Question 1

The logic behind the lower-of-cost-or-market rule is:

Accepted Answer

A) Inventory gradually becomes obsolete. 
B) Inventory that is unsalable should be written down to zero (or its scrap value). 
C) An asset is not worth more than it would cost the owner to replace it. 
D) Inventory that is unsalable should be written down to its replacement cost. 
A) Inventory gradually becomes obsolete. 
B) Inventory that is unsalable should be written down to zero (or its scrap value). 
C) An asset is not worth more than it would cost the owner to replace it. 
D) Inventory that is unsalable should be written down to its replacement cost.

Question 2

[The following information applies to the questions displayed below.]
During the current year,Carlin Equipment Stores had net sales of $500 million,a cost of goods sold of $400 million,average accounts receivable of $60 million,and average inventory of $50 million.
-Carlin Equipment 's inventory turnover rate is:

Accepted Answer

A) 6.7 times. 
B) 8 times. 
C) 10 times. 
D) 1.25 times. 
A) 6.7 times. 
B) 8 times. 
C) 10 times. 
D) 1.25 times.

Question 3

Which of the following statements is not a characteristic of the LIFO method of pricing inventory?

Accepted Answer

A) During a period of rising prices,LIFO tends to minimize the amounts of income taxes owed. 
B) The cost of goods sold is measured in relatively current costs. 
C) Inventory is valued at relatively current costs. 
D) During a period of falling prices,LIFO tends to maximize the amounts of income taxes owed. 
A) During a period of rising prices,LIFO tends to minimize the amounts of income taxes owed. 
B) The cost of goods sold is measured in relatively current costs. 
C) Inventory is valued at relatively current costs. 
D) During a period of falling prices,LIFO tends to maximize the amounts of income taxes owed.

Question 4

[The following information applies to the questions displayed below.]
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 5

The Valley Garden Company had the following transactions:
   (A)Prepare journal entries for Valley Garden assuming the company uses a perpetual inventory.
(B)Prepare journal entries for Valley Garden assuming the company uses a periodic inventory.

Accepted Answer

The answer of The Valley Garden Company had the following...

Question 6

In order to obtain the maximum tax benefit,companies that use a perpetual inventory system can restate their year-end inventory at costs indicated by periodic LIFO costing procedures.

Accepted Answer

A) True 
 B)False

Question 7

The gross profit method of valuing inventory:

Accepted Answer

A) Is the most accurate of the commonly used methods. 
B) Is a satisfactory substitute for taking a physical inventory for annual financial statements. 
C) Assumes that the gross profit rate will remain the same for the current year as it has in the past year or so. 
D) Is not an acceptable method under GAAP. 
A) Is the most accurate of the commonly used methods. 
B) Is a satisfactory substitute for taking a physical inventory for annual financial statements. 
C) Assumes that the gross profit rate will remain the same for the current year as it has in the past year or so. 
D) Is not an acceptable method under GAAP.

Question 8

If the ending inventory is overstated in the current year:

Accepted Answer

A) Net income will be understated in the current year. 
B) Next year's beginning inventory will also be overstated. 
C) Next year's net income will be overstated. 
D) Next year's beginning inventory will be understated. 
A) Net income will be understated in the current year. 
B) Next year's beginning inventory will also be overstated. 
C) Next year's net income will be overstated. 
D) Next year's beginning inventory will be understated.

Question 9

Because of the consistency principle,inventory should never be written down below cost.

Accepted Answer

A) True 
 B)False

Question 10

Inventory flow assumptions
Arrow,Inc.uses a perpetual inventory system.On January 22,2018,the company had 200 units of a particular product on hand,with a total cost of $2,400.The per-unit costs were:
   On January 24,2018,Arrow sold 65 units of this product.
Using the three flow assumptions listed below,compute (1)the cost of goods sold,and (2)the cost of the inventory of this product on hand after this sale.Show your computations as per below format.

Accepted Answer

The answer of Inventory flow assumptions
Arrow,Inc.uses a perpetual inventory system.On...

Question 11

The primary advantage of a just-in-time inventory system is:

Accepted Answer

A) The amount of money tied up in inventory is minimized. 
B) Customers are afforded a wider selection of merchandise available for immediate delivery. 
C) The company is able to use the specific identification method of inventory pricing. 
D) The risks of losing sales opportunities or of having to shut down manufacturing operations because of inventory shortages are minimized. 
A) The amount of money tied up in inventory is minimized. 
B) Customers are afforded a wider selection of merchandise available for immediate delivery. 
C) The company is able to use the specific identification method of inventory pricing. 
D) The risks of losing sales opportunities or of having to shut down manufacturing operations because of inventory shortages are minimized.

