Question 1

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

Accepted Answer

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

Question 2

An inventory turnover rate of 4 means that the company is selling its inventory approximately every three months.

Accepted Answer

A) True 
 B)False

Question 3

One benefit of the LIFO inventory method is that it most closely matches the actual flow of goods in most cases.

Accepted Answer

A) True 
 B)False

Question 4

If Period 1 ending inventory is understated,then:

Accepted Answer

A) both cost of goods sold and net income are understated in Period 1. 
B) cost of goods sold is overstated and net income is understated in Period 1. 
C) cost of goods sold is understated and net income is overstated in Period 1. 
D) both cost of goods sold and net income are overstated in Period 1. 
A) both cost of goods sold and net income are understated in Period 1. 
B) cost of goods sold is overstated and net income is understated in Period 1. 
C) cost of goods sold is understated and net income is overstated in Period 1. 
D) both cost of goods sold and net income are overstated in Period 1.

Question 5

If the ending inventory is understated in Year 1,then the Gross Profit will be understated in Year 2.

Accepted Answer

A) True 
 B)False

Question 6

If the replacement cost of inventory is less than its historical cost,the company will write down the inventory by:

Accepted Answer

A) debiting Cost of Goods Sold and crediting Inventory. 
B) debiting Inventory and crediting Cost of Goods Sold. 
C) making a note in the financial statements only. 
D) debit Inventory for replacement cost,credit Inventory for historical cost. 
A) debiting Cost of Goods Sold and crediting Inventory. 
B) debiting Inventory and crediting Cost of Goods Sold. 
C) making a note in the financial statements only. 
D) debit Inventory for replacement cost,credit Inventory for historical cost.

Question 7

Which is usually NOT a common practice in taking a physical inventory?

Accepted Answer

A) Taking inventory during slow store hours 
B) Hiring an outside firm 
C) Taking inventory during the November and December holidays 
D) Taking inventory in team of two persons 
A) Taking inventory during slow store hours 
B) Hiring an outside firm 
C) Taking inventory during the November and December holidays 
D) Taking inventory in team of two persons

Question 8

Part of the journal entry to record the cost of an item for $28 that sold for $40 cash under the perpetual inventory system is:

Accepted Answer

A) debit Sales,$40;credit Cost of Goods Sold,$28;credit Cash,$12. 
B) debit Cost of Goods Sold,$40;sales,$40. 
C) debit Cash,$40;credit Inventory $40. 
D) debit Cost of Goods Sold $28;credit Inventory,$28. 
A) debit Sales,$40;credit Cost of Goods Sold,$28;credit Cash,$12. 
B) debit Cost of Goods Sold,$40;sales,$40. 
C) debit Cash,$40;credit Inventory $40. 
D) debit Cost of Goods Sold $28;credit Inventory,$28.

Question 9

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 10

Inventory is shown on the:

Accepted Answer

A) Balance Sheet as an asset. 
B) Income Statement before gross profit. 
C) Statement of Retained Earnings. 
D) Income Statement after gross profit. 
A) Balance Sheet as an asset. 
B) Income Statement before gross profit. 
C) Statement of Retained Earnings. 
D) Income Statement after gross profit.

Question 11

S&C Inc.has the following LIFO perpetual inventory records:
 
The current replacement cost of the ending inventory is $4,500.To apply the lower-of-cost-or-market rule,the journal entry would be:

Accepted Answer

A) Debit Cost of Goods Sold $800,credit Inventory $800 
B) debit Inventory $800,credit Cost of Goods Sold $800 
C) Debit Cost of Goods Sold $500,credit Inventory $500 
D) debit Inventory $500,credit Cost of Goods Sold $500 
A) Debit Cost of Goods Sold $800,credit Inventory $800 
B) debit Inventory $800,credit Cost of Goods Sold $800 
C) Debit Cost of Goods Sold $500,credit Inventory $500 
D) debit Inventory $500,credit Cost of Goods Sold $500

Question 12

Given the following inventory activity,what is ending inventory using the perpetual average costing method?

Accepted Answer

A) 165 units @ $4.86 
B) 100 units @ $5.00 and 25 units @ $3.50 and 40 units @ $6.00 
C) 125 units @ $4.50 and 40 units @ $6.00 
D) 75 units @ $5.00 and 50 units @ $3.50 and 40 units @ $6.00 
A) 165 units @ $4.86 
B) 100 units @ $5.00 and 25 units @ $3.50 and 40 units @ $6.00 
C) 125 units @ $4.50 and 40 units @ $6.00 
D) 75 units @ $5.00 and 50 units @ $3.50 and 40 units @ $6.00

Question 13

Beginning inventory + Net purchases =

Accepted Answer

A) Cost of goods sold. 
B) Cost of goods available for sale. 
C) Gross profit. 
D) Ending inventory. 
A) Cost of goods sold. 
B) Cost of goods available for sale. 
C) Gross profit. 
D) Ending inventory.

