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Principles of Accounting, Volume 1: Financial Accounting

Multiple Choice

Principles of Accounting, Volume 1: Financial AccountingMultiple Choice

Multiple Choice

1.

LO 10.1If a company has four lots of products for sale, purchase 1 (earliest) for $17, purchase 2 (middle) for $15, purchase 3 (middle) for $12, and purchase 4 (latest) for $14, which cost would be assumed to be sold first using LIFO costing?

  1. $17
  2. $15
  3. $12
  4. $14
2.

LO 10.1If a company has three lots of products for sale, purchase 1 (earliest) for $17, purchase 2 (middle) for $15, purchase 3 (latest) for $12, which of the following statements is true?

  1. This is an inflationary cost pattern.
  2. This is a deflationary cost pattern.
  3. The next purchase will cost less than $12.
  4. None of these statements can be verified.
3.

LO 10.1When inventory items are highly specialized, the best inventory costing method is ________.

  1. specific identification
  2. first-in, first-out
  3. last-in, first-out
  4. weighted average
4.

LO 10.1If goods are shipped FOB destination, which of the following is true?

  1. Title to the goods will transfer as soon as the goods are shipped.
  2. FOB indicates that a price reduction has been applied to the order.
  3. The seller must pay the shipping.
  4. The seller and the buyer will each pay 50% of the cost.
5.

LO 10.1On which financial statement would the merchandise inventory account appear?

  1. balance sheet
  2. income statement
  3. both balance sheet and income statement
  4. neither balance sheet nor income statement
6.

LO 10.1When would using the FIFO inventory costing method produce higher inventory account balances than the LIFO method would?

  1. inflationary times
  2. deflationary times
  3. always
  4. never
7.

LO 10.1Which accounting rule serves as the primary basis for the lower-of-cost-or-market methodology for inventory valuation?

  1. conservatism
  2. consistency
  3. optimism
  4. pessimism
8.

LO 10.1Which type or types of inventory timing system (periodic or perpetual) requires the user to record two journal entries every time a sale is made.

  1. periodic
  2. perpetual
  3. both periodic and perpetual
  4. neither periodic nor perpetual
9.

LO 10.2Which of these statements is false?

  1. If cost of goods sold is incorrect, ending inventory is usually incorrect too.
  2. beginning inventory + purchases = cost of goods sold
  3. ending inventory + cost of goods sold = goods available for sale
  4. goods available for sale – beginning inventory = purchases
10.

LO 10.3Which inventory costing method is almost always done on a perpetual basis?

  1. specific identification
  2. first-in, first-out
  3. last-in, first-out
  4. weighted average
11.

LO 10.3Which of the following describes features of a perpetual inventory system?

  1. Technology is normally used to record inventory changes.
  2. Merchandise bought is recorded as purchases.
  3. An adjusting journal entry is required at year end, to match physical counts to the asset account.
  4. Inventory is updated at the end of the period.
12.

LO 10.4Which of the following financial statements would be impacted by a current-year ending inventory error, when using a periodic inventory updating system?

  1. balance sheet
  2. income statement
  3. neither statement
  4. both statements
13.

LO 10.4Which of the following would cause periodic ending inventory to be overstated?

  1. Goods held on consignment are omitted from the physical count.
  2. Goods purchased and delivered, but not yet paid for, are included in the physical count.
  3. Purchased goods shipped FOB destination and not yet delivered are included in the physical count.
  4. None of the above
14.

LO 10.5Which of the following indicates a positive trend for inventory management?

  1. increasing number of days’ sales in inventory ratio
  2. increasing inventory turnover ratio
  3. increasing cost of goods sold
  4. increasing sales revenue
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