Question 1

The FIFO inventory method will result in the lowest net income in comparison with the LIFO method when costs are decreasing.

Accepted Answer

When costs are decreasing, the FIFO method will result in a higher cost of goods sold and a lower net income compared to the LIFO method.

Question 2

The LIFO inventory method will result in the lowest gross profit in comparison with the FIFO method when unit costs are decreasing.

Accepted Answer

The LIFO method will result in the lowest gross profit when unit costs are increasing because the most recent and higher unit costs are matched with revenue, resulting in a lower gross profit. When unit costs are decreasing, the older and lower unit costs will be matched with revenue, resulting in a higher gross profit under LIFO. Therefore, the statement is false.

Question 3

The use of raw materials in the manufacturing process is reported as an operating expense on the income statement.

Accepted Answer

The use of raw materials in the manufacturing process is part of the cost of goods sold and is reported on the income statement as a deduction from revenue to arrive at gross profit. It is not reported as an operating expense.

Question 4

Generally,inventory inspection costs are reported as operating expenses on the income statement.

Accepted Answer

The answer of Generally,inventory inspection costs are reported as operating...

Question 5

The FIFO inventory method allocates the earliest inventory purchase costs to ending inventory.

Accepted Answer

The FIFO (First-In, First-Out) inventory method allocates the earliest inventory purchase costs to the cost of goods sold, not to ending inventory.

Question 6

The journal entry to write down inventory under the lower of cost or net realizable value rule results in a decrease in both ending inventory and cost of goods sold.

Accepted Answer

The journal entry to write down inventory under the lower of cost or net realizable value rule results in a decrease in ending inventory and an increase in cost of goods sold, not a decrease in both.

Question 7

During periods of decreasing unit costs,use of the LIFO inventory method will result in a higher amount of ending inventory than will the use of the FIFO inventory method.

Accepted Answer

During periods of decreasing unit costs, the LIFO method assigns the most recent (and therefore higher) costs to the ending inventory, resulting in a higher ending inventory value compared to FIFO.

Question 8

A grocery store would likely use the specific identification inventory costing method for most of the items in its inventory.

Accepted Answer

The specific identification method is generally only used for high-value items with unique serial numbers or identification codes, such as cars or jewelry. A grocery store would likely use the first-in, first-out (FIFO) or average cost method for most of the items in its inventory.

Question 9

The journal entry to write down inventory under the lower of cost or net realizable value rule results in a debit to cost of goods sold and a credit to inventory.

Accepted Answer

This is the correct journal entry to write down inventory under the lower of cost or net realizable value rule. The debit to cost of goods sold recognizes the decrease in the value of the inventory, and the credit to inventory reduces the carrying value on the balance sheet.

Question 10

The lower of cost or net realizable value rule is used due to the conservatism constraint,and therefore an inventory calculation may result in a departure from the historical cost principle.

Accepted Answer

The lower of cost or net realizable value (LCNRV) rule is used to ensure that inventory is reported at the lower of its historical cost or net realizable value. This is in line with the conservatism constraint, which requires a cautious approach to financial reporting. As a result, the LCNRV rule may result in a departure from the historical cost principle. Therefore, Option A is correct.

Question 11

Manufactured goods transferred out of work in process become part of finished goods inventory.

Accepted Answer

This is correct as manufactured goods that have been completed in the work in process stage are transferred to the finished goods inventory.

Question 12

The journal entry to write down inventory under the lower of cost or net realizable value rule results in a credit to cost of goods sold and a debit to inventory.

Accepted Answer

The journal entry to write down inventory under the lower of cost or net realizable value rule results in a debit to cost of goods sold and a credit to inventory.

Question 13

During periods of decreasing unit costs,use of the FIFO inventory method results in lower gross profit than would use of the LIFO method.

Accepted Answer

FIFO assumes that the first units purchased are the first units sold. During periods of decreasing unit costs, this means that the cost of goods sold will be higher under FIFO than under LIFO, resulting in lower gross profit.

Question 14

A company can use the LIFO inventory method for income tax purposes and the FIFO inventory method for financial reporting purposes during a given year.

Accepted Answer

A company must use the same inventory accounting method for both tax and financial reporting purposes in a given year to maintain consistency and comply with IRS regulations.

Question 15

During periods of increasing unit costs,the LIFO inventory method results in lower income taxes.

Accepted Answer

LIFO (Last-In, First-Out) assumes that the most recently acquired inventory is sold first, resulting in a higher Cost of Goods Sold (COGS) and a lower ending inventory balance. When unit costs are increasing, this method results in a higher COGS and therefore lower taxable income.

Question 16

Goods available for sale are allocated to both ending inventory and cost of goods sold.

Accepted Answer

This is correct. When calculating cost of goods sold (COGS) and ending inventory, the goods available for sale are allocated between the two. The amount allocated to COGS represents the cost of the goods sold during the period, while the amount allocated to ending inventory represents the cost of the goods that are still on hand at the end of the period.

Question 17

During periods of increasing unit costs,the LIFO inventory method will result in a higher inventory amount on the balance sheet and a lower net income than will the FIFO inventory method.

Accepted Answer

During periods of increasing unit costs, the LIFO inventory method will result in a lower inventory amount on the balance sheet and a lower net income than will the FIFO inventory method.

Question 18

Direct material costs are a component of the cost of the work in process inventory.

Accepted Answer

Direct material costs are a key component of the cost of the work in process inventory because they directly contribute to the production of the goods being manufactured.

Question 19

The LIFO inventory method allocates the oldest inventory purchase costs to cost of goods sold.

Accepted Answer

The LIFO inventory method allocates the newest inventory purchase costs to cost of goods sold, not the oldest.

Question 20

A decrease in the merchandise inventory account occurs when units of inventory purchased are greater than units of goods sold.

Accepted Answer

A decrease in the merchandise inventory account occurs when units of goods sold are greater than units of inventory purchased. This is because the inventory account reflects the amount of inventory still available for sale, and when more units are sold than purchased, the inventory balance decreases.

Quiz 7: Reporting and Interpreting Cost of Goods Sold and Inventory

The FIFO inventory method will result in the lowest net income in comparison with the LIFO method when costs are decreasing.

The LIFO inventory method will result in the lowest gross profit in comparison with the FIFO method when unit costs are decreasing.

The use of raw materials in the manufacturing process is reported as an operating expense on the income statement.

Generally,inventory inspection costs are reported as operating expenses on the income statement.

The FIFO inventory method allocates the earliest inventory purchase costs to ending inventory.

The journal entry to write down inventory under the lower of cost or net realizable value rule results in a decrease in both ending inventory and cost of goods sold.

During periods of decreasing unit costs,use of the LIFO inventory method will result in a higher amount of ending inventory than will the use of the FIFO inventory method.

A grocery store would likely use the specific identification inventory costing method for most of the items in its inventory.

The journal entry to write down inventory under the lower of cost or net realizable value rule results in a debit to cost of goods sold and a credit to inventory.

The lower of cost or net realizable value rule is used due to the conservatism constraint,and therefore an inventory calculation may result in a departure from the historical cost principle.

Manufactured goods transferred out of work in process become part of finished goods inventory.

The journal entry to write down inventory under the lower of cost or net realizable value rule results in a credit to cost of goods sold and a debit to inventory.

During periods of decreasing unit costs,use of the FIFO inventory method results in lower gross profit than would use of the LIFO method.

A company can use the LIFO inventory method for income tax purposes and the FIFO inventory method for financial reporting purposes during a given year.

During periods of increasing unit costs,the LIFO inventory method results in lower income taxes.

Goods available for sale are allocated to both ending inventory and cost of goods sold.

During periods of increasing unit costs,the LIFO inventory method will result in a higher inventory amount on the balance sheet and a lower net income than will the FIFO inventory method.

Direct material costs are a component of the cost of the work in process inventory.

The LIFO inventory method allocates the oldest inventory purchase costs to cost of goods sold.

A decrease in the merchandise inventory account occurs when units of inventory purchased are greater than units of goods sold.