Ending inventory for the
current accounting period is overstated by $2,700. What effect will this error have on Cost of
Goods Sold and Net Income for the current accounting period?
A.
|
Cost of Goods Sold
|
Net Income
|
|
Overstated
|
Overstated
|
B.
|
Cost of Goods Sold
|
Net Income
|
|
Understated
|
Overstated
|
C.
|
Cost of Goods Sold
|
Net Income
|
|
Understated
|
Understated
|
D.
|
Cost of Goods Sold
|
Net Income
|
|
Overstated
|
Understated
|
Which of the following is the
correct formula to calculate average merchandise inventory?
A.
Average merchandise
inventory = (Beginning merchandise inventory - Ending merchandise inventory)
/ 2
B.
Average merchandise
inventory = (Beginning merchandise inventory / Ending merchandise inventory)
/ 2
C.
Average merchandise inventory = (Beginning
merchandise inventory + Ending merchandise inventory) / 2
D.
Average merchandise inventory =
(Beginning merchandise inventory x Ending merchandise inventory) / 2
Inventory turnover measures ________.
A.
the days' sales in
inventory ratio
B.
the time period for
inventory to become obsolete
C.
how rapidly merchandise
inventory is purchased
D.
how rapidly merchandise inventory is sold
The lower-of-cost-or-market value (LCM) rule _______.
A.
requires that merchandise inventory be reported in the
financial statements at the lower of the historical cost or the selling price
of the inventory
B.
violates the
conservatism principle
C.
is an accounting issue
separate from applying an inventory costing method
D.
replaces the use of
specific identification, FIFO, LIFO, or weighted-average
inventory costing methods.
The lower-of-cost-or-market
rule demonstrates accounting conservatism in action.
True
False
When using the FIFO
inventory costing method, ending merchandise inventory will be the highest,
as compared to LIFO and weighted-average inventory costing methods,
when costs are decreasing.
True
False
Which of the following
inventory valuation methods minimizes income tax expense during a period of
rising inventory costs?
A.
last-in, first-out
B.
first-in, first-out
C.
weighted-average
D.
specific identification
Which of the following
inventory costing methods yields the lowest cost of goods sold during a period
of rising inventory costs?
A.
last-in, first-out
B.
specific identification
C.
weighted-average
D.
first-in, first-out
In a period of rising costs, the last-in, first-out (LIFO) method results in a higher cost of goods sold
and a lower net income than the first-in,
first-out (FIFO) method.
True
False
In a period of rising costs, the last-in, first-out (LIFO) method results in a lower cost of goods sold
and a higher net income than the first-in,
first-out (FIFO) method.
True
False
Classic
Autos specializes in selling gently used specialty sports cars and uses the
specific identification method of determining ending inventory and cost of
goods sold. Item 507K was sold for $82,000.
Classic
purchased the sports car for $56,000 and paid $1,100 for freight in and $1,300 for freight out. What
is the cost of goods sold?
A.
$57,100
B.
$57,300
C.
$24,900
D.
$56,000
A company that uses the
perpetual inventory system purchased 500 pallets of industrial soap for $8,000 and paid $800 for the freight−in. The company sold the whole lot to a supermarket chain
for $14,000 on account. The company uses the specific−identification method of inventory costing. Which of the
following entries correctly records the cost of goods sold?
A.
|
Cost of Goods Sold
|
8,800
|
|
|
Merchandise Inventory
|
8,800
|
B.
|
Cost of Goods Sold
|
8,000
|
|
|
Sales Revenue
|
8,000
|
C.
|
Merchandise Inventory
|
8,800
|
|
|
Cost of Goods Sold
|
8,800
|
D.
|
Cost of Goods Sold
|
8,000
|
|
|
Merchandise
Inventory
|
8,000
|
Which of the following
inventory costing methods is based on the actual cost of each particular unit
of inventory?
A.
first-in, first-out
B.
last-in, first-out
C.
weighted-average
D.
specific
identification
Which of the following
is not included in a perpetual inventory record?
A.
quantity on hand
B.
unit selling price
C.
identification of the inventory item
D.
cost per unit
Ending inventory equals
the cost of goods available for sale less beginning inventory.
True
False
Changing the method of
valuing inventory ignores the principle of ________.
A.
conservatism
B.
materiality
C.
disclosure
D.
consistency
A company discovers that
its cost of goods sold is understated by an insignificant amount. It does not
need to correct the error because of the conservatism principle.
True
False
The disclosure principle
states that a company should report enough information for outsiders to make
knowledgeable decisions about the company.
True
False
A company changes its
inventory costing method each period in order to maximize net income. This is a
violation of the consistency principle.
True
False
A company reports in its
financial statements that it uses the FIFO method of inventory costing. This is
an example of the disclosure principle.
True
False
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