MERCANDISERS INVENTORY RECAP QUESTIONS

Multiple choice:

1.Which of the following are required to record the sale of merchandise on credit under a perpetual inventory system?

a.Debit accounts receivable, credit sales revenue

b.Debit cost of goods sold, credit cash

c.Debit cost of goods sold, credit inventory

d.Both a & c are necessary entries

2.What is the effect of using FIFO during a period of rising prices under a perpetual inventory system?

aLess net income than LIFO

b.Less operating expenses than LIFO

c.Higher gross profit than LIFO

d.Higher cost of goods sold than average costing

3.Which of the following is NOT a reason for choosing the LIFO method?

LIFo reports the most up to date inventory values on the balance sheet

LIFO uses more current costs in calculating cost of goods sold

LIFO allows owners and managers to manage reported income

LIFO generally results in lower income taxes paid

4.Which of the following statements is true about a company making an accounting change in its financial statements?

a. It is generally entitled to make one accounting change per year

b.It must report the change in accounting method

c.Companies can never make accounting changes because of the consistency principle

d.It must petition the FASB for permission to make the change.

5.When is an item considered material?

a. When it facilitates comparison with the financial statements of another company in the same industry

b.When its inclusion in the financial statements would cause a statement user to change a decision

c.When its dollar value is greater than 10% of net income

d.When it is accounted for using a treatment that is not normally allowed by GAAP.