Question 1

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

Question 2

Which of the four inventory cost flow assumptions is best suited to inventories of high-priced, low-volume items?

Accepted Answer

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

Question 3

If an error in valuing inventory occurs in one year:

Accepted Answer

A)   It has no effect upon income in the following year.
B)   It has no effect upon the income statement, only on the balance sheet.
C)   It is self-correcting after two years.
D)   Retained earnings will be adversely affected until corrected.

Question 4

When goods for sale are not homogeneous in nature, it is not necessary to use the specific identification method of accounting for inventory.

Accepted Answer

A) True 
 B)False

Question 5

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.

Question 6

Salerno Co. has an inventory turnover rate of 7 and an accounts receivable turnover rate of 5. Assuming 365 days in a year, the period of time required for Salerno to convert its inventory into cash through normal business operations is approximately:

Accepted Answer

A)   21 days.
B)   52 days.
C)   4 months.
D)   2.5 months.

Question 7

The total amount debited to the Inventory account during January was:

Accepted Answer

A)   $0.
B)   $84,000.
C)   $102,000.
D)   $140,000.

Question 8

Carl Equipment's inventory turnover rate is:

Accepted Answer

A)   6.7 times.
B)   10 times.
C)   12 times.
D)   1.2 times.

Question 9

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.

Question 10

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.

Question 11

Sherman Electric 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 65 units.
Using periodic costing procedures, determine (1) cost of the year-end inventory and, (2) cost of goods sold relating to this product under each of the following flow assumptions:

Accepted Answer

The answer of Sherman Electric uses a periodic inventory system....

Question 12

Assume that the replacement cost of this monitor at year-end is $210 per unit. Using LIFO flow assumption and the lower-of-cost-or-market rule, the ending inventory amounts to:

Accepted Answer

A)   $46,000.
B)   $42,000.
C)   $37,000.
D)   $83,000.

Question 13

In a perpetual inventory system, the flow of inventory cost is first through the balance sheet then through the income statement.

Accepted Answer

A) True 
 B)False

Question 14

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.

Question 15

Just-in-time inventory systems cannot be used in conjunction with LIFO.

Accepted Answer

A) True 
 B)False

Question 16

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.

Question 17

A store that sells expensive custom-made jewelry is most likely to determine its cost of goods sold using:

Accepted Answer

A)   Specific identification.
B)   Average cost.
C)   First-in, first-out.
D)   Last-in, last-out.

Question 18

Many companies state in their annual reports that inventory is shown at the lower of its cost or market value. This means that the inventory:

Accepted Answer

A)   Is obsolete.
B)   Has been written down to a carrying value below cost.
C)   Is shown at the lesser of cost or sales value.
D)   Is valued at current replacement cost or historical cost, whichever is less.

Question 19

Trent Department Store uses a perpetual inventory system but adjusts its inventory records at year-end to reflect the results of a complete physical inventory. In the physical inventory taken at the ends of 2010 and 2011, Trent's employees failed to count the merchandise in the store's window display. The cost of this merchandise amounted to $13,000 at the end of 2010, and $19,000 at the end of 2011. As a result of these errors, the cost of goods sold for 2005 will be:

Accepted Answer

A)   Understated by $19,000.
B)   Overstated by $6,000.
C)   Understated by $6,000.
D)   None of the above.

Question 20

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

Accepted Answer

A) True 
 B)False

Exam 8: Inventories and the Cost of Goods Sold

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

Correct Answer
verified

Correct Answer
verified

Salerno Co. has an inventory turnover rate of 7 and an accounts receivable turnover rate of 5. Assuming 365 days in a year, the period of time required for Salerno to convert its inventory into cash through normal business operations is approximately:

Correct Answer
verified

If an error in valuing inventory occurs in one year:

Correct Answer
verified

Assume that the replacement cost of this monitor at year-end is $210 per unit. Using LIFO flow assumption and the lower-of-cost-or-market rule, the ending inventory amounts to:

Correct Answer
verified

A store that sells expensive custom-made jewelry is most likely to determine its cost of goods sold using:

Correct Answer
verified

Just-in-time inventory systems cannot be used in conjunction with LIFO.

Correct Answer
verified

Gross profit rate is equal to.

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

The total amount debited to the Inventory account during January was:

Correct Answer
verified

Which of the four inventory cost flow assumptions is best suited to inventories of high-priced, low-volume items?

Correct Answer
verified

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

Correct Answer
verified

Carl Equipment's inventory turnover rate is:

Correct Answer
verified

Many companies state in their annual reports that inventory is shown at the lower of its cost or market value. This means that the inventory:

Correct Answer
verified

When goods for sale are not homogeneous in nature, it is not necessary to use the specific identification method of accounting for inventory.

Correct Answer
verified

In a perpetual inventory system, the flow of inventory cost is first through the balance sheet then through the income statement.

Correct Answer
verified

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

Correct Answer
verified

Exam 8: Inventories and the Cost of Goods Sold

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Salerno Co. has an inventory turnover rate of 7 and an accounts receivable turnover rate of 5. Assuming 365 days in a year, the period of time required for Salerno to convert its inventory into cash through normal business operations is approximately:

Correct AnswerverifiedShow Answer

If an error in valuing inventory occurs in one year:

Correct AnswerverifiedShow Answer

Assume that the replacement cost of this monitor at year-end is $210 per unit. Using LIFO flow assumption and the lower-of-cost-or-market rule, the ending inventory amounts to:

Correct AnswerverifiedShow Answer

A store that sells expensive custom-made jewelry is most likely to determine its cost of goods sold using:

Correct AnswerverifiedShow Answer

Just-in-time inventory systems cannot be used in conjunction with LIFO.

Correct AnswerverifiedShow Answer

Gross profit rate is equal to.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The total amount debited to the Inventory account during January was:

Correct AnswerverifiedShow Answer

Which of the four inventory cost flow assumptions is best suited to inventories of high-priced, low-volume items?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Carl Equipment's inventory turnover rate is:

Correct AnswerverifiedShow Answer

Many companies state in their annual reports that inventory is shown at the lower of its cost or market value. This means that the inventory:

Correct AnswerverifiedShow Answer

When goods for sale are not homogeneous in nature, it is not necessary to use the specific identification method of accounting for inventory.

Correct AnswerverifiedShow Answer

In a perpetual inventory system, the flow of inventory cost is first through the balance sheet then through the income statement.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified