Question 1

The primary reason for the popularity of the LIFO flow assumption is that this method:

Accepted Answer

A)  Is most appropriate when each item in inventory is unique. 
B)  Tends to minimize taxable income. 
C)  Causes inventory to be reported at or near its current replacement cost. 
D)  Reduces the amount of money "tied up" in inventory. 
A)  Is most appropriate when each item in inventory is unique. 
B)  Tends to minimize taxable income. 
C)  Causes inventory to be reported at or near its current replacement cost. 
D)  Reduces the amount of money "tied up" in inventory. B

Question 2

In a periodic inventory system, the cost of goods sold is determined as follows:

Accepted Answer

A)  Year-end inventory, plus purchases during the year, less the inventory at the beginning of the year. 
B)  Net sales, less the balance in the Gross Profit account. 
C)  Cost of goods available for sale during the year, less the ending inventory. 
D)  A physical count is made of all items sold throughout the year, and a cost flow assumption is applied at year-end. 
A)  Year-end inventory, plus purchases during the year, less the inventory at the beginning of the year. 
B)  Net sales, less the balance in the Gross Profit account. 
C)  Cost of goods available for sale during the year, less the ending inventory. 
D)  A physical count is made of all items sold throughout the year, and a cost flow assumption is applied at year-end. C

Question 3

Which of the following will cause net income to be overstated for the following year?

Accepted Answer

A)  Current year's ending inventory is understated. 
B)  Current year's ending inventory is overstated. 
C)  Next year's beginning inventory is overstated. 
D)  Next year's ending inventory is understated. 
A)  Current year's ending inventory is understated. 
B)  Current year's ending inventory is overstated. 
C)  Next year's beginning inventory is overstated. 
D)  Next year's ending inventory is understated. A

Question 4

During a period of steadily falling prices, which of the following methods of measuring the cost of goods sold is likely to result in reporting the highest gross profit?

Accepted Answer

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

Question 5

Which of the following types of businesses would you expect to have the highest inventory turnover?

Accepted Answer

A)  An antique shop. 
B)  An electronics store. 
C)  A dairy store. 
D)  A boat manufacturer. 
A)  An antique shop. 
B)  An electronics store. 
C)  A dairy store. 
D)  A boat manufacturer.

Question 6

In a periodic inventory system, recording a sale on account involves debiting which of the following accounts?

Accepted Answer

A)  Only Accounts Receivable. 
B)  Accounts Receivable and Inventory. 
C)  Accounts Receivable and Cost of Goods Sold. 
D)  Accounts Receivable, Cost of Goods Sold, and Inventory. 
A)  Only Accounts Receivable. 
B)  Accounts Receivable and Inventory. 
C)  Accounts Receivable and Cost of Goods Sold. 
D)  Accounts Receivable, Cost of Goods Sold, and Inventory.

Question 7

The lower-of-cost-or-market rule:

Accepted Answer

A)  Is used in conjunction with the other inventory cost flow assumptions. 
B)  Cannot be used if LIFO or FIFO are also used. 
C)  Can be used in conjunction with LIFO but not FIFO. 
D)  Can only be used with the specific identification cost flow assumption. 
A)  Is used in conjunction with the other inventory cost flow assumptions. 
B)  Cannot be used if LIFO or FIFO are also used. 
C)  Can be used in conjunction with LIFO but not FIFO. 
D)  Can only be used with the specific identification cost flow assumption.

Question 8

An advantage to the LIFO method of accounting for inventory is that it values the cost of goods sold at current replacement costs.

Accepted Answer

A) True 
 B)False

Question 9

Any business that sells numerous units of identical products may determine its cost of goods sold using a flow assumption, rather than the specific identification method.

Accepted Answer

A) True 
 B)False

Question 10

An advocate of just-in-time inventory system would say:

Accepted Answer

A)  Maintain a large inventory selection for customers. 
B)  Leave extra time in order to make inventory deadlines. 
C)  Maintain a small inventory supply. 
D)  LIFO is preferred over FIFO. 
A)  Maintain a large inventory selection for customers. 
B)  Leave extra time in order to make inventory deadlines. 
C)  Maintain a small inventory supply. 
D)  LIFO is preferred over FIFO.

Question 11

The lower of cost or market rule may be applied by comparing the market value of the inventory to the cost of the inventory based on:

Accepted Answer

A)  Individual inventory items. 
B)  Major inventory categories. 
C)  The entire inventory. 
D)  Any of the three: individual inventory items, major inventory categories, or the entire inventory. 
A)  Individual inventory items. 
B)  Major inventory categories. 
C)  The entire inventory. 
D)  Any of the three: individual inventory items, major inventory categories, or the entire inventory.

