Question 1

Merchandise sold
F.O.B. destination belongs to the buyer while in transit.

Accepted Answer

A) True 
 B)False

Question 2

In a manufacturing company, the "just-in-time" concept of inventory management is best illustrated by:

Accepted Answer

A)  Receiving deliveries of materials from suppliers just before the materials are used in the production process. 
B)  Completing the manufacturing process just before the deadline established by the customer. 
C)  An automated factory that reduces production time below that of other companies in the industry. 
D)  Selling finished products before they go out of style. 
A)  Receiving deliveries of materials from suppliers just before the materials are used in the production process. 
B)  Completing the manufacturing process just before the deadline established by the customer. 
C)  An automated factory that reduces production time below that of other companies in the industry. 
D)  Selling finished products before they go out of style.

Question 3

Overstating the ending inventory will result in understating the cost of goods sold and overstating profits.

Accepted Answer

A) True 
 B)False

Question 4

The specific identification method is more appropriate than a flow assumption method:

Accepted Answer

A)  For a large inventory of identical low-priced items. 
B)  If each item in the inventory is unique. 
C)  If purchase costs are rising. 
D)  If purchase costs are falling. 
A)  For a large inventory of identical low-priced items. 
B)  If each item in the inventory is unique. 
C)  If purchase costs are rising. 
D)  If purchase costs are falling.

Question 5

Compute the cost of the ending inventory based on the LIFO method of inventory valuation.

Accepted Answer

A)  $12,500. 
B)  $27,650. 
C)  $10,975 
D)  $29,175. 
A)  $12,500. 
B)  $27,650. 
C)  $10,975 
D)  $29,175.

Question 6

In a periodic inventory system, the cost of goods sold is determined as follows:

Accepted Answer

A)  Year-end inventory, plus purchases during the year, less the inventory at the beginning of the year. 
B)  Net sales, less the balance in the Gross Profit account. 
C)  Cost of goods available for sale during the year, less the ending inventory. 
D)  A physical count is made of all items sold throughout the year, and a cost flow assumption is applied at year-end. 
A)  Year-end inventory, plus purchases during the year, less the inventory at the beginning of the year. 
B)  Net sales, less the balance in the Gross Profit account. 
C)  Cost of goods available for sale during the year, less the ending inventory. 
D)  A physical count is made of all items sold throughout the year, and a cost flow assumption is applied at year-end.

Question 7

Assuming that Beech Soda uses the FIFO 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 8

Short-term creditors are likely to view a higher-than-average inventory turnover rate as indicating that:

Accepted Answer

A)  A company is in financial difficulty. 
B)  The company is able to sell its inventory quickly. 
C)  The company probably has an excessive amount of inventory. 
D)  The company has a longer-than-average operating cycle. 
A)  A company is in financial difficulty. 
B)  The company is able to sell its inventory quickly. 
C)  The company probably has an excessive amount of inventory. 
D)  The company has a longer-than-average operating cycle.

Question 9

During a period of steadily falling prices, which of the following methods of measuring the cost of goods sold is likely to result in reporting the highest gross profit?

Accepted Answer

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

Question 10

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 11

Under the LIFO flow assumption, the cost of this item to be included as inventory in the company's year-end balance sheet is:

Accepted Answer

A)  $36,000. 
B)  $42,000. 
C)  $36,500. 
D)  $37,500. 
A)  $36,000. 
B)  $42,000. 
C)  $36,500. 
D)  $37,500.

Question 12

Which of the following types of businesses would you expect to have the highest inventory turnover?

Accepted Answer

A)  An antique shop. 
B)  An electronics store. 
C)  A dairy store. 
D)  A boat manufacturer. 
A)  An antique shop. 
B)  An electronics store. 
C)  A dairy store. 
D)  A boat manufacturer.

Question 13

In a periodic inventory system, recording a sale on account involves crediting which of the following accounts?

