1. All three methods of inventory cost determination will produce the same cumulative cost of goods sold over the life cycle of the business.

Select one:

True

False

2. The following information was taken from the 20X2 income statement of Milburn Company: Pretax profit, $12,000; Total operating expenses (not including income taxes), $20,000; Sales revenue, $120,000; Beginning inventory, $8,000; and Purchases, $90,000. Compute the amount of the ending inventory.

Select one:

a. $10,000

b. $18,000

c. $88,000

d. $8,000

3. An inventory write-down from cost to net realizable value should not be made in the period in which the price decline occurs.

Select one:

True

False

4. Which of the following items will increase the cost of inventory for the buyer of goods?

Select one:

a. Purchase discounts taken by the purchase

b. Freight charges paid by the seller

c. Purchase returns and allowances granted by the seller

d. Freight charges paid by the purchaser

5. Which of the following businesses would not have cost of goods sold?

Select one:

a. A manufacturer of batteries

b. A grocery store

c. A movie theatre

d. A jewelry store

6. Purchases, returns and allowances should be added to the cost of purchases on the income statement, assuming the periodic inventory system is used.

Select one:

True

False

7. When ending inventory is smaller than beginning inventory, gross margin is less than, if ending inventory were larger than beginning inventory (assuming purchases remain constant).

Select one:

True

False

8. Marsden Company purchased a significant amount of raw materials inventory for a new product it is manufacturing. Marsden purchased insurance on these raw materials while they were in transit from the supplier.

How should Marsden account for the insurance costs?

Select one:

a. As a prepaid expense until the inventory arrives

b. As part of the cost of the raw materials inventory

c. As an operating expense of the period

d. As a contra-asset account to inventory

9. Which inventory system keeps an ongoing record of purchases and sales of inventory with adjustments that reflect changes as they occur

Select one:

a. Periodic system

b. Just-in-time system

c. Specific identification system

d. Perpetual system

10. In periods of falling prices, FIFO will result in a higher cost of goods sold than the average cost formula.

Select one:

True

False