Question 12

Retail method
Global Office Supply uses the retail method to estimate ending inventory in its monthly financial statements. The following information is available for the month ended July 31:
Using the retail method:
 $\begin{array}{|l|l|l|}
\hline  & \text { Cost } & \text { Retail } \
\hline \text { Sales }&&\$ 600,000\
\hline \text { Inventory, July } 1 & \$ 274,800 & \$ 396,000   \
\hline \text { Net purchases } & \$ 369,600&\$546,000 \
\hline \text { Goods available for sale } &\$ 544,400 & \$ 942,000  \
\hline
\end{array}$  $\begin{array}{|l|l|}
\hline \text { (a) Determine the cost ratio that should be used in }&\underline{\quad\quad}\% \
\text { estimating the inventory at July } 31 . \
\text { (b) Estimate the cost of the inventory at July } 31 .&\$\underline{\quad\quad} \
\hline \text { (c) Estimate the cost of goods sold for July. }&\$\underline{\quad\quad}\
\hline
\end{array}$

Accepted Answer

None

Question 13

Beech Soda, Inc. uses a perpetual inventory system. The company's beginning inventory of a particular product and its purchases during the month of January were as follows:
On January 14, Beech Soda, Inc. sold 25 units of this product. The other 28 units remained in inventory at January 31.
 $\begin{array}{|l|c|c|c|}
\hline & \text { Quantity } & \text { Unit Cost } & \text { Total Cost } \
\hline \text { Beginning inventory (Jan. 1) } & 16 & \$ 10 & \$ 160 \
\hline \text { Purchase (Jan. 11) } & 14 & \$ 12 & 168 \
\hline \text { Purchase (Jan. 20) } & \underline{ 23} & \$ 15 & \underline{345} \
\hline \text { Total } & 53 & & \$ 673 \
\hline
\end{array}$

-Assuming that Beech Soda uses the average cost flow assumption, the cost of goods sold to be recorded at January 14 is (round cost per unit to nearest cent):

Accepted Answer

A)  $317.50. 
B)  $308.25. 
C)  $273.33 
D)  $673.00. 
A)  $317.50. 
B)  $308.25. 
C)  $273.33 
D)  $673.00.

Question 14

Some companies that use a perpetual inventory system and the LIFO flow assumption restate their inventories at year-end to the amount indicated by periodic LIFO costing procedures. The primary reason for this adjustment is that:

Accepted Answer

A)  Periodic LIFO often results in a higher valuation of inventory, thus reducing taxable income. 
B)  This adjustment is necessary to record shrinkage losses. 
C)  Periodic LIFO often results in a lower valuation of inventory, thus reducing taxable income. 
D)  Periodic and perpetual costing procedures produce the same results if the year-end inventory has been counted properly. No adjustment would be needed. 
A)  Periodic LIFO often results in a higher valuation of inventory, thus reducing taxable income. 
B)  This adjustment is necessary to record shrinkage losses. 
C)  Periodic LIFO often results in a lower valuation of inventory, thus reducing taxable income. 
D)  Periodic and perpetual costing procedures produce the same results if the year-end inventory has been counted properly. No adjustment would be needed.

Question 15

The primary purpose for using an inventory flow assumption is to:

Accepted Answer

A)  Parallel the physical flow of units of merchandise. 
B)  Offset against revenue an appropriate cost of goods sold. 
C)  Minimize income taxes. 
D)  Maximize the reported amount of net income. 
A)  Parallel the physical flow of units of merchandise. 
B)  Offset against revenue an appropriate cost of goods sold. 
C)  Minimize income taxes. 
D)  Maximize the reported amount of net income.

Question 16

In July 2011, the accountant for LBJ Imports is in the process of preparing financial statements for the quarter ended June 30, 2011. The physical inventory, however, was last taken on June 5 and the accountant must establish the approximate cost at June 30 from the following data: The gross profit on sales has consistently averaged 40% of sales. Using the gross profit method, compute the approximate inventory cost at June 30, 2011.

Accepted Answer

A)  $420,000. 
B)  $880,000. 
C)  $480,000. 
D)  $1,360,000. 
A)  $420,000. 
B)  $880,000. 
C)  $480,000. 
D)  $1,360,000.

Question 17

Harding Systems, Inc. uses a periodic inventory system. The purchases of a particular product during the year are shown below:
At December 31 the ending inventory consisted of 1,500 units.
 $$\begin{array} { l l l r } 
\text { Jan.1 } & \text { Beginning inventory } & 1,100 \text { units @ } \$ 7.25 & \$ 7,975 \
\text { Feb. 7 } & \text { Purchase } & 1,450 \text { units } @ \$ 7.50 & 10,875 \
\text { July 10 } & \text { Purchase } & 1,600 \text { units } @ \$ 8.00 & 12,800 \
\text { Nov. 25 } & \text { Purchase } & \underline { 1,000 } \text { units } @ \$ 8.50 &  \underline {  8,500 }  \
& \text { Total } & \underline {  \underline { 5,150}}& \underline { \underline { 40,150 } }
\end{array}$$
-Compute the cost of the ending inventory based on the FIFO method of inventory valuation.

Accepted Answer

A)  $12,500. 
B)  $29,175. 
C)  $10,975. 
D)  $27,650. 
A)  $12,500. 
B)  $29,175. 
C)  $10,975. 
D)  $27,650.