Question 12

Just-in-time inventory systems cannot be used in conjunction with the LIFO cost flow assumption.

Accepted Answer

A) True 
 B)False

Question 13

Gross profit rate is equal to:

Accepted Answer

A) Net sales divided by gross profit. 
B) Gross sales divided by gross profit. 
C) Gross profit divided by net sales. 
D) Gross profit divided by gross sales. 
A) Net sales divided by gross profit. 
B) Gross sales divided by gross profit. 
C) Gross profit divided by net sales. 
D) Gross profit divided by gross sales.

Question 14

During periods of inflation,which method will yield the smallest ending inventory and the largest cost of goods sold?

Accepted Answer

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

Question 15

As a result of taking an annual physical inventory,it usually is necessary in a perpetual inventory system to make an entry:

Accepted Answer

A) Reducing assets and increasing the cost of goods sold. 
B) Reducing assets and increasing liabilities. 
C) Reducing the cost of goods sold. 
D) Increasing assets and increasing the cost of goods sold. 
A) Reducing assets and increasing the cost of goods sold. 
B) Reducing assets and increasing liabilities. 
C) Reducing the cost of goods sold. 
D) Increasing assets and increasing the cost of goods sold.

Question 16

[The following information applies to the questions displayed below.]
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.
-Assuming that Beech Soda uses the FIFO cost flow assumption,the 28 units of this product in inventory at January 31 have a total cost of:

Accepted Answer

A) $400. 
B) $395. 
C) $405. 
D) $410. 
A) $400. 
B) $395. 
C) $405. 
D) $410.

Question 17

Assuming a 365-day year,the average number of days required for Carlin Equipment to sell its inventory is: (Round your final answer to one decimal place)

Accepted Answer

A) 36.5 days. 
B) 45.6 days. 
C) 54.4 days. 
D) 292.0 days. 
A) 36.5 days. 
B) 45.6 days. 
C) 54.4 days. 
D) 292.0 days.

Question 18

If the inventory at the end of the current year is understated and the error is never caught,the effect is to:

Accepted Answer

A) Understate income this year and overstate income next year. 
B) Overstate income this year and understate income next year. 
C) Understate income this year with no effect on income next year. 
D) Overstate the cost of goods sold,but have no effect on net income. 
A) Understate income this year and overstate income next year. 
B) Overstate income this year and understate income next year. 
C) Understate income this year with no effect on income next year. 
D) Overstate the cost of goods sold,but have no effect on net income.

Question 19

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

Accepted Answer

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

Question 20

In a periodic inventory system,overstating the amount of ending inventory will cause an understatement of gross profit in the following year.

Accepted Answer

A) True 
 B)False

Exam 8: Inventories and the Cost of Goods Sold

The logic behind the lower-of-cost-or-market rule is:

Which of the following statements is not a characteristic of the LIFO method of pricing inventory?

[The following information applies to the questions displayed below.] 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 Valley Garden Company had the following transactions: (A)Prepare journal entries for Valley Garden assuming the company uses a perpetual inventory. (B)Prepare journal entries for Valley Garden assuming the company uses a periodic inventory.

In order to obtain the maximum tax benefit,companies that use a perpetual inventory system can restate their year-end inventory at costs indicated by periodic LIFO costing procedures.

The gross profit method of valuing inventory:

If the ending inventory is overstated in the current year:

Because of the consistency principle,inventory should never be written down below cost.

The primary advantage of a just-in-time inventory system is:

Just-in-time inventory systems cannot be used in conjunction with the LIFO cost flow assumption.

Gross profit rate is equal to:

During periods of inflation,which method will yield the smallest ending inventory and the largest cost of goods sold?

As a result of taking an annual physical inventory,it usually is necessary in a perpetual inventory system to make an entry:

Assuming a 365-day year,the average number of days required for Carlin Equipment to sell its inventory is: (Round your final answer to one decimal place)

If the inventory at the end of the current year is understated and the error is never caught,the effect is to:

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

In a periodic inventory system,overstating the amount of ending inventory will cause an understatement of gross profit in the following year.

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

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

the Time Value of Money: Future Amounts and Present Values

Forms of Business Organization

Filters