Question 14

Cost of goods sold may include all of the following EXCEPT for:

Accepted Answer

A) the actual cost of the item. 
B) shipping costs. 
C) insurance. 
D) management salaries. 
A) the actual cost of the item. 
B) shipping costs. 
C) insurance. 
D) management salaries.

Question 15

A new car lot would probably cost its inventory using the:

Accepted Answer

A) LIFO method of inventory costing. 
B) FIFO method of inventory costing. 
C) moving average method of inventory costing. 
D) specific-identification method of inventory costing. 
A) LIFO method of inventory costing. 
B) FIFO method of inventory costing. 
C) moving average method of inventory costing. 
D) specific-identification method of inventory costing.

Question 16

Which of the following would probably NOT need to be disclosed in a footnote?

Accepted Answer

A) Change of inventory methods 
B) A material change in estimated shrinkage 
C) A change in depreciation method 
D) A 10% increase in sales 
A) Change of inventory methods 
B) A material change in estimated shrinkage 
C) A change in depreciation method 
D) A 10% increase in sales

Question 17

Underestimating inventory would be an example of:

Accepted Answer

A) conservatism. 
B) consistency. 
C) materiality. 
D) entity. 
A) conservatism. 
B) consistency. 
C) materiality. 
D) entity.

Question 18

In order to attract investors and borrow on favorable terms,a company would use ________ in times when inventory costs are rising.

Accepted Answer

A) LIFO 
B) FIFO 
C) average costing 
D) specific-identification costing 
A) LIFO 
B) FIFO 
C) average costing 
D) specific-identification costing

Question 19

Grocery stores are required to use the FIFO method because they sell the oldest stock first to avoid spoilage.

Accepted Answer

A) True 
 B)False

Question 20

A method of valuing inventory based on the costs for each individual item is called the:

Accepted Answer

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

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

An inventory turnover rate of 4 means that the company is selling its inventory approximately every three months.

One benefit of the LIFO inventory method is that it most closely matches the actual flow of goods in most cases.

If Period 1 ending inventory is understated,then:

If the ending inventory is understated in Year 1,then the Gross Profit will be understated in Year 2.

If the replacement cost of inventory is less than its historical cost,the company will write down the inventory by:

Which is usually NOT a common practice in taking a physical inventory?

Part of the journal entry to record the cost of an item for $28 that sold for $40 cash under the perpetual inventory system is:

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

Inventory is shown on the:

S&C Inc.has the following LIFO perpetual inventory records: The current replacement cost of the ending inventory is $4,500.To apply the lower-of-cost-or-market rule,the journal entry would be:

Given the following inventory activity,what is ending inventory using the perpetual average costing method?

Beginning inventory + Net purchases =

Cost of goods sold may include all of the following EXCEPT for:

A new car lot would probably cost its inventory using the:

Which of the following would probably NOT need to be disclosed in a footnote?

Underestimating inventory would be an example of:

In order to attract investors and borrow on favorable terms,a company would use ________ in times when inventory costs are rising.

Grocery stores are required to use the FIFO method because they sell the oldest stock first to avoid spoilage.

A method of valuing inventory based on the costs for each individual item is called the:

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

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

An inventory turnover rate of 4 means that the company is selling its inventory approximately every three months.

One benefit of the LIFO inventory method is that it most closely matches the actual flow of goods in most cases.

If Period 1 ending inventory is understated,then:

If the ending inventory is understated in Year 1,then the Gross Profit will be understated in Year 2.

If the replacement cost of inventory is less than its historical cost,the company will write down the inventory by:

Which is usually NOT a common practice in taking a physical inventory?

Part of the journal entry to record the cost of an item for $28 that sold for $40 cash under the perpetual inventory system is:

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

Inventory is shown on the:

S&C Inc.has the following LIFO perpetual inventory records: The current replacement cost of the ending inventory is $4,500.To apply the lower-of-cost-or-market rule,the journal entry would be:

Given the following inventory activity,what is ending inventory using the perpetual average costing method?

Beginning inventory + Net purchases =

Cost of goods sold may include all of the following EXCEPT for:

A new car lot would probably cost its inventory using the:

Which of the following would probably NOT need to be disclosed in a footnote?

Underestimating inventory would be an example of:

In order to attract investors and borrow on favorable terms,a company would use ________ in times when inventory costs are rising.

Grocery stores are required to use the FIFO method because they sell the oldest stock first to avoid spoilage.

A method of valuing inventory based on the costs for each individual item is called the:

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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