Question 1

An increasing inventory turnover ratio indicates:
A)a longer time span between the ordering and receiving of inventory.
B)a shorter time span between the ordering and receiving of inventory.
C)a shorter time span between the purchase and sale of inventory.
D)a longer time span between the purchase and sale of inventory.

Accepted Answer

Inventory turnover ratio is a measure of how quickly a company sells its inventory. A higher inventory turnover ratio indicates that inventory is selling quickly, which means there is a shorter time span between the purchase and sale of inventory. Therefore, the correct answer is C.

Question 2

Which of the following would not be affected by the choice of an inventory costing method (that is between FIFO,LIFO,weighted average,and specific identification)?
A)Net sales
B)Cost of goods sold
C)Gross profit
D)Net income

Accepted Answer

Net sales are not affected by the choice of an inventory costing method because it is based on the actual amount of revenue earned from selling goods, which is not influenced by the cost of inventory used to produce those goods. The other options (B, C, D) are all affected by the choice of inventory costing method, as they are calculated based on the cost of goods sold and the related inventory valuation.

There is no "best choice" for inventory costing method, as each method has its own advantages and disadvantages, depending on factors such as price stability, demand patterns, and tax implications. The choice of method ultimately depends on the specific circumstances of the business and its accounting goals.

Question 3

Use the information above to answer the following question.How long on average does it take to sell something from inventory after it is purchased?
A)12.5 days
B)24.8 days
C)29.2 days
D)165.9 days

Accepted Answer

The answer of Use the information above to answer the...

Question 4

For a merchandiser,inventory turnover refers to how many times:
A)during the period the company replaces its raw materials inventory.
B)the company buys and sells its inventory of goods.
C)the company produces and delivers its inventory of goods to customers.
D)the company orders merchandise.

Accepted Answer

Inventory turnover is a measure of how quickly a company can sell its inventory. It is calculated by dividing the cost of goods sold by the average inventory during a certain period of time. Therefore, inventory turnover refers to how many times the company buys and sells its inventory of goods during the period.

Question 5

Which of the following would cause the greatest increase in a company's inventory turnover ratio?
A)Keeping the same amount of inventory on hand while unit sales are increasing.
B)Increasing the amount of inventory on hand while unit sales are increasing.
C)Keeping the same amount of inventory on hand while unit sales are decreasing.
D)Decreasing the amount of inventory on hand while unit sales are increasing.

Accepted Answer

A company's inventory turnover ratio measures how many times it sells and replaces its inventory in a given period. A higher ratio indicates that the company is selling its inventory quickly, which is generally seen as a positive sign. Decreasing the amount of inventory on hand while unit sales are increasing would cause the greatest increase in the inventory turnover ratio, as it would indicate even faster inventory turnover.

Question 6

One of the most common sources of misstatement in financial statements is the:
A)use of alternating inventory costing methods.
B)failure to write down inventory when the market value is below cost.
C)failure to report stock issues appropriately.
D)incorrectly calculating the inventory turnover ratio.

Accepted Answer

Failure to write down inventory when the market value is below cost can result in overstatement of the value of inventory and the overall assets, leading to misstated financial statements. The use of alternating inventory costing methods and incorrectly calculating the inventory turnover ratio can also lead to misstatement, but they are less common as compared to the failure to write down inventory. Reporting stock issues appropriately is also important, but it is not as significant a source of misstatement as the others mentioned.

Question 7

Inventory levels increase by 10% at your company during the fourth quarter.Based on this increase,which of the following statements is true?
A)This is always good news because inventories are an asset to the company.
B)This could be good news if the company is ordering more goods because sales appear to be rising.
C)This could be bad news if the company is ordering more goods because unit costs are falling.
D)This is always bad news because higher inventories mean higher costs.

Accepted Answer

An increase in inventory levels during the fourth quarter can be a positive sign if it is due to increased orders and rising sales. This indicates that the company is anticipating strong demand and is preparing accordingly. However, an increase in inventory levels could also be a negative sign if it is due to falling unit costs and overproduction, which could result in excess inventory and increased storage costs. Therefore, statement B is the only one that acknowledges the potential positive and negative implications of an increase in inventory levels.

