QUESTION 9

A LIFO liquidation means which of the following:

1. The firm uses the LIFO cost flow assumption, and it is insolvent. It must liquidate all of its inventory.
2. The firm did not purchase enough inventory units in the current period to cover its sales for the current period. It must sell its older inventory units that were valued at a lower price. Thus, its gross profit will be higher than expected.
3. The firm did not purchase enough inventory units in the current period to cover its sales for the current period. It must sell its older inventory units that were valued at a lower price. Thus, its gross profit will be lower than expected.
4. The firm did not purchase enough inventory units in the current period to cover its sales for the current period. It must sell its older inventory units that were valued at a higher price. Thus, its gross profit will be higher than expected.
5. None of these answers is correct.

QUESTION 10

The new bookkeeper forgot to record the payment of an accounts payable to a supplier. What impact does this have on the company's books?

1. No effect
2. Cash is understated/the Income Statement is understated
3. Cash is overstated/the Income Statement is overstated
4. Cash is overstated/liabilities are understated
5. Cash is overstated/liabilities are overstated

QUESTION 11

The new bookkeeper forgot to record the sale of merchandise that was made to a customer on account with 20% profit. What impact does this have on the company's books?

1. Cash is understated/Accounts receivable is understated/Inventory is overstated/Income statement is understated
2. Accounts receivable is understated/Inventory is understated/Income statement is overstated
3. Cash is overstated/Inventory is understated/Income statement is overstated
4. Accounts receivable is understated/Inventory is overstated/Income statement is understated
5. Cash is understated/Accounts receivable is overstated/Income statement is understated

QUESTION 12

Common stock on the balance sheet is always valued at:

1. Paid-in Capital plus Retained Earnings
2. Paid-in Capital plus Retained Earnings minus Treasury Shares
3. Par value times shares issued
4. Par value times shares authorized
5. Par value times shares outstanding