Question 1: When the perpetual inventory method is used, it is never necessary to count merchandise on hand.

True or False

Question 2: When a company changes from one inventory costing method to another, the change must be fully disclosed in a footnote to the financial statements explaining the reasons for the change and the effect on net income.

True or False

Question 3: In a period of falling prices, FIFO will result in a higher net income figure than that resulting from LIFO.

True or False

Question 4: For 2007, Johnson Company had the following: beginning inventory - $780,000; ending inventory - $830,000; and cost of goods sold - $215,000. The inventory turnover ratio is:

a .259

b .276

c .267

d .287

e none of the above

Question 5: When the periodic method of inventory accounting is used, purchases are recorded in the Inventory account.

True or False

Question 6: Smith & Olley Company for several years has maintained a 30 percent average gross margin on sales. Given the following data for 2007, what is the approximate inventory on December 31, 2007, computed by the gross margin method of estimating inventory? Inventory on January 1 - $24,000; net cost of purchases - $130,000; and net sales at retail in 2007 - $180,000.

a 35,100

b 23,100

c 28,000

d 54,000

e 26,000

Question 7: If the ending inventory is overstated by $100, the net income will be:

Question 7 options:

understated by $200.

understated by $100.

overstated by $200.

overstated by $100.

None of these.

Question 8: Errors in determining the cost of the ending inventory lead to a balance sheet that does not balance and are thus readily observed.

True or False

Question 9: An error in determining the cost of the ending inventory of a period generally results in misstated income for two periods.

True or False

The following principle requires a company to show in its financial statements by means of a footnote or other manner, the inventory costing method used:

Question 10 options:

a. conservation principle.

b. full-disclosure principle.

c. consistency principle.

d. business entity principle.

e. stable monetary concept.