Question 8

For a manufacturer,inventory turnover refers to how many times:
A)during the period the company replaces the raw materials inventory.
B)the company buys and sells its inventory of finished goods.
C)the company produces its goods and delivers the inventory to customers.
D)the company orders raw materials.

Accepted Answer

The answer of For a manufacturer,inventory turnover refers to how...

Question 9

Your company has 100 units in inventory,purchased at $16 per unit,that could be replaced for $14.
A)The company should credit cost of goods sold for $200.
B)The company should debit cost of goods sold for $1,400.
C)The company should credit inventory for $200.
D)The company should debit inventory for $1,400.

Accepted Answer

The inventory should be written down to its replacement cost, which is $14 per unit. The difference is $2 per unit for 100 units, totaling $200. This amount should be credited to inventory to reflect the lower value.

Question 10

Because LIFO uses older costs for inventory,in times of rising prices:
A)LIFO results in a higher book value of inventory and lower inventory turnover ratio than FIFO.
B)LIFO results in a lower book value of inventory and lower inventory turnover ratio than FIFO.
C)LIFO results in a higher book value of inventory and higher inventory turnover ratio than FIFO.
D)LIFO results in a lower book value of inventory and higher inventory turnover ratio than FIFO.

Accepted Answer

LIFO uses newer costs for COGS, resulting in lower ending inventory and a lower book value. This also leads to a higher inventory turnover ratio as the inventory is being sold at a faster rate. Therefore, the correct choice is D.

Question 11

An increasing balance in the inventory account and a faster inventory turnover ratio would imply that the inventory build-up is occurring because:
A)goods are not selling as fast as anticipated.
B)the company is expecting to sell more in the future.
C)goods are selling but it is taking longer to collect payment.
D)the economy is slowing down.

Accepted Answer

If the balance in the inventory account is increasing and the turnover ratio is faster, this indicates that inventory is being sold quickly and more inventory is being added to meet anticipated future demand. This would align with choice B, where the company is expecting to sell more in the future.

Question 12

The most commonly used inventory costing method in the U.S.is:
A)FIFO.
B)specific identification.
C)LIFO.
D)weighted average.

Accepted Answer

FIFO (First-In, First-Out) is the most commonly used inventory costing method in the U.S. This method assumes that the first items purchased or produced are the first ones sold, and the items remaining in inventory are those that were most recently purchased or produced. This method is preferred because it generally results in a lower cost of goods sold and a higher ending inventory valuation compared to other methods like LIFO or weighted average.

Question 13

Which of the following companies would be least concerned about a low inventory turnover ratio?
A)A fish market selling fresh fish.
B)A hardware company selling drywall screws.
C)A dairy company selling butter and milk.
D)A semiconductor company selling microchips.

Accepted Answer

Companies with inventories that are perishable (such as fish or butter and milk)or may quickly become obsolete (such as microchips)would be more concerned about a low inventory turnover ratio.

Question 14

If the market value of goods in inventory falls to $26,000 below its cost,the company should:
A)do nothing,because assets are reported at their original purchase price.
B)credit inventory for $26,000.
C)debit inventory for $26,000.
D)use the weighted average cost method since that method provides a more accurate indicator of current value.

Accepted Answer

The company should credit inventory for $26,000 to reflect the lower market value, as per the lower of cost or market rule in accounting.

Question 15

Use the information above to answer the following question.The inventory turnover ratio is closest to:
A)12.5.
B)13.4.
C)14.7.
D)2.2.

Accepted Answer

The inventory turnover ratio is calculated by dividing the cost of goods sold by the average inventory. The choice closest to the calculated ratio is 12.5.

Question 16

An increasing balance in the inventory account and a declining inventory turnover ratio implies that the inventory build up is occurring because:
A)goods are not selling as fast as they were in the past.
B)the company is expecting to sell more in the future.
C)goods are selling,but it is taking longer to collect payment.
D)goods cannot be shipped fast enough.

