Question 1

A method of valuing inventory based on the assumption that the oldest goods will be sold first is called the:

Accepted Answer

A)  LIFO method.
B)  average cost method.
C)  specific cost method.
D)  FIFO method.

Question 2

A business with a ________ net income percentage may often have a ________ inventory turnover rate:

Accepted Answer

A)  lower,higher.
B)  lower,lower
C)  higher,lower
D)  all of the above are possible combinations of net income percentage and inventory turnover rate.

Question 3

An indication that inventory is being sold quickly is:

Accepted Answer

A)  a high turnover rate and high days-sales-in-inventory rate.
B)  a high turnover rate and low days-sales-in-inventory rate.
C)  a low turnover rate and high days-sales-in-inventory rate.
D)  a low turnover rate and low days-sales-in-inventory rate.

Question 4

Manufacturers have three different kinds of inventory.

Accepted Answer

A) True 
 B)False

Question 5

A manufacturer's goods available for sale represents:

Accepted Answer

A)  work-in-process inventory.
B)  raw materials inventory.
C)  cost of goods sold inventory.
D)  finished goods inventory.

Question 6

Under the conservatism rule,assets and income would be understated,rather than overstated.

Accepted Answer

A) True 
 B)False

Question 7

Goods available for sale are $28,000;beginning inventory is $13,000;ending inventory is $15,000;and cost of goods sold is $39,000.The inventory turnover is:

Accepted Answer

A)  3) 00.
B)  2) 60.
C)  2) 79.
D)  2) 00.

Question 8

If Period 1 ending inventory is overstated,then:

Accepted Answer

A)  both cost of goods sold and net income are understated in Period 1.
B)  cost of goods sold is overstated and net income is understated in Period 1.
C)  cost of goods sold is understated and net income is overstated in Period 1.
D)  both cost of goods sold and net income are overstated in Period 1.

Question 9

If the inventory shows an actual count of $350 and the perpetual inventory according to the records shows $339,the adjusting entry for the $11 would:

Accepted Answer

A)  debit Cost of Goods Sold;debit Purchase Returns and Allowances.
B)  debit Cost of Goods Sold;credit Inventory.
C)  debit Inventory;credit Cost of Goods Sold.
D)  debit Inventory;credit Purchase Returns and Allowances.

Question 10

If Cost of Goods Sold was understated in Period 1,then Cost of Goods Sold and gross profit in Period 2 will be:

Accepted Answer

A)  both understated.
B)  both overstated.
C)  understated for cost of goods sold and overstated for gross profit.
D)  overstated for cost of goods sold and understated for gross profit.

Question 11

A drawback to using ________ when inventory costs are rising is that the company reports lower net income.

Accepted Answer

A)  LIFO
B)  FIFO
C)  average costing
D)  specific-identification costing

Question 12

The LCM rule must be applied to inventory:

Accepted Answer

A)  on an item-by-item basis.
B)  by categories of items.
C)  as a whole.
D)  as a company decides,for there is no requirement to apply LCM.

Question 13

Knowledgeable decisions that are made by outsiders who read financial reports are a result of the concept of conservatism.

Accepted Answer

A) True 
 B)False

Question 14

The LCM rule compares original cost to current replacement cost to determine the amount at which inventory should be valued.

Accepted Answer

A) True 
 B)False

Question 15

One lot of merchandise was counted at $566.34.A second count of the same merchandise showed $566.82.The difference could be ignored due to:

Accepted Answer

A)  conservatism.
B)  consistency.
C)  materiality.
D)  entity.

Question 16

Which of the following is an INCORRECT statement if ending inventory is understated?

Accepted Answer

A)  Cost of goods sold is overstated.
B)  Gross profit is overstated.
C)  Net income understated.
D)  Income tax is understated.

Question 17

Lionworks Enterprises had the following inventory data:

Assuming FIFO,what is the cost of goods sold for the July 7 sale?

Accepted Answer

A)  $624
B)  $654
C)  $648
D)  $645

Question 18

Which of the following is often used when taking a physical inventory?

Accepted Answer

A)  Pre-numbered count sheets
B)  Tags to show what inventory has been counted
C)  Maps of the location of the inventory
D)  All of the above

Question 19

If ending inventory in Period 1 is overstated,gross profit in Period 2 is:

Accepted Answer

A)  overstated.
B)  understated.
C)  not affected.
D)  the same as in Period 1.

Question 20

The method used to estimate the cost of ending inventory is called:

Accepted Answer

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

Exam 5: Inventory

Manufacturers have three different kinds of inventory.

Correct AnswerverifiedShow Answer

If the inventory shows an actual count of $350 and the perpetual inventory according to the records shows $339,the adjusting entry for the $11 would:

Correct AnswerverifiedShow Answer

An indication that inventory is being sold quickly is:

Correct AnswerverifiedShow Answer

A drawback to using ________ when inventory costs are rising is that the company reports lower net income.

Correct AnswerverifiedShow Answer

The LCM rule compares original cost to current replacement cost to determine the amount at which inventory should be valued.

Correct AnswerverifiedShow Answer

A business with a ________ net income percentage may often have a ________ inventory turnover rate:

Correct AnswerverifiedShow Answer

Knowledgeable decisions that are made by outsiders who read financial reports are a result of the concept of conservatism.

Correct AnswerverifiedShow Answer

The LCM rule must be applied to inventory:

Correct AnswerverifiedShow Answer

Which of the following is an INCORRECT statement if ending inventory is understated?

Correct AnswerverifiedShow Answer

A manufacturer's goods available for sale represents:

Correct AnswerverifiedShow Answer

One lot of merchandise was counted at $566.34.A second count of the same merchandise showed $566.82.The difference could be ignored due to:

Correct AnswerverifiedShow Answer

Under the conservatism rule,assets and income would be understated,rather than overstated.

Correct AnswerverifiedShow Answer

Goods available for sale are $28,000;beginning inventory is $13,000;ending inventory is $15,000;and cost of goods sold is $39,000.The inventory turnover is:

Correct AnswerverifiedShow Answer

If Period 1 ending inventory is overstated,then:

Correct AnswerverifiedShow Answer

Which of the following is often used when taking a physical inventory?

Correct AnswerverifiedShow Answer

Lionworks Enterprises had the following inventory data: Assuming FIFO,what is the cost of goods sold for the July 7 sale?

Correct AnswerverifiedShow Answer

A method of valuing inventory based on the assumption that the oldest goods will be sold first is called the:

Correct AnswerverifiedShow Answer

If Cost of Goods Sold was understated in Period 1,then Cost of Goods Sold and gross profit in Period 2 will be:

Correct AnswerverifiedShow Answer

The method used to estimate the cost of ending inventory is called:

Correct AnswerverifiedShow Answer

If ending inventory in Period 1 is overstated,gross profit in Period 2 is:

Correct AnswerverifiedShow Answer

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A business with a net income percentage may often have a inventory turnover rate:

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