Transactions that affect inventories on hand have an effect on both the balance sheet and the income statement.
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1. Transactions
that affect inventories on hand have an effect on both the balance sheet and
the income statement.
Ans: T,
LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Reporting
2. The more inventory a company has in stock,
the greater the company’s profit.
Ans: F,
LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource
Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Business Economic
3. Raw materials inventories are the goods
that a manufacturer has completed and are ready to be sold to customers.
Ans: F,
LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource
Management, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economic
4. Goods that have been purchased FOB
destination but are in transit, should be excluded from a physical count of
goods.
Ans: T,
LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Reporting
5. Goods out on consignment should be included
in the inventory of the consignor.
Ans: T,
LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Reporting
6. The specific identification method of
costing inventories tracks the actual physical flow of the goods available for
sale.
Ans: T,
LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: FSA
7. Management may choose any inventory costing
method it desires as long as the cost flow assumption chosen is consistent with
the physical movement of goods in the company.
Ans: F,
LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: FSA
8. The first-in, first-out (FIFO) inventory
method results in an ending inventory valued at the most recent cost.
Ans: T,
LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Reporting
9. The expense recognition principle requires
that the cost of goods sold be matched against the ending merchandise inventory
in order to determine income.
Ans: F,
LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: FSA
10. The specific identification method of
inventory valuation is desirable when a company sells a large number of
low-unit cost items.
Ans: F,
LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA:
Business Economic
11. If a company has no beginning inventory and
the unit cost of inventory items does not change during the year, the value
assigned to the ending inventory will be the same under LIFO and average cost
flow assumptions.
Ans: T,
LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Reporting
12. If the unit price of inventory is
increasing during a period, a company using the LIFO inventory method will show
less gross profit for the period, than if it had used the FIFO inventory
method.
Ans: T,
LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Reporting
13. If a company has no beginning inventory and
the unit price of inventory is increasing during a period, the cost of goods
available for sale during the period will be the same under the LIFO and FIFO
inventory methods.
Ans: T,
LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Reporting
14. A company may use more than one inventory
costing method concurrently.
Ans: T,
LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Reporting
15. Use of the LIFO inventory valuation method
enables a company to report paper or phantom profits.
Ans: F,
LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Reporting
16. If a company changes its inventory
valuation method, the effect of the change on net income should be disclosed in
the financial statements.
Ans: T,
LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Reporting
17. Under the lower-of-cost-or-market basis,
market is defined as current replacement cost.
Ans: T,
LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Reporting
18. Accountants believe that the write down
from cost to market should not
be made in the period in which the price decline occurs.
Ans: F,
LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: FSA
19. An error that overstates the ending
inventory will also cause net income for the period to be overstated.
Ans: T,
LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA:
Business Economic
20. If inventories are valued using the LIFO
cost assumption, they should not
be classified as a current asset on the balance sheet.
Ans: F,
LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Reporting
21. Inventory turnover is calculated as cost of
goods sold divided by ending inventory.
Ans: F,
LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Reporting
a22. If a company uses the FIFO cost assumption,
the cost of goods sold for the period will be the same under a perpetual or
periodic inventory system.
Ans: T,
LO: 7, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA:
Business Economic
a23. In applying the LIFO assumption in a
perpetual inventory system, the cost of the units most recently purchased prior
to sale is allocated first to the units sold.
Ans: T,
LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory
Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economic
a24. Under generally accepted accounting
principles, management has the choice of physically counting inventory on hand
at the end of the year or using the gross profit method to estimate the ending
inventory.
Ans: F,
LO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Reporting
a25. The retail inventory method requires a
company to value its inventory on the balance sheet at retail prices.
Ans: F,
LO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Reporting
26. Finished goods are
a classification of inventory for a manufacturer that are completed and ready
for sale.
Ans: T,
LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Reporting
27. Under the FIFO
method, the costs of the earliest units purchased are the first charged to cost
of goods sold.
Ans: T,
LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: FSA
28. The cost of goods
available for sale consists of the beginning inventory plus the cost of goods
purchased.
Ans: T,
LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA:
Business Economic
29. In a period of
falling prices, the LIFO method results in a lower cost of goods sold than the
FIFO method.
Ans: T,
LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA:
Business Economic
30. The
lower-of-cost-or-market basis is an example of the accounting concept of
conservatism.
Ans: T,
LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Reporting
31. Inventories are
reported in the current assets section of the balance sheet immediately below
receivables.
Ans: T,
LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Reporting
a32. In
a perpetual inventory system, the cost of goods sold under the FIFO method is
based on the cost of the latest goods on hand during the period.
Ans: F,
LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Reporting
a33. The gross profit
method is based on the assumption that the rate of gross profit remains
constant from one year to the next.
