Prelim-Quiz31

Using LIFO, the amount reported for ending inventory does not differ depending
on whether a company uses a periodic system or a perpetual system.
A. True
B. False
B. False

The inventory method that will always produce the same amount for cost of goods
sold in a periodic inventory system as in perpetual inventory system would be:
A. FIFO
B. LIFO
C. Weighted average
D. Each method always produces a different amount
A. FIFO

When the value of inventory falls below its cost, companies other than those that
use LIFO have the option of recording the inventory at cost or the lower net
realizable value.
A. True
B. False
B. False (Companies are required to report inventory at the lower of cost and net
realizable value)

The adjustment to write down inventory from cost to its lower net realizable value
includes a debit to Cost of Goods Sold and a credit to Inventory
A. True
B. False
A. True

At the end of the year, a company reports the following inventory amounts ($ per
unit):
Item # of Units Cost Net Realizable Value
A 100 $4 $8
B 150 $8 $6
The amount to report for ending inventory using the lower of cost and net
realizable value is:
A. $1,600
B. $1,700
C. $2,000
D. $1,300
D. $1,300

At the end of the year, a company reports the following inventory amounts ($ per
unit):
Item # of Units Cost Net Realizable Value
A 100 $4 $8
B 150 $8 $6
The year-end adjustment using the lower of cost and net realizable value would
include:
A. A credit to Inventory for $300
B. A debit to Cost of Goods Sold for $400
C. A debit to Inventory for $500
D. A credit to Cost of Goods Sold for $700
A. A credit to Inventory for $300

Under GAAP, a company is permitted to apply the lower of cost or net realizable
value rule to total inventory as compared to item by item analysis.
A. True
B. False
A. True

The practice of using the lower of cost and net realizable value to evaluate
inventory reflects which of the following accounting principles?
A. Matching principle
B. Materiality
C. Conservatism
D. Answers A and C
D. Answers A and C

The inventory turnover ratio is measured as:

A. Cost of goods sold divided by average inventory
B. Average inventory divided by gross profit
C. Gross profit divided by net sales
D. Net sales divided by average inventory
A. Cost of goods sold divided by average inventory

If prices were to never change, there would still be a need for alternative inventory
cost methods.
A. True
B. False
B. False

During periods of consistently falling prices, the FIFO inventory method will
produce the highest possible amount of net income.
A. True
B. False
B. False (LIFO)

All of the following are inventory costing methods except

A. last-in, last-out
B. average-cost
C. perpetual
D. specific identification
C. perpetual

An overstatement of ending inventory in one period results in

A. an overstatement of the ending inventory of the next period
B. an understatement of gross margin of the next period
C. an overstatement of gross margin of the next period
D. no effect on gross margin of the next period
B. an understatement of gross margin of the next period

Goods in transit shipped FOB shipping point should be included in the seller's
ending inventory.
A. True
B. False
B. False (purchaser's inventory)

Which of the following transactions would increase the balance of the inventory
account for a company using the perpetual inventory system?
A. A return of damaged inventory to the vendor
B. Costs of incoming freight charges on merchandise inventory
C. A purchase discount taken for prompt payment
D. Shipping charges for outgoing inventory
B. Costs of incoming freight charges on merchandise inventory

For inventory that is shipped FOB destination, title transfers from the seller to the
buyer once the seller ships the inventory.
A. True
B. False
B. False (For FOB destination, title transfers once the inventory reaches the buyer)

Davis Hardware Company uses a perpetual inventory system. How should Davis
record the return of inventory previously purchased on account for $200?
A. Inventory 200
Accounts Payable 200
B. Accounts Payable 200
Inventory 200
C. Purchase Returns 200
Accounts Payable 200
D. Accounts Payable 200
Purchase returns 200
B. Accounts Payable 200
Inventory 200

If A sells to B, and B obtains title while goods are in transit, the goods were shipped
_____. If C sells to D, and C maintains title until the goods arrive at D's door then
the goods were shipped _____.
A. FOB shipping point; FOB destination
B. FOB destination; FOB shipping point
C. FOB destination; FOB destination
D. FOB shipping point; FOB shipping point
A. FOB shipping point; FOB destination