Question 1

If ending inventory in Year 1 is misstated,then Year 1's ________ also must be misstated.

Accepted Answer

A)  purchases
B)  cost of goods sold
C)  goods available for sale
D)  beginning inventory

Question 2

Which of these would you expect to have the highest inventory turnover ratio?

Accepted Answer

A)  Ford Motor Company - automobile manufacturer.
B)  The Boeing Company - aircraft manufacturer.
C)  McDonald's Corporation - quick service hamburger restaurants.
D)  Macy's,Inc.- clothing and home furnishings retailer.

Question 3

The cost assigned to cost of goods sold and to inventory under the FIFO method will be the same whether the perpetual or the periodic inventory system is used.

Accepted Answer

A) True 
 B)False

Question 4

A lower of cost or market write-down would be recorded with a debit to Cost of Goods Sold.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following would be in the raw materials inventory of a company making ice cream?

Accepted Answer

A)  Milk and cream used to make the ice cream.
B)  Ice cream that has been made but is freezing to the level required for shipping.
C)  Frozen ice cream that is waiting to be shipped to retailers.
D)  Ice cream in process awaiting the addition of nuts.

Question 6

Which inventory method is typically used when accounting for expensive and unique inventory items?

Accepted Answer

A)  Specific identification
B)  FIFO
C)  LIFO
D)  Weighted Average Cost

Question 7

Goods that a company holds that are not reported on the company's balance sheet are called:

Accepted Answer

A)  finished goods.
B)  consignment inventory.
C)  raw materials.
D)  work in process.

Question 8

The weighted average cost method uses the ________ cost for cost of goods sold on the income statement and the ________ cost for inventory on the balance sheet.

Accepted Answer

A)  average;average
B)  average;newest
C)  newest;average
D)  oldest;average
E)  average;oldest

Question 9

In a period of rising prices,the inventory costing method that will cause the company to have the highest cost of goods sold is:

Accepted Answer

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

Question 10

If Cherry Co.has an inventory turnover ratio of 8 times,its days to sell must be approximately:

Accepted Answer

A)  46 days.
B)  46 times per year.
C)  22 days.
D)  22%.

Question 11

The inventory turnover ratio directly measures:

Accepted Answer

A)  the days it takes to sell its average inventory balance.
B)  the times per period the average inventory balance is sold.
C)  how many days it takes to collect.
D)  its sales of inventory sold on account.

Question 12

Match the term to the appropriate definition.There are more definitions than terms.
-Finished Goods Inventory

Accepted Answer

A)  Inventory costing method that identifies the cost of the specific item that was sold.
B)  Inventory costing method that assumes that the costs of the first goods purchased are the costs of the first goods sold.
C)  The difference between net sales and cost of goods sold.
D)  The inventory that starts the manufacturing process.
E)  Inventory items being transported.F) Consists of products acquired in a finished condition,ready for sale without further processing.G) A valuation rule that requires Inventory to be written down when its market value falls below its cost.H) The expense that follows directly after Net Sales on a multiple step income statement.I) Beginning Inventory + Purchases - Cost of Goods SoldJ) Goods a company is holding on behalf of the goods' owner.K) Inventory costing method that assumes that the costs of the last goods purchased are the costs of the first goods sold.L) Requires that if LIFO is used on the income tax return,it also must be used in financial statement reporting.M) Beginning Inventory + Purchases - Ending InventoryN) Goods that are in the process of being manufactured.O) Inventory costing method that uses the weighted average unit cost of the goods available for sale for both cost of goods sold and ending inventory.P) Goods that are held for sale in the normal course of business or are used to produce other goods for sale.Q) How many times (on average) that inventory has been bought or sold.R) Inventory that was in process and now is completed and ready for sale.S) A measure of the average number of days from the time inventory is bought to the time it is sold.

Question 13

Match the term to the appropriate definition.There are more definitions than terms.
-Merchandise Inventory

Accepted Answer

A)  Inventory costing method that identifies the cost of the specific item that was sold.
B)  Inventory costing method that assumes that the costs of the first goods purchased are the costs of the first goods sold.
C)  The difference between net sales and cost of goods sold.
D)  The inventory that starts the manufacturing process.
E)  Inventory items being transported.F) Consists of products acquired in a finished condition,ready for sale without further processing.G) A valuation rule that requires Inventory to be written down when its market value falls below its cost.H) The expense that follows directly after Net Sales on a multiple step income statement.I) Beginning Inventory + Purchases - Cost of Goods SoldJ) Goods a company is holding on behalf of the goods' owner.K) Inventory costing method that assumes that the costs of the last goods purchased are the costs of the first goods sold.L) Requires that if LIFO is used on the income tax return,it also must be used in financial statement reporting.M) Beginning Inventory + Purchases - Ending InventoryN) Goods that are in the process of being manufactured.O) Inventory costing method that uses the weighted average unit cost of the goods available for sale for both cost of goods sold and ending inventory.P) Goods that are held for sale in the normal course of business or are used to produce other goods for sale.Q) How many times (on average) that inventory has been bought or sold.R) Inventory that was in process and now is completed and ready for sale.S) A measure of the average number of days from the time inventory is bought to the time it is sold.