Accepted Answer

An increasing balance in the inventory account and a declining inventory turnover ratio indicates that the company is holding onto more inventory for a longer period of time, which is usually because goods are not selling as quickly as they were in the past. This could be due to various reasons such as changes in consumer demand, competition, or economic conditions.

Question 17

Which of the following statements is true?
A)FIFO results in a lower net income than LIFO when costs are increasing.
B)LIFO results in a higher net income than FIFO when costs are increasing.
C)LIFO results in a higher net income than FIFO when costs are decreasing.
D)LIFO results in the same net income as FIFO when costs are increasing.

Accepted Answer

The answer of Which of the following statements is true?
A)FIFO...

Question 18

On April 6,Lopez Co.purchased $5,000 of merchandise,terms 1/15,n/30.Lopez Co.paid for the purchase on April 26.The entry to record the payment on April 26 in a perpetual inventory system includes which of the following?
A)A credit to inventory for $50.
B)A debit to accounts payable for $4,900.
C)A credit to accounts payable for $5,000.
D)A credit to cash for $5,000.

Accepted Answer

Since Lopez Co. paid for the purchase on April 26, there is a credit to cash for $5,000. There is no credit to inventory since the payment was made after the discount period. There is no debit to accounts payable for the full amount of the purchase since the discount was taken into consideration. Therefore, the correct choice is D.

Question 19

When the replacement cost of inventory drops below the cost recorded in the financial records,applying the lower of cost or market (LCM)rule causes:
A)a decrease in cost of goods sold.
B)no change in net income,other things being equal.
C)a reduction in the book value of total assets.
D)an increase in net income.

Accepted Answer

When applying the lower of cost or market (LCM) rule, if the replacement cost of inventory drops below the cost recorded in the financial records, the inventory value is reduced to the lower market value. This leads to a reduction in the book value of inventory, which, in turn, decreases the book value of total assets. This reduction in the value of assets does not affect net income, and therefore, there is no change in net income, other things being equal.

Question 20

The process of buying and selling inventory is known as inventory:
A)circulation.
B)management.
C)turnover.
D)allocation.

Accepted Answer

Inventory turnover is the process of buying and selling inventory. It refers to the number of times a company’s inventory is sold and replaced over a period of time, usually a year. It is calculated by dividing the cost of goods sold by the average inventory value.

Quiz 7: Inventories and Cost of Goods Sold

An increasing inventory turnover ratio indicates:

Which of the following would not be affected by the choice of an inventory costing method (that is between FIFO,LIFO,weighted average,and specific identification) ?

Use the information above to answer the following question.How long on average does it take to sell something from inventory after it is purchased?

For a merchandiser,inventory turnover refers to how many times:

Which of the following would cause the greatest increase in a company's inventory turnover ratio?

One of the most common sources of misstatement in financial statements is the:

Inventory levels increase by 10% at your company during the fourth quarter.Based on this increase,which of the following statements is true?

For a manufacturer,inventory turnover refers to how many times:

Your company has 100 units in inventory,purchased at $16 per unit,that could be replaced for $14.

Because LIFO uses older costs for inventory,in times of rising prices:

An increasing balance in the inventory account and a faster inventory turnover ratio would imply that the inventory build-up is occurring because:

The most commonly used inventory costing method in the U.S.is:

Which of the following companies would be least concerned about a low inventory turnover ratio?

If the market value of goods in inventory falls to $26,000 below its cost,the company should:

Use the information above to answer the following question.The inventory turnover ratio is closest to:

An increasing balance in the inventory account and a declining inventory turnover ratio implies that the inventory build up is occurring because:

Which of the following statements is true?

On April 6,Lopez Co.purchased $5,000 of merchandise,terms 1/15,n/30.Lopez Co.paid for the purchase on April 26.The entry to record the payment on April 26 in a perpetual inventory system includes which of the following?

When the replacement cost of inventory drops below the cost recorded in the financial records,applying the lower of cost or market (LCM) rule causes:

The process of buying and selling inventory is known as inventory: