Question 1

1. With respect to the valuation of inventory and measurement of the cost of goods sold, the principle of consistency means that the same method should be applied:

		A) In successive accounting periods.
		B) By all companies in a given industry.
		C) To all products in the inventory.
		D) In financial statements and income tax returns.

Question 2

Use the following to answer questions 2 - 3:

At year-end, the perpetual inventory records of Williams Co. indicate 60 units of a particular product in inventory, acquired at the following dates and unit costs:

Purchased in August: 30 units at $900 per unit

Purchased in November: 30 units at $950 per unit

However, a complete physical inventory taken at year-end indicates only 50 units of this product actually are on hand.

2. Refer to the above data. Assuming that Williams uses the FIFO flow assumption, it should record this inventory shrinkage by:

		A) Debiting Cost of Goods Sold $9,500
		B) Crediting Cost of Goods Sold $9,000.
		C) Debiting Cost of Goods Sold $9,000.
		D) Crediting Cost of Goods Sold $9,500.

Question 3

3. Refer to the above data. Assuming that Williams uses the LIFO flow assumption, the cost of these items to be included in inventory in the company's year end balance sheet is:

		A) $46,500
		B) $46,000
		C) $46,250.
		D) Some other amount.

Question 4

4. On Saturday, June 30, Dalton Stereo sold merchandise to Tom Reed on account. The sales price was $4,200, and the cost of goods sold was $3,100. The sales revenue was recorded immediately, but the entry recording the cost of goods sold was dated Monday, July 2. As a result, net income for June was:

		A) Overstated by $4,200.
		B) Overstated by $3,100.
		C) Overstated by $1,100.
		D) Not affected, but the net income for July is understated.

Question 5

5. For the last several years Goldschmidt Corporation has operated with a gross profit rate of 45%. On January 1 of the current year the company had on hand inventory with a cost of $700,000. Purchases of merchandise during January amounted to $200,000, and sales for the month were $385,000. With the gross profit method, the estimated inventory at January 31 is:

		A) $515,000
		B) $688,250
		C) $726,750
		D) $700,000

Question 6

6. In a period of rising prices, a company is most likely to use the FIFO method of pricing inventory if:

		A) Each item in the inventory is unique.
		B) Management wants the same unit cost assigned to items sold and items remaining in inventory.
		C) Management's primary objective is to minimize income taxes.
		D) Management wants the company's income statement to indicate the highest possible amounts of gross profit and net income.

Question 7

Use the following information to answer questions 7 through 9.

Tek Toys, Inc. uses a perpetual inventory system. The company's beginning inventory of a particular product and its purchases during the month of January were as follows:

	Quantity	Unit Cost	Total Cost
Beginning Inventory (Jan 1)	16	$10	$160
Purchases (Jan 11)	14	$12	$168
Purchases (Jan 20)	23	$15	$345
Total	53		$673

On January 14, Tek Toys, Inc. sold 25 units of this product. The other 28 units remained in inventory at January 31.

7. Refer to the above data. Assuming that Tek Toys uses the FIFO flow assumption, the cost of goods sold to be recorded at January 14 is:

		A) $278
		B) $268.
		C) $393.
		D) Some other amount.

Question 8

1. 8. Refer to the above data. Assuming that Tek Toys uses the LIFO flow assumption, the cost of goods sold to be recorded at January 14 is:

		A) $393.
		B) $268.
		C) $278.
		D) Some other amount.

Question 9

1. 9. Refer to the above data. Assuming that Tek Toys uses the average cost flow assumption, the cost of goods sold to be recorded at January 14 is (round cost per unit to nearest cent):

		A) $317.50
		B) $308.25.
		C) $273.25.
		D) $250.25

Question 10

10. If ending inventory is overstated in the current year:

Answer

		A. Net Income will also be overstated in the current year
		B. Next year's beginning inventory will also be overstated
		C. Next year's net income will be understated
		D. All three of the above statements are correct

Question 11

11. During the current year, Carl Equipment Stores had net sales of $600 million, a cost of goods sold of $500 million, average accounts receivable of $60 million, and average inventory of $50 million.

Carl Equipment 's inventory turnover rate is:

		A. 5 times
		B. 10 times
		C. 15 times
		D. Some other amount

Question 12

12. If an error in valuing inventory occurs in one year:

		A. It has no effect upon income in the following year.
		B. It has no effect upon the income statement, only on the balance sheet
		C. It is self-correcting after two years.
		D. Retained earnings will be adversely affected until corrected.

Question 13

13. Short-term creditors are likely to view a higher-than-average inventory turnover rate as indicating that:

		A. A company is in financial difficulty
		B. The company is able to sell its inventory quickly
		C. The company probably has an excessive amount of inventory
		D. The company has a longer-than-average operating cycle

Question 14

14. Many companies state in their annual reports that inventory is shown at the lower of its cost or market value. This means that the inventory:

		A. Is obsolete
		B. Has been written down to a carrying value below cost
		C. Is shown at the lesser of cost or sales value.
		D. None of the above

Question 15

15. The write-down of inventory:

		A. Only affects the balance sheet and not the income statement
		B. Only affects the income statement and not the balance sheet
		C. Affects both the income statement and the balance sheet
		D. Affects neither the income statement nor the balance sheet