Question 14

Which of the following financial statement line items will be affected in Year 1 if the ending inventory is overstated at the end of Year 1?

Accepted Answer

A)  Cost of goods sold will be overstated.
B)  Current assets will be overstated.
C)  Current liabilities will be overstated.
D)  Net income will be understated.

Question 15

An increasing balance in the Inventory account accompanied by an increase in the inventory turnover ratio would imply that the inventory build-up is occurring because:

Accepted Answer

A)  inventory is not selling as fast as anticipated.
B)  the company is expecting to sell more inventory in the future.
C)  inventory is selling,but it is taking longer to collect payment from customers.
D)  the economy is slowing down.

Question 16

Brandon,Inc.has 500 units in inventory that were purchased for $24 each.These units have a current market value of $30 each.Brandon's supplier has just announced a price increase to $33 that will go into effect at the beginning of next year.Management should:

Accepted Answer

A)  make no adjustments to the inventory account.
B)  adjust the inventory account using the lower of the recent market values,which is $30.00.
C)  adjust the inventory account using the cost,which is $24.00.
D)  adjust the inventory account using the average of the recent market values,which is $33.00.

Question 17

When costs per unit are increasing,the inventory costing method that results in the lower income tax expense is the LIFO method.

Accepted Answer

A) True 
 B)False

Question 18

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.

Question 19

Beta Company uses a periodic inventory system.The company bought 80 units of inventory for $12 each and 20 units of inventory for $12.50 each.It sold 90 units for $25 each.Beta's weighted average cost is:

Accepted Answer

A)  $12.10.
B)  $12.25.
C)  $16.50.
D)  $12.

Question 20

Inventory levels increase by 10% at your company during the fourth quarter.Based on this increase,which of the following statements must be correct?

Accepted Answer

A)  This must be good news because inventories are an asset to the company.
B)  This could be good news if the company is ordering more goods because sales appear to be rising.
C)  This could be bad news if the company is ordering more goods because unit costs are falling.
D)  This must be bad news because higher inventories mean higher costs.

Exam 7: Inventory and Cost of Goods Sold

Which of these would you expect to have the highest inventory turnover ratio?

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If ending inventory in Year 1 is misstated,then Year 1's ________ also must be misstated.

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Match the term to the appropriate definition.There are more definitions than terms. -Merchandise Inventory

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Which of the following financial statement line items will be affected in Year 1 if the ending inventory is overstated at the end of Year 1?

Correct AnswerverifiedShow Answer

Match the term to the appropriate definition.There are more definitions than terms. -Finished Goods Inventory

Correct AnswerverifiedShow Answer

If Cherry Co.has an inventory turnover ratio of 8 times,its days to sell must be approximately:

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The inventory turnover ratio directly measures:

Correct AnswerverifiedShow Answer

Which inventory method is typically used when accounting for expensive and unique inventory items?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The weighted average cost method uses the ________ cost for cost of goods sold on the income statement and the ________ cost for inventory on the balance sheet.

Correct AnswerverifiedShow Answer

In a period of rising prices,the inventory costing method that will cause the company to have the highest cost of goods sold is:

Correct AnswerverifiedShow Answer

A lower of cost or market write-down would be recorded with a debit to Cost of Goods Sold.

Correct AnswerverifiedShow Answer

An increasing balance in the Inventory account accompanied by an increase in the inventory turnover ratio would imply that the inventory build-up is occurring because:

Correct AnswerverifiedShow Answer

Inventory levels increase by 10% at your company during the fourth quarter.Based on this increase,which of the following statements must be correct?

Correct AnswerverifiedShow Answer

Brandon,Inc.has 500 units in inventory that were purchased for $24 each.These units have a current market value of $30 each.Brandon's supplier has just announced a price increase to $33 that will go into effect at the beginning of next year.Management should:

Correct AnswerverifiedShow Answer

Which of the following would be in the raw materials inventory of a company making ice cream?

Correct AnswerverifiedShow Answer

The cost assigned to cost of goods sold and to inventory under the FIFO method will be the same whether the perpetual or the periodic inventory system is used.

Correct AnswerverifiedShow Answer

Goods that a company holds that are not reported on the company's balance sheet are called:

Correct AnswerverifiedShow Answer

Beta Company uses a periodic inventory system.The company bought 80 units of inventory for $12 each and 20 units of inventory for $12.50 each.It sold 90 units for $25 each.Beta's weighted average cost is:

Correct AnswerverifiedShow Answer

When costs per unit are increasing,the inventory costing method that results in the lower income tax expense is the LIFO method.

Correct AnswerverifiedShow Answer

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The weighted average cost method uses the cost for cost of goods sold on the income statement and the cost for inventory on the balance sheet.

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