Question 1

Which of the following is an application of the conservatism concept?

Accepted Answer

A) reporting inventory at the lower of cost or market 
B) reporting only material amounts in the financial statements 
C) reporting all relevant information in the financial statements 
D) using the same depreciation method from period to period 
A) reporting inventory at the lower of cost or market 
B) reporting only material amounts in the financial statements 
C) reporting all relevant information in the financial statements 
D) using the same depreciation method from period to period

Question 2

Sandra Company had two hundred units of inventory on hand at the end of the year. These were recorded at a cost of $12 each using the last-in, first-out (LIFO)method. The current replacement cost is $10 per unit. The selling price charged by Sandra Company for each finished product is $15. As a result of recording the adjusting entry as per the lower-of-cost-or-market rule, the gross profit will:

Accepted Answer

A) increase by $2,000. 
B) decrease by $2,000. 
C) increase by $400. 
D) decrease by $400. 
A) increase by $2,000. 
B) decrease by $2,000. 
C) increase by $400. 
D) decrease by $400.

Question 3

Which of the following is the correct formula to calculate days' sales in inventory?

Accepted Answer

A) Days' sales in inventory = 365 days × Inventory turnover 
B) Days' sales in inventory = 365 days + Inventory turnover 
C) Days' sales in inventory = 365 days ÷ Inventory turnover 
D) Days' sales in inventory = 365 days - Inventory turnover 
A) Days' sales in inventory = 365 days × Inventory turnover 
B) Days' sales in inventory = 365 days + Inventory turnover 
C) Days' sales in inventory = 365 days ÷ Inventory turnover 
D) Days' sales in inventory = 365 days - Inventory turnover

Question 4

Which of the following methods of inventory valuation requires the calculation of a new average cost after each purchase?

Accepted Answer

A) Specific identification 
B) Weighted-average 
C) Last-in, first-out 
D) First-in, first-out 
A) Specific identification 
B) Weighted-average 
C) Last-in, first-out 
D) First-in, first-out

Question 5

When inventory costs are declining, which of the following inventory costing method will result in the lowest ending merchandise inventory?

Accepted Answer

A) First-in, first-out 
B) Last-in, first-out 
C) Weighted-average 
D) Specific identification 
A) First-in, first-out 
B) Last-in, first-out 
C) Weighted-average 
D) Specific identification

Question 6

Which of the following inventory costing methods uses the costs of the oldest purchases to calculate the value of the ending inventory?

Accepted Answer

A) Specific identification 
B) Weighted-average 
C) Last-in, first-out 
D) First-in, first-out 
A) Specific identification 
B) Weighted-average 
C) Last-in, first-out 
D) First-in, first-out

Question 7

Ending inventory is calculated by multiplying the number of units on hand with the unit cost.

Accepted Answer

A) True 
 B)False

Question 8

Under the retail method, the amount of ending merchandise inventory is estimated by using the ratio of the:

Accepted Answer

A) goods available for sale at retail to the goods available for sale at higher of cost or market. 
B) goods available for sale at cost to the beginning merchandise inventory. 
C) beginning merchandise inventory to the goods available for sale at retail. 
D) goods available for sale at cost to the goods available for sale at retail. 
A) goods available for sale at retail to the goods available for sale at higher of cost or market. 
B) goods available for sale at cost to the beginning merchandise inventory. 
C) beginning merchandise inventory to the goods available for sale at retail. 
D) goods available for sale at cost to the goods available for sale at retail.

Question 9

The specific identification method of inventory costing is recommended when a business deals in unique and high-priced inventory items.

Accepted Answer

A) True 
 B)False

Question 10

An overstatement of ending merchandise inventory in the current period results in an overstatement of cost of goods sold in the current period.

Accepted Answer

A) True 
 B)False

Question 11

A company decides to ignore a very small error in their inventory balance. This is an example of application of the:

Accepted Answer

A) accounting conservatism. 
B) materiality concept. 
C) disclosure principle. 
D) consistency principle. 
A) accounting conservatism. 
B) materiality concept. 
C) disclosure principle. 
D) consistency principle.

Question 12

If the merchandise inventory's market value is greater than its cost, then it must be adjusted for the difference in amount.

Accepted Answer

A) True 
 B)False

Question 13

James Company earned revenue of $500,000 and incurred cost of goods sold of $100,000. How much is the gross profit percent?

