Question 1
Question
All of the following are inventory costing methods except for
Answer
specific unit cost method
weighted-average cost method
FIFO cost method
LIFO cost method
Question 2
Question
This method of accounting for inventory assumes that the units acquired earliest are sold or used first
Answer
specific identification method
first in, last out
last in, first out
first in, first out
Question 3
Question
This method of accounting for inventory assumes that the units acquired most recently are sold or used first
Answer
specific identification method
first in, last out
last in, first out
last in, last out
Question 4
Question
The cost at which an inventory item could be acquired today is the
Answer
market price
replacement cost
acquisition cost
none of the above
Question 5
Question
Inventory costing methods place primary reliance on assumptions about the flow of
Answer
goods
costs
resale prices
values
Question 6
Question
The selection of an appropriate inventory cost flow assumption for an individual company is made by
Answer
the external auditors
Canada Revenue Agency
the internal auditors
management
Question 7
Question
The primary goals of inventory management include
Answer
maintaining a sufficient quantity of inventory to keep customers satisfied
maintaining a sufficient quality of inventory to keep customers satisfied
minimizing the costs associated with maintaining inventories
all of the above
Question 8
Question
A company just starting in business purchased three inventory items at the following prices: first purchase, $80; second purchase, $95; third purchase, $85. If the company sold two units for a total of $200 and used FIFO costing, the gross profit for the period would be
Question 9
Question
Which of the following would not be affected by the choice of costing methods?
Answer
net sales
cost of goods sold
gross profit
net income
Question 10
Question
In periods of rising prices, the inventory method which results in the highest gross profit is
Answer
the FIFO method
the LIFO method
the average cost method
not determinable
Question 11
Question
In a period of declining prices, which of the following inventory methods generally results in the lowest balance sheet figure for inventory?
Answer
average cost method
LIFO
FIFO
need more information to answer
Question 12
Question
Which inventory method generally results in cost allocated to ending inventory that will approximate their current cost?
Answer
LIFO
FIFO
average cost method
whichever method produces the highest ending inventory figure
Question 13
Question
The managers of Sera Company receive performance bonuses based on the net profit of the firm. Which inventory costing method are they likely to favour in periods of declining prices?
Answer
LIFO
average cost method
FIFO
physical inventory method
Question 14
Question
In periods of rising prices, LIFO will produce
Answer
higher net income than FIFO
the same net income as FIFO
lower net income than FIFO
higher net income than average cost method
Question 15
Question
Considerations that affect the selection of an inventory costing method do not include:
Answer
tax effects
balance sheet effects
income statement effects
perpetual versus periodic inventory system
Question 16
Question
The LCM rule for inventory is an example of the application of
Answer
conservatism principle
historical cost principle
materiality principle
economic entity principle
Question 17
Question
Which of these would cause the inventory turnover ratio to increase the most
Answer
increasing the amount of inventory on hand
keeping the amount of inventory on hand constant but increasing sales
keeping the amount of inventory on hand constant but decreases sales
decreasing the amount of inventory on hand but increasing sales
Question 18
Question
Wonder Corp. failed to record the purchase of merchandise on account. As a result, ending inventory was understated. What is the effect of these errors on assets, liabilities, capital, and net income, respectively?
Answer
understated, understated, no effect, no effect
understated, understated, understated, understated
understated, overstated, overstated, understated
overstated, overstated, understated, overstated
Question 19
Question
The specific ID method would probably be most appropriate for which of the following goods?
Answer
boxes of brass 4-inch drywall screws at Home Depot
bottles of suntan lotion in Wal-Mart's central warehouse
sets of tires at the Goodyear plant
diamond necklaces at a Tiffany's & Co. jewelry store
Question 20
Question
Gerber Department Store utilizes the retail inventory method. Gerber's beginning inventory cost $140 000 and retailed for $280 000. Purchases for the period amounted to $390 000 and were priced to sell at twice that amount. Sales for the period, at retail, were $600 000. How much is the cost of ending inventory?
Answer
115 000
150 000
230 000
300 000
Question 21
Question
Which inventory costing method generally results in the most recent costs being assigned to ending inventory?
Answer
LIFO
FIFO
average cost
all of the above
Question 22
Question
The 2014 records of Thompson Co. showed beginning inventory, $6 000; cost of goods sold, $14 000; and ending inventory, $8 000. The cost of purchases for 2014 was
Answer
12 000
10 000
9 000
16 000
Question 23
Question
Which of the following statements is true with regards to all inventory costing methods?
Answer
The ending inventory balance and cost of goods sold move in the same direction
The ending inventory balance and cost of total assets move in the opposite direction
The ending inventory balance and net income move in the same direction
all of the above
Question 24
Question
An adjustment to ending inventory under the LCM rule would be most likely to be recorded by a company that sells
Answer
plastic storage containers
paper clips
body lotion
designer clothes
Question 25
Question
When the LCM rule requires an inventory adjustment
Answer
the adjustment usually, but not always, reduces the book value of inventory
the write off is usually reported as a selling expense or part of cost of goods sold
the inventory adjustment is recorded in a contra-revenue account called sales allowances
all of the above
Question 26
Question
A rising balance in the inventory account and a falling inventory turnover ratio implies that the inventory buildup is occurring because
Answer
goods are not selling as fast as anticipated
the company is expecting to sell more in the future
goods are selling, but it is taking longer to collect payment
goods cannot be shipped fast enough
Question 27
Question
Which of the following companies would be least concerned about a low inventory ratio?
Answer
A fish market selling fish
A hardware company selling drywall screws
A dairy company selling butter and milk
A semiconductor company selling microchips
Question 28
Question
Because LIFO uses older costs for inventory, in times of rising prices:
Answer
LIFO results in a higher book value of inventory and lower inventory turnover ratio than FIFO
LIFO results in a lower book value of inventory and a lower inventory turnover ratio than FIFO
LIFO results in a higher book value of inventory and a higher inventory turnover ratio than FIFO
LIFO results in a lower book value of inventory and a higher inventory turnover ratio than FIFO
Question 29
Question
Which of the following inventory cost flow methods would an auto dealership most likely use for its new car sales?
Answer
FIFO
LIFO
AVG Cost
Specific Identification
Question 30
Question
In an inflationary environment in Canada, which inventory cost flow method will require the smallest cash payment for income taxes?
Answer
FIFO
LIFO
AVG Cost
not determinable
Question 31
Question
Carrington Company applies the LCM rule to each individual item in its ending inventory. The company determines that it must write down its inventory by $4 000. Which of the following answers reflects how this would effect the statements? (Assets = Liabilities + Equity; Revenue - Expenses = Net Income)
Answer
(4 000) = n/a + (4 000); n/a - 4 000 = (4 000)
(4 000) = 4 000 + n/a; n/a - 4 000 = (4 000)
(4 000) = n/a + (4 000); n/a - n/a = n/a
4 000 = n/a + 4 000; 4 000 - n/a = 4 000
Question 32
Question
An overstatement of ending inventory results in an
Answer
overstatement of cost of goods sold
overstatement of gross profit
overstatement of sales revenue
understatement of net income
Question 33
Question
The following info is from the 2014 accounting records of Odom Company: Sales Revenue = $625 000; Beginning Inventory = $254 000; Purchases = $366 000; Historical Gross Profit Margin = 40% What is the estimated gross profit?
Answer
$156 000
$250 000
$269 000
$375 000
Question 34
Question
The ? principle states that a company should use the same accounting methods and procedures from one period to the next.
Answer
conservatism
consistency
full disclosure
materiality
Question 35
Question
An undiscovered inventory error usually affects:
Answer
two reporting periods
the balance sheet of the first period but not the balance sheet of the second period
the income statements of both periods
all of the above are true
Question 36
Question
When using the FIFO inventory method, the most recent inventory costs will be found on the
Answer
balance sheet
income statement
statement of OE
cash flow statement
Question 37
Question
Use the following info for this question: Beginning Inventory: 10 units, $10 each; January 20 Purchase: 10 units, $20 each; January 30 Purchase: 5 units, $30 each. 15 of the 25 are sold. Calculate cost of goods sold using FIFO.
Answer
150
200
350
none of the above
Question 38
Question
Use the following info for this question: Beginning Inventory: 10 units, $10 each; January 20 Purchase: 10 units, $20 each; January 30 Purchase: 5 units, $30 each. 15 of the 25 are sold. Calculate cost of goods sold using LIFO.
Answer
200
350
450
none of the above
Question 39
Question
Use the following info for this question: Beginning Inventory: 10 units, $10 each; January 20 Purchase: 10 units, $20 each; January 30 Purchase: 5 units, $30 each. 15 of the 25 are sold. Calculate cost of goods sold using average cost.
Answer
200
270
300
none of the above
Question 40
Question
In a period of rising prices, all of the following statements are true regarding LIFO except:
Answer
most recent inventory costs are allocated to cost of goods sold
ending inventory is generally undervalued
the ending inventory figure represents replacement value
all of the above are true
Question 41
Question
In a period of falling prices, all of the following statements are true regarding FIFO except:
Answer
the units purchased earlier in the period are allocated to cost of goods sold
the lower priced units are allocated to ending inventory
the ending inventory figure represents replacement value
net income is generally higher
Question 42
Question
Use the following information: May 1 Beginning Inventory: 50 units @ $20 May 7 Purchases: 40 units @ $25 May 18 Sales: 60 units May 22 Purchases: 10 units @ $30 May 29 Sales: 25 units What is the ending inventory using the LIFO method?
Answer
$300
$1 875
$425
$2 000
Question 43
Question
Use the following information: May 1 Beginning Inventory: 50 units @ $20 May 7 Purchases: 40 units @ $25 May 18 Sales: 60 units May 22 Purchases: 10 units @ $30 May 29 Sales: 25 units What is the ending inventory using the AVG cost method?
Answer
$375
$1 955
$2 125
$345
Question 44
Question
Use the following information: May 1 Beginning Inventory: 50 units @ $20 May 7 Purchases: 40 units @ $25 May 18 Sales: 60 units May 22 Purchases: 10 units @ $30 May 29 Sales: 25 units What is the ending inventory using the FIFO method?
Answer
$300
$1 875
$425
$2 000
Question 45
Question
Use the following info to compute gross profit. Sales price of merchandise sold to customers is $10 000, beginning inventory $1 000, inventory purchases $4 000, and cost of goods sold $3 000.
Answer
$2 000
$5 000
$7 000
none of the above
Question 46
Question
Errors may arise in the process of counting inventory. Assume some inventory is accidentally counted twice. All of the following statements are true except:
Answer
this accounting period's cost of goods sold will be overstated
this accounting period's net income will be overstated
next accounting period's net income will be understated
next accounting period's ending OE will be correct
Question 47
Question
Which inventory method generally best follows the matching rule?
Answer
whichever method is used for tax purposes
average cost
FIFO
LIFO
Question 48
Question
During periods of declining prices, which inventory method probably will result in the lowest ending inventory?
Answer
average cost
specific ID
FIFO
LIFO
Question 49
Question
Insurance companies often verify the extent of inventory lost or destroyed by applying the
Answer
specific ID method
retail method
LCM method
gross profit method
Question 50
Question
Which of the following statement is true of inventory errors?
Answer
if the error counterbalances, it does not have to be disclosed
a counterbalancing error impacts on two income statements and one balance sheet
a counterbalancing error impacts on two balance sheets and one income statement
none of the above are true