Question 1

The inventory valuation method that identifies each item in ending inventory with a specific purchase and invoice is the:

Accepted Answer

A) Weighted average inventory method. 
B) First-in, first-out method. 
C) Last-in, first-out method. 
D) Specific identification method. 
E) Retail inventory method.

Question 2

An understatement of ending inventory will cause an understatement of assets and equity on the balance sheet.

Accepted Answer

A) True 
 B)False

Question 3

Days' sales in inventory is calculated as:

Accepted Answer

A) Ending inventory divided by cost of goods sold. 
B) Cost of goods sold divided by ending inventory. 
C) Ending inventory divided by cost of goods sold times 365. 
D) Cost of goods sold divided by ending inventory times 365. 
E) Ending inventory times cost of goods sold.

Question 4

Goods in transit are automatically included in inventory regardless of whether title has passed to the buyer.

Accepted Answer

A) True 
 B)False

Question 5

If obsolete or damaged goods can be sold, they will be included in inventory at their original cost.

Accepted Answer

A) True 
 B)False

Question 6

The retail inventory method estimates the cost of ending inventory by applying the gross profit ratio to net sales.

Accepted Answer

A) True 
 B)False

Question 7

Bedrock Company reported a December 31 ending inventory balance of $412,000. The following additional information is also available: • The ending inventory balance of $412,000 included $72,000 of consigned inventory for which Bedrock was the consignor.
• The ending inventory balance of $412,000 included $22,000 of office supplies that were stored in the warehouse and were to be used by the company's supervisors and managers during the coming year.
Based on this information, the correct balance for ending inventory on December 31 is:

Accepted Answer

A) $412,000 
B) $340,000 
C) $318,000 
D) $362,000 
E) $390,000

Question 8

Explain the effects of inventory valuation methods on the cost of ending inventory, income, and income taxes.

Accepted Answer

The answer of Explain the effects of inventory valuation methods...

Question 9

Which of the following prescribes the use of the less optimistic amount when more than one estimate of an amount to be received or paid exists and the estimates are about equally likely?

Accepted Answer

A) Full disclosure principle. 
B) Consistency concept. 
C) FIFO inventory valuation method. 
D) Conservatism constraint. 
E) Matching principle.

Question 10

The inventory valuation method that tends to smooth out erratic changes in costs is:

Accepted Answer

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

Question 11

It can be expected that companies selling perishable goods have a higher inventory turnover than companies selling nonperishable goods.

Accepted Answer

A) True 
 B)False

Question 12

Explain why the lower of cost or market rule is used to value inventory.

Accepted Answer

The answer of Explain why the lower of cost or...

Question 13

What is the effect of an error in the ending inventory balance on the accounts reported in the income statement?

Accepted Answer

The answer of What is the effect of an error...

Question 14

When units are purchased at different costs over time, determining the cost per unit assigned to inventory items is simple.

Accepted Answer

A) True 
 B)False

Question 15

The costs of goods purchased will vary under the different inventory methods of specific identification, FIFO, LIFO, and weighted average.

Accepted Answer

A) True 
 B)False

Exam 5: Inventories and Cost of Sales

The inventory valuation method that identifies each item in ending inventory with a specific purchase and invoice is the:

An understatement of ending inventory will cause an understatement of assets and equity on the balance sheet.

Days' sales in inventory is calculated as:

Goods in transit are automatically included in inventory regardless of whether title has passed to the buyer.

If obsolete or damaged goods can be sold, they will be included in inventory at their original cost.

The retail inventory method estimates the cost of ending inventory by applying the gross profit ratio to net sales.

Explain the effects of inventory valuation methods on the cost of ending inventory, income, and income taxes.

Which of the following prescribes the use of the less optimistic amount when more than one estimate of an amount to be received or paid exists and the estimates are about equally likely?

The inventory valuation method that tends to smooth out erratic changes in costs is:

It can be expected that companies selling perishable goods have a higher inventory turnover than companies selling nonperishable goods.

Explain why the lower of cost or market rule is used to value inventory.

What is the effect of an error in the ending inventory balance on the accounts reported in the income statement?

When units are purchased at different costs over time, determining the cost per unit assigned to inventory items is simple.

The costs of goods purchased will vary under the different inventory methods of specific identification, FIFO, LIFO, and weighted average.