Ans: T,
LO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Reporting1. Transactions
that affect inventories on hand have an effect on both the balance sheet and
the income statement.Ans: T,
LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Reporting 2. The more inventory a company has in stock,
the greater the company’s profit.Ans: F,
LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource
Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Business Economic 3. Raw materials inventories are the goods
that a manufacturer has completed and are ready to be sold to customers.Ans: F,
LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource
Management, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economic 4. Goods that have been purchased FOB
destination but are in transit, should be excluded from a physical count of
goods.Ans: T,
LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Reporting 5. Goods out on consignment should be included
in the inventory of the consignor.Ans: T,
LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Reporting 6. The specific identification method of
costing inventories tracks the actual physical flow of the goods available for
sale.Ans: T,
LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: FSA 7. Management may choose any inventory costing
method it desires as long as the cost flow assumption chosen is consistent with
the physical movement of goods in the company.Ans: F,
LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: FSA 8. The first-in, first-out (FIFO) inventory
method results in an ending inventory valued at the most recent cost.Ans: T,
LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Reporting 9. The expense recognition principle requires
that the cost of goods sold be matched against the ending merchandise inventory
in order to determine income.Ans: F,
LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: FSA 10. The specific identification method of
inventory valuation is desirable when a company sells a large number of
low-unit cost items.Ans: F,
LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB:
Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA:
Business Economic 11. If a company has no beginning inventory and
the unit cost of inventory items does not change during the year, the value
assigned to the ending inventory will be the same under LIFO and average cost
flow assumptions.Ans: T,
LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Reporting 12. If the unit price of inventory is
increasing during a period, a company using the LIFO inventory method will show
less gross profit for the period, than if it had used the FIFO inventory
method.Ans: T,
LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Reporting 13. If a company has no beginning inventory and
the unit price of inventory is increasing during a period, the cost of goods
available for sale during the period will be the same under the LIFO and FIFO
inventory methods.Ans: T,
LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Reporting 14. A company may use more than one inventory
costing method concurrently.Ans: T,
LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Reporting 15. Use of the LIFO inventory valuation method
enables a company to report paper or phantom profits.Ans: F,
LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Reporting 16. If a company changes its inventory
valuation method, the effect of the change on net income should be disclosed in
the financial statements.Ans: T,
LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Reporting 17. Under the lower-of-cost-or-market basis,
market is defined as current replacement cost.Ans: T,
LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Reporting 18. Accountants believe that the write down
from cost to market should not
be made in the period in which the price decline occurs.Ans: F,
LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: FSA 19. An error that overstates the ending
inventory will also cause net income for the period to be overstated.Ans: T,
LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA:
Business Economic 20. If inventories are valued using the LIFO
cost assumption, they should not
be classified as a current asset on the balance sheet.Ans: F,
LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Reporting 21. Inventory turnover is calculated as cost of
goods sold divided by ending inventory.Ans: F,
LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Reporting a22. If a company uses the FIFO cost assumption,
the cost of goods sold for the period will be the same under a perpetual or
periodic inventory system.Ans: T,
LO: 7, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA:
Business Economic a23. In applying the LIFO assumption in a
perpetual inventory system, the cost of the units most recently purchased prior
to sale is allocated first to the units sold.Ans: T,
LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory
Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economic a24. Under generally accepted accounting
principles, management has the choice of physically counting inventory on hand
at the end of the year or using the gross profit method to estimate the ending
inventory.Ans: F,
LO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Reporting a25. The retail inventory method requires a
company to value its inventory on the balance sheet at retail prices.Ans: F,
LO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Reporting 26. Finished goods are
a classification of inventory for a manufacturer that are completed and ready
for sale.Ans: T,
LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Reporting 27. Under the FIFO
method, the costs of the earliest units purchased are the first charged to cost
of goods sold.Ans: T,
LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: FSA 28. The cost of goods
available for sale consists of the beginning inventory plus the cost of goods
purchased.Ans: T,
LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA:
Business Economic 29. In a period of
falling prices, the LIFO method results in a lower cost of goods sold than the
FIFO method.Ans: T,
LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA:
Business Economic 30. The
lower-of-cost-or-market basis is an example of the accounting concept of
conservatism.Ans: T,
LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Reporting 31. Inventories are
reported in the current assets section of the balance sheet immediately below
receivables.Ans: T,
LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Reportinga32. In
a perpetual inventory system, the cost of goods sold under the FIFO method is
based on the cost of the latest goods on hand during the period.Ans: F,
LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Reporting a33. The gross profit
method is based on the assumption that the rate of gross profit remains
constant from one year to the next.Ans: T,
LO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB:
Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Reporting