Accepted Answer

A) 80% 
B) 20% 
C) 100% 
D) 40% 
A) 80% 
B) 20% 
C) 100% 
D) 40%

Question 14

Lewis Company had the following balances and transactions during 2014:   What would the Cost of Goods Sold be as reported on the income statement for the year ending December 31, 2014 if the perpetual weighted-average costing method is used? (Round your intermediate calculations to two decimal places)

Accepted Answer

A) $8,160 
B) $20,400 
C) $16,240 
D) $12,000 
A) $8,160 
B) $20,400 
C) $16,240 
D) $12,000

Question 15

Misty Company had 20,000 units of ending inventory that were recorded at their cost of $5.00 per unit using the first-in, first-out (FIFO)method. The current replacement cost is $4.25 per unit. Which of the following amounts would be reported as Ending Merchandise Inventory on the balance sheet using the lower-of-cost-or-market rule?

Accepted Answer

A) $100,000 
B) $142,500 
C) $120,000 
D) $85,000 
A) $100,000 
B) $142,500 
C) $120,000 
D) $85,000

Question 16

The following data is available:   Using the gross profit method, the amount of gross profit would be:

Accepted Answer

A) $15,000 
B) $6,750 
C) $5,850 
D) $3,600 
A) $15,000 
B) $6,750 
C) $5,850 
D) $3,600

Question 17

A company is uncertain whether a complex transaction should be recorded as gain or loss. Under the conservatism principle, they should choose to treat it a loss.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following inventory costing methods yields the highest cost of goods sold during a period of rising inventory costs?

Accepted Answer

A) Specific identification 
B) Weighted-average 
C) Last-in, first-out 
D) First-in, first-out 
A) Specific identification 
B) Weighted-average 
C) Last-in, first-out 
D) First-in, first-out

Question 19

The days' sales in inventory ratio is calculated by dividing cost of goods sold by the average merchandise inventory.

Accepted Answer

A) True 
 B)False

Question 20

During a period of declining inventory costs, which of the following costing methods should be used by a company that intends to minimize its tax expenses?

Accepted Answer

A) First-in, first-out 
B) Last-in, first-out 
C) Weighted-average 
D) Specific identification 
A) First-in, first-out 
B) Last-in, first-out 
C) Weighted-average 
D) Specific identification

Exam 6: Merchandise Inventory

Which of the following is an application of the conservatism concept?

Which of the following is the correct formula to calculate days' sales in inventory?

Which of the following methods of inventory valuation requires the calculation of a new average cost after each purchase?

When inventory costs are declining, which of the following inventory costing method will result in the lowest ending merchandise inventory?

Which of the following inventory costing methods uses the costs of the oldest purchases to calculate the value of the ending inventory?

Ending inventory is calculated by multiplying the number of units on hand with the unit cost.

Under the retail method, the amount of ending merchandise inventory is estimated by using the ratio of the:

The specific identification method of inventory costing is recommended when a business deals in unique and high-priced inventory items.

An overstatement of ending merchandise inventory in the current period results in an overstatement of cost of goods sold in the current period.

A company decides to ignore a very small error in their inventory balance. This is an example of application of the:

If the merchandise inventory's market value is greater than its cost, then it must be adjusted for the difference in amount.

James Company earned revenue of $500,000 and incurred cost of goods sold of $100,000. How much is the gross profit percent?

The following data is available: Using the gross profit method, the amount of gross profit would be:

A company is uncertain whether a complex transaction should be recorded as gain or loss. Under the conservatism principle, they should choose to treat it a loss.

Which of the following inventory costing methods yields the highest cost of goods sold during a period of rising inventory costs?

The days' sales in inventory ratio is calculated by dividing cost of goods sold by the average merchandise inventory.

During a period of declining inventory costs, which of the following costing methods should be used by a company that intends to minimize its tax expenses?

Accounting and the Business Environment

Recording Business Transactions

The Adjusting Process

Completing the Accounting Cycle

Merchandising Operations

Accounting Information Systems

Internal Control and Cash

Receivables

Plant Assets, Natural Resources, and Intangibles

Current Liabilities and Payroll

Partnerships

Corporations

Long-Term Liabilities

Investments

The Statement of Cash Flows

Financial Statement Analysis

Introduction to Managerial Accounting

Job Order Costing

Process Costing

Cost-Volume-Profit Analysis

Master Budgets

Flexible Budgets and Standard Cost Systems

Cost Allocation and Responsibility Accounting

Short-Term Business Decisions

Capital Investment Decisions

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