Question 1

Which of the following statements is true?
A) The sales revenue is $1,000.
B) The gross profit is $1,000.
C) The cost of goods sold is $1,000.
D) The net income is $1,000.

Accepted Answer

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

Question 2

Which of the following would be in the work-in-process inventory of a company making cheese?
A) Milk and cream used to make the cheese.
B) Cheese that has been made but is curing before being ready to sell.
C) Cured cheese that is waiting to be shipped to retailers.
D) Cured cheese that has been sold to retailers

Accepted Answer

The answer of Which of the following would be in...

Question 3

Which of the following would be in the finished goods inventory of a company making cheese?
A) Milk and cream used to make the cheese.
B) Cheese that has been made but is curing before being ready to sell.
C) Cured cheese that is waiting to be shipped to retailers.
D) Cured cheese that has been sold to retailers.

Accepted Answer

Finished goods inventory refers to products that have been fully produced and are waiting to be sold. Option B refers to cheese that is not yet fully finished, while option D refers to cheese that has already been sold and is no longer a part of inventory. Option A refers to raw materials used in production and is considered a part of raw materials inventory. Only option C fits the definition of finished goods inventory for a company making cheese.

Question 4

Which of the following statements regarding inventory calculations is true?
A) Beginning inventory + net purchases - ending inventory = cost of goods sold.
B) Goods available for sale + ending inventory = cost of goods sold.
C) Beginning inventory - cost of goods sold = goods available for sale.
D) Beginning inventory + purchases + purchase discounts + ending inventory = cost of goods sold.

Accepted Answer

The formula for calculating cost of goods sold is beginning inventory + net purchases - ending inventory.

Question 5

Which of the following statements is true?
A) The sales revenue is $2,500.
B) The gross profit is $2,500.
C) The cost of goods sold is $2,500.
D) The net income is $2,500.

Accepted Answer

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

Question 6

The understatement of beginning inventory balance causes cost of goods sold to be understated and net income to be understated.

Accepted Answer

An understatement of beginning inventory causes cost of goods sold to be understated, which results in an overstatement of net income, not an understatement.

Question 7

Which of the following is the equation for cost of goods sold?
A) Beginning inventory + net purchases - Ending inventory
B) Beginning inventory + net purchases + Ending inventory
C) Net purchases - Beginning inventory
D) Ending inventory + net purchases - Beginning inventory

Accepted Answer

Cost of goods sold is calculated by subtracting the ending inventory from the sum of beginning inventory and net purchases. Therefore, option A (Beginning inventory + net purchases - Ending inventory) is the correct equation for calculating the cost of goods sold.

Question 8

Which of the following statements regarding comparisons made in managing inventory is not true?
A) In making comparisons of financial statements, it is desirable to compare data calculated using the same inventory costing methods.
B) The inventory turnover ratio and days to sell measure will be affected by the cost flow assumptions used, which causes problems for financial statements users.
C) Because of the use of different costing methods, comparisons of different companies are more difficult.
D) An increase in inventory account balances always indicates a less favorable situation.

Accepted Answer

An increase in inventory account balances may indicate a less favorable situation, but this is not always the case. It depends on the context of the increase (e.g. seasonal fluctuations, planned inventory build-up). Therefore, this statement is not true.

Question 9

Carrying insufficient quantities of inventory on hand:
A) can inadvertently lower a company's costs so much that its taxes become excessive.
B) can cause customers to go elsewhere to obtain the product.
C) has little effect on customer satisfaction.
D) will increase the costs of carrying inventory.

Accepted Answer

Carrying insufficient quantities of inventory on hand can lead to stockouts, which can drive customers to competitors who have the product in stock, having a negative impact on customer satisfaction and potentially resulting in lost sales.

Question 10

Which of the following would be in the raw materials inventory of a company making cheese?
A) Milk and cream used to make the cheese.
B) Cheese that has been made but is curing before being ready to sell.
C) Cured cheese that is waiting to be shipped to retailers.
D) Partially processed cheese.

Accepted Answer

Raw materials inventory includes the materials that are used to make the product. Milk and cream are the raw materials needed to make cheese.

Question 11

Which of the following statements regarding inventory classifications is not true?
A) Inventory may include materials used in producing goods for sale.
B) Companies that are manufacturers list their finished goods, work-in-process and raw materials inventory separately.
C) Inventory is classified as a long-term asset on the balance sheet.
D) Merchandisers buy inventory in finished form ready for resale.

Accepted Answer

Inventory is classified as a current asset on the balance sheet, not a long-term asset. This is because it is expected to be converted into cash or sold within a year or operating cycle, whichever is longer.

