Question 1

An understatement of beginning inventory causes net income to be understated.

Accepted Answer

The answer of An understatement of beginning inventory causes net...

Question 2

Which of the following statements regarding inventory costing methods is true?

Accepted Answer

The LIFO method assumes that the costs for the newest goods (the last ones in) are used first and the older costs are left in ending inventory.

Question 3

When LIFO is used with the periodic inventory system,costs are assigned to cost of goods sold using the most recent purchase at the point of each sale,rather than from the most recent purchase as of the end of the period.

Accepted Answer

When LIFO is used with the periodic inventory system, costs are assigned to cost of goods sold using the most recent purchase as of the end of the period, rather than the most recent purchase at the point of each sale.

Question 4

The assignment of costs to cost of goods sold and to inventory using the weighted average method usually yields different results depending on whether a perpetual or a periodic system is used.

Accepted Answer

In a perpetual system, costs are assigned to cost of goods sold and to inventory with each individual sale or purchase, while in a periodic system, costs are assigned only at the end of a period based on an average cost. Therefore, the weighted average method will yield different results depending on the system used.

Question 5

Which of the following statements regarding comparisons made in managing inventory is not true?

Accepted Answer

The statement that "The inventory turnover and days to sell ratios are consistent among companies in different industries" is not true. Inventory turnover and days to sell ratios can vary greatly among industries and among companies within the same industry. Therefore, it is important to compare these ratios within the same industry and not across industries.

Question 6

Which of the following statements regarding the lower of cost or market rule is not true?

Accepted Answer

The lower of cost or market rule is not an inventory cost method; it is a valuation method used to ensure inventory is reported at the lower of its historical cost or market value, reflecting the conservatism principle.

Question 7

Which one of the following statements regarding inventory is not true?

Accepted Answer

An increase in inventory levels may be necessary for certain businesses or industries, such as retail stores preparing for busy seasons or manufacturers with longer production cycles. Therefore, it is not always a sign of inefficiency in inventory management.

Question 8

In applying the lower of cost or market rule to report inventory,"market" is defined as the current selling price.

Accepted Answer

The "market" in the lower of cost or market rule refers to the replacement cost, not the current selling price.

Question 9

A company's ability to pay its short-term obligations depends on many factors,including how quickly it sells its inventory.

Accepted Answer

A company's ability to generate cash from selling its inventory can affect its ability to pay its short-term obligations.

Question 10

Goods on consignment are goods shipped by the owner to another company that holds the goods and sells them for the owner.

Accepted Answer

This is the definition of goods on consignment.

Question 11

Which of the following statements regarding inventory measures is

Accepted Answer

The answer of Which of the following statements regarding inventory...

Question 12

Carrying insufficient quantities of inventory on hand:

Accepted Answer

Carrying insufficient quantities of inventory on hand may result in lost sales, as customers may go to competitors if the desired products are not available. This can ultimately have a negative impact on profitability. Additionally, if inventory levels are too low, the company may have to incur additional costs to expedite orders or replenish stock, leading to increased costs of carrying inventory. Customer satisfaction may also be affected if they cannot find the products they need in a timely manner.

Question 13

Which of the following statements regarding the calculations used for the weighted average inventory costing method is true?

Accepted Answer

The weighted-average method smooths out price fluctuations and typically results in an inventory cost that falls between FIFO and LIFO, as it averages all costs of goods available for sale.

Question 14

The choice of an inventory costing method usually has no impact on gross profit or cost of goods sold.

Accepted Answer

The choice of inventory costing method can have a significant impact on gross profit and cost of goods sold, as each method can result in different values for ending inventory, which then affects the calculation of these metrics.

Question 15

The cost assigned to cost of goods sold and to inventory under the FIFO method will be the same whether the perpetual or the periodic inventory system is used.

Accepted Answer

The cost assigned to cost of goods sold and to inventory under the FIFO method will be the same whether the perpetual or the periodic inventory system is used because the cost flow assumes that the first items purchased are the first items sold or used, regardless of the inventory system used.

Question 16

Which of the following is not true if excessive quantities of inventory are purchased?

Accepted Answer

Excessive quantities of inventory would decrease the inventory turnover ratio as it would take longer to sell off the inventory.

Question 17

The inventory costing method that results in the lowest taxable income in a period of inflation is the FIFO method.

Accepted Answer

The inventory costing method that results in the lowest taxable income in a period of inflation is the LIFO (last-in, first-out) method, not the FIFO (first-in, first-out) method.

Question 18

An overstatement of ending inventory will cause an overstatement of assets and an understatement of stockholders' equity on the balance sheet.

Accepted Answer

If ending inventory is overstated,then assets will be overstated.Cost of goods sold will be understated,so net income will be overstated and stockholders' equity will be overstated.

Question 19

Which of the following statements regarding inventory classifications is not true?

Accepted Answer

Inventory is classified as a current asset on the balance sheet, not a long-term asset. Current assets are expected to be converted to cash within one year or the operating cycle, whichever is longer. Long-term assets, on the other hand, are expected to be held for more than one year.

Question 20

Which of the following statements regarding inventory calculations is true?

Accepted Answer

The formula for calculating cost of goods sold is Beginning Inventory + Net Purchases - Ending Inventory.

Quiz 7: Inventories and Cost of Goods Sold