Question 18

Inventory:

Accepted Answer

A)  Consists of all goods owned and held for sale to customers. 
B)  Is a non-financial asset. 
C)  Both consists of all goods owned and held for sale to customers and is a non-financial asset. 
D)  Both consists of all goods owned and held for sale to customers and is a financial asset. 
A)  Consists of all goods owned and held for sale to customers. 
B)  Is a non-financial asset. 
C)  Both consists of all goods owned and held for sale to customers and is a non-financial asset. 
D)  Both consists of all goods owned and held for sale to customers and is a financial asset.

Question 19

In a periodic inventory system, the cost of goods sold is determined by:

Accepted Answer

A)  Multiplying net sales for the period by a cost ratio. 
B)  Journal entries made at the time of each sales transaction. 
C)  Physically counting the quantities of merchandise sold each day, and determining the cost of these items at year-end. 
D)  Subtracting the cost assigned to the ending inventory from the cost of goods available for sale during the period. 
A)  Multiplying net sales for the period by a cost ratio. 
B)  Journal entries made at the time of each sales transaction. 
C)  Physically counting the quantities of merchandise sold each day, and determining the cost of these items at year-end. 
D)  Subtracting the cost assigned to the ending inventory from the cost of goods available for sale during the period.

Question 20

If the beginning inventory of the current year and the ending inventory of the past year were overstated by the same amount:

Accepted Answer

A)  Retained earnings at the end of the current year would be correct. 
B)  Retained earnings at the end of the current year would be overstated. 
C)  Retained earnings at the end of the current year would be understated. 
D)  Net income for the current year would be correct. 
A)  Retained earnings at the end of the current year would be correct. 
B)  Retained earnings at the end of the current year would be overstated. 
C)  Retained earnings at the end of the current year would be understated. 
D)  Net income for the current year would be correct.

The primary reason for the popularity of the LIFO flow assumption is that this method:

In a periodic inventory system, the cost of goods sold is determined as follows:

Which of the following will cause net income to be overstated for the following year?

During a period of steadily falling prices, which of the following methods of measuring the cost of goods sold is likely to result in reporting the highest gross profit?

Which of the following types of businesses would you expect to have the highest inventory turnover?

In a periodic inventory system, recording a sale on account involves debiting which of the following accounts?

The lower-of-cost-or-market rule:

An advantage to the LIFO method of accounting for inventory is that it values the cost of goods sold at current replacement costs.

Any business that sells numerous units of identical products may determine its cost of goods sold using a flow assumption, rather than the specific identification method.

An advocate of just-in-time inventory system would say:

The lower of cost or market rule may be applied by comparing the market value of the inventory to the cost of the inventory based on:

Some companies that use a perpetual inventory system and the LIFO flow assumption restate their inventories at year-end to the amount indicated by periodic LIFO costing procedures. The primary reason for this adjustment is that:

The primary purpose for using an inventory flow assumption is to:

Inventory:

In a periodic inventory system, the cost of goods sold is determined by:

If the beginning inventory of the current year and the ending inventory of the past year were overstated by the same amount:

Accounting: Information for Decision Making

Basic Financial Statements

The Accounting Cycle: Capturing Economic Events

The Accounting Cycle: Accruals and Deferrals

The Accounting Cycle: Reporting Financial Results

Merchandising Activities

Financial Assets

Plant and Intangible Assets

Liabilities

Stockholders Equity: Paid-In Capital

Income and Changes in Retained Earnings

Statement of Cash Flows

Financial Statement Analysis

Global Business and Accounting

The Time Value of Money

Filters

Exam 8: Inventories and the Cost of Goods Sold

The primary reason for the popularity of the LIFO flow assumption is that this method:

In a periodic inventory system, the cost of goods sold is determined as follows:

Which of the following will cause net income to be overstated for the following year?

During a period of steadily falling prices, which of the following methods of measuring the cost of goods sold is likely to result in reporting the highest gross profit?

Which of the following types of businesses would you expect to have the highest inventory turnover?

In a periodic inventory system, recording a sale on account involves debiting which of the following accounts?

The lower-of-cost-or-market rule:

An advantage to the LIFO method of accounting for inventory is that it values the cost of goods sold at current replacement costs.

Any business that sells numerous units of identical products may determine its cost of goods sold using a flow assumption, rather than the specific identification method.

An advocate of just-in-time inventory system would say:

The lower of cost or market rule may be applied by comparing the market value of the inventory to the cost of the inventory based on:

Some companies that use a perpetual inventory system and the LIFO flow assumption restate their inventories at year-end to the amount indicated by periodic LIFO costing procedures. The primary reason for this adjustment is that:

The primary purpose for using an inventory flow assumption is to:

Inventory:

In a periodic inventory system, the cost of goods sold is determined by:

If the beginning inventory of the current year and the ending inventory of the past year were overstated by the same amount:

Accounting: Information for Decision Making

Basic Financial Statements

The Accounting Cycle: Capturing Economic Events

The Accounting Cycle: Accruals and Deferrals

The Accounting Cycle: Reporting Financial Results

Merchandising Activities

Financial Assets

Plant and Intangible Assets

Liabilities

Stockholders Equity: Paid-In Capital

Income and Changes in Retained Earnings

Statement of Cash Flows

Financial Statement Analysis

Global Business and Accounting

The Time Value of Money

Filters