Question 1

Most changes in sales revenue have no effect on cost of goods sold.

Accepted Answer

A) True 
 B)False

Question 2

An error in the ending inventory one period causes an offsetting error in the next period, and as a result:

Accepted Answer

A)   it affects only income statement accounts.
B)   it affects only balance sheet accounts.
C)   management can ignore the error.
D)   it is a self-correcting or counter-balancing error.E) A) and C)
F) C) and D)

Question 3

Days to sell is calculated as:

Accepted Answer

A)   Ending inventory divided by Sales.
B)   Cost of goods sold divided by Ending inventory.
C)   365 divided by Inventory turnover ratio.
D)   Cost of goods sold divided by Average inventory.E) None of the above
F) A) and C)

Question 4

An adjustment to ending inventory under the lower of cost or market (LCM)  rule would be most likely to be recorded by a company that sells:

Accepted Answer

A)   Plastic storage containers.
B)   Paper clips.
C)   Body lotion.
D)   Designer clothes.E) B) and C)
F) None of the above

Question 5

Inappropriate inventory levels reduce a company's net income, either by increasing cost or reducing revenue.

Accepted Answer

A) True 
 B)False

Question 6

A rising balance in the inventory account and a rising inventory turnover ratio would imply that the inventory build up is occurring because:

Accepted Answer

A)   goods are not selling as fast as anticipated.
B)   the company is expecting to sell more in the future.
C)   goods are selling but it is taking longer to collect payment.
D)   goods cannot be shipped fast enough.E) All of the above
F) A) and B)

Question 7

Generally, which inventory costing method approximates most closely the current cost for each of the following?

Accepted Answer

A)   Option A
B)   Option B
C)   Option C
D)   Option DE) A) and C)
F) A) and B)

Question 8

Which of the following would be in the work-in-process inventory of a company making cheese?

Accepted Answer

A)   Milk and cream used to make the cheese.
B)   Cheese that has been made but is curing before being ready to sell.
C)   Cured cheese that is waiting to be shipped to retailers.
D)   Cured cheese that has been sold to retailersE) None of the above
F) A) and B)

Question 9

What is the amount of Cost of Goods Sold?

Accepted Answer

A)   $650,000
B)   $720,000
C)   $150,000
D)   $70,000E) C) and D)
F) B) and D)

Question 10

An overstatement of ending inventory will cause an overstatement of assets and an understatement of stockholders' equity on the balance sheet.

Accepted Answer

A) True 
 B)False

Question 11

An error in the period-end inventory will cause an error in the calculation of cost of goods sold.

Accepted Answer

A) True 
 B)False

Question 12

The inventory costing method that smoothes out changes in costs is

Accepted Answer

A)   FIFO.
B)   LIFO.
C)   Weighted average.
D)   Specific identification.E) B) and C)
F) A) and D)

Question 13

In a period of rising prices, the inventory costing method that assigns a value to inventory that approximates current cost is

Accepted Answer

A)   LIFO.
B)   FIFO.
C)   Weighted average.
D)   Specific identification.E) All of the above
F) None of the above

Question 14

For a merchandiser, inventory turnover refers to how many times:

Accepted Answer

A)   during the period the company replaces its raw materials inventory.
B)   the company buys and sells its inventory of goods.
C)   the company produces and delivers its inventory of goods to customers.
D)   the company orders inventory.E) C) and D)
F) None of the above

Question 15

Companies that choose to use FIFO must report in the financial statement notes what their inventory balance would have been had they used LIFO.

Accepted Answer

A) True 
 B)False

Question 16

Which inventory costing method generally results in the most recent costs being assigned to ending inventory?

Accepted Answer

A)   LIFO.
B)   FIFO.
C)   Weighted average cost.
D)   Simple average cost.E) A) and C)
F) All of the above

Question 17

Which of the following would not be affected by the choice of an inventory costing method (that is between FIFO, LIFO, weighted average, and specific identification) ?

Accepted Answer

A)   Net sales
B)   Cost of goods sold
C)   Gross profit
D)   Net incomeE) A) and B)
F) B) and C)

Question 18

Which of the following statements regarding inventory classifications is not true?

Accepted Answer

A)   Inventory may include materials used in producing goods for sale.
B)   Companies that are manufacturers list their finished goods, work-in-process and raw materials inventory separately.
C)   Inventory is classified as a long-term asset on the balance sheet.
D)   Merchandisers buy inventory in finished form ready for resale.E) B) and D)
F) A) and B)

Question 19

What is the amount of Ending Inventory?

Accepted Answer

A)   $720,000
B)   $150,000
C)   $70,000
D)   $650,000E) A) and C)
F) B) and C)

Question 20

Which of the following companies would be least concerned about a low inventory turnover ratio?

Accepted Answer

A)   A fish market selling fresh fish.
B)   A hardware company selling drywall screws.
C)   A dairy company selling butter and milk.
D)   A semiconductor company selling microchips.E) A) and B)
F) None of the above

Exam 7: Reporting and Interpreting Inventories and Cost of Goods Sold

The inventory costing method that smoothes out changes in costs is

Correct AnswerverifiedShow Answer

Days to sell is calculated as:

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In a period of rising prices, the inventory costing method that assigns a value to inventory that approximates current cost is

Correct AnswerverifiedShow Answer

Which of the following would not be affected by the choice of an inventory costing method (that is between FIFO, LIFO, weighted average, and specific identification) ?

Correct AnswerverifiedShow Answer

An overstatement of ending inventory will cause an overstatement of assets and an understatement of stockholders' equity on the balance sheet.

Correct AnswerverifiedShow Answer

An error in the ending inventory one period causes an offsetting error in the next period, and as a result:

Correct AnswerverifiedShow Answer

Inappropriate inventory levels reduce a company's net income, either by increasing cost or reducing revenue.

Correct AnswerverifiedShow Answer

Which of the following companies would be least concerned about a low inventory turnover ratio?

Correct AnswerverifiedShow Answer

What is the amount of Ending Inventory?

Correct AnswerverifiedShow Answer

Which of the following would be in the work-in-process inventory of a company making cheese?

Correct AnswerverifiedShow Answer

For a merchandiser, inventory turnover refers to how many times:

Correct AnswerverifiedShow Answer

An adjustment to ending inventory under the lower of cost or market (LCM) rule would be most likely to be recorded by a company that sells:

Correct AnswerverifiedShow Answer

Most changes in sales revenue have no effect on cost of goods sold.

Correct AnswerverifiedShow Answer

Which inventory costing method generally results in the most recent costs being assigned to ending inventory?

Correct AnswerverifiedShow Answer

What is the amount of Cost of Goods Sold?

Correct AnswerverifiedShow Answer

A rising balance in the inventory account and a rising inventory turnover ratio would imply that the inventory build up is occurring because:

Correct AnswerverifiedShow Answer

Which of the following statements regarding inventory classifications is not true?

Correct AnswerverifiedShow Answer

Generally, which inventory costing method approximates most closely the current cost for each of the following?

Correct AnswerverifiedShow Answer

Companies that choose to use FIFO must report in the financial statement notes what their inventory balance would have been had they used LIFO.

Correct AnswerverifiedShow Answer

An error in the period-end inventory will cause an error in the calculation of cost of goods sold.

Correct AnswerverifiedShow Answer

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