1. Transactions that affect inventories on hand have an effect on both the balance sheet and the income statement.
A) True
B) False
2. The matching principle requires that the cost of goods sold be matched against the ending merchandise inventory in order to determine income.
A) True
B) False
3. A company may use more than one inventory costing method concurrently.
A) True
B) False
4. An error that overstates the ending inventory will also cause net income for the period to be overstated.
A) True
B) False
5. Under the FIFO method, the costs of the earliest units purchased are the first charged to cost of goods sold.
A) True
B) False
6. The gross profit method is based on the assumption that the rate of gross profit remains constant from one year to the next.
A) True
B) False
7. In a manufacturing business, inventory that is ready for sale is called
A) raw materials inventory.
B) work in process inventory.
C) finished goods inventory.
D) store supplies inventory.
8. An employee assigned to counting computer monitors in boxes should
A) estimate the number if there is a large quantity to be counted.
B) read each box and rely on the box description for the contents.
C) determine that the box contains a monitor.
D) rely on the warehouse records of the number of computer monitors.
9. A recommended internal control procedure for taking physical inventories is that the counting should be done by employees who do not have custodial responsibility for the inventory. This is an example of what type of internal control procedure?
A) Establishment of responsibility
B) Documentation procedure
C) Independent internal verification
D) Segregation of duties
10. The term "FOB" denotes
A) free on board.
B) freight on board.
C) free only (to) buyer.
D) freight charge on buyer.
11. Cost of goods sold is computed from the following equation:
A) beginning inventory – cost of goods purchased ending inventory.
B) sales – cost of goods purchased beginning inventory – ending inventory.
C) sales gross profit – ending inventory beginning inventory.
D) beginning inventory cost of goods purchased – ending inventory
12. Which of the following is not a common cost flow assumption used in costing inventory?
A) First-in, first-out
B) Middle-in, first-out
C) Last-in, first-out
D) Average cost
13. Which of the following statements is true regarding inventory cost flow assumptions?
A) A company may use more than one costing method concurrently.
B) A company must comply with the method specified by industry standards.
C) A company must use the same method for domestic and foreign operations.
D) A company may never change its inventory costing method once it has chosen a method.
14. Two companies report the same cost of goods available for sale but each employs a different inventory costing method. If the price of goods has increased during the period, then the company using
A) LIFO will have the highest ending inventory.
B) FIFO will have the highest cost of good sold.
C) FIFO will have the highest ending inventory.
D) LIFO will have the lowest cost of goods sold.
15. If companies have identical inventoriable costs but use different inventory flow assumptions when the price of goods have not been constant, then the
A) cost of goods sold of the companies will be identical.
B) cost of goods available for sale of the companies will be identical.
C) ending inventory of the companies will be identical.
D) net income of the companies will be identical.
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