Question 1

If inventories are valued using the LIFO cost flow assumption, they should not be classified as a current asset on the balance sheet.

Accepted Answer

A) True 
 B)False

Question 2

Priscilla has the following inventory information.  A physical count of merchandise inventory on July 31 reveals that there are 35 units on hand. Using the LIFO inventory method, the amount allocated to cost of goods sold for July is

Accepted Answer

A) $1,280. 
B) $1,287. 
C) $1,306. 
D) $1,330.

Question 3

Which of the following should be included in the physical inventory of a company?

Accepted Answer

A) Goods held on consignment from another company. 
B) Goods in transit to another company shipped FOB shipping point. 
C) Goods in transit from another company shipped FOB shipping point. 
D) Goods in transit to or from another company shipped FOB shipping point.

Question 4

Nick's Place recorded the following data:  The weighted average unit cost of the inventory at January 31 is:

Accepted Answer

A) $2.50. 
B) $2.75. 
C) $2.81. 
D) $3.400.

Question 5

Selection of an inventory costing method by management does not usually depend on

Accepted Answer

A) the fiscal year end. 
B) income statement effects. 
C) balance sheet effects. 
D) tax effects.

Question 6

Moroni Industries has the following inventory information.  Assuming that a periodic inventory system is used, what is the amount allocated to ending inventory on a LIFO basis?

Accepted Answer

A) $11,500 
B) $11,520 
C) $33,960 
D) $33,980

Question 7

The cost of goods available for sale is allocated to the cost of goods sold and the

Accepted Answer

A) beginning inventory. 
B) ending inventory. 
C) cost of goods purchased. 
D) gross profit.

Question 8

Alfalfa Company developed the following information about its inventories in applying the lower-of-cost-or-market (LCM) basis in valuing inventories:  If Alfalfa applies the LCM basis, the value of the inventory reported on the balance sheet would be

Accepted Answer

A) $343,000. 
B) $347,000. 
C) $358,000. 
D) $362,000.

Question 9

Which costing method cannot be used to determine the cost of inventory items before lower-of-cost-or-market is applied?

Accepted Answer

A) Specific identification 
B) FIFO 
C) LIFO 
D) All of these methods can be used.

Question 10

Under the LCM approach, the market value is defined as

Accepted Answer

A) FIFO cost. 
B) LIFO cost. 
C) current replacement cost. 
D) selling price.

Question 11

Understating beginning inventory will understate

Accepted Answer

A) assets. 
B) cost of goods sold. 
C) net income. 
D) stockholder's equity.

Question 12

A company just starting business made the following four inventory purchases in June:  A physical count of merchandise inventory on June 30 reveals that there are 250 units on hand. Using the average-cost method, the amount allocated to the ending inventory on June 30 is

Accepted Answer

A) $683. 
B) $755. 
C) $825. 
D) $1,360.

Question 13

In a period of increasing prices, which inventory flow assumption will result in the lowest amount of income tax expense?

Accepted Answer

A) FIFO 
B) LIFO 
C) Average Cost 
D) Income tax expense for the period will be the same under all assumptions.

Question 14

Inventories are estimated

Accepted Answer

A) more frequently under a periodic inventory system than a perpetual inventory system. 
B) using the wholesale inventory method. 
C) more frequently under a perpetual inventory system than the periodic inventory system. 
D) using the net method.

Question 15

Inventory is reported in the financial statements at

Accepted Answer

A) cost. 
B) market. 
C) the higher-of-cost-or-market. 
D) the lower-of-cost-or-market.

Question 16

LIFO can be used

Accepted Answer

A) under neither GAAP nor IFRS. 
B) under IFRS but not GAAP. 
C) under GAAP but not IFRS. 
D) under both GAAP and IFRS.

Question 17

In a manufacturing business, inventory that is ready for sale is called

Accepted Answer

A) raw materials inventory. 
B) work in process inventory. 
C) finished goods inventory. 
D) store supplies inventory.

Question 18

The cost flow method that often parallels the actual physical flow of merchandise is the

Accepted Answer

A) FIFO method. 
B) LIFO method. 
C) average-cost method. 
D) gross profit method.

Question 19

If companies have identical inventoriable costs but use different inventory flow assumptions when the price of goods have not been constant, then the

Accepted Answer

A) cost of goods sold of the companies will be identical. 
B) cost of goods available for sale of the companies will be identical. 
C) ending inventory of the companies will be identical. 
D) net income of the companies will be identical.

Question 20

The LIFO inventory method assumes that the cost of the latest units purchased are

Accepted Answer

A) the last to be allocated to cost of goods sold. 
B) the first to be allocated to ending inventory. 
C) the first to be allocated to cost of goods sold. 
D) not allocated to cost of goods sold or ending inventory.

Exam 6: Inventories