Question 12

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 13

Which of the following statements regarding inventory measures is not true?
A) If the inventory turnover ratio increases, the days to sell measure decreases.
B) The days to sell measure can help managers make pricing and ordering decisions for inventory.
C) A higher inventory turnover ratio indicates that inventory is moving more quickly from purchase to sale.
D) It is rare for a company with a lower gross profit percentage to have a faster inventory turnover.

Accepted Answer

This statement is not true as there can be situations where a company with a lower gross profit percentage has a faster inventory turnover. For example, a company with lower profit margins may choose to maintain lower inventory levels and turn over inventory more quickly in order to minimize carrying costs and increase cash flow.

Question 14

The inventory costing method that identifies the invoice cost of each item in the ending inventory in order to determine the cost assigned to inventory is the specific identification method.

Accepted Answer

The specific identification method assigns the actual cost of each item to determine the cost of ending inventory.

Question 15

Which of the following statements regarding inventory costing methods is true?
A) 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.
B) During a period of rising prices, LIFO results in a higher income tax expense than does FIFO.
C) Internal Financial Reporting Standards (IFRS) allow the use of LIFO but not FIFO.
D) In the U.S., if a company uses LIFO on the income tax return, it may use a different method for financial

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. Option B is incorrect, as during a period of rising prices, LIFO results in a lower income tax expense than does FIFO. Option C is incorrect, as IFRS does not allow the use of LIFO. Option D is partially correct, as in the U.S., if a company uses LIFO on the income tax return, it must also use LIFO for financial reporting purposes.

Question 16

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

Accepted Answer

The LIFO method assumes that the last units added to inventory are the first ones sold. This results in the highest cost of goods sold and lowest ending inventory value during a period of inflation, which reduces taxable income.

Question 17

A merchandise company's beginning inventory plus merchandise purchases minus ending inventory equals:
A) ending inventory.
B) cost of goods sold.
C) goods available for sale.
D) sales level.

Accepted Answer

Beginning inventory + Merchandise purchases - Ending inventory = Cost of goods sold

Question 18

How many of the following statements regarding inventory management is (are) true?
An increase in inventory levels is always a sign of inefficiency in inventory management.
The measurement of inventory affects both the balance sheet and the income statement within an accounting period.
The ending inventory of one accounting period becomes the beginning inventory of the next accounting period.
A) None
B) One
C) Two
D) Three

Accepted Answer

- An increase in inventory levels is not always a sign of inefficiency in inventory management. In some cases, inventory levels may need to increase to meet customer demand or due to a decrease in supplier reliability.
- The measurement of inventory does affect both the balance sheet and the income statement within an accounting period.
- The ending inventory of one accounting period does become the beginning inventory of the next accounting period.

Question 19

A merchandise company's beginning inventory plus merchandise purchases equals:
A) ending inventory.
B) cost of goods sold.
C) goods available for sale.
D) sales level.

Accepted Answer

The sum of beginning inventory and merchandise purchases creates the total amount of goods available for sale during a specific period. This amount includes both the units that were sold and the remaining merchandise in ending inventory.

Question 20

Which of the following statements regarding the calculations used for the weighted average inventory costing method is true?
A) Under the weighted average cost method, if the goods in inventory were purchased at three different prices, the three different prices would be added and then divided by three to find the weighted average cost per unit.
B) When the weighted average inventory costing method is used, ending inventory and cost of goods sold are calculated using different costs per unit.
C) There is no difference in the calculations under the weighted average method whether a perpetual or periodic inventory system is used.
D) The weighted-average method will produce an inventory cost which is between the results of FIFO and LIFO

Accepted Answer

The weighted-average method results in an inventory cost that is typically between the results of FIFO and LIFO because it averages out the costs of all units available for sale.

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

Which of the following statements is true?

Which of the following would be in the work-in-process inventory of a company making cheese?

Which of the following would be in the finished goods inventory of a company making cheese?

Which of the following statements regarding inventory calculations is true?

Which of the following statements is true?

The understatement of beginning inventory balance causes cost of goods sold to be understated and net income to be understated.

Which of the following is the equation for cost of goods sold?

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

Carrying insufficient quantities of inventory on hand:

Which of the following would be in the raw materials inventory of a company making cheese?

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

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

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

The inventory costing method that identifies the invoice cost of each item in the ending inventory in order to determine the cost assigned to inventory is the specific identification method.

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

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

A merchandise company's beginning inventory plus merchandise purchases minus ending inventory equals:

A merchandise company's beginning inventory plus merchandise purchases equals:

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