Accepted Answer

A)  Only Sales. 
B)  Sales and Inventory. 
C)  Sales and Cost of Goods Sold. 
D)  Sales, Inventory, and Cost of Goods Sold. 
A)  Only Sales. 
B)  Sales and Inventory. 
C)  Sales and Cost of Goods Sold. 
D)  Sales, Inventory, and Cost of Goods Sold.

Question 14

The retail inventory method would never be used if a company uses the FIFO method.

Accepted Answer

A) True 
 B)False

Question 15

Carl 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 16

Assuming the LIFO flow assumption is in use, the perpetual inventory records will indicate an ending inventory of this product of:

Accepted Answer

A)  $9,800. 
B)  $10,600. 
C)  $10,800. 
D)  $8,000. 
A)  $9,800. 
B)  $10,600. 
C)  $10,800. 
D)  $8,000.

Question 17

Which of the following methods of measuring the cost of goods sold most closely parallels the actual physical flow of the merchandise?

Accepted Answer

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

Question 18

Assuming that Ace Systems uses the LIFO flow assump?tion, the cost of goods sold on January 28 is:

Accepted Answer

A)  $331. 
B)  $509. 
C)  $499. 
D)  Some other amount. 
A)  $331. 
B)  $509. 
C)  $499. 
D)  Some other amount.

Question 19

An advantage of the average cost method of accounting for inventory is that the inventory is valued in the balance sheet at current replacement costs.

Accepted Answer

A) True 
 B)False

Question 20

The "just-in-time" concept of inventory management is best illustrated by:

Accepted Answer

A)  A clothing manufacturer that sells all of its finished goods before they go out of style. 
B)  A defense contractor that completes its projects within the deadlines set by its customer (the federal government). 
C)  A pharmaceutical firm that consistently brings new products to market ahead of its competitors. 
D)  A homebuilder who has its suppliers deliver lumber and other building materials to the building site the night before these materials will be used by the company's construction crews. 
A)  A clothing manufacturer that sells all of its finished goods before they go out of style. 
B)  A defense contractor that completes its projects within the deadlines set by its customer (the federal government). 
C)  A pharmaceutical firm that consistently brings new products to market ahead of its competitors. 
D)  A homebuilder who has its suppliers deliver lumber and other building materials to the building site the night before these materials will be used by the company's construction crews.

Exam 8: Inventories and the Cost of Goods Sold

Merchandise sold F.O.B. destination belongs to the buyer while in transit.

In a manufacturing company, the "just-in-time" concept of inventory management is best illustrated by:

Overstating the ending inventory will result in understating the cost of goods sold and overstating profits.

The specific identification method is more appropriate than a flow assumption method:

Compute the cost of the ending inventory based on the LIFO method of inventory valuation.

In a periodic inventory system, the cost of goods sold is determined as follows:

Assuming that Beech Soda uses the FIFO flow assumption, the 28 units of this product in inventory at January 31 have a total cost of:

Short-term creditors are likely to view a higher-than-average inventory turnover rate as indicating that:

During a period of steadily falling prices, which of the following methods of measuring the cost of goods sold is likely to result in reporting the highest gross profit?

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

Under the LIFO flow assumption, the cost of this item to be included as inventory in the company's year-end balance sheet is:

Which of the following types of businesses would you expect to have the highest inventory turnover?

In a periodic inventory system, recording a sale on account involves crediting which of the following accounts?

The retail inventory method would never be used if a company uses the FIFO method.

Carl Equipment's inventory turnover rate is:

Assuming the LIFO flow assumption is in use, the perpetual inventory records will indicate an ending inventory of this product of:

Which of the following methods of measuring the cost of goods sold most closely parallels the actual physical flow of the merchandise?

Assuming that Ace Systems uses the LIFO flow assump?tion, the cost of goods sold on January 28 is:

An advantage of the average cost method of accounting for inventory is that the inventory is valued in the balance sheet at current replacement costs.

The "just-in-time" concept of inventory management is best illustrated by:

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: a Business Partner

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

Forms of Business Organization

The Time Value of Money: Future Amounts and Present Values Answer Key

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