Question 1

When prices are increasing,which inventory method will produce the highest cost of goods sold?

Accepted Answer

A) FIFO. 
B) LIFO. 
C) Average cost. 
D) Cost of goods sold will not change. 
A) FIFO. 
B) LIFO. 
C) Average cost. 
D) Cost of goods sold will not change. B

Question 2

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

Accepted Answer

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

Question 3

A company with a liquid inventory will have:

Accepted Answer

A) A high inventory turnover and a high average number of days to sell inventory. 
B) A high inventory turnover and a low average number of days to sell inventory. 
C) A low inventory turnover and a high average number of days to sell inventory. 
D) A low inventory turnover and a low average number of days to sell inventory. 
A) A high inventory turnover and a high average number of days to sell inventory. 
B) A high inventory turnover and a low average number of days to sell inventory. 
C) A low inventory turnover and a high average number of days to sell inventory. 
D) A low inventory turnover and a low average number of days to sell inventory. B

Question 4

The principle of consistency states that:

Accepted Answer

A) Companies are prohibited from ever changing their accounting methods. 
B) Every company in the same industry must use the same accounting principle. 
C) There must be a consistent blend to the accounting principles. 
D) If changes in accounting principles are made,the reasons for the change and the effects on the company's net income must be disclosed. 
A) Companies are prohibited from ever changing their accounting methods. 
B) Every company in the same industry must use the same accounting principle. 
C) There must be a consistent blend to the accounting principles. 
D) If changes in accounting principles are made,the reasons for the change and the effects on the company's net income must be disclosed.

Question 5

Inventory flow assumptions
Flat TV uses a perpetual inventory system.Shown below are Flat TV's beginning inventory of a particular product and purchases during January:   On January 23 (prior to the purchase on January 25),Flat TV sold 13 units of this product.
Determine the cost of goods sold relating to the sale on January 23 under each of the following flow assumptions.(Show your computations.)

Accepted Answer

The answer of Inventory flow assumptions
Flat TV uses a perpetual...

Question 6

Companies with periodic inventory systems often use techniques such as the gross profit method and the retail method to:

Accepted Answer

A) Prepare interim financial statements without taking a complete physical inventory. 
B) Increase gross profit. 
C) Value inventory at its sales price instead of its cost. 
D) Reduce taxable income during a period of rising prices. 
A) Prepare interim financial statements without taking a complete physical inventory. 
B) Increase gross profit. 
C) Value inventory at its sales price instead of its cost. 
D) Reduce taxable income during a period of rising prices.

Question 7

Overstating the ending inventory will result in understating the cost of goods sold and overstating profits.

Accepted Answer

A) True 
 B)False

Question 8

In which of these inventory approaches is it important to determine the actual cost of a particular inventory item being sold in order to determine cost of goods sold?

Accepted Answer

A) LIFO. 
B) FIFO. 
C) Specific identification. 
D) Weighted average cost. 
A) LIFO. 
B) FIFO. 
C) Specific identification. 
D) Weighted average cost.

Question 9

If the terms of a sale are
F.O.B.shipping point,the sale should not be recorded until the goods are delivered to the buyer.

Accepted Answer

A) True 
 B)False

Question 10

The retail inventory method requires a company to state inventory on the year-end balance sheet at its retail value.

Accepted Answer

A) True 
 B)False

Question 11

A clothing store would logically have a higher inventory turnover rate than would a doughnut shop.

Accepted Answer

A) True 
 B)False

Question 12

Green Leaf Company had the following information available on December 31:   Management applies the LCM rule on the basis of individual inventory items.What is the write-down required?

Accepted Answer

A) $864. 
B) $556. 
C) $576. 
D) $710. 
A) $864. 
B) $556. 
C) $576. 
D) $710.

Question 13

The specific identification method is more appropriate than a cost flow assumption method:

Accepted Answer

A) For a large inventory of identical low-priced items. 
B) If each item in the inventory is unique. 
C) If purchase costs are rising. 
D) If purchase costs are falling. 
A) For a large inventory of identical low-priced items. 
B) If each item in the inventory is unique. 
C) If purchase costs are rising. 
D) If purchase costs are falling.

Question 14

During periods of inflation,when comparing LIFO with FIFO:

Accepted Answer

A) LIFO inventory and cost of sales would be higher. 
B) LIFO inventory and cost of sales would be lower. 
C) LIFO inventory would be lower and cost of sales would be higher. 
D) LIFO inventory would be higher and cost of sales would be lower. 
A) LIFO inventory and cost of sales would be higher. 
B) LIFO inventory and cost of sales would be lower. 
C) LIFO inventory would be lower and cost of sales would be higher. 
D) LIFO inventory would be higher and cost of sales would be lower.

Question 15

Green Leaf Company had the following information available on December 31:   Management applies the LCM rule on the basis of the total inventory.What is the write-down required?

Accepted Answer

A) $864. 
B) $556. 
C) $576. 
D) $710. 
A) $864. 
B) $556. 
C) $576. 
D) $710.

Question 16

Periodic inventory systems
Funky Fashions uses a periodic inventory system.The beginning inventory of a particular product,and the purchases during the current year,were as follows:   At December 31,the ending inventory of this product consisted of 1,300 units.
Determine the cost of the year-end inventory and the cost of goods sold for this product under each of the following methods of inventory valuation:

Accepted Answer

The answer of Periodic inventory systems
Funky Fashions uses a periodic...

Question 17

The gross profit method can be used for both interim and year-end financial reporting.

Accepted Answer

A) True 
 B)False

Question 18

The inventory turnover rate is equal to the average inventory divided by the cost of goods sold.

Accepted Answer

A) True 
 B)False

Question 19

If all things are equal,except one company uses LIFO during inflation and the other uses FIFO,then:

Accepted Answer

A) The LIFO company will have a higher inventory turnover. 
B) The FIFO company will have a higher inventory turnover. 
C) The two companies will have the same inventory turnover. 
D) Inventory valuation methods do not effect inventory turnover calculations. 
A) The LIFO company will have a higher inventory turnover. 
B) The FIFO company will have a higher inventory turnover. 
C) The two companies will have the same inventory turnover. 
D) Inventory valuation methods do not effect inventory turnover calculations.

Question 20

Lower-of-cost-or-market
Elite Systems sells a single product.At December 31,the company's perpetual inventory records indicate 2,500 units on hand with a total cost (FIFO basis)of $155,000.The replacement cost of this product at this date is $35 per unit.
Prepare journal entries to record (a)the write-down of the inventory to the lower-of-cost-or-market value at December 31,and (b)the cash sale of 100 units on January 4 at a retail price of $50 per unit.   (a)Dec.31
(b)Jan.4

Accepted Answer

The answer of Lower-of-cost-or-market
Elite Systems sells a single product.At December...

Exam 8: Inventories and the Cost of Goods Sold

When prices are increasing,which inventory method will produce the highest cost of goods sold?

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

A company with a liquid inventory will have:

The principle of consistency states that:

Companies with periodic inventory systems often use techniques such as the gross profit method and the retail method to:

Overstating the ending inventory will result in understating the cost of goods sold and overstating profits.

In which of these inventory approaches is it important to determine the actual cost of a particular inventory item being sold in order to determine cost of goods sold?

If the terms of a sale are F.O.B.shipping point,the sale should not be recorded until the goods are delivered to the buyer.

The retail inventory method requires a company to state inventory on the year-end balance sheet at its retail value.

A clothing store would logically have a higher inventory turnover rate than would a doughnut shop.

Green Leaf Company had the following information available on December 31: Management applies the LCM rule on the basis of individual inventory items.What is the write-down required?

The specific identification method is more appropriate than a cost flow assumption method:

During periods of inflation,when comparing LIFO with FIFO:

Green Leaf Company had the following information available on December 31: Management applies the LCM rule on the basis of the total inventory.What is the write-down required?

The gross profit method can be used for both interim and year-end financial reporting.

The inventory turnover rate is equal to the average inventory divided by the cost of goods sold.

If all things are equal,except one company uses LIFO during inflation and the other uses FIFO,then:

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

Management Accounting: a Business Partner

Job Order Cost Systems and Overhead Allocations

Process Costing

Costing and the Value Chain

Cost-Volume-Profit Analysis

Incremental Analysis

Responsibility Accounting and Transfer Pricing

Operational Budgeting

Standard Cost Systems

Rewarding Business Performance

Capital Budgeting

Forms of Business Organization

The Time Value of Money: Future Amounts and Present Values

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