1 What principle or assumption results in the use of #709

1. What principle or assumption results in the use of lower-of-cost-or-market?a. Historical costb.

Conservatismc. Going concernd. Materiality2. Under the lower-of-cost-or-market rule, an
inventory item with a selling price of $6.00, a historical cost of $2.50, and a replacement cost of
$3.50 would be reported at:a. $6.00.b. $3.50.c. $2.50.d. cannot tell from given information.3. A
horizontal analysis of Cost of Goods Sold yields a percentage of 14.0%. Given that change,
which of the following would cause the greatest concern for the company?a. Sales increased
20.1%b. Operating Expenses increased 14.2%c. Sales decreased 10.8%d. Inventory increased
12.4%4. CG Films generates Cost of Goods Sold of $135,000 for the year. Inventory at the
beginning and ending of the year was $40,000 and $46,000, respectively. Calculate CG's
inventory turnover ratio.a. 3.1b. 3.4c. 116.2d. 0.35. Horizontal analysis of inventory:a. calculates
inventory as a percentage of total assets.b. calculates cost of goods sold as a percentage of
revenues.c. highlights the change in inventory as a percentage of the prior year's inventory
balance.d. both "a" and "b" are correct.6. Vertical analysis of inventory:a. calculates inventory as
a percentage of total assets. b. calculates cost of goods sold as a percentage of revenues.c.
highlights the change in inventory as a percentage of the prior year's inventory balanced. both
"a" and "b" are correct.7. If a company uses a periodic inventory system and returns an
inventory item to a vendor, the company would record the return as:a. a decrease to the
Inventory account.b. an increase to the Cost of Goods Sold account.c. an increase to the
Purchase Returns and Allowances account.d. an increase to the Purchase Discounts account.8.
Which of the following is not a part of the process to calculate costs of goods sold under a
periodic inventory system?a. Count the ending inventory on hand at the end of the periodb.
Assign a cost to the ending inventory using an inventory costing methodc. Use the cost of
goods sold model to calculate cost of goods soldd. Each of the above is part of the processView
Solution:
1 What principle or assumption results in the use of

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