: Standards, Internal Control, Audits, Fraud, and Ethics

Cash and Receivables

Long-Term and Other Assets

Current Liabilities and Long-Term Debt

Corporations: Paid-In Capital and Retained Earnings

The Statement of Cash Flows

Financial Statement Analysis

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Exam 5: Inventory

A method of valuing inventory based on the assumption that the oldest goods will be sold first is called the:

Inventory is the most important asset in a service business.

Having too much inventory can be a problem because:

If gross profit is overstated in Period 1, then the ending inventory and net income in Period 1 were respectively:

The amount of cost of goods sold is MOST influenced by the:

Goods available for sale are $26,000; beginning inventory is $15,000; ending inventory is $17,000; and cost of goods sold is $42,000. The inventory turnover is: (Round your final answer two decimal places, X.XX)

A company has $4,200 in net sales, $3,500 in gross profit, $1,000 in ending inventory, and $1,600 in beginning inventory. The company's cost of goods sold is:

________ helps investors compare a company's financial statements from one period to the next.

Net sales times the historical gross profit percentage yields the estimated:

Renoir, Inc. has the following LIFO perpetual inventory records: The current replacement cost of the ending inventory is $1,400. To apply the lower-of-cost-or-market rule, the journal entry would be:

Under the LCM rule, a business must report inventory at the current replacement cost.

In order to pay the least income tax possible in periods of rising inventory costs, the company should use which of the following inventory costing methods?

Under the conservatism principle, liabilities and expenses would be understated, rather than overstated.

The first step in using the gross profit method to estimate ending inventory is to:

An example of full disclosure would be a footnote to the financial statements indicating what method was used to value inventory.

Which of the following is an INCORRECT statement if ending inventory is understated?

Inventory is shown on the:

A company using the perpetual inventory system does not need to perform a physical count of inventory.

The LCM rule compares original cost to current replacement cost to determine the amount at which inventory should be valued.

When merchandise is sold and the perpetual system of inventory is used, the journal entry to record a sale of merchandise on account would include:

Business, Accounting, and You

Analyzing and Recording Business Transactions

Adjusting and Closing Entries

Accounting for a Merchandising Business

The Challenges of Accounting: Standards, Internal Control, Audits, Fraud, and Ethics

Cash and Receivables

Long-Term and Other Assets

Current Liabilities and Long-Term Debt

Corporations: Paid-In Capital and Retained Earnings

The Statement of Cash Flows

Financial Statement